<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998
REGISTRATION NO. 333-50119
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
AMERICAN LAWYER MEDIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2711 13-3980412
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Identification Number)
or formation) Classification Code
Number)
--------------------------
AMERICAN LAWYER MEDIA HOLDINGS, INC.
345 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
(212) 779-9200
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
WILLIAM L. POLLAK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN LAWYER MEDIA HOLDINGS, INC.
345 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
(212) 779-9200
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------------
COPIES TO:
ROBERT A. PROFUSEK, ESQ.
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 326-3939
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462 (b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of earlier effective registration statements for
the same offering. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 28, 1998
AMERICAN LAWYER MEDIA HOLDINGS, INC.
OFFER TO EXCHANGE
ITS 12 1/4% SENIOR DISCOUNT NOTES DUE 2008, SERIES B,
FOR ANY AND ALL OF ITS OUTSTANDING
12 1/4% SENIOR DISCOUNT NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1998, UNLESS EXTENDED.
------------------------
American Lawyer Media Holdings, Inc., a Delaware corporation ("Holdings"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange $1,000 principal amount of its
12 1/4% Senior Discount Notes due 2008, Series B (the "Exchange Discount
Notes"), 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 $1,000 principal amount at maturity of its outstanding
12 1/4% Senior Discount Notes due 2008 (the "Old Discount Notes"), of which
$63,275,000 aggregate principal amount at maturity is outstanding as of the date
hereof. The form and terms of the Exchange Discount Notes are the same as the
form and terms of the Old Discount Notes except that (i) the Exchange Discount
Notes bear a Series B designation, (ii) the Exchange Discount Notes will be
registered under the Securities Act and do not bear legends restricting the
transfer thereof and (iii) the holders of the Exchange Discount Notes will not
be entitled to the rights of holders of Old Discount Notes under the
Registration Rights Agreement (as defined). The Exchange Discount Notes will
evidence the same debt as the Old Discount Notes (which they replace) and will
be issued under and be entitled to the benefits of the Indenture dated as of
December 22, 1997 (the "Indenture") by and among Holdings, as issuer, and The
Bank of New York, as trustee. The Old Discount Notes and the Exchange Discount
Notes are sometimes referred to herein collectively as the "Discount Notes." See
"The Exchange Offer" and "Description of the Discount Notes."
The Exchange Discount Notes will mature on December 15, 2008. The issue
price of the Exchange Discount Notes represents a yield to maturity of 12 1/4%
(computed on a semi-annual bond equivalent basis) calculated from December 22,
1997. The Exchange Discount Notes will accrete at a rate of 12 1/4%, compounded
semi-annually, to an aggregate principal amount of $63,275,000 by December 15,
2002. Cash interest will not accrue on the Exchange Discount Notes prior to
December 15, 2002. Commencing on June 15, 2003, cash interest on the Exchange
Discount Notes will be payable until maturity, at a rate of 12 1/4% per annum,
semi-annually in arrears on each June 15 and December 15. See "Description of
the Discount Notes."
The Exchange Discount Notes will be redeemable at the option of Holdings, in
whole or in part, at any time on or after December 15, 2002, at the redemption
prices set forth herein, together with accrued and unpaid interest thereon (and
Liquidated Damages (as defined), if any) to the date of redemption. In addition,
Holdings, at its option, at any time on or prior to December 15, 2000, may
redeem all, but not less than all, of the Exchange Discount Notes then
outstanding at a redemption price equal to 112.25% of the Accreted Value (as
defined) thereof (plus Liquidated Damages, if any) with the Net Cash Proceeds
(as defined) of a Public Equity Offering (as defined), provided that any such
redemption occurs within 90 days following the closing of any such Public Equity
Offering. See "Description of the Discount Notes--Optional Redemption."
In the event of a Change of Control (as defined), holders of the Exchange
Discount Notes will have the right to require Holdings to purchase the Exchange
Discount Notes at 101% of the Accreted Value thereof together with accrued and
unpaid interest thereon (and Liquidated Damages), if any, to the repurchase
date. No assurance can be given that Holdings will have sufficient funds to
satisfy its repurchase obligations with respect to the Exchange Discount Notes
following a Change of Control. In addition, Holdings is obligated in certain
instances to offer to repurchase the Exchange Discount Notes at a purchase price
in cash equal to 100% of the Accreted Value thereof plus accrued and unpaid
interest thereon (and Liquidated Damages, if any), to the date of repurchase
with the Net Cash Proceeds of certain asset sales. See "Description of the
Discount Notes-- Certain Covenants--Limitation on Sale of Assets and Subsidiary
Stock."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD DISCOUNT NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1998.
<PAGE>
The Exchange Discount Notes will be senior unsecured general obligations of
Holdings. The Exchange Discount Notes will rank PARI PASSU in right of payment
to all existing and future senior indebtedness of Holdings and will rank senior
in right of payment to any Subordinated Indebtedness (as defined) of Holdings.
The Exchange Discount Notes will be effectively subordinated in right of payment
to all existing and future liabilities of subsidiaries of Holdings, including
indebtedness under the Senior Notes (as defined) and trade payables and deferred
revenues. As of December 31, 1997, after giving effect to the consummation of
the Transactions (as defined), such subsidiaries would have had approximately
$208.4 million of such liabilities outstanding. Holdings' pro forma earnings
were insufficient to cover fixed charges by approximately $20.6 million for the
year ended December 31, 1997.
Holdings will accept for exchange any and all Old Discount Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on
, 1998, unless extended by Holdings in its sole discretion (the
"Expiration Date"). Tenders of Old Discount Notes may be withdrawn at any time
prior to 5:00 p.m. on the Expiration Date. In the event the Company terminates
the Exchange Offer and does not accept for exchange any Old Discount Notes with
respect to the Exchange Offer, the Company will promptly return the Old Discount
Notes to the holders thereof. The Exchange Offer is not conditioned upon any
minimum amount of Old Discount Notes being tendered for exchange, but is
otherwise subject to certain customary conditions. The Old Discount Notes may be
tendered only in integral multiples of $1,000. The Old Discount Notes were sold
by Holdings on December 22, 1997 to Wasserstein Perella Securities, Inc.,
BancAmerica Robertson Stephens and BancBoston Securities Inc. (the "Initial
Purchasers") in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act (the "Initial Discount Note
Offering"). The Initial Purchasers subsequently placed the Old Discount Notes
with qualified institutional buyers in reliance upon Rule 144A under the
Securities Act. Accordingly, the Old Discount Notes may not be reoffered, resold
or otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Discount Notes are
being offered hereunder in order to satisfy the obligations of Holdings under
the Registration Rights Agreement entered into by Holdings and the Initial
Purchasers (the "Registration Rights Agreement") in connection with the Initial
Discount Note Offering. See "The Exchange Offer."
Based upon interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties in similar transactions, Holdings believes that the Exchange
Discount Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is (i) an "affiliate" of Holdings within the meaning of Rule 405
under the Securities Act, or (ii) a broker-dealer that acquired the Old Discount
Notes in a transaction other than part of its market-making or other trading
activities) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Discount Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Discount Notes. See "The Exchange Offer--Resale of
the Exchange Discount Notes." However, the Commission has not considered the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Holders of
Old Discount Notes wishing to accept the Exchange Offer must represent to
Holdings, as required by the Registration Rights Agreement, that such conditions
have been met. Each broker-dealer (a "Participating Broker-Dealer") that
receives Exchange Discount Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Discount Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a Participating 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 Participating Broker-Dealer in connection with
resales of Exchange Discount Notes received in exchange for Old Discount Notes
where such Old Discount Notes were acquired by such Participating Broker-Dealer
as a
ii
<PAGE>
result of market-making activities or other trading activities. Holdings has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of Distribution."
Holders of Old Discount Notes not tendered and accepted in the Exchange
Offer will continue to hold such Old Discount Notes and will be entitled to all
the rights and benefits and will be subject to the limitations applicable
thereto under the Indenture and with respect to transfer under the Securities
Act.
Holdings will not receive any proceeds from the Exchange Offer. Holdings has
agreed to bear the expenses of the Exchange Offer. No underwriter is being used
in connection with the Exchange Offer.
There has not previously been any public market for the Old Discount Notes
or the Exchange Discount Notes. Holdings does not intend to list the Exchange
Discount Notes on any securities exchange or to seek approval for quotation
through any automated quotation system. There can be no assurance that an active
market for the Exchange Discount Notes will develop. See "Risk Factors--Absence
of a Public Market Could Adversely Affect the Value of Exchange Discount Notes."
Moreover, to the extent that Old Discount Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Discount Notes could be adversely affected.
Concurrently with the Initial Discount Note Offering, American Lawyer Media,
Inc. (the "Company"), a subsidiary of Holdings, sold $175 million in initial
aggregate principal amount of its 9 3/4% Senior Notes due 2007 (the "Old Senior
Notes") (the "Initial Senior Note Offering," and together with the Initial
Discount Note Offering, the "Initial Offerings").
Concurrently with this Exchange Offer, the Company is offering to exchange
(the "Senior Note Exchange Offer," and together with this Exchange Offer, the
"Exchange Offers"), $1,000 principal amount at maturity of its 9 3/4% Senior
Notes due 2007, Series B (the "Exchange Senior Notes") registered under the
Securities Act pursuant to a registration statement, for each $1,000 principal
amount at maturity of its outstanding Old Senior Notes, of which $175 million
aggregate principal amount is outstanding as of the date hereof. The Old Senior
Notes and the Exchange Senior Notes are sometimes referred to herein
collectively as the "Senior Notes." See "The Transactions" and "Description of
Other Indebtedness-- Description of the Senior Notes."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL HOLDINGS ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD DISCOUNT NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HOLDINGS.
NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE DISCOUNT NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
iii
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The Exchange Discount Notes will be available initially only in book-entry
form and Holdings expects that the Exchange Discount Notes issued pursuant to
the Exchange Offer will be issued in the form of a Global Note (as defined),
which will be deposited with, or on behalf of, The Depository Trust Company
("DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Note representing the Exchange Discount Notes
will be shown on, and transfers thereof will be effected through, records
maintained by DTC and its participants. After the initial issuance of the Global
Note, Exchange Discount Notes in certificated form will be issued in exchange
for the Global Note only under limited circumstances as set forth in the
Indenture. See "Description of the Discount Notes--Book-Entry; Delivery; Form
and Transfer."
AVAILABLE INFORMATION
Holdings has filed with the Commission a registration statement on Form S-4
(File No. 333-50119) (the "Exchange Offer Registration Statement," which term
shall encompass all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the Exchange Offer contemplated hereby. This Prospectus
does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to Holdings and the
Exchange Offer, reference is made to the Exchange Offer Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and inspected at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
Upon the declaration by the Commission that the Exchange Offer Registation
Statement is effective, Holdings will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of Holdings to file
periodic reports and other information with the Commission will be suspended if
the Discount Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of Holdings other than the fiscal year in which the
Exchange Offer Registration Statement is declared effective. Holdings has agreed
that, whether or not it is subject to the reporting requirements of Section 13
or Section 15(d) of the Exchange Act, for so long as the Old Discount Notes or
the Exchange Discount Notes remain outstanding, it will file with the Commission
and distribute to holders of the Old Discount Notes and the Exchange Discount
Notes, as applicable, copies of the financial information that would have been
contained in such annual reports and quarterly reports, including management's
discussion and analysis of financial conditions and results of operations, that
would have been required to be filed with the Commission pursuant to the
Exchange Act. See "Description of the Discount Notes--Reports."
iv
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------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking statements" that are subject to a
number of risks and uncertainties, many of which are beyond Holdings' control.
Forward-looking statements are typically identified by the words "believe,"
"expect," "anticipate," "intend," "estimate" and similar expressions. Actual
results could differ materially from those contemplated by these forward-looking
statements as a result of factors such as those described under "Risk Factors."
In light of these risks and uncertainties, there can be no assurance that the
results and events contemplated by the forward-looking statements contained in
this Prospectus will in fact transpire. Prospective purchasers are cautioned not
to place undue reliance on these forward-looking statements. Holdings does not
undertake any obligation to update or revise any forward-looking statements. All
subsequent written or oral forward-looking statements attributable to Holdings
or persons acting on behalf of Holdings are expressly qualified in their
entirety by the discussion under "Risk Factors."
v
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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 DATA, INCLUDING
THE FINANCIAL STATEMENTS AND NOTES THERETO, INCLUDED ELSEWHERE IN THIS
PROSPECTUS. ON AUGUST 27, 1997, BUT EFFECTIVE AS OF AUGUST 1, 1997, ALM ACQUIRED
SUBSTANTIALLY ALL OF THE ASSETS AND ASSUMED CERTAIN OF THE LIABILITIES RELATED
TO AMERICAN LAWYER MEDIA, L.P. (THE "ALM ACQUISITION"). IN ADDITION, ON DECEMBER
22, 1997, ALM ACQUIRED ALL OF THE ISSUED AND OUTSTANDING CAPITAL STOCK OF
NATIONAL LAW PUBLISHING COMPANY, INC. (THE "NLP ACQUISITION" AND, TOGETHER WITH
THE ALM ACQUISITION, THE "ACQUISITIONS"). REFERENCES HEREIN TO THE COMPANY'S
ESTIMATED CIRCULATION INCLUDE TOTAL PAID AND FREE CIRCULATION FOR ALL OF THE
COMPANY'S PERIODICALS. REFERENCES HEREIN TO READERSHIP INCLUDE ESTIMATED
CIRCULATION PLUS COMBINED PASS-ALONG READERSHIP UNADJUSTED FOR ANY OVERLAP WHICH
EXISTS AMONG READERS OF THE COMPANY'S VARIOUS PUBLICATIONS. UNLESS THE CONTEXT
OTHERWISE REQUIRES: (I) "HOLDINGS" REFERS TO AMERICAN LAWYER MEDIA HOLDINGS,
INC., WHICH IS THE ISSUER OF THE DISCOUNT NOTES AND THE PARENT COMPANY OF THE
COMPANY, AND TO HOLDINGS' PREDECESSOR, CRANBERRY PARTNERS, LLC. (II) THE
"COMPANY" REFERS TO AMERICAN LAWYER MEDIA, INC. AND ITS SUBSIDIARIES AFTER
GIVING EFFECT TO THE ACQUISITIONS; (III) "ALM" REFERS TO AMERICAN LAWYER MEDIA,
INC. AND ITS SUBSIDIARIES (AND TO ITS PREDECESSOR, ALM HOLDINGS, LLC) SINCE THE
CONSUMMATION OF THE ALM ACQUISITION BUT PRIOR TO THE NLP ACQUISITION AND, WHERE
APPLICABLE, TO AMERICAN LAWYER MEDIA, L.P. AND ITS SUBSIDIARIES PRIOR TO THE ALM
ACQUISITION; (IV) "OLD ALM" REFERS TO AMERICAN LAWYER MEDIA, L.P. AND ITS
SUBSIDIARIES PRIOR TO THE ALM ACQUISITION; (V) "NLP" REFERS TO NATIONAL LAW
PUBLISHING COMPANY, INC. AND ITS SUBSIDIARIES PRIOR TO THE NLP ACQUISITION; AND
(VI) "INVESTORS" REFERS TO U.S. EQUITY PARTNERS, L.P. ("USEP") AND ITS
AFFILIATES AND CERTAIN OTHER INVESTORS CONTROLLED BY OR MANAGED BY WP MANAGEMENT
PARTNERS, LLC, ("WPMP"), THE MERCHANT BANKING ARM OF WASSERSTEIN PERELLA GROUP,
INC. ("WPG"). USEP, WPMP AND WPG ARE AFFILIATES OF WASSERSTEIN PERELLA
SECURITIES, INC.
THE COMPANY
COMPANY OVERVIEW
Holdings is a holding company, the principal assets of which consist of all
the outstanding capital stock of the Company. All of Holdings' operations are
conducted through the Company. The Company believes that the combination of ALM
and NLP creates the nation's largest legal journalism organization, with
estimated readership of over one million. The Company publishes 16 periodicals,
including several leading national periodicals and regional publications serving
four of the five largest state legal markets. The Company's
nationally-recognized periodicals include THE AMERICAN
LAWYER-Registered Trademark-, a monthly magazine containing articles and
features targeted to attorneys practicing in large law firms, and THE NATIONAL
LAW JOURNAL-Registered Trademark-, the nation's largest selling legal newspaper,
which covers the law, lawyers and the business of the legal profession. The
Company's regional publications are led by the NEW YORK LAW
JOURNAL-Registered Trademark-, which has the largest paid circulation of any
regional legal newspaper in the United States. In addition to the NEW YORK LAW
JOURNAL, the Company publishes five other daily newspapers serving Georgia,
Northern California, Miami, Fort Lauderdale and Palm Beach, as well as four
weekly newspapers serving New Jersey, Texas, Washington, D.C. and Connecticut.
The Company's periodicals are well established in their markets and are
widely recognized for editorial excellence and for providing sophisticated news
reporting and analysis of legal issues. The Company's newspapers function as
professional tools that are indispensable to attorneys (particularly litigators)
in their day-to-day practices, providing important information such as news,
court opinions, court calendars and legal notices. The Company believes that its
newspapers are among the leaders in their local markets as measured by paid
circulation. In 1997, the Company's newspapers maintained an average
subscription renewal rate of approximately 80%.
In addition to the periodicals referred to above, the Company publishes
CORPORATE COUNSEL MAGAZINE-TM-, a leading magazine for corporate in-house
attorneys, LAW TECHNOLOGY PRODUCT NEWS-TM- and AMLAW
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TECH-TM-, two leading legal technology magazines, as well as IP WORLDWIDE-TM-, a
leading specialty magazine focusing on intellectual property.
The Company has also successfully established an ancillary products and
services business that creates and packages information for attorneys and
business professionals. This business includes a portfolio of publications
covering a variety of specialized legal interests and practice areas, including
26 newsletters and 112 books on topics of national and regional interest. Each
year, the Company organizes or sponsors numerous professional seminars and
conferences that cover issues of current legal interest. The Company also
provides case tracking and monitoring services and publishes various directories
used by legal professionals.
In addition, the Company has begun to develop an internet services business
and currently has a number of law-related internet websites including LAW
JOURNAL EXTRA!-Registered Trademark-, COUNSEL CONNECT-Registered Trademark-, CAL
LAW-TM-, ILLINOIS LAW-TM- and TEX LAW-TM-. These websites give attorneys online
access to news and other legal materials and facilitate the exchange of
information among members of the legal community.
The Company derives its revenues principally from advertising and
subscriptions, with additional revenues generated by its ancillary products and
services business. The Company had pro forma net revenues of approximately
$105.9 million and pro forma EBITDA of approximately $26.3 million for the
twelve months ended March 31, 1998. For the year ended December 31, 1997, and
for the three months ended March 31, 1998, Holdings' and its subsidiaries' pro
forma earnings were inadequate to cover fixed charges by approximately $20.6
million and $6.0 million, respectively. Holdings and its subsidiaries' pro forma
net loss was approximately $20.8 million for the year ended December 31, 1997.
Holdings and its subsidiaries' historical net loss was approximately $7.7
million and $5.4 million for the five months ended December 31, 1997 and for the
three months ended March 31, 1998, respectively. For the three months ended
March 31, 1998, approximately 56.7% of the Company's revenues were from
advertising, 19.5% were from subscriptions, 21.3% were from ancillary products
and services and 2.5% were from internet services.
Because the Company's periodicals are the preeminent legal publications in
each of their respective regional markets, they are relied upon by many
advertisers as the primary advertising vehicle to reach attorneys in those
markets. The Company believes that its large readership and broad coverage of
the U.S. legal market uniquely positions the Company to enable national
advertisers of law- and business-related products to reach the legal industry in
a targeted and cost-efficient manner. The Company also believes that its
newly-created national presence, combined with the affluence and other favorable
demographic characteristics of its readership, will enhance its ability to
attract national consumer advertisers, particularly those targeting upscale
consumers.
NLP has operated in a centralized manner and has focused on the continued
development of its periodicals business and on expanding into various ancillary
products and services, including books, newsletters and seminars. ALM, on the
other hand, has operated eight autonomous regional businesses and has focused
primarily on developing a geographically diverse periodicals business (although
each regional business has from time to time developed various ancillary
products and services). The Company intends to centralize and consolidate its
ancillary products and services business as well as certain selling, general and
administrative functions. Furthermore, the Company intends to aggressively
cross-sell its various periodicals, products and services to both readers and
advertisers. The Company expects that implementing these elements of its
business strategy will result in substantial cost savings, enhanced subscription
and advertising revenues and accelerated growth in its ancillary products and
services business.
BUSINESS STRATEGY
ALM's geographic breadth and emphasis on high-quality editorial content have
placed it at the forefront of legal journalism; NLP's historical marketing
strengths and meticulous business execution have
2
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permitted it to produce consistently high levels of operating profit and cash
flow. The fundamental strategy underlying the ALM-NLP combination is to leverage
the strengths of both businesses by adopting the best practices of each across
the Company as a whole and to capitalize on the opportunities inherent in the
combination.
The Company believes that the ALM-NLP combination presents numerous cost
savings opportunities including:
- CONSOLIDATING AND REDUCING SG&A: Cost savings opportunities from the
ALM-NLP combination include (i) consolidating and centralizing certain
functions, including national advertising sales, accounting, tax,
information systems, human resources, cash management, risk management and
legal; (ii) reducing employee benefit costs through the combination of
disparate employee plans and programs; (iii) reducing rent expense by
combining ALM's and NLP's corporate headquarters into a single location;
and (iv) taking advantage of increased purchasing power resulting from the
expanded size of the Company.
- CENTRALIZING ANCILLARY PRODUCTS AND SERVICES: The Company intends to draw
on NLP's experience and success in product development by consolidating
the development and marketing of various ancillary products and services
across the broad regional coverage of ALM's publications to realize cost
savings and efficiencies.
- RATIONALIZING THE COMPANY'S INTERNET BUSINESS: The Company decided to shut
down the Counsel Connect internet service and is currently transferring
certain remaining components into a new combined service.
The ALM-NLP combination is also expected to result in numerous revenue
enhancement opportunities including:
- LEVERAGING ANCILLARY PRODUCTS AND SERVICES: NLP has an extensive portfolio
of ancillary products and services, including newsletters, books, seminars
and conferences. The Company believes that the market penetration of these
products and services will be substantially enhanced by selling across the
combined companies through (i) advertising in all of the Company's
periodicals, (ii) marketing to new customer lists, (iii) pursuing a
broader direct mail effort and (iv) more aggressive telemarketing. The
expanded scope of the operations created as a result of the ALM-NLP
combination will allow the Company to develop and market new products and
services that would not previously have been feasible.
- ENHANCED ABILITY TO ATTRACT NATIONAL ADVERTISING: The Company believes
that there are substantial opportunities to attract increased amounts of
national advertising. As the nation's largest legal journalism
organization with a combined readership of over one million, the Company
believes it will be able to provide advertisers with a unique ability to
effectively and efficiently reach the legal community on a national level.
The Company intends to form a national sales group, which neither ALM nor
NLP had prior to the combination. The Company also believes that it will
be able to increasingly attract national consumer advertising directed
toward the Company's large and affluent readership.
- ACQUISITIONS AND DEVELOPMENT: While the Company publishes 16 periodicals,
including periodicals in four of the five largest state legal markets as
well as several national legal periodicals, the Company believes that
there are numerous opportunities to expand into new markets. As a result
of synergies among the Company's various publications and its resulting
ability to efficiently create content, sell advertising and provide
administrative services, the Company believes that it will be able to
enter new markets with a competitive advantage. Accordingly, the Company
intends to (i) selectively pursue acquisitions of additional regional
legal publishing businesses and ancillary businesses, such as newsletters,
books and seminars, (ii) create new publications in geographic areas
3
<PAGE>
in which the Company does not currently operate and (iii) develop
ancillary products or services not currently offered by the Company.
OPERATING STRENGTHS
The Company believes that it has the following operating strengths:
HIGH REVENUE STABILITY. The Company's high subscription renewal rates
(historically averaging approximately 80%) and high advertiser retention rates
provide considerable revenue and profit stability and form a strong base of
business from which to grow. The Company believes that its high subscription
renewal rates result from (i) the high editorial quality of its publications,
(ii) its coverage of increasingly complex legal issues that are not adequately
covered in other publications, and (iii) the indispensable nature of the
Company's publications for the day-to-day practice of law for many attorneys.
The Company attributes its high advertiser retention rates to the fact that its
periodicals are the primary legal publication in their respective markets and
are therefore relied upon by many advertisers as their primary vehicles for
reaching attorneys in those markets.
FAVORABLE CASH FLOW CHARACTERISTICS. The Company has favorable cash flow
characteristics resulting from its stable revenues, high level of advance
payments by subscribers, low working capital investment, minimal capital
expenditure needs, predictable cost structure and high margins. The Company
outsources most of its printing and all of its distribution requirements to
third parties. As a result, the Company requires minimal capital expenditures.
Pro forma capital expenditures for the year ended December 31, 1997 were $1.3
million. Because cash receipts associated with subscriptions are received toward
the beginning of a subscription cycle, the Company's periodicals business
requires minimal investment in working capital. Due to the preeminent position
of the Company's periodicals in each of its markets, the Company has been able
to charge relatively high advertising rates and has enjoyed strong subscription
pricing characteristics, resulting in consistently high operating margins.
Net cash used in operating activities for Holdings and its subsidiaries was
approximately $2.5 million for the five months ended December 31, 1997 due to a
net loss of approximately $7.7 million partially offset by depreciation and
amortization of approximately $3.3 million. The $7.7 million loss includes a net
loss of approximately $4.8 million for Counsel Connect, whose operations were
substantially shut down at the end of 1997. Net cash used in operating
activities for Old ALM was approximately $0.7 million, $4.6 million and $5.5
million for the seven months ended July 31, 1997, the year ended December 31,
1996, and the year ended December 31, 1995, respectively. Included in the Old
ALM numbers is net cash used in operating activities for Counsel Connect of
approximately $2.8 million, $3.6 million and $6.8 million for the seven months
ended July 31, 1997, the year ended December 31, 1996 and the year ended
December 31, 1995, respectively. Net cash provided by operating activities for
NLP was approximately $11.3 million, $6.6 million and $3.7 million for the
period from January 1, 1997 through December 21, 1997, the year ended December
31, 1996, and the year ended December 31, 1995, respectively.
DIVERSITY OF PUBLICATIONS. The Company publishes two leading national
publications, THE AMERICAN LAWYER and THE NATIONAL LAW JOURNAL, several national
specialty magazines including CORPORATE COUNSEL MAGAZINE, LAW TECHNOLOGY PRODUCT
NEWS, AMLAW TECH and IP WORLDWIDE, and ten newspapers serving distinct state and
local legal markets across the United States. With a diverse revenue base
generated from numerous markets and from subscribers practicing in an array of
specialty areas, the Company enjoys significant revenue and cash flow stability.
EXPERIENCED STAFF. The Company's core group of editors, publishers and
journalists have built their professional careers primarily in the legal
publishing industry. These editors, publishers and journalists bring substantial
experience to the Company as well as detailed knowledge of each of the Company's
specific regional markets. Their local knowledge and depth of experience enable
the Company to continue to provide thought-provoking coverage of the legal
industry and develop new, innovative and informative periodicals, products and
services.
4
<PAGE>
CORPORATE ORGANIZATION
The following chart summarizes the ownership structure of the Company and
its primary operating entities and divisions.
[FLOWCHART]
5
<PAGE>
COMPANY PRODUCT OFFERING
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BUSINESS ALM NLP
- ------------ ----------------------------- ----------------------------------------------
PERIODICALS
- -------------------------------------------
Newspapers NEW JERSEY LAW JOURNAL NEW YORK LAW JOURNAL
TEXAS LAWYER THE NATIONAL LAW
LEGAL TIMES JOURNAL
THE CONNECTICUT LAW TRIBUNE
THE RECORDER
FULTON COUNTY DAILY REPORT
MIAMI DAILY BUSINESS REVIEW
BROWARD DAILY BUSINESS REVIEW
PALM BEACH DAILY BUSINESS
REVIEW
Magazines THE AMERICAN LAWYER LAW TECHNOLOGY PRODUCT NEWS
AMLAW TECH IP WORLDWIDE
CORPORATE COUNSEL MAGAZINE
ANCILLARY PRODUCTS AND SERVICES
- -------------------------------------------------------------------
Newsletters CORPORATE CONTROL ALERT ACCOUNTING FOR LAW THE INTERNET
FIRMS NEWSLETTER:
THE BANKRUPTCY LEGAL & BUSINESS
STRATEGIST ASPECTS
BUSINESS CRIMES LAW FIRM PARTNERSHIP &
BULLETIN: BENEFITS REPORT
COMPLIANCE AND LEADER'S FRANCHISING
LITIGATION BUSINESS & LAW ALERT
CABLE TV AND NEW MEDIA LEGAL TECH
COMMERCIAL LEASING LAW MARKETING FOR LAWYERS
& STRATEGY THE MATRIMONIAL
COMPUTER LAW STRATEGIST
STRATEGIST MEDICAL MALPRACTICE
THE CORPORATE LAW & STRATEGY
COUNSELLOR MEDICAL/LEGAL ASPECTS
EMPLOYMENT LAW OF BREAST IMPLANTS
STRATEGIST MONEY LAUNDERING LAW
ENTERTAINMENT LAW & REPORT
FINANCE MULTIMEDIA STRATEGIST
ENVIRONMENTAL NEW YORK REAL ESTATE
COMPLIANCE AND LAW REPORTER
LITIGATION STRATEGY PRODUCT LIABILITY LAW
EQUIPMENT LEASING & STRATEGY
HEALTH CARE FRAUD
THE INTELLECTUAL
PROPERTY STRATEGIST
Books 28 Books 84 Books
Seminars 4 Seminars 19 Seminars
Conferences 2 Conferences 1 Conference
Other DAILY DECISION SERVICE CASE ALERT SERVICE
Various Practice Directories MA/3000
INTERNET SERVICES
- -------------------------------------------
COUNSEL CONNECT LAW JOURNAL EXTRA!
CAL LAW
ILLINOIS LAW
TEX LAW
</TABLE>
6
<PAGE>
THE TRANSACTIONS
THE INITIAL DISCOUNT NOTE OFFERING
The Old Discount Notes were sold by Holdings on December 22, 1997 to the
Initial Purchasers pursuant to a Purchase Agreement, dated December 22, 1997,
among Holdings and the Initial Purchasers (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Old Discount Notes to qualified
institutional buyers pursuant to Rule 144A under the Securities Act.
Pursuant to the Purchase Agreement, Holdings and the Initial Purchasers
entered into a Registration Rights Agreement, dated as of December 22, 1997 (the
"Registration Rights Agreement"), which grants the holders of the Old Discount
Notes certain exchange and registration rights. The Exchange Offer is intended
to satisfy such exchange rights, which rights terminate upon the consummation of
the Exchange Offer.
The Initial Discount Note Offering was consummated on December 22, 1997 and
was made in conjunction with a series of transactions, including the Initial
Senior Note Offering, the NLP Acquisition, the Equity Contribution (as defined
below), the Investor Equity Contribution (as defined below) and the repayment of
the ALM Promissory Note (as defined below) and the WP Promissory Note (as
defined below) and accrued interest thereon (together with the Initial Discount
Note Offering, the "Transactions").
THE ACQUISITIONS
ALM ACQUISITION. On August 27, 1997, but effective as of August 1, 1997,
the Investors, through ALM, consummated the ALM Acquisition, pursuant to which
ALM purchased substantially all of the assets and assumed certain of the
liabilities related to Old ALM. The purchase price for the ALM Acquisition was
$63.0 million. The ALM Acquisition and the payment of related fees and expenses
were financed through the issuance of a $31.5 million secured promissory note by
ALM to the former owner of Old ALM (the "ALM Promissory Note") and the issuance
of a $32.0 million equity bridge note by ALM to an affiliate of WPG (the "WP
Promissory Note").
NLP ACQUISITION. Pursuant to the Stock Purchase Agreement (as defined under
the caption "Transactions--The Acquisitions--NLP Acquisition", ALM purchased all
of the issued and outstanding capital stock of NLP. The purchase price for the
NLP Acquisition was $203.2 million. The NLP Acquisition was consummated on
December 22, 1997.
THE FINANCINGS
In order to enable ALM to finance the NLP Acquisition, to repay the ALM
Promissory Note and the WP Promissory Note and accrued interest thereon, and to
pay related fees, expenses and restructuring costs, Holdings issued the Old
Discount Notes and entered into certain other financing transactions, as
described below.
EQUITY CONTRIBUTION. Holdings contributed an aggregate of $108.8 million
(the "Equity Contribution") to the capital of the Company. The Equity
Contribution consisted of (a) $75.0 million of equity capital invested in
Holdings by the Investors (the "Investor Equity Contribution") and (b) net
proceeds of approximately $33.8 million received by Holdings in connection with
the Initial Discount Note Offering.
INITIAL SENIOR NOTE OFFERING. Concurrently with the Initial Discount Note
Offering, the Company offered $175.0 million aggregate principal amount of its
9 3/4% Senior Notes due 2007 (the "Senior Notes"). Interest on the Senior Notes
will accrue at the rate of 9 3/4% per annum from December 22, 1997 and be
payable semi-annually in arrears on June 15 and December 15 of each year. The
Senior Notes are senior unsecured general obligations of the Company, PARI PASSU
in right of payment to all existing and future senior indebtedness of the
Company and senior in right of payment to all existing and future subordinated
7
<PAGE>
indebtedness of the Company. See "Description of Other Indebtedness--Description
of the Senior Notes."
RECENT TRANSACTIONS
LEGALTECH ACQUISITION. On March 3, 1998, a newly formed wholly-owned
subsidiary of the Company purchased certain assets and assumed certain of the
liabilities related to Corporate Presentations, Inc. ("Corporate Presentations"
or "LegalTech"), a producer of trade shows, conferences and seminars relating to
law and internet technology, for approximately $10.8 million in cash (the
"LegalTech Acquisition"). The Company funded the LegalTech Acquisition with
available cash flow. For the twelve months ended February 28, 1998, LegalTech
had net revenues of approximately $2.6 million and EBITDA of approximately $1.1
million. See "Recent Transactions."
LCL ACQUISITION. On April 22, 1998, effective as of April 1, 1998, the
Company consummated the acquisition of substantially all of the legal
publishing-related assets and assumed certain liabilities of Legal
Communications, Ltd. ("LCL") for an aggregate purchase price of approximately
$20 million. LCL is a publisher of regional publications serving primarily the
Pennsylvania legal community and a provider of certain membership-based online
information services. For the twelve months ended March 31, 1998, LCL had net
revenues of approximately $8.7 million and EBITDA of approximately $2.1 million.
See "Recent Transactions."
REVOLVING CREDIT FACILITY. On March 25, 1998, the Company entered into a
five-year $40.0 million, senior secured revolving credit facility (the
"Revolving Credit Facility") to be available for working capital and general
corporate purposes, including acquisitions and capital expenditures. The Company
intends to use the Revolving Credit Facility, in part, for the purposes of
funding future acquisitions and internal product development and growth. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pro Forma Liquidity and Capital Resources" and "Description of Other
Indebtedness--Revolving Credit Facility."
ADDITIONAL EQUITY CONTRIBUTION. On April 14, 1998, Holdings contributed an
aggregate of $15 million to the equity capital of the Company. The proceeds of
the equity contribution are intended to be used to fund acquisitions and to
provide capital for aggressive internal growth.
THE INVESTORS
All of the Company's equity securities are held by Holdings. All of
Holdings' equity securities are currently held by U.S. Equity Partners, L.P.
("USEP"), its affiliates and a co-investor of USEP, which has granted to WP
Management Partners, LLC ("WPMP") an irrevocable proxy to vote such equity
securities held by such co-investor. WPMP is the general partner of USEP, a
private equity fund sponsored by Wasserstein Perella Group, Inc. As the general
partner of USEP, WPMP has the right to elect the members of the Board of
Directors of Holdings and accordingly controls the policies and operations of
Holdings and the Company on behalf of USEP. Holdings' principal executive
offices are located at 345 Park Avenue South, New York, New York 10010, and its
telephone number at such address is (212) 779-9200.
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered................ $63,275,000 aggregate principal amount at maturity of
12 1/4% Senior Discount Notes due 2008, Series B of
Holdings.
The Exchange Offer................ $1,000 principal amount at maturity of Exchange Discount
Notes in exchange for each $1,000 principal amount at
maturity of Old Discount Notes. As of the date hereof,
$63,275,000 aggregate principal amount at maturity of
Old Discount Notes is outstanding. Holdings will issue
the Exchange Discount Notes to holders on or promptly
after the Expiration Date.
Based upon interpretations by the staff of the
Commission set forth in certain no-action letters issued
to third parties in similar transactions, Holdings
believes that the Exchange Discount Notes issued
pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder
thereof (other than any such holder that is (i) an
"affiliate" of Holdings within the meaning of Rule 405
under the Securities Act, or (ii) a broker-dealer that
acquired the Old Discount Notes in a transaction other
than part of its market-making or other trading
activities) without compliance with the registration and
prospectus delivery requirements of the Securities Act,
provided that such Exchange Discount Notes are acquired
in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any
person to participate in the distribution of such
Exchange Discount Notes. See "The Exchange Offer--Resale
of the Exchange Discount Notes." However, the Commission
has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that
the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in
such other circumstances. Holders of Old Discount Notes
wishing to accept the Exchange Offer must represent to
Holdings, as required by the Registration Rights
Agreement, that such conditions have been met. Each
Participating Broker-Dealer that receives Exchange
Discount Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Discount Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a Participating 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 Participating Broker-Dealer in connection with
resales of Exchange Discount Notes received in exchange
for Old Discount Notes where such Old Discount Notes
were acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading
activities. Holdings has agreed that, for a period of
180 days after the Expiration Date, it will make this
Prospectus available to any
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Participating Broker-Dealer for use in connection with
any such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Discount Notes cannot rely on the position of the staff
of the Commission enunciated in no-action letters and,
in the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection with
any resale transaction. Failure to comply with such
requirements in such instance may result in such holder
incurring liability under the Securities Act for which
the holder is not indemnified by Holdings.
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1998 unless the Exchange
Offer is extended, in which case the term "Expiration
Date" means the latest date and time to which the
Exchange Offer is extended.
Accreted Value and Accrued
Interest on the Exchange
Discount Notes and the Old
Discount Notes.................. Each Exchange Discount Note will accrete at a rate of
12 1/4%, compounded semi-annually, to an aggregate
principal amount of $63,275,000 by December 15, 2002.
Cash interest will not accrue on the Exchange Discount
Notes prior to December 15, 2002. Commencing June 15,
2003, cash interest on the Exchange Discount Notes will
be payable until maturity at a rate of 12 1/4% per
annum, semi-annually in arrears on each June 15 and
December 15. The Old Discount Notes will continue to
accrete at the rate of 12 1/4% per annum to, but
excluding, the date of issuance of the Exchange Discount
Notes, and will cease to accrete upon cancellation of
the Old Discount Notes and issuance of the Exchange
Discount Notes. Any Old Discount Notes not tendered or
accepted for exchange will continue to accrete at the
rate of 12 1/4% per annum in accordance with their
terms. The Accreted Value of the Exchange Discount Notes
upon issuance will equal the Accreted Value of the Old
Discount Notes accepted for exchange immediately prior
to issuance of the Exchange Discount Notes.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain customary
conditions, which may be waived by Holdings. See "The
Exchange Offer-- Conditions."
Procedures for Tendering Old
Discount Notes.................. Each holder of Old Discount Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof or transmit an Agent's Message (as defined) in
connection with a book-entry transfer, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal,
such facsimile or such Agent's Message, together
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
with the Old Discount Notes and any other required
documentation to the Exchange Agent (as defined) at the
address set forth herein. By executing the Letter of
Transmittal or Agent's Message, each holder will
represent to Holdings that, among other things, (i) the
Exchange Discount Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course
of business of the person receiving such Exchange
Discount Notes, whether or not such person is the
holder, and (ii) that neither the holder nor any such
other person (a) has any arrangement or understanding
with any person to participate in the distribution of
such Exchange Discount Notes, (b) is engaging in or
intends to engage in the distribution of such Exchange
Notes, or (c) is an "affiliate," as defined under Rule
405 of the Securities Act, of Holdings.
See "The Exchange Offer--Procedures for Tendering" and
"--Resale of the Exchange Discount Notes."
Untendered Old Discount Notes..... Following the consummation of the Exchange Offer,
holders of Old Discount Notes eligible to participate
but who do not tender their Old Discount Notes will not
have any further exchange rights and such Old Discount
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of
the market for such Old Discount Notes could be
adversely affected.
Consequences of Failure
to Exchange..................... The Old Discount Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted securities.
Accordingly, such Old Discount Notes may be resold only
(i) to Holdings,
(ii) pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to some other exemption under
the Securities Act, (iii) outside the United States to a
foreign person pursuant to the requirements of Rule 904
under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities
Act. See "The Exchange Offer--Consequences of Failure to
Exchange."
Shelf Registration Statement...... If any holder of the Old Discount Notes (other than any
such holder which is an "affiliate" of Holdings within
the meaning of Rule 405 under the Securities Act) is not
eligible under applicable securities laws to participate
in the Exchange Offer, and such holder has satisfied
certain conditions relating to the provision of
information to Holdings for use therein, Holdings has
agreed to register the Old Discount Notes on a shelf
registration statement (the "Shelf Registration
Statement") and use its reasonable best efforts to cause
it to be declared effective by the Commission as
promptly as practical on or after the consummation of
the Exchange Offer. Holdings has agreed to maintain the
effectiveness of the Shelf Registration Statement for,
under certain circumstances, a maximum of two years, to
cover resales of the Old Discount Notes held by any such
holders.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Special Procedures for Beneficial
Owners.......................... Any beneficial owner whose Old Discount Notes 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 its Old Discount Notes,
either make appropriate arrangements to register
ownership of the Old Discount Notes 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. Holdings will keep the
Exchange Offer open for not less than thirty days in
order to provide for the transfer of registered
ownership.
Guaranteed Delivery Procedures.... Holders of Old Discount Notes who wish to tender their
Old Discount Notes and whose Old Discount Notes are not
immediately available or who cannot deliver their Old
Discount Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal of the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date must
tender their Old Discount Notes 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.
Acceptance of Old Discount Notes
and Delivery of Exchange
Discount Notes.................. Holdings will accept for exchange any and all Old
Discount Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time,
on the Expiration Date. The Exchange Discount Notes
issued pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Use of Proceeds................... There will be no cash proceeds to Holdings from the
exchange pursuant to the Exchange Offer.
Registration Rights Agreement..... The Exchange Offer is intended to satisfy the
registration rights of Holders of Old Discount Notes
under the Registration Rights Agreement, which rights
terminate upon consummation of the Exchange Offer. See
"The Exchange Offer--Purpose and Effect of the Exchange
Offer."
Exchange Agent.................... The Bank of New York (the "Exchange Agent").
</TABLE>
THE EXCHANGE DISCOUNT NOTES
<TABLE>
<S> <C>
General........................... The form and terms of the Exchange Discount Notes are
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
the same as the form and terms of the Old Discount Notes
(which they replace) except that (i) the Exchange
Discount Notes will bear a Series B designation, (ii)
the Exchange Discount Notes shall have been registered
under the Securities Act and will not bear legends
restricting the transfer thereof, and (iii) the holders
of Exchange Discount Notes will not be entitled to the
rights of holders of Old Discount Notes under the
Registration Rights Agreement, including the provisions
providing for Liquidated Damages (as defined) in certain
circumstances relating to the timing of the Exchange
Offer, which rights will terminate when the Exchange
Offer is consummated. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer." The Exchange Discount
Notes will evidence the same debt as the Old Discount
Notes and will be entitled to the benefits of the
Indenture. See "Description of the Discount Notes."
Maturity Date..................... December 15, 2008.
Original Issue Discount........... The Discount Notes were offered at an original issue
discount for United States federal income tax purposes.
Thus, although cash interest will not be payable on the
Discount Notes prior to June 15, 2003, original issue
discount will accrue from the date of first issuance of
the Discount Notes under the Indenture and will be
included as interest income periodically (including for
periods ending prior to June 15, 2003) in a holder's
gross income for United States federal income tax
purposes in advance of receipt of the cash payments to
which the income is attributable. See "Certain U.S.
Federal Income Tax Considerations."
Interest.......................... 12 1/4% (computed on a semi-annual bond equivalent
basis) calculated from December 22, 1997. The Discount
Notes will accrete at a rate of 12 1/4%, compounded
semi-annually, to an aggregate principal amount of
$63,275,000 by December 15, 2002. Cash interest will not
accrue on the Discount Notes prior to December 15, 2002.
Commencing June 15, 2003, cash interest on the Discount
Notes will be payable until maturity at a rate of
12 1/4% per annum, semi-annually in arrears on each June
15 and December 15 to the Persons (as defined) in whose
names such Discount Notes are registered at the close of
business on June 1 and December 1, respectively,
immediately preceding such date.
Ranking........................... The Exchange Discount Notes will be senior unsecured
general obligations of Holdings. The Exchange Discount
Notes will rank PARI PASSU in right of payment to 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
Discount Notes will be effectively subordinated in right
of payment to all existing and future liabilities of
Holdings' subsidiaries, including indebtedness under the
Senior Notes and trade payables and deferred revenues.
As of December 31, 1997, after giving effect to the
Transactions, Holdings' subsidiaries had approximately
$208.4 million of such liabilities outstanding.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Optional Redemption............... The Discount Notes may be redeemed for cash on or after
December 15, 2002 at the option of Holdings, in whole or
in part, at the redemption prices set forth herein, plus
accrued and unpaid interest thereon (and Liquidated
Damages, if any) to the date of redemption. The Discount
Notes will also be subject to redemption, at any time
prior to December 15, 2002, at the option of Holdings,
in whole or in part, at a redemption price equal to 100%
of the Accreted Value thereof plus the applicable
Make-Whole Premium plus accrued and unpaid interest
thereon (and Liquidated Damages), if any. At any time on
or prior to December 15, 2000, Holdings may redeem all,
but not less than all, of the Discount Notes then
outstanding, at a redemption price equal to 112.25% of
the Accreted Value thereof (plus Liquidated Damages, if
any) to the date of redemption out of the Net Cash
Proceeds of a Public Equity Offering; PROVIDED, HOWEVER,
that such redemption shall occur within 90 days of the
closing of such Public Equity Offering. See "Description
of the Discount Notes--Optional Redemption."
Change of Control................. Upon a Change of Control, each holder of the Discount
Notes will have the right to require Holdings to
repurchase all or any part of such holder's Discount
Notes at a price in cash equal to 101% of the Accreted
Value thereof, together with accrued and unpaid interest
thereon (and Liquidated Damages), if any, to the date of
repurchase. Holdings does not have, and in the future
may not have, any assets other than the capital stock of
the Company. As a result, Holdings' ability to
repurchase all or any part of the Discount Notes upon a
Change of Control will be dependent upon the receipt of
dividends or other distributions from the Company and
its direct and indirect subsidiaries. The Senior Note
Indenture (as defined) and the Revolving Credit Facility
restrict the ability of the Company to pay dividends and
to make any other distributions to Holdings. If Holdings
is unable to obtain dividends from the Company
sufficient to permit the repurchase of the Discount
Notes, Holdings will likely not have the financial
resources to repurchase Discount Notes upon the
occurrence of a Change of Control. No assurance can be
given that Holdings will have sufficient funds to
satisfy its repurchase obligations with respect to the
Exchange Discount Notes following a Change of Control.
Furthermore, the Revolving Credit Facility provides that
certain change of control events will constitute a
default thereunder, and the Senior Note Indenture
provides that, in the event of a Change of Control, the
Company will be required to offer to repurchase the
Senior Notes at the price specified therefor. Holdings'
failure to make a Change of Control Offer (as defined)
when required or to purchase Discount Notes when
tendered would constitute an Event of Default (as
defined) under the Indenture (as defined). See "Risk
Factors--Possible Inability to Repurchase Discount Notes
Upon Change of Control," "Description of Other
Indebtedness--Revolving Credit Facility"
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
and "Description of the Discount Notes--Certain
Covenants-- Repurchase of Discount Notes at the Option
of the Holder Upon Change of Control" and "--Events of
Default and Remedies."
Restrictive Covenants............. The Indenture under which the Exchange Discount Notes
will be issued contains certain covenants that, among
other things, limit (i) the incurrence of additional
indebtedness by Holdings and its Restricted
Subsidiaries, (ii) the payment of dividends and other
restricted payments by Holdings and its Restricted
Subsidiaries, (iii) the creation of restrictions on
distributions from Restricted Subsidiaries, (iv) asset
sales, (v) transactions with affiliates, (vi) the
incurrence of liens and (vii) mergers and
consolidations. All of these limitations and
prohibitions, however, are subject to a number of
important qualifications and exceptions. See
"Description of the Discount Notes-- Certain Covenants."
</TABLE>
RISK FACTORS
See "Risk Factors, " which begins at page 21, for a discussion of certain
factors that should be considered before tendering the Old Discount Notes in
exchange for Exchange Discount Notes.
SUMMARY PRO FORMA INFORMATION
The following table sets forth summary pro forma operating data for Holdings
for the year ended December 31, 1997 and the three months ended March 31, 1998.
The pro forma operating data gives effect to the Transactions and the
Acquisitions discussed in "Pro Forma Financial Information" as if each such
transaction had occurred on January 1, 1997 and 1998, respectively. The summary
pro forma financial information is for illustrative purposes only and does not
purport to be indicative of what the actual results of operations of Holdings
would have been for the periods presented had the Transactions and the
Acquisitions in fact occurred at such prior times, nor does it purport to
represent Holdings' future results of operations. The summary pro forma
information should be read in conjunction with the pro forma Statements of
Operations and notes thereto included elsewhere in this Prospectus. See "Pro
Forma Financial Information."
15
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
SUMMARY COMBINED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising.......................................................... $ 57,958 $ 14,954
Subscription......................................................... 21,483 5,140
Ancillary Products and Services........................................ 22,600 5,628
Internet Services...................................................... 1,149 654
-------- -------
Total Revenues..................................................... $ 103,190 $ 26,376
-------- -------
Operating Costs and Expenses:
Editorial.............................................................. 13,183 3,361
Production and Distribution............................................ 22,557 5,472
Selling................................................................ 16,507 4,250
General and Administrative............................................. 23,112 6,719
Internet Services...................................................... 2,200 1,110
Depreciation and Amortization.......................................... 24,084 5,946
-------- -------
Total Operating Costs and Expenses................................. 101,643 26,858
-------- -------
Operating (loss) income............................................ 1,547 (482)
Interest expense, net.................................................... (22,105) (5,487)
Other income (expense)................................................... -- --
-------- -------
(Loss) before income taxes............................................... (20,558) (5,969)
Provision (benefit) for income taxes..................................... 250 (937)
-------- -------
Net (loss)............................................................... $ (20,808) (5,032)
-------- -------
-------- -------
OTHER DATA:
Pro forma EBITDA(1)(7)................................................... $ 25,631 $ 5,464
Pro forma Capital Expenditures(2)........................................ $ 1,311 $ 209
Pro forma Interest Coverage Ratio(3)..................................... 1.16x 1.00x
Pro forma Total Debt to EBITDA Ratio(4).................................. 8.20x --
Pro forma Earnings to Fixed Charges Ratio(5)............................. -- --
Historical EBITDA(1)(6)(8)............................................... $ 14,706 $ 5,082
Historical Capital Expenditures(6)....................................... 2,850 209
Historical Interest Coverage Ratio(3)(6)................................. 1.62x 0.93x
Historical Total Debt to EBITDA Ratio(4)(6).............................. 14.29x --
Historical Net Cash Provided by Operating Activities..................... 8,118 4,710
Historical Net Cash Used in Investing Activities......................... (267,850) (11,189)
Historical Net Cash Provided by Financing Activities..................... 269,695 1,072
</TABLE>
(FOOTNOTES CONTINUED ON NEXT PAGE)
16
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
- ------------------------
(1) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. EBITDA is not a measure of
performance under generally accepted accounting principles ("GAAP"). Items
excluded from income in calculating EBITDA are significant components in
understanding and evaluating Holdings' financial performance. While EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP or as a measure of profitability or
liquidity, management understands that EBITDA is customarily used in
evaluating publishing companies. The EBITDA measures presented herein may
not be comparable to similarly titled measures of other companies.
(2) Excludes capital expenditures related to COUNSEL CONNECT of $1,539 in 1997.
(3) Ratio equal to EBITDA divided by interest expense. Pro forma interest
expense includes $5,056 of non-cash interest expense related to the Discount
Notes and amortization of deferred financing costs related to the Discount
Notes and the Senior Notes in the year ended December 31, 1997.
(4) Ratio is equal to long-term debt divided by EBITDA for the year ended
December 31, 1997.
(5) Earnings were inadequate to cover fixed charges by $20,558, and $5,969 for
the year ended December 31, 1997 and the three months ended March 31, 1998.
(6) Historical disclosures are presented on a combined basis, whereby income
statement information is aggregated for American Lawyer Media, L.P. for the
seven months ended July 31, 1997, National Law Publishing Company Inc. for
the period from January 1, 1997 to December 21, 1997, and American Lawyer
Media Holdings, Inc. for the five months ended December 31, 1997.
(7) Pro forma revenues and EBITDA for the previous five quarters and the twelve
months ended March 31, 1998 ("LTM") were as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998 LTM
----------- ----------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 23,684 26,666 25,200 27,640 26,376 105,882
EBITDA....................... $ 4,815 6,843 6,572 7,401 5,464 26,280
</TABLE>
(8) Excludes special compensation charge of $6,926 for the year ended December
31, 1997.
17
<PAGE>
SUMMARY FINANCIAL INFORMATION AND OTHER DATA
The following tables present summary historical financial information (i)
for Old ALM, as of and for the years ended December 31, 1993, 1994, 1995 and
1996, the three months ended March 31, 1997 and the seven months ended July 31,
1997, (ii) for NLP, as of and for the years ended December 31, 1993, 1994, 1995
and 1996, the three months ended March 31, 1997 and the period from January 1,
1997 through December 21, 1997, and (iii) for Holdings, as of and for the five
months ended December 31, 1997 and the three months ended March 31, 1998. The
summary financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and notes thereto included elsewhere in this
Prospectus.
18
<PAGE>
AMERICAN LAWYER MEDIA, L.P. AND AMERICAN LAWYER MEDIA HOLDINGS, INC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AMERICAN
LAWYER
MEDIA
HOLDINGS, INC
PREDECESSOR COMPANY -------------
--------------------------------------------------------------------------
THREE MONTHS SEVEN MONTHS FIVE MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------------------------ MARCH 31, JULY 31, DECEMBER 31,
1993 1994 1995 1996 1997 1997 1997
--------- --------- --------- --------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising....................... $ 22,569 $ 23,872 $ 25,037 $ 26,659 $ 7,345 $ 18,146 $ 13,410
Subscription...................... 10,242 10,483 10,884 11,304 2,716 6,719 5,260
Ancillary Products and Services..... 7,374 7,980 8,387 8,467 1,826 4,532 4,142
Internet Services................... 135 685 3,238 5,474 1,052 2,148 40
--------- --------- --------- --------- -------------- -------------- -------------
Total Revenues.................. 40,320 43,020 47,546 51,904 12,939 31,545 22,852
--------- --------- --------- --------- -------------- -------------- -------------
Operating Costs and Expenses:
Editorial........................... 7,109 7,075 7,073 7,141 1,707 4,023 3,323
Production and Distribution......... 10,678 11,170 12,587 12,469 2,920 6,919 5,766
Selling............................. 6,662 7,208 6,913 7,479 1,888 4,640 3,656
General and Administrative.......... 15,303 15,790 16,506 16,829 4,232 9,531 7,145
Internet Services................... 2,634 7,760 10,854 11,886 2,690 6,464 43
Depreciation and Amortization....... 4,047 3,506 2,680 2,488 634 1,590 3,273
Shutdown of Counsel Connect......... -- -- -- -- -- -- 4,823
--------- --------- --------- --------- -------------- -------------- -------------
Total Operating Costs and
Expenses...................... 46,433 52,509 56,613 58,292 14,071 33,167 28,029
--------- --------- --------- --------- -------------- -------------- -------------
Operating (loss)................ (6,113) (9,489) (9,067) (6,388) (1,132) (1,622) (5,177)
Interest expense, net................. (478) (667) (1,384) (1,972) (576) (1,420) (2,534)
--------- --------- --------- --------- -------------- -------------- -------------
(Loss) before income taxes............ (6,591) (10,156) (10,451) (8,360) (1,708) (3,042) (7,711)
(Benefit) for income taxes............ -- -- -- -- -- -- --
--------- --------- --------- --------- -------------- -------------- -------------
(Loss) before minority interest....... (6,591) (10,156) (10,451) (8,360) (1,708) (3,042) (7,711)
Minority interest..................... -- 1,847 2,334 172 -- -- --
--------- --------- --------- --------- -------------- -------------- -------------
Net (loss)............................ $ (6,591) $ (8,309) $ (8,117) $ (8,188) $ (1,708) $ (3,042) $ (7,711)
--------- --------- --------- --------- -------------- -------------- -------------
--------- --------- --------- --------- -------------- -------------- -------------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit)............. $ (6,571) $ (6,376) $ (7,066) $ (7,009) $ 5,014 $ (5,895) $ (7,042)
Total assets.......................... 20,896 20,931 19,313 19,482 18,709 18,982 365,528
Long-term debt (including current
maturities)......................... 11,212 13,524 22,114 30,150 32,790 34,742 210,119
Partners' (Deficit) & Stockholders'
Equity ............................. (3,332) (11,647) (19,759) (26,300) (28,008) (29,342) 67,289
OTHER DATA:
EBITDA(1)............................. $ (2,066) $ (5,983) $ (6,387) $ (3,900) $ (498) $ (32) $ (1,904)
Capital Expenditures.................. $ 1,088 $ 1,488 $ 1,481 $ 2,202 $ 583 $ 1,971 $ 364
Ratio of Earnings to Fixed
Charges(2).......................... -- -- -- -- -- -- --
Net Cash Provided by (Used in)
Operating Activities................ $ (1,044) $ (5,892) $ (5,472) $ (4,552) $ (1,116) $ (677) $ (2,497)
--------- --------- -------------- -------------- -------------
Net Cash Used in Investing
Activities.......................... (980) (1,468) (1,481) (2,202) (583) (1,971) (265,383)
--------- --------- -------------- -------------- -------------
Net Cash Provided by Financing
Activities.......................... 2,086 7,645 7,206 6,064 2,065 3,173 277,322
--------- --------- -------------- -------------- -------------
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
1998
-----------
<S> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising....................... $ 14,954
Subscription...................... 5,140
Ancillary Products and Services..... 5,628
Internet Services................... 654
-----------
Total Revenues.................. 26,376
-----------
Operating Costs and Expenses:
Editorial........................... 3,361
Production and Distribution......... 5,472
Selling............................. 4,250
General and Administrative.......... 7,101
Internet Services................... 1,110
Depreciation and Amortization....... 5,946
Shutdown of Counsel Connect......... --
-----------
Total Operating Costs and
Expenses...................... 27,240
-----------
Operating (loss)................ (864)
Interest expense, net................. (5,487)
-----------
(Loss) before income taxes............ (6,351)
(Benefit) for income taxes............ (937)
-----------
(Loss) before minority interest....... (5,414)
Minority interest..................... --
-----------
Net (loss)............................ $ (5,414)
-----------
-----------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit)............. $ (18,348)
Total assets.......................... 364,340
Long-term debt (including current
maturities)......................... 211,191
Partners' (Deficit) & Stockholders'
Equity ............................. 61,875
OTHER DATA:
EBITDA(1)............................. $ 5,082
Capital Expenditures.................. $ 209
Ratio of Earnings to Fixed
Charges(2).......................... --
Net Cash Provided by (Used in)
Operating Activities................ $ 4,710
-----------
Net Cash Used in Investing
Activities.......................... (11,189)
-----------
Net Cash Provided by Financing
Activities.......................... 1,072
-----------
</TABLE>
- ------------------------
(1) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating Old ALM's and Holdings' financial performance. While EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP or as a measure of profitability or
liquidity, management understands that EBITDA is customarily used in
evaluating publishing companies. The EBITDA measures presented herein may
not be comparable to similarly titled measures of other companies.
(2) Earnings were inadequate to cover combined fixed charges by $6,591, $10,156,
$10,451, $8,360, $1,708, $3,042, $7,711 and $6,351 for the years ended
December 31, 1993, 1994, 1995, 1996, the three months ended March 31, 1997,
the seven months ended July 31, 1997, the five months ended December 31,
1997 and the three months ended March 31, 1998, respectively.
19
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, THREE MONTHS 1997 THROUGH
------------------------------------------ ENDED DECEMBER 21,
1993 1994 1995 1996 MARCH 31, 1997 1997
--------- --------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Revenues:
Periodicals:
Advertising.................................. $ 16,546 $ 18,612 $ 21,387 $ 23,319 $ 6,349 $ 26,402
Subscription................................. 8,610 9,105 9,694 9,759 2,314 9,504
Ancillary Products and Services................ 10,824 11,437 12,729 13,398 2,861 13,926
Internet Services.............................. -- -- 264 747 271 1,109
--------- --------- --------- --------- --------------- -------------
Total Revenues............................. 35,980 39,154 44,074 47,223 11,795 50,941
--------- --------- --------- --------- --------------- -------------
Operating Costs and Expenses:
Editorial...................................... 4,811 5,451 5,778 5,929 1,420 5,837
Production and Distribution.................... 7,009 7,621 8,146 8,679 2,267 9,872
Selling........................................ 7,693 8,831 9,776 8,991 2,120 8,211
General and Administrative..................... 7,109 7,726 7,620 8,047 2,431 8,722
Internet Services.............................. -- -- 2,947 1,704 411 1,657
Depreciation and Amortization.................. 3,087 3,130 6,329 7,487 1,890 7,283
Special Compensation Charge.................... -- -- -- -- -- 6,926
--------- --------- --------- --------- --------------- -------------
Total Operating Costs and Expenses......... 29,709 32,759 40,596 40,837 10,539 48,508
--------- --------- --------- --------- --------------- -------------
Operating income........................... 6,271 6,395 3,478 6,386 1,256 2,433
Interest expense, net............................ (4,487) (4,734) (5,458) (6,013) (1,378) (5,137)
Other income (expense)........................... (284) (320) (211) 181 -- --
--------- --------- --------- --------- --------------- -------------
Income (loss) before income taxes................ 1,500 1,341 (2,191) 554 (122) (2,704)
Benefit (provision) for income taxes............. (777) (763) 523 (3,007) (754) (2,508)
--------- --------- --------- --------- --------------- -------------
Net income (loss) before cumulative effect of
change in accounting principle................. 723 578 (1,668) (2,453) (876) (5,212)
Cumulative effect of change in accounting
principle...................................... 4,046 -- -- -- -- --
--------- --------- --------- --------- --------------- -------------
Net income (loss)................................ $ 4,769 $ 578 $ (1,668) $ (2,453) $ (876) $ (5,212)
--------- --------- --------- --------- --------------- -------------
--------- --------- --------- --------- --------------- -------------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit)........................ $ (1,532) $ (2,868) $ (4,717) $ (2,081) $ (4,216) $ (2,204)
Total assets..................................... 20,886 21,217 154,125 147,311 145,383 139,610
Long-term debt (including current maturities).... 45,500 54,600 70,900 70,300 66,200 59,500
Stockholder's equity (deficit)................... (33,945) (44,842) 65,620 63,167 62,290 64,782
OTHER DATA:
EBITDA(1)........................................ $ 9,358 $ 9,525 $ 9,807 $ 13,873 $ 3,146 $ 9,716
Capital Expenditures............................. $ 739 $ 1,807 $ 608 $ 512 $ 170 $ 515
Ratio of Earnings to Fixed Charges(2)............ 1.28x 1.24x -- 1.08x -- --
Net Cash Provided by Operating Activities........ $ 3,885 $ 3,795 $ 3,690 $ 6,616 $ 3,966 $ 11,292
--------- --------- --------- --------- --------------- -------------
Net Cash Used in Investing Activities............ (739) (1,807) (608) (529) (168) (496)
--------- --------- --------- --------- --------------- -------------
Net Cash Used in Financing Activities............ (3,980) (2,375) (3,351) (5,600) (4,100) (10,800)
--------- --------- --------- --------- --------------- -------------
</TABLE>
- ------------------------
(1) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating NLP's financial performance. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
(2) Earnings were inadequate to cover combined fixed charges by $2,191, $122 and
$2,704 for the year ended December 31, 1995, the three months ended March
31, 1997, and the period from January 1, 1997 through December 21, 1997,
respectively.
20
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE EXCHANGE DISCOUNT NOTES REPRESENTS A HIGH DEGREE OF
RISK. PRIOR TO TENDERING OLD DISCOUNT NOTES IN EXCHANGE FOR EXCHANGE DISCOUNT
NOTES, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY ALL THE INFORMATION IN
THIS PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING RISK FACTORS.
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" THAT ARE SUBJECT TO A
NUMBER OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND HOLDINGS' CONTROL.
FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS "BELIEVE,"
"EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE" AND SIMILAR EXPRESSIONS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF FACTORS SUCH AS THOSE DESCRIBED UNDER "RISK FACTORS."
IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE
RESULTS AND EVENTS CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS CONTAINED IN
THIS PROSPECTUS WILL IN FACT TRANSPIRE. PROSPECTIVE PURCHASERS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. HOLDINGS DOES NOT
UNDERTAKE ANY OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS. ALL
SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO HOLDINGS
OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
DISCUSSION UNDER "RISK FACTORS."
LIMITATION ON ACCESS TO SUBSIDIARIES' CASH FLOW; HOLDING COMPANY STRUCTURE
Holdings is a holding company, and its ability to pay cash interest on and
principal of the Discount Notes is dependent upon the receipt of dividends or
other distributions from its direct and indirect subsidiaries. Holdings does not
have, and in the future may not have, any assets other than the capital stock of
the Company. Holdings, the Company and the Company's subsidiaries are parties to
the Revolving Credit Facility, and the Company and its Restricted Subsidiaries
are parties to the indenture governing the Senior Notes (the "Senior Note
Indenture"), each of which impose substantial restrictions on the ability of the
Company and its subsidiaries or its Restricted Subsidiaries, as the case may be,
to pay dividends or make other distributions to Holdings, and any dividend
payment or other distribution will be subject to the satisfaction of certain
financial conditions set forth therein. The ability of the Company and its
subsidiaries to comply with such conditions or the other financial covenants in
the Revolving Credit Facility or in the Senior Note Indenture may be affected by
events that are beyond Holdings' or the Company's control. The breach of any
such covenant could result in a default under the Senior Note Indenture and/or
the Revolving Credit Facility, and in the event of any such default, the holders
of the Senior Notes or the lenders under the Revolving Credit Facility could
elect to accelerate the maturity of all the Senior Notes or the loans under the
Revolving Credit Facility. If the maturity of the Senior Notes or the loans
under the Revolving Credit Facility were accelerated, all such outstanding debt
would have to be paid in full before the Company or its subsidiaries could
distribute any assets or cash to Holdings. There can be no assurance that the
earnings or cash flow of Holdings' subsidiaries will be adequate to permit
Holdings to service its debt obligations or, even if adequate, that such
subsidiaries will be able to pay dividends or to make distributions to Holdings
in amounts sufficient to enable Holdings to service its debt obligations as and
when such amounts become due and payable. Future borrowings by the Company and
its subsidiaries can be expected to contain similar restrictions or prohibitions
on the payment of dividends and the making of distributions by the Company and
its subsidiaries to Holdings. See "Description of Other Indebtedness-- Revolving
Credit Facility."
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, if it has no
surplus, out of its net profits for the year in which a dividend is declared or
for the immediately preceding fiscal year. 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 a cash dividend, a company
must have surplus or net profits equal to the full amount of the dividend at the
time the dividend is declared. In determining a company's ability to pay
dividends, Delaware law permits the board of directors of a company 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.
Accordingly, there can be no assurance that
21
<PAGE>
Holdings' subsidiaries will be able to dividend or distribute any amounts to
Holdings in the future and, therefore, there can be no assurance that Holdings
will be able to meet its debt service obligations on the Discount Notes.
Because Holdings is a holding company, claims of the holders of the Discount
Notes will be structurally junior to claims of all creditors of Holdings'
subsidiaries, except to the extent that Holdings is itself recognized as a
creditor of any such subsidiary, in which case the claims of Holdings would
still be subordinate to the claims of any secured creditor of such subsidiary.
In the event of insolvency, liquidation, reorganization, dissolution or other
winding-up of Holdings' subsidiaries, Holdings will not receive any funds
available to pay to creditors of the subsidiaries until the claims of such
creditors have been paid in full. As of December 31, 1997, after giving effect
to the Transactions, the aggregate amount of liabilities of Holdings'
subsidiaries, including indebtedness under the Senior Notes and including trade
payables and deferred revenues, was approximately $208.4 million.
SUBSTANTIAL LEVERAGE; LIQUIDITY
Holdings and the Company incurred a significant amount of indebtedness in
connection with the Initial Discount Note Offering and the Initial Senior Note
Offering. As of December 31, 1997, after giving effect to the Transactions, the
indebtedness of Holdings and its subsidiaries was approximately $210.1 million
and Holdings' stockholders' equity was approximately $67.3 million. For the five
months ended December 31, 1997, Holdings and its subsidiaries had an operating
and net loss of approximately $5.2 million and $7.7 million, respectively. Old
ALM had an operating and net loss of approximately $1.6 million and $3.0
million, respectively, for the seven months ended July 31, 1997. NLP had a net
loss of approximately $5.2 million for the period from January 1, 1997 through
December 21, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations." Holdings' pro forma
earnings were insufficient to cover pro forma fixed charges by $20.6 million for
the year ended December 31, 1997 and $6.0 million for the three months ended
March 31, 1998. See "Pro Forma Financial Information." In addition, the
Company's strategy contemplates strategic acquisitions, and a portion of the
cost of such acquisitions may be financed through the incurrence of additional
indebtedness, subject to restrictions contained in the Indenture, the Senior
Note Indenture (collectively, the "Indentures") and the Revolving Credit
Facility. There can be no assurance that financing will continue to be available
on terms acceptable to Holdings and to the Company or at all.
The level of Holdings' and the Company's indebtedness could have substantial
consequences to holders of the Discount Notes, including: (i) a substantial
portion of Holdings' and the Company's cash flow from operations must be
dedicated to debt service and will not be available for operations; (ii)
Holdings' and the Company's ability to obtain additional financing in the future
for working capital, investments, general corporate purposes or acquisitions may
be limited; (iii) Holdings' and the Company's level of indebtedness could limit
their flexibility in reacting to changes in the industry, competitive pressures
and economic conditions generally; (iv) the Indentures and the Revolving Credit
Facility contain financial and restrictive covenants, the failure to comply with
which may result in an event of default which, if not cured or waived, could
have a material adverse effect on Holdings; and (v) Holdings and the Company may
be substantially more leveraged than certain of their competitors, which may
place Holdings and the Company at a competitive disadvantage.
Holdings' ability to make scheduled payments on its indebtedness or to
refinance its debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond its control.
Historically, both NLP and Old ALM have experienced net losses. These losses
have included substantial non-cash charges for amortization and the provision
for taxes as well as losses resulting from the Counsel Connect business. In
addition, the NLP results for fiscal 1997 include a significant one time special
compensation charge. There can be no assurance that Holdings' and the Company's
operating results and cash flow and capital resources will be sufficient to meet
their operating expenses and to service their debt obligations as
22
<PAGE>
they become due. If Holdings and the Company are unable to generate sufficient
cash flow from operations in the future to service their indebtedness and to
meet their other commitments, Holdings and the Company will be required to adopt
one or more alternatives, such as refinancing or restructuring their
indebtedness, selling material assets or operations, reducing or delaying
investments in their businesses, or seeking to raise additional debt or equity
capital. There can be no assurance that any of these actions could be effected,
or if they are effected, that they could be effected on a timely basis or on
satisfactory terms, or that these actions would enable Holdings and the Company
to continue to satisfy their cash requirements. In addition, the terms of
existing or future debt agreements, including the Indentures and the Revolving
Credit Facility, may prohibit Holdings and the Company from adopting any of
these alternatives. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Description of the Discount Notes" and
"Description of Other Indebtedness."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The Discount Notes were issued at a substantial original issue discount from
their principal amount at maturity. Consequently, purchasers of the Discount
Notes are 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 U.S. Federal Income Tax Considerations" for a more
detailed discussion of the federal income tax consequences to the purchasers of
the Discount Notes resulting from the purchase, ownership or disposition
thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Discount Notes upon the occurrence of an Event of Default (as defined herein),
the holders of the Discount Notes may be entitled to recover only the amount
which may be declared due and payable pursuant to the Indenture, which prior to
December 15, 2002 will be less than the principal amount at maturity of such
Discount Notes. See "Description of the Discount Notes--Events of Default and
Remedies."
If a bankruptcy case is commenced by or against Holdings under the United
States Bankruptcy Code (the "Bankruptcy Code"), the claims of a holder of
Discount Notes with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the issue price of the Discount Notes and (ii)
that portion of the original issue discount (as determined on the basis of such
issue price) which is not deemed to constitute "unmatured interest" for purposes
of the Bankruptcy Code. Accordingly, holders of the Discount Notes under such
circumstances may, even if sufficient funds are available, receive a lesser
amount than they would be entitled to under the express terms of the Indenture.
In addition, there can be no assurance that a bankruptcy court would compute the
accrual of interest under the same rules as those used for the calculation of
original issue discount under federal income tax law and, accordingly, a holder
might be required to recognize gain or loss in the event of a distribution
related to such a bankruptcy case.
POSSIBLE INABILITY TO REPURCHASE DISCOUNT NOTES UPON CHANGE OF CONTROL
In the event of a Change of Control, each holder of Discount Notes will have
the right to require Holdings to repurchase all or any part of such holder's
Discount Notes at the offer price specified therefor in the Indenture. Holdings
does not have, and in the future may not have, any assets other than the capital
stock of the Company (which was pledged to secure the Company's obligations
under the Revolving Credit Facility). As a result, Holdings' ability to
repurchase all or any part of the Discount Notes upon the occurrence of a Change
of Control will be dependent upon the receipt of dividends or other
distributions from the Company. The Senior Note Indenture and the Revolving
Credit Facility restrict the ability of the Company to pay dividends and to make
any other distributions to Holdings. 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. If Holdings does not obtain dividends or
other distributions from the Company sufficient to permit the repurchase of the
Discount Notes, Holdings will likely not have sufficient funds available to
satisfy its repurchase obligation with respect to the Discount Notes following a
Change of Control. Holdings' failure to make a Change of Control offer when
required or to purchase tendered Discount
23
<PAGE>
Notes would constitute an Event of Default under the Indenture. Furthermore, the
Revolving Credit Facility provides that certain change of control events will
constitute a default thereunder. In addition, the Senior Note Indenture provides
that, in the event of a Change of Control, the Company will be required to offer
to repurchase the Senior Notes at the price specified therein. Lastly, in the
event of a Change of Control, these amounts might be required to be fully repaid
prior to any payments on the Discount Notes. See "Description of the Discount
Notes" and "Description of Other Indebtedness."
INTEGRATION OF COMPANIES AND LIMITED RELEVANCE OF HISTORICAL INFORMATION
In August 1997 the Investors, through ALM, consummated the ALM Acquisition,
and in December 1997, ALM consummated the NLP Acquisition. Prior to the
Acquisitions, ALM and NLP operated independently, and the success of the Company
will depend in part on the Company's ability to integrate the operations of
these entities. The integration of the operations of ALM and NLP will entail the
reorganization of certain functions to achieve the cost savings outlined in the
business strategy and to realize the full potential of the business
opportunities available to the combined company. There can be no assurance that
the Company will be able to successfully integrate these businesses or that the
Company will not encounter delays or incur unanticipated costs in such
integration. As a result of the Acquisitions, the historical financial
information of Holdings, Old ALM and NLP presented in this Prospectus is of
limited relevance in understanding what the results of operations, financial
position or cash flows of Holdings would have been for the historical periods
presented had Holdings in fact been organized and owned all of its subsidiaries
for such periods. See "Pro Forma Financial Information," "Selected Historical
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON SUCCESSFUL IMPLEMENTATION OF BUSINESS STRATEGY
The Company plans to adopt a refined business and operating strategy. This
strategy includes the implementation of certain operating improvements and the
adoption of expanded circulation and advertising plans. There can be no
assurance that the Company will be able to fully implement this new strategy or
that the anticipated results of this strategy, including the reduction of
certain operating expenses, will be realized. Implementation of this strategy
could be affected by a number of factors beyond the Company's control, such as
operating difficulties, increased operating costs, regulatory developments,
general economic conditions, increased competition, or the inability to obtain
adequate financing for its operations on suitable terms. In addition, after
gaining experience with the Company's operations under its new strategy, the
Company may decide to alter or discontinue certain aspects of its strategy. Any
such failure to implement the Company's new strategy may adversely affect
Holdings' and the Company's ability to service their indebtedness, including
their ability to make principal and interest payments on the Discount Notes and
the Senior Notes, as applicable. See "Business--Business Strategy."
Holdings has reflected, on a pro forma basis for the year ended December 31,
1997 and the three months ended March 31, 1998, the anticipated benefits that
may result from the operating improvements and cost reduction measures
anticipated as a result of the implementation of the Company's strategy. The pro
forma adjustments set forth in this Prospectus are based on a number of
estimates and assumptions that, while considered reasonable by Holdings, should
not be viewed as indicative of either the results that would have occurred had
the Company's strategy been implemented on the dates indicated or Holdings'
actual or future results or financial position. Prospective investors are
cautioned not to place undue reliance on these adjustments. See "Pro Forma
Financial Information."
RESTRICTIONS IMPOSED BY TERMS OF THE INDENTURES AND THE REVOLVING CREDIT
FACILITY
The Indentures and the Revolving Credit Facility impose certain operating
and financial restrictions on Holdings and the Company. The Indentures limit,
among other things, (i) the incurrence of additional indebtedness by Holdings,
the Company and their Restricted Subsidiaries, (ii) the payment of dividends
24
<PAGE>
and other restricted payments by Holdings, the Company and their Restricted
Subsidiaries, (iii) the creation of restrictions on distributions from Holdings'
and the Company's Restricted Subsidiaries, (iv) asset sales, (v) transactions
with affiliates, (vi) the incurrence of liens and (vii) mergers and
consolidations. The Revolving Credit Facility requires the Company to maintain
specified financial ratios, among other obligations, including a maximum total
leverage ratio, a minimum interest coverage ratio and a minimum fixed charge
coverage ratio, each as defined in the agreement governing the Revolving Credit
Facility. In addition, the Revolving Credit Facility restricts, among other
things, the ability of the Company and its subsidiaries to: (i) declare
dividends or redeem or repurchase capital stock; (ii) prepay, redeem or purchase
debt; (iii) incur liens and engage in sale/leaseback transactions; (iv) make
loans and investments; (v) incur indebtedness and contingent obligations; (vi)
amend or otherwise alter debt and other material agreements; (vii) make capital
expenditures; (viii) engage in mergers, consolidations, acquisitions and asset
sales; (ix) transact with affiliates and (x) alter their lines of business or
accounting methods. For the year ended December 31, 1997, Holdings' and the
Company's ratio of total indebtedness was in excess of that prescribed under the
Indentures. As a result, neither Holdings, the Company nor the Company's
Restricted Subsidiaries would currently be able to incur additional
indebtedness. For the purposes of the Indentures, borrowings under the Revolving
Credit Facility are a form of Permitted Indebtedness (as defined) and do not
contravene the financial restriction regarding incurrence of additional
indebtedness. See "Description of the Discount Notes--Certain Definitions."
Further, the ability of Holdings and the Company to comply with such covenants
may be affected by events beyond their control, including prevailing economic
and financial conditions. A breach of any of these covenants could result in a
default under the Revolving Credit Facility and/or the Indentures. Upon the
occurrence of an event of default under the Revolving Credit Facility or the
Indentures, the lenders under the Revolving Credit Facility could elect to
declare all amounts outstanding thereunder, together with accrued and unpaid
interest, to be immediately due and payable. If the Company were unable to repay
any such amounts, such lenders could proceed against the collateral securing
such indebtedness, which collateral includes all of the outstanding capital
stock of the Company, which is the sole asset of Holdings. If the lenders under
the Revolving Credit Facility accelerate the payment of such indebtedness, there
can be no assurance that the assets of the Company would be sufficient to repay
in full such indebtedness and the other indebtedness of the Company and
Holdings, including the Discount Notes. See "Description of the Discount
Notes--Certain Covenants" and "Description of Other Indebtedness--Revolving
Credit Facility."
CONCENTRATION OF REVENUE FROM CERTAIN PUBLICATIONS
For the three months ended March 31, 1998, the NEW YORK LAW JOURNAL
accounted for 25.2% of the Company's total revenues. The Company believes that
the NEW YORK LAW JOURNAL will continue to represent a significant portion of the
Company's total revenues in the future. While the Company has a broad range of
publications, a significant decline in the performance of the NEW YORK LAW
JOURNAL or any of the Company's other publications could have a material adverse
effect on Holdings' results of operations and its ability to service its
indebtedness, including its ability to make principal and interest payments on
the Discount Notes. Further, as a result of the consolidated nature of the
Company's advertising base, the Company may be more susceptable to adverse
trends in the legal market than publishers with less industry concentration.
A significant decline in paid circulation may have an adverse effect on the
advertising revenues generated by the NEW YORK LAW JOURNAL. For the years ended
December 31, 1996 and December 31, 1997, the paid circulation of the NEW YORK
LAW JOURNAL declined by 0.5% and 1.1%, respectively. As demonstrated by the
results for 1996 and 1997, the Company has been able to increase subscription
prices to offset the decline in circulation.
25
<PAGE>
ADVERTISING REVENUE
The Company's largest single source of revenue is advertising. For the three
months ended March 31, 1998, approximately 56.7% of the Company's revenues were
from advertising. Advertising revenues of the publishing industry in general are
cyclical and dependent upon general economic conditions. As compared to
general-interest newspaper and magazine publishers, the Company believes that
its advertising revenues are less susceptible to changes in general economic
conditions due to the fact that a significant portion of the Company's
advertising revenues are for products and services that are used exclusively by
attorneys, law firms and corporate legal departments. There can be no assurance,
however, that the Company's results of operations will not be adversely affected
by general economic conditions in the future. The Company's revenues may also be
affected by state or local government regulations, particularly with respect to
the publication of legal-notice advertising. If states or localities in which
the Company operates were to enact legislation modifying the manner, number or
frequency of legal notice requirements, the Company's results of operations
could be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FLUCTUATIONS IN PAPER COSTS AND POSTAL RATES
For the three months ended March 31, 1998, the Company spent $1.2 million on
paper and $0.7 million on postage, accounting for 4.5% and 2.8%, respectively,
of total revenues for such period. While paper prices have historically shown
considerable price volatility and postal rates have increased from time to time,
due to their overall small expense as a percentage of revenues, the Company has
generally been able to pass through such increased costs to advertisers and
subscribers. No assurance can be given, however, that future fluctuations in
paper prices or significant increases in postal rates will not have a material
adverse effect on the results of operations and financial condition of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
COMPETITION
The Company competes for advertising and circulation revenues with
publishers of other special-interest legal newspapers and magazines with similar
editorial content. However, in most markets where the Company competes, its
newspaper is the only newspaper serving the particular needs of the legal
community. The Company also competes for advertising revenues with
general-interest magazines, newspapers and other forms of media, including
broadcast and cable television, radio, direct marketing and electronic media.
The Company also faces competition from other legal publishers and legal service
providers in its ancillary products and services business, including from book
and newsletter publishers and internet and other online services, certain of
which competitors are larger and have greater financial resources than the
Company. There can be no assurance that the Company will be able to compete
effectively with such competitors in the future. See "Business--Competition."
CONTROLLING STOCKHOLDER
Holdings holds all of the Company's equity securities. A majority of
Holdings' equity securities are held by U.S. Equity Partners, L.P. and its
affiliates. The general partner of U.S. Equity Partners, L.P., a private equity
fund sponsored by WPG, is WPMP. As the general partner of U.S. Equity Partners,
L.P., WPMP has the ability to elect all of the members of the Board of Directors
of Holdings and accordingly controls the policies and operations of Holdings and
the Company. Circumstances may occur in which the interests of the equity
holders of Holdings and the Company could be in conflict with the interests of
the holders of the Discount Notes. In addition, the direct and/or indirect
equity investors in Holdings and the Company may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their judgment, could
enhance their equity investment, even though such transactions might involve
risks to the holders of the Discount Notes. See "Principal Stockholders."
26
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The success of the Company's operations may depend, in part, on the
successful assimilation of its key personnel, including editors, publishers and
journalists, as well as its ability to attract additional talented personnel to
the Company as it implements its strategy. Holdings and the Company have
retained the services of certain key personnel of ALM and NLP, including
editors, publishers and journalists, all of whom have significant experience in
the publishing industry. Effective March 1998, the Company employed William L.
Pollak as its President and Chief Executive Officer, replacing Randall J.
Weisenburger. See "Certain Transactions." Although the Company believes it will
be able to attract and retain talented personnel to the Company and that it
could replace key personnel should the need arise, the inability to attract or
retain such personnel could have a material adverse effect on the Company. See
"Management--Directors, Executive Officers and Key Employees."
FRAUDULENT TRANSFER CONSIDERATIONS
Holdings' obligations under the Discount Notes may be subject to review
under state or federal fraudulent transfer laws in the event of the bankruptcy
or other financial difficulty of Holdings.
Under those laws, if a court, in a lawsuit by an unpaid creditor or
representative of creditors of Holdings, such as a trustee in bankruptcy or
Holdings as a debtor in possession under chapter 11 of the Bankruptcy Code, were
to find that when Holdings issued the Discount Notes, it (a) received less than
fair consideration or reasonably equivalent value therefor, and (b) either (i)
was or was rendered insolvent, (ii) was engaged in a business or transaction for
which its remaining unencumbered assets constituted unreasonably small capital
or (iii) intended to incur or believed (or reasonably should have believed) that
it would incur debts beyond its ability to pay as such debts matured (or, in the
event New York law is applicable, it is a defendant in an action for money
damages or a judgment in such an action has been docketed against it, if, after
final judgment for the plaintiff, it fails to satisfy such judgment), the court
could avoid the Discount Notes and Holdings' obligations thereunder, or
subordinate the Discount Notes to all of Holdings' other obligations, and in
either case order the return of any amounts paid thereunder to Holdings or to a
fund for the benefit of its creditors. It should be noted that a court could
avoid the Discount Notes and Holdings' obligations thereunder without regard to
factors (a) and (b) above if it found that Holdings issued the Discount Notes
with actual intent to hinder, delay, or defraud its creditors.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE DISCOUNT
NOTES
The Old Discount Notes were issued to, and Holdings believes are currently
owned by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there was no public market for the Old Discount Notes. The Old Discount
Notes have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Discount Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Old Discount Notes (other than any such holder
that is an "affiliate" of Holdings within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and Holdings is required to file a
Shelf Registration Statement with respect to such Old Discount Notes.
The Exchange Discount Notes will constitute a new issue of securities with
no established trading market. Holdings does not intend to list the Exchange
Discount Notes on any national securities exchange or stock market. The Initial
Purchasers have advised Holdings that they currently intend to make a market
27
<PAGE>
in the Exchange Discount Notes, but they are not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Discount Notes or as
to the liquidity of the trading market for the Exchange Discount Notes. If a
trading market does not develop or is not maintained, holders of the Exchange
Discount Notes may experience difficulty in reselling the Exchange Discount
Notes or may be unable to sell them at all. If a market for the Exchange
Discount Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the Exchange Discount Notes, future
trading prices of such securities could trade at prices lower than the initial
offering price depending on many factors including, among others, prevailing
interest rates, Holdings' results of operations and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities, and other factors, including the financial condition of Holdings,
the Exchange Discount Notes may trade at a discount from their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Discount Notes in exchange for the Old Discount
Notes pursuant to the Exchange Offer will be made only after a timely receipt by
Holdings of such Old Discount Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents. Therefore, holders of
the Old Discount Notes desiring to tender such Old Discount Notes in exchange
for Exchange Discount Notes should allow sufficient time to ensure timely
delivery. Holdings is under no duty to give notification of defects or
irregularities with respect to the tender of Old Discount Notes for exchange.
Old Discount Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof, and, upon consummation of the
Exchange Offer certain registration rights under the Registration Rights
Agreement will terminate. In addition, any holder of Old Discount Notes who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the Exchange Discount Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Discount Notes for
its own account in exchange for Old Discount Notes, where such Old Discount
Notes 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 Exchange Discount Notes. See
"Plan of Distribution." To the extent that Old Discount Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Discount Notes could be adversely affected. See "The Exchange
Offer."
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<PAGE>
THE TRANSACTIONS
The Initial Discount Note Offering was consummated on December 22, 1997 and
was made in conjunction with the Transactions.
THE ACQUISITIONS
ALM ACQUISITION. On August 27, 1997, but effective as of August 1, 1997,
the Investors, through ALM, consummated the ALM Acquisition, pursuant to which
ALM purchased substantially all of the assets and assumed certain of the
liabilities related to Old ALM. The purchase price for the ALM Acquisition was
$63.0 million. The ALM Acquisition and the payment of related fees and expenses
were financed through the issuance of the ALM Promissory Note, a $31.5 million
secured promissory Note issued by ALM to the former owner of Old ALM, and the
issuance of the WP Promissory Note, a $32.0 million equity bridge Note issued by
ALM to an affiliate of WPG. The ALM Promissory Note accrued interest at a rate
of 10% per annum. The WP Promissory Note accrued interest at a rate of 9% per
annum.
NLP ACQUISITION. Pursuant to a Stock Purchase Agreement, dated October 23,
1997 (the "Stock Purchase Agreement"), among ALM, Boston Ventures Limited
Partnership IV, Boston Ventures Limited Partnership IVA and Mr. James A.
Finkelstein, ALM purchased all of the issued and outstanding capital stock of
NLP. The purchase price for the NLP Acquisition was $203.2 million. The NLP
Acquisition was consummated on December 22, 1997.
THE FINANCINGS
In order to enable ALM to finance the NLP Acquisition, to repay the ALM
Promissory Note and the WP Promissory Note and accrued interest thereon, and to
pay related fees, expenses and restructuring costs, Holdings conducted the
Initial Discount Note Offering, and Holdings and ALM entered into certain other
financing transactions, as described below:
EQUITY CONTRIBUTIONS. Holdings contributed an aggregate of $108.8 million
to the capital of ALM. The Equity Contribution was funded by (a) $75.0 million
Investor Equity Contribution and (b) net proceeds of approximately $33.8 million
received by Holdings in connection with the Initial Discount Note Offering.
INITIAL SENIOR NOTE OFFERING. Concurrently with the Initial Discount Note
Offering, the Company offered $175.0 million aggregate principal amount of its
Senior Notes. Interest on the Senior Notes will accrue at the rate of 9 3/4% per
annum from December 22, 1997 and be payable semi-annually in arrears on June 15
and December 15 of each year. See "Description of Other
Indebtedness--Description of the Senior Notes."
SOURCES AND USES OF FUNDS
The following table illustrates the sources and uses of funds related to the
Transactions (in millions).
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- ----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
The Senior Notes............................... $ 175.0 Repayment of ALM Promissory Note (2)........... $ 32.5
Equity Contribution(1)......................... 75.0 Repayment of WP Promissory Note(3)............. 33.0
The Discount Notes............................. 33.8 NLP Acquisition................................ 203.2
One-time Restructuring Costs................... 2.8
Fees and Expenses.............................. 12.3
--------- ---------
Total Sources of Funds......................... $ 283.8 Total Uses of Funds............................ $ 283.8
--------- ---------
--------- ---------
</TABLE>
- ------------------------------
(1) Represents the Equity Contribution of $75.0 million of capital invested in
Holdings by the Investors.
(2) Represents repayment of the principal of and accrued but unpaid interest on
the ALM Promissory Note. The ALM Promissory Note accrued interest at a rate
of 10% per annum.
(3) Represents repayment of the principal of and accrued but unpaid interest on
the WP Promissory Note. The WP Promissory Note accrued interest at a rate of
9% per annum.
29
<PAGE>
USE OF PROCEEDS
The net proceeds to Holdings from the Initial Discount Note Offering,
approximately $33.8 million (after deducting discounts to the Initial Purchasers
and other Initial Discount Note Offering expenses), were used to fund, in part,
a capital contribution to ALM which, together with the proceeds to ALM of the
Initial Senior Note Offering, was used to consummate the NLP Acquisition, to
repay the principal and accrued interest on each of the ALM Promissory Note and
the WP Promissory Note, to pay certain fees and expenses, and to pay one-time
restructuring costs in connection with the Transactions.
The Exchange Offer is intended to satisfy certain of Holdings' obligations
under the Registration Rights Agreement. Holdings will not receive any cash
proceeds from the issuance of the Exchange Discount Notes offered hereby. In
consideration for issuing the Exchange Discount Notes contemplated in this
Prospectus, Holdings will receive Old Discount Notes in like principal amount,
the form and terms of which are the same as the form and terms of the Exchange
Discount Notes (which replace the Old Discount Notes), except as otherwise
described herein.
CAPITALIZATION
The following table sets forth the consolidated capitalization of Holdings
as of December 31, 1997 and March 31, 1998 after giving effect to the Initial
Discount Notes Offering and the application of the net proceeds received
therefrom. The Old Discount Notes surrendered in exchange for Exchange Discount
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the Exchange Discount Notes will not result in any increase or decrease in
the indebtedness of Holdings. As such, no effect has been given to the Exchange
Offer in the following capitalization table. The information in this table
should be read in conjunction with "The Transactions," "Unaudited Combined Pro
Forma Statements of Operations," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and accompanying notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C>
(IN THOUSANDS)
Short-term debt:
Short-term borrowings.................................................... -- --
-------- --------------
Long-term debt (less current portion):
Discount Notes........................................................... $ 35,119 $ 36,191
Company Borrowings:
Senior Notes........................................................... 175,000 $ 175,000
-------- --------------
Total Long-term debt (less current portion).......................... 210,119 211,191
-------- --------------
Stockholders' equity:
Additional paid-in capital............................................... 75,000(1) 75,000
Accumulated deficit...................................................... (7,711) (12,910)
-------- --------------
Total Stockholders' equity........................................... 67,289 62,090
-------- --------------
Total capitalization............................................... $ 277,408 $ 273,281
-------- --------------
-------- --------------
</TABLE>
- ------------------------
(1) Represents the Investor Equity Contribution.
30
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The Unaudited Combined Pro Forma Statement of Operations for the year ended
December 31, 1997 gives effect to the following transactions as if each such
transaction occurred effective January 1, 1997: (i) the acquisition of Old ALM
by ALM on August 27, 1997 which was accounted for as a purchase effective as of
August 1, 1997; (ii) the acquisition of all of the issued and outstanding
capital stock of NLP by ALM on December 22, 1997, which was accounted for as a
purchase; (iii) the shutdown of Counsel Connect internet services; (iv) the
elimination or reduction of certain costs and expenses as a result of the
integration of ALM and NLP, and (v) the issuance of $175,000,000 9 3/4% Senior
Notes by ALM and $35,000,000 initial aggregate principal amount of the Discount
Notes by Holdings.
The Unaudited Combined Pro Forma Statement of Operations for the three
months ended March 31, 1998 gives effect to the elimination or reduction of
certain costs and expenses as a result of the integration of ALM and NLP as if
such transaction occurred effective January 1, 1998. All other transactions
discussed in the above paragraph are reflected in the historical statement of
operations for the three months ended March 31, 1998.
The Unaudited Combined Pro Forma Statements of Operations should be read in
conjunction with the historical consolidated financial statements of Holdings,
Old ALM and NLP, including the notes thereto, included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Unaudited Combined Pro Forma Statements of
Operations represent management's best estimate of the effects of the
Transactions and the Acquisitions discussed above and do not purport to be
indicative of the results that would have actually been obtained had such
transactions been consummated for the years presented, or that may be obtained
in the future.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
INTEGRATION COMBINED
OF PRO
ALM HOLDINGS, INC.(A) ALM & NLP (B) FORMA
--------------------- ------------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Revenues:
Periodicals:
Advertising.......................................................... $ 14,954 $ -- $ 14,954
Subscription......................................................... 5,140 -- 5,140
Ancillary Products and Services...................................... 5,628 -- 5,628
Internet Services.................................................... 654 -- 654
------- ------------- -----------
Total Revenues......................................................... 26,376 -- 26,376
------- ------------- -----------
Operating Costs and Expenses:
Editorial............................................................ 3,361 -- 3,361
Production and Distribution.......................................... 5,472 -- 5,472
Selling.............................................................. 4,250 -- 4,250
General and Administrative........................................... 7,101 (382) 6,719
Internet Services.................................................... 1,110 -- 1,110
Depreciation and Amortization........................................ 5,946 -- 5,946
------- ------------- -----------
Total Operating Costs and Expenses..................................... 27,240 (382) 26,858
------- ------------- -----------
Operating income (loss)................................................ (864) 382 (482)
Interest expense, net.................................................. (5,487) -- (5,487)
------- ------------- -----------
Income (loss) before income taxes...................................... (6,351) 382 (5,969)
Provision (benefit) for income taxes................................... (937) -- (937)
------- ------------- -----------
Net income (loss)...................................................... $ (5,414) $ 382 $ (5,032)
------- ------------- -----------
------- ------------- -----------
</TABLE>
<TABLE>
<S> <C>
OTHER DATA:
EBITDA (c).............................................................................................. $ 5,464
Total Capital Expenditures.............................................................................. 209
Interest Coverage Ratio (d)............................................................................. 1.00x
Earnings to Fixed Charges Ratio (e)..................................................................... --
Fixed Charges Coverage Deficiency (f)................................................................... $ 5,969
</TABLE>
31
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(a) Represents the historical consolidated statement of operations of Holdings
for the three months ended March 31, 1998.
(b) The adjustment relates to the elimination or reduction of certain costs and
expenses which have either already occurred or which will be eliminated or
reduced as a result of activities expected to occur shortly following the
completion of the Transactions, as follows:
<TABLE>
<S> <C>
Rent Expense(1)................................................................ $ 82
Employee Benefits (2).......................................................... 300
---------
$ 382
---------
---------
</TABLE>
----------------------------
(1) Represents the identified savings resulting principally from combining
ALM's and NLP's office space, which is expected to be completed during
1998. This results from lower lease costs based on current available
space and reduced space requirements and other factors. Savings resulting
from consolidating various regional offices are also included.
(2) The Company has completed a thorough analysis of ALM's and NLP's
employee benefit programs and has identified various changes thereto,
including modifications to the medical and dental plan. These changes,
which will bring ALM's benefits in line with NLP's plan, are currently
being made.
(c) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating the Company's financial performance. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statements data prepared
in accordance with GAAP or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
(d) Ratio equal to EBITDA divided by interest expense.
(e) Earnings used in computing the ratio of earnings to fixed charges consist of
income before provision for income taxes plus fixed charges. Fixed charges
consist of interest expense, including amortization of deferred financing
costs and the implied interest element of rent expense for the period. For
purposes of calculating this ratio, earnings were negative and insufficient
to cover fixed charges.
(f) Deficiency is equal to the shortfall in earnings to cover fixed charges.
32
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------------------
INTEGRATION
ELIMINATION OF ALM
OLD OLD ALM OF COUNSEL NLP AND NLP
ALM (A) ALM (B) NLP (C) ACQUISITION (D) CONNECT (E) ACQUISITION (F) (G)
----------- ----------- ----------- --------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Revenues:
Periodicals:
Advertising..... $ 18,146 $ 13,410 $ 26,402 $ -- $ -- $ -- $ --
Subscription.... 6,719 5,260 9,504 -- -- -- --
Ancillary
Products and
Services...... 4,532 4,142 13,926 -- -- -- --
Internet
Services...... 2,148 40 1,109 -- (2,148) -- --
----------- ----------- ----------- ------- ------------- ------- -----------
Total Revenues.... 31,545 22,852 50,941 -- (2,148) -- --
----------- ----------- ----------- ------- ------------- ------- -----------
Operating Costs
and Expenses:
Editorial....... 4,023 3,323 5,837 -- -- -- --
Production and
Distribution... 6,919 5,766 9,872 -- -- -- --
Selling......... 4,640 3,656 8,211 -- -- -- --
General and
Administrative.. 9,531 7,145 8,722 -- -- -- (2,286)
Internet
Services...... 6,464 43 1,657 -- (5,964) -- --
Depreciation and
Amortization.. 1,590 3,273 7,283 1,945 -- 9,993 --
Shutdown of
Counsel
Connect....... -- 4,823 -- -- (4,823) -- --
Special
Compensation
Charge........ -- -- 6,926 -- -- (6,926) --
----------- ----------- ----------- ------- ------------- ------- -----------
Total Operating
Costs and
Expenses........ 33,167 28,029 48,508 1,945 (10,787) 3,067 (2,286)
----------- ----------- ----------- ------- ------------- ------- -----------
Operating income
(loss).......... (1,622) (5,177) 2,433 (1,945) 8,639 (3,067) 2,286
Interest expense,
net............. (1,420) (2,534) (5,137) (2,656) -- 5,137 --
----------- ----------- ----------- ------- ------------- ------- -----------
Income (loss)
before income
taxes........... (3,042) (7,711) (2,704) (4,601) 8,639 2,070 2,286
Provision
(benefit) for
income taxes.... -- -- 2,508 -- -- (2,258) --
----------- ----------- ----------- ------- ------------- ------- -----------
Net income
(loss).......... $ (3,042) $ (7,711) $ (5,212) $ (4,601) $ 8,639 $ 4,328 $ 2,286
----------- ----------- ----------- ------- ------------- ------- -----------
----------- ----------- ----------- ------- ------------- ------- -----------
<CAPTION>
COMBINED
FINANCING PRO
(H) FORMA
------------- -----------
<S> <C> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising..... $ -- $ 57,958
Subscription.... -- 21,483
Ancillary
Products and
Services...... -- 22,600
Internet
Services...... -- 1,149
------------- -----------
Total Revenues.... -- 103,190
------------- -----------
Operating Costs
and Expenses:
Editorial....... -- 13,183
Production and
Distribution... -- 22,557
Selling......... -- 16,507
General and
Administrative.. -- 23,112
Internet
Services...... -- 2,200
Depreciation and
Amortization.. -- 24,084
Shutdown of
Counsel
Connect....... -- --
Special
Compensation
Charge........ -- --
------------- -----------
Total Operating
Costs and
Expenses........ -- 101,643
------------- -----------
Operating income
(loss).......... -- 1,547
Interest expense,
net............. (15,495) (22,105)
------------- -----------
Income (loss)
before income
taxes........... (15,495) (20,558)
Provision
(benefit) for
income taxes.... -- 250
------------- -----------
Net income
(loss).......... $ (15,495) $ (20,808)
------------- -----------
------------- -----------
</TABLE>
<TABLE>
<S> <C>
OTHER DATA:
EBITDA(i)............................................................................................... $ 25,631
Capital Expenditures(j)................................................................................. $ 1,311
Interest Coverage Ratio (k)............................................................................. 1.16x
Earnings to Fixed Charges Ratio (l)..................................................................... --
Fixed Charges Coverage Deficiency(m).................................................................... $ 20,558
</TABLE>
33
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
(DOLLARS IN THOUSANDS)
(a) Represents the historical statement of operations of Old ALM for the seven
months ended July 31, 1997.
(b) Represents the consolidated statement of operations of Holdings for the five
months ended December 31, 1997, after giving effect to the ALM Acquisition
at August 1, 1997 and the NLP acquisition at December 22, 1997.
(c) Represents the historical statement of operations of NLP for the period from
January 1, 1997 through December 21, 1997.
(d) Represents the adjustments to give effect to the ALM Acquisition as if it
were consummated at January 1, 1997. The following adjustments were made:
<TABLE>
<S> <C>
AMORTIZATION:
Removal of historical amortization............................................. (687)
Amortization of goodwill and intangibles....................................... 2,632
---------
$ 1,945
---------
---------
INTEREST EXPENSE
Removal of Old ALM's interest expense on amounts due to General Partner........ $ (1,420)
Accrual of interest on WP Promissory Note (9% per annum)....................... 1,936
Accrual of interest on ALM Promissory Note (10% per annum)..................... 2,140
---------
$ 2,656
---------
---------
</TABLE>
(e) Represents the removal of ALM's Internet Services (see Note 4 in the
consolidated financial statements as of and for the five months ended
December 31, 1997 of ALM) excluding administrative costs allocated by the
corporate division of Old ALM.
(f) Represents the adjustments to give effect to the NLP Acquisition as if it
were consummated at January 1, 1997. The following adjustments were made:
<TABLE>
<S> <C>
AMORTIZATION:
Removal of historical amortization............................................. (6,709)
Amortization of goodwill and intangibles....................................... 16,702
---------
$ 9,993
---------
---------
</TABLE>
SPECIAL COMPENSATION CHARGE:
Represents the elimination of the special compensation charge related to the
buyout of management stock options in connection with the NLP Acquisition.
INTEREST EXPENSE:
Elimination of $5,137 of interest expense on the historical debt of NLP
which was not acquired.
34
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
(DOLLARS IN THOUSANDS)
INCOME TAXES:
The income tax benefit considers the reversal of historical interest
expense, the federal income tax benefit related to the filing of a
consolidated tax return including ALM and the interest expense related to
the Initial Discount Note Offering. The resulting combined pro forma
provision for income taxes reflects the provision for state income taxes due
as a result of the requirement to file non-combined returns in certain
states, principally New York.
(g) The adjustment relates to the elimination or reduction of certain costs and
expenses which have either already occurred or which will be eliminated or
reduced as a result of activities expected to occur shortly following the
completion of the Transactions, as follows:
<TABLE>
<S> <C>
Rent Expense(1)................................................................. $ 326
Compensation of former ALM Chairman(2).......................................... 200
Employee Benefits(3)............................................................ 1,731
Other(4)........................................................................ 29
---------
$ 2,286
---------
---------
</TABLE>
----------------------------
(1) Represents the identified savings resulting principally from combining
ALM's and NLP's office space, which is expected to be completed during
1998. This results from lower lease costs based on current available
space and reduced space requirements and other factors. Savings resulting
from consolidating various regional offices are also included.
(2) Represents the historical compensation and benefits of the former
Chairman of ALM, who resigned prior to the ALM Acquisition.
(3) The Company has completed a thorough analysis of ALM's and NLP's
employee benefit programs (primarily retirement and health benefits) and
has identified various changes thereto, including the freeze of ALM's
pension plan and modifications to its medical and dental plan. These
changes, which will bring ALM's benefits in line with NLP's plan, are
currently being made.
(4) Represents Old ALM's share of losses from its interest in the Court TV
Law Center joint venture. This joint venture was terminated in March,
1997.
(h) Adjustments with respect to interest expense are as follows:
<TABLE>
<S> <C>
Interest expense as if the Initial Offerings had occurred on January 1, 1997:
Discount Notes ($35,000) at a rate of 12.25%............................... $ 4,168
Senior Notes ($175,000) at a rate of 9.75%................................. $ 16,589
Removal of interest expense with respect to the ALM Promissory Note and the
WP Promissory Note........................................................... (6,030)
Amortization of deferred financing costs....................................... 768
---------
Total interest expense......................................................... $ 15,495
---------
---------
</TABLE>
(i) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating the Company's financial performance. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statements data prepared
in accordance with GAAP or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
35
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
(DOLLARS IN THOUSANDS)
(j) Excludes capital expenditures related to COUNSEL CONNECT of $1,539.
(k) Ratio equal to EBITDA divided by interest expense.
(l) Earnings used in computing the ratio of earnings to fixed charges consist of
income before provision for income taxes plus fixed charges. Fixed charges
include interest expense and the implied interest element of rent expense
for the period. For purposes of calculating this ratio, earnings were
negative and insufficient to cover fixed charges.
(m) Deficiency is equal to the shortfall in earnings to cover fixed charges.
36
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following tables present selected historical financial information (i)
for Old ALM, as of and for the years ended December 31, 1993, 1994, 1995 and
1996, the three months ended March 31, 1997 and the seven months ended July 31,
1997 (ii) for NLP, as of and for the years ended December 31, 1993, 1994, 1995
and 1996, the three months ended March 31, 1997 and the period from January 1,
1997 through December 21, 1997, (iii) for Holdings, as of and for the five
months ended December 31, 1997 and the three months ended March 31, 1998. The
financial data for Holdings, as of and for the five months ended December 31,
1997 and the financial data for Old ALM for the seven months ended July 31, 1997
and the years ended December 31, 1995 and 1996 were derived from financial
statements audited by Arthur Andersen LLP. The financial data for NLP as of and
for the period from January 1, 1997 through December 21, 1997 were derived from
financial statements audited by Arthur Andersen LLP and financial data for NLP
for the years ended December 31, 1995 and 1996 were derived from financial
statements audited by Leslie Sufrin and Company, P.C. The audited financial
statements and the related notes thereto are included elsewhere in this
Prospectus. Unaudited financial data include (i) Old ALM financial data for the
years ended December 31, 1993 and 1994, and the three months ended March 31,
1997, (ii) NLP financial data for the years ended December 31, 1993 and 1994 and
the three months ended March 31, 1997, and (iii) Holdings financial data for the
three months ended March 31, 1998. In the opinion of management such unaudited
financial data have been prepared on the same basis as the audited financial
statements included elsewhere herein, and include all normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations for such periods. Results of operations for the interim
periods presented are not necessarily indicative of the results of operations
for the full year. The selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical and pro forma financial statements
and notes thereto included elsewhere in this Prospectus. See "Pro Forma
Financial Information" and "Index to Financial Statements."
37
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AMERICAN LAWYER
MEDIA HOLDINGS,
PREDECESSOR COMPANY INC.
-------------------------------------------------------------------------- -----------------
SEVEN MONTHS FIVE MONTHS
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED JULY ENDED DECEMBER
------------------------------------------ ENDED MARCH 31, 31, 31,
1993 1994 1995 1996 1997 1997 1997
--------- --------- --------- --------- --------------- ------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising................... $ 22,569 $ 23,872 $ 25,037 $ 26,659 $ 7,345 $ 18,146 $ 13,410
Subscription.................. 10,242 10,483 10,884 11,304 2,716 6,719 5,260
Ancillary Products and
Services...................... 7,374 7,980 8,387 8,467 1,826 4,532 4,142
Internet Services............... 135 685 3,238 5,474 1,052 2,148 40
--------- --------- --------- --------- ------- ------------- -----------------
Total Revenues.............. 40,320 43,020 47,546 51,904 12,939 31,545 22,852
--------- --------- --------- --------- ------- ------------- -----------------
Operating Costs and Expenses:
Editorial....................... 7,109 7,075 7,073 7,141 1,707 4,023 3,323
Production and Distribution..... 10,678 11,170 12,587 12,469 2,920 6,919 5,766
Selling......................... 6,662 7,208 6,913 7,479 1,888 4,640 3,656
General and Administrative...... 15,303 15,790 16,506 16,829 4,232 9,531 7,145
Internet Services............... 2,634 7,760 10,854 11,886 2,690 6,464 43
Depreciation and Amortization... 4,047 3,506 2,680 2,488 634 1,590 3,273
Shutdown of Counsel Connect..... -- -- -- -- -- -- 4,823
--------- --------- --------- --------- ------- ------------- -----------------
Total Operating Costs and
Expenses.................. 46,433 52,509 56,613 58,292 14,071 33,167 28,029
--------- --------- --------- --------- ------- ------------- -----------------
Operating (loss)............ (6,113) (9,489) (9,067) (6,388) (1,132) (1,622) (5,177)
Interest expense, net............. (478) (667) (1,384) (1,972) (576) (1,420) (2,534)
--------- --------- --------- --------- ------- ------------- -----------------
(Loss) before income taxes........ (6,591) (10,156) (10,451) (8,360) (1,708) (3,042) (7,711)
(Benefit) for income taxes........ -- -- -- -- -- -- --
--------- --------- --------- --------- ------- ------------- -----------------
(Loss) before Minority interest... (6,591) (10,156) (10,451) (8,360) (1,708) (3,042) (7,711)
Minority interest................. -- 1,847 2,334 172 -- -- --
--------- --------- --------- --------- ------- ------------- -----------------
Net (loss)........................ $ (6,591) $ (8,309) $ (8,117) $ (8,188) $ (1,708) $ (3,042) $ (7,711)
--------- --------- --------- --------- ------- ------------- -----------------
--------- --------- --------- --------- ------- ------------- -----------------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit)......... $ (6,571) $ (6,376) $ (7,066) $ (7,009) $ (5,014) $ (5,895) $ (7,042)
Total assets...................... 20,896 20,931 19,313 19,482 18,709 18,982 365,528
Long-term debt (including current
maturities)..................... 11,212 13,524 22,114 30,150 32,790 34,742 210,119
Partners' (deficit) and
Stockholders' equity............ (3,332) (11,647) (19,759) (26,300) 28,008 (29,342) 67,289
OTHER DATA:
EBITDA(1)......................... $ (2,066) $ (5,983) $ (6,387) $ (3,900) $ (498) $ (32) $ (1,904)
Capital Expenditures.............. $ 1,088 $ 1,488 $ 1,481 $ 2,202 $ 583 $ 1,971 $ 364
Ratio of Earnings to Fixed
Charges(2) -- -- -- -- -- -- --
Net Cash Provided by (Used in)
Operating Activities............ $ (1,044) $ (5,892) $ (5,472) $ (4,552) $ (1,116) $ (677) $ (2,497)
Net Cash Used in Investing
Activities...................... (980) (1,468) (1,481) (2,202) (583) (1,971) (265,383)
Net Cash Provided by Financing
Activities...................... 2,086 7,645 7,206 6,064 2,065 3,173 277,322
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1998
---------------
<S> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising................... $ 14,954
Subscription.................. 5,140
Ancillary Products and
Services...................... 5,628
Internet Services............... 654
---------------
Total Revenues.............. 26,376
---------------
Operating Costs and Expenses:
Editorial....................... 3,361
Production and Distribution..... 5,472
Selling......................... 4,250
General and Administrative...... 7,101
Internet Services............... 1,110
Depreciation and Amortization... 5,946
Shutdown of Counsel Connect..... --
---------------
Total Operating Costs and
Expenses.................. 27,240
---------------
Operating (loss)............ (864)
Interest expense, net............. (5,487)
---------------
(Loss) before income taxes........ (6,351)
(Benefit) for income taxes........ (937)
---------------
(Loss) before Minority interest... (5,414)
Minority interest................. --
---------------
Net (loss)........................ $ (5,414)
---------------
---------------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit)......... $ (18,348)
Total assets...................... 364,340
Long-term debt (including current
maturities)..................... 211,191
Partners' (deficit) and
Stockholders' equity............ 61,875
OTHER DATA:
EBITDA(1)......................... $ 5,082
Capital Expenditures.............. $ 209
Ratio of Earnings to Fixed
Charges(2) --
Net Cash Provided by (Used in)
Operating Activities............ $ 4,710
Net Cash Used in Investing
Activities...................... (11,189)
Net Cash Provided by Financing
Activities...................... 1,072
</TABLE>
- ------------------------
(1) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating Old ALM's and Holdings' financial performance. While EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP or as a measure of profitability or
liquidity, management understands that EBITDA is customarily used in
evaluating publishing companies. The EBITDA measures presented herein may
not be comparable to similarly titled measures of other companies.
(2) Earnings were inadequate to cover combined fixed charges by $6,591, $10,156,
$10,451, $8,360, $1,708, $3,042, $7,711 and $5,199 for the years ended
December 31, 1993, 1994, 1995, 1996, the three months ended March 31, 1997,
the seven months ended July 31, 1997, the five months ended December 31,
1997 and the three months ended March 31, 1998, respectively.
38
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, THREE MONTHS JANUARY 1, 1997
------------------------------------------ ENDED MARCH 31, THROUGH
1993 1994 1995 1996 1997 DECEMBER 21, 1997
--------- --------- --------- --------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
OPERATING DATA:
Revenues:
Periodicals:
Advertising............................... $ 16,546 $ 18,612 $ 21,387 $ 23,319 $ 6,349 $ 26,402
Subscription.............................. 8,610 9,105 9,694 9,759 2,314 9,504
Ancillary Products and Services............. 10,824 11,437 12,729 13,398 2,861 13,926
Internet Services........................... -- -- 264 747 271 1,109
--------- --------- --------- --------- ------- ----------
Total Revenues.......................... 35,980 39,154 44,074 47,223 11,795 50,941
--------- --------- --------- --------- ------- ----------
Operating Costs and Expenses:
Editorial................................... 4,811 5,451 5,778 5,929 1,420 5,837
Production and Distribution................. 7,009 7,621 8,146 8,679 2,267 9,872
Selling..................................... 7,693 8,831 9,776 8,991 2,120 8,211
General and Administrative.................. 7,109 7,726 7,620 8,047 2,431 8,722
Internet Services........................... -- -- 2,947 1,704 411 1,657
Depreciation and Amortization............... 3,087 3,130 6,329 7,487 1,890 7,283
Special Compensation Charge................. -- -- -- -- -- 6,926
--------- --------- --------- --------- ------- ----------
Total Operating Costs and Expenses...... 29,709 32,759 40,596 40,837 10,539 48,508
--------- --------- --------- --------- ------- ----------
Operating income........................ 6,271 6,395 3,478 6,386 1,256 2,433
Interest expense, net......................... (4,487) (4,734) (5,458) (6,013) (1,378) (5,137)
Other income (expense)........................ (284) (320) (211) 181 -- --
--------- --------- --------- --------- ------- ----------
Income (loss) before income taxes............. 1,500 1,341 (2,191) 554 (122) (2,704)
Benefit (provision) for income taxes.......... (777) (763) 523 (3,007) (754) (2,508)
--------- --------- --------- --------- ------- ----------
Net income (loss) before cumulative effect of
change in accounting principle.............. 723 578 (1,668) (2,453) (876) (5,212)
Cumulative effect of change in accounting
principle................................... 4,046 -- -- -- -- --
--------- --------- --------- --------- ------- ----------
Net income (loss)............................. $ 4,769 $ 578 $ (1,668) $ (2,453) $ (876) $ (5,212)
--------- --------- --------- --------- ------- ----------
--------- --------- --------- --------- ------- ----------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit)..................... $ (1,532) $ (2,868) $ (4,717) $ (2,081) $ (4,216) $ (2,204)
Total assets.................................. 20,886 21,217 154,125 147,311 145,383 139,610
Long-term debt (including current
maturities)................................. 45,500 54,600 70,900 70,300 66,210 59,500
Stockholders' equity (deficit)................ (33,945) (44,842) 65,620 63,167 66,290 64,782
OTHER DATA:
EBITDA(1)..................................... $ 9,358 $ 9,525 $ 9,807 $ 13,873 $ 3,146 $ 9,716
Capital Expenditures.......................... $ 739 $ 1,807 $ 608 $ 512 $ 170 $ 515
Ratio of Earnings to Fixed Charges(2)......... 1.28 1.24 -- 1.08 -- --
Net Cash Provided by Operating Activities..... $ 3,885 $ 3,795 $ 3,690 $ 6,616 $ 3,966 $ 11,292
Net Cash Used in Investing Activities......... (739) (1,807) (608) (529) (168) (496)
Net Cash Used in Financing Activities......... (3,980) (2,375) (3,351) (5,600) (4,100) (10,800)
</TABLE>
- ------------------------
(1) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating NLP's financial performance. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
(2) Earnings were inadequate to cover combined fixed charges by $2,191, $122 and
$2,704, for the year ended December 31, 1995, the three months ended March
31, 1997 and the period from January 1, 1997 through December 21, 1997,
respectively.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In August 1997, the Investors, through ALM, consummated the ALM Acquisition,
and in December 1997 ALM consummated the NLP Acquisition. Prior to the
Acquisitions, ALM and NLP operated independently, and the success of the Company
will depend in part on the Company's ability to integrate the operations of
these entities. The integration of the operations of ALM and NLP will entail the
reorganization of certain functions to achieve the cost savings outlined in the
business strategy and to realize the full potential of the business
opportunities available to the combined Company. There can be no assurance that
the Company will be able to successfully integrate these businesses or that the
Company will not encounter delays or incur unanticipated costs in such
integration.
The combination of ALM and NLP creates the nation's largest legal journalism
organization, with estimated readership of over one million. ALM's geographic
breadth and emphasis on high-quality editorial content have placed it at the
forefront of legal journalism; NLP's historical marketing strengths and
meticulous business execution have permitted it to produce consistently high
levels of operating profit and cash flow. The fundamental strategy underlying
the ALM-NLP combination is to leverage the strengths of both businesses by
adopting the best practices of each across the Company as a whole and to
capitalize on the opportunities inherent in the combination.
Historically, NLP has operated in a centralized manner and has focused its
resources on the continued development of its periodicals business as well as
expanding into various ancillary products and services, including books,
newsletters and seminars. ALM, on the other hand, has operated eight autonomous
regional businesses and has focused primarily on developing a geographically
diverse periodicals business (although each regional business has from time to
time developed various ancillary products and services). The Company intends to
centralize and consolidate its ancillary products and services business as well
as certain selling, general and administrative functions. Furthermore, the
Company intends to aggressively cross-sell its periodicals, products and
services to both readers and advertisers. The Company expects that the
implementation of these elements of its business strategy will result in
substantial cost savings, enhanced subscription and advertising revenues and an
acceleration in the growth of the Company's ancillary products and services
business.
PURCHASE ACCOUNTING EFFECTS. The Acquisitions have been accounted for using
the purchase method of accounting. The results of operations of Old ALM have
been included in the financial statements of the Company since August 1, 1997,
the effective date of the ALM Acquisition, and the results of operations of NLP
have been included in the financial statements of the Company since December 22,
1997, the closing date of the NLP Acquisition. As a result, the Acquisitions
will prospectively affect the Company's results of operations in certain
significant respects. In connection with the ALM Acquisition, the purchase price
was $63.0 million and the excess of the purchase price over the book value of
net tangible assets acquired was $67.7 million. The aggregate purchase price for
the NLP Acquisition was $203.2 million, and the excess of the purchase price
over the book value of net tangible assets acquired was $257.6 million. The
excess purchase price of both Acquisitions has been allocated to the tangible
and intangible assets acquired by the Company based upon their respective fair
values as of the acquisition date.
RESULTS OF OPERATIONS--ALM
FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1997
REVENUE RECOGNITION. Periodical Advertising revenues are generated from the
placement of display and classified advertisements, as well as legal notices, in
the Company's publications. Advertising revenue is recognized upon release of
the related publications.
Periodical Subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
40
<PAGE>
Ancillary revenues consist principally of third-party printing revenues,
newsletter subscriptions, sales of professional books, seminar and conference
income, income from a daily fax service of court decisions and income from
electronic products. Printing revenue is recorded upon shipment. Book revenues
are recognized upon shipment and are reflected net of estimated returns.
Newsletter revenues are recognized on the same basis as subscription revenues.
Seminar and conference revenues are recognized when the seminar or conference is
held. Daily fax service revenue is recognized upon fulfillment of orders. Income
from electronic products is recognized monthly as the service is provided.
Internet Service revenues consist primarily of revenues from subscriptions
and advertising. Internet subscription income is recognized on a pro rata basis
over the life of a subscription, generally one year. Internet advertising
revenues are recognized upon the release of an advertisement on the website.
The following discussion compares the financial results of the Company for
the three months ended March 31, 1998 to the financial information for the three
months ended March 31, 1997 which was derived from the combination of Old ALM
and NLP. As a result, the financial information for the combined three months
ended March 31, 1997 has not been prepared on a basis in conformity with GAAP.
The following table presents the calculation for such combined period and for
the three months ended March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
AMERICAN LAWYER MEDIA,
OLD ALM NLP COMBINED INC.
----------- --------- ----------- -----------------------
FOR THE THREE MONTHS
FOR THE THREE MONTHS ENDED ENDED
MARCH 31, 1997 MARCH 31, 1998
----------------------------------- -----------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals
Advertising........................ 7,345 6,349 13,694 14,954
Subscription....................... 2,716 2,314 5,030 5,140
Ancillary Products and Services...... 1,826 2,861 4,687 5,628
Internet Services.................... 1,052 271 1,323 654
----------- --------- ----------- ------
Total revenues................... 12,939 11,795 24,734 26,376
----------- --------- ----------- ------
Operating Costs and Expenses:
Editorial............................ 1,707 1,420 3,127 3,361
Production and Distribution.......... 2,920 2,267 5,187 5,472
Selling.............................. 1,888 2,120 4,008 4,250
General and Administrative........... 4,232 2,431 6,663 7,101
Internet Services.................... 2,690 411 3,101 1,110
Depreciation and Amortization........ 634 1,890 2,524 5,946
----------- --------- ----------- ------
Total Operating Costs and
Expenses....................... 14,071 10,539 24,610 27,240
Operating income/(loss).......... (1,132) 1,256 124 (864)
----------- --------- ----------- ------
----------- --------- ----------- ------
</TABLE>
OVERVIEW. Net revenues increased by $1.6 million, or 6.6% from $24.7
million for the three months ended March 31, 1997 to $26.4 million for the three
months ended March 31, 1998. Total operating costs and expenses increased $2.6
million, or 10.7%, from $24.6 million for the three months ended March 31, 1997
to $27.2 million for the three months ended March 31, 1998 due to a $3.4 million
increase in depreciation and amortization resulting from the Acquisitions. As a
result, operating income decreased $1.0 million, from an operating income of
$0.1 million for the three months ended March 31, 1997 to an operating loss of
$0.9 million for the three months ended March 31, 1998, while EBITDA increased
$2.4 million, or 91.9%, from $2.6 million for the three months ended March 31,
1997 to $5.1 million for the three months ended March 31, 1998. Internet
Services revenues decreased $0.7 million, or 50.6%, from $1.3 million for the
three months ended March 31, 1997 to $0.7 million for the three months ended
March 31, 1998. Internet Services expenses decreased $2.0 million, or 64.2%,
from $3.1 million for the three
41
<PAGE>
months ended March 31, 1997 to $1.1 million for the three months ended March 31,
1998. Accordingly, excluding the net operating loss from Internet Services,
operating income decreased $2.3 million, or 116.8%, from $2.0 million operating
income for the three months ended March 31, 1997 to a $0.3 million loss for the
three months ended March 31, 1998, while EBITDA increased $1.1 million, or
25.1%, from $4.4 million to $5.5 million over the same periods.
REVENUES. Advertising revenues increased $1.3 million, or 9.2%, from $13.7
million for the three months ended March 31, 1997 to $15.0 million for the three
months ended March 31, 1998. This increase was due principally to an increase in
advertising rates as well as an overall increase in advertising pages.
Subscription revenues increased $0.1 million, or 2.2%, from $5.0 million for
the three months ended March 31, 1997 to $5.1 million for the three months ended
March 31, 1998. Increases in subscription rates at all publications were
partially offset by slight decreases in paid circulation.
Revenues from ancillary products and services increased $0.9 million, or
20.1%, from $4.7 million for the three months ended March 31, 1997 to $5.6
million for the three months ended March 31, 1998. Revenues from two seminars
held in the first quarter of 1998 were recorded while no seminars were conducted
in the first quarter of 1997. In addition, a portion of the book sales
historically recorded in the fourth quarter were shipped and included in the
first quarter results of 1998.
Revenues from Internet Services decreased $0.7 million, or 50.6%, from $1.3
million for the three months ended March 31, 1997 to $0.7 million for the three
months ended March 31, 1998. This decrease is attributable primarily to the shut
down of Counsel Connect, Old ALM's Internet service. This shut down is part of
management's strategy to focus on internet services that will better enhance its
existing product base. This strategy includes an increased emphasis on
advertising revenue which was 29.0% higher in the first quarter of 1998 than the
first quarter of 1997.
OPERATING EXPENSES. Total operating costs and expenses increased $2.6
million, or 10.7%, from $24.6 million for the three months ended March 31, 1997
to $27.2 million for the three months ended March 31, 1998 due to a $3.4 million
increase in depreciation and amortization resulting from the Acquisitions.
Editorial expenses increased $0.2 million, or 7.5%, from $3.1 million for
the three months ended March 31, 1997 to $3.4 million for the three months ended
March 31, 1998 as a number of vacant positions were filled.
Production and distribution expenses increased $0.3 million, or 5.5%, from
$5.2 million for the three months ended March 31, 1997 to $5.5 million for the
three months ended March 31, 1998. This increase is primarily the result of the
increased book sales recorded in the first quarter. Higher paper usage at the
Company's printing facilities also contributed to this increase.
Selling expenses increased $0.2 million, or 6.0%, from $4.0 million for the
three months ended March 31, 1997 to $4.3 million for the three months ended
March 31, 1998. This increase is primarily due to higher subscription promotion
costs as well as increased commissions resulting from the increased advertising
revenue.
General and administrative expenses increased $0.4 million, or 6.6%, from
$6.7 million for the three months ended March 31, 1997 to $7.1 million for the
three months ended March 31, 1998. This increase is primarily the result of
costs associated with one-time charges and salary increases.
Internet Services expenses decreased $2.0 million, or 64.2%, from $3.1
million for the three months ended March 31, 1997 to $1.1 million for the three
months ended March 31, 1998. This decrease is the direct result of the shut down
of Counsel Connect.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $3.4 million, or 135.6%, from $2.5 million for the three months ended
March 31, 1997 to $5.9 million for the three months ended March 31, 1998. These
expenses are not comparable for the two periods due to purchase accounting
adjustments related to the Acquisitions.
42
<PAGE>
OPERATING INCOME. As a result of the above factors, operating income
decreased $1.0 million from an operating income of $0.1 million for the three
months ended March 31, 1997 to an operating loss of $0.9 million for the three
months ended March 31, 1998, while EBITDA increased $2.4 million, or 91.9%, from
$2.6 million for the three months ended March 31, 1997 to $5.1 million for the
three months ended March 31, 1998.
CAPITAL EXPENDITURES. Capital expenditures decreased $0.5 million, or
72.2%, from $0.8 million for the three months ended March 31, 1997 to $0.2
million for the three months ended March 31, 1998 reflecting the discontinued
investment in the infrastructure of Counsel Connect.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUE RECOGNITION. ALM recognizes advertising revenues on the issue date
of the related publications. Advertising revenues are generated from the
placement of display and classified advertisements, as well as legal notices.
Advertising fees billed and/or received for advertisements to be released in
future months are included in deferred revenue. Subscription revenues are
deferred and recognized on a pro rata basis over the term of the related
subscription, principally one year. Ancillary products and services revenues
consist primarily of sales of professional books, subscriptions to newsletters,
seminar and conference income and income from electronic products. Book revenues
are recognized upon shipment and are reflected net of estimated returns.
Newsletter revenues are recognized on the same basis as periodical subscription
revenues. Seminar and conference revenues are recognized when the seminar or
conference is held.
The following discussion for the year ended December 31, 1997 is derived
from the financial information for Old ALM for the seven months ended July 31,
1997 and for ALM for the five months ended December 31, 1997, including
adjustments for the ALM Acquisition and financial information for NLP for the
period from December 22, 1997 through December 31, 1997. As a result, the
financial information for the combined year ended December 31, 1997 has not been
prepared on a basis in conformity with GAAP. The following table presents the
calculation for such combined period and for the year ended December 31, 1996
(in thousands):
<TABLE>
<CAPTION>
OLD ALM AMERICAN LAWYER MEDIA HOLDINGS, INC.
---------------------------- ------------------------------------
COMBINED
YEAR SEVEN MONTHS FIVE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER, 31, JULY 31, DECEMBER, 31, DECEMBER, 31,
1996 1997 1997 1997
------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals
Advertising................... 26,659 18,146 13,410 31,556
Subscription.................. 11,304 6,719 5,260 11,979
Ancillary Products and
Services...................... 8,467 4,532 4,142 8,674
Internet Services............... 5,474 2,148 40 2,188
------ ------ ------ ------
Total revenues.............. 51,904 31,545 22,852 54,397
------ ------ ------ ------
Operating Costs and Expenses:
Editorial....................... 7,141 4,023 3,323 7,346
Production and Distribution..... 12,469 6,919 5,766 12,685
Selling......................... 7,479 4,640 3,656 8,296
General and Administrative...... 16,829 9,531 7,145 16,676
Internet Services............... 11,886 6,464 43 6,507
Depreciation and Amortization... 2,488 1,590 3,273 4,863
Shut down of Counsel Connect.... -- -- 4,823 4,823
------ ------ ------ ------
Total Operating Costs and
Expenses.................. 58,292 33,167 28,029 61,196
------ ------ ------ ------
Operating (loss)............ (6,388) (1,622) (5,177) (6,799)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
43
<PAGE>
INTERNET SERVICES. ALM's prior Internet service, Counsel Connect, incurred
material expenses for the years ended December 31, 1996 and December 31, 1997
due to the nature of the service. Counsel Connect was a service which attempted
to serve all the Internet needs of its lawyer subscribers: security,
connectivity, customer service and editorial content. The technology necessary
to provide and support these services necessitated material spending on
connectivity costs, outside system providers and internal personnel to do
programming and handle customer inquiries. The ambitious editorial content,
which included seminars and discussions forums also resulted in spending
material amounts on editorial staff and outside content providers. In an attempt
to enroll enough subscribers to cover these costs there was also a material
amount spent on advertising and sales efforts.
Due to these costs and lack of sufficient associated revenues, the Company
decided to shut down Counsel Connect and transfer certain remaining components
into a new combined service. These components include trademarks, trade names,
customer lists, and certain Counsel Connect employees. The new service will not
be an Internet service provider. The Company has also made the decision to
eliminate the high level of internet security which was an integral part of
Counsel Connect's intended appeal to its lawyer subscribers. This decision
creates a simpler internet site and eliminates the need for technical and
customer service employees.
The Company's decision to shut down Counsel Connect was made in light of the
NLP Acquisition and the changes discussed above have since been implemented.
Counsel Connect's employees have been reduced from 41 in December 1997 to 16 as
of May 15, 1998. The contracts with Counsel Connect's Internet providers have
been or are in the process of being renegotiated or terminated. The Company
believes that the shut down of the Counsel Connect service is of such a material
nature that the following comparison of the years ended December 31, 1996 and
1997 excludes operating data relating to Counsel Connect. Management believes
that such a comparison provides a meaningful discussion of ALM's results of
operations for such periods.
Net operating losses for Internet Services were $6.4 million for the year
ended December 31, 1996 and $9.1 million for the year ended December 31, 1997.
The historical financial data for ALM for the five months ended December 31,
1997 includes expenses of $4.8 million related to the shut down. This amount
includes Internet Services net operating loss of $1.8 million as well as a
provision of $3.0 million to cover severance costs, uncollectible receivables,
writedown of computer and network equipment and the termination or restructuring
of certain contracts related to network services that provided internet access.
OVERVIEW. Net revenues (excluding Counsel Connect) increased $5.8 million,
or 12.4%, from $46.4 million for the year ended December 31, 1996 to $52.2
million for the year ended December 31, 1997. Total operating costs and expenses
(excluding Counsel Connect) increased $3.5 million, or 7.5%, from $46.4 million
to $49.9 million over the same periods. Operating income (excluding Counsel
Connect) increased $2.3 million from breakeven for the year ended December 31,
1996 to $2.3 million for the year ended December 31, 1997 while EBITDA increased
$4.7 million from $2.5 million to $7.2 million over the same periods.
REVENUES. Advertising revenues increased $4.9 million, or 18.4%, from $26.7
million for the year ended December 31, 1996 to $31.6 million for the year ended
December 31, 1997. The increase in advertising revenues was primarily
attributable to an increase in the total volume of advertising pages stemming,
in part, from both the increase in the frequency of CORPORATE COUNSEL MAGAZINE
and from strong legal industry trends.
Subscription revenues increased $0.7 million, or 6.0%, from $11.3 million
for the year ended December 31, 1996 to $12.0 million for the year ended
December 31, 1997. While total paid circulation remained essentially constant,
subscription rates increased relative to the same period in 1996. A portion of
the increase in subscription revenues was also attributable to ALM's newly
initiated efforts to convert its CORPORATE COUNSEL MAGAZINE from free
distribution to a paid subscriber base as well as the inclusion of
44
<PAGE>
NLP's subscription revenue for the period from December 22, 1997 through
December 31, 1997 of $0.3 million.
Revenues from ancillary products and services increased $0.2 million, or
2.4%, from $8.5 million for the year ended December 31, 1996 to $8.7 million for
the year ended December 31, 1997. The increase is due to the inclusion of NLP's
ancillary revenue of $0.5 million for the period from December 22, 1997 through
December 31, 1997.
OPERATING EXPENSES. Total operating costs and expenses (excluding Counsel
Connect) increased $3.5 million, or 7.5%, from $46.4 million for the year ended
December 31, 1996 to $49.9 million for the year ended December 31, 1997.
Editorial expenses increased $0.2 million, or 2.9%, from $7.1 million for the
year ended December 31, 1996 to $7.4 million for the year ended December 31,
1997 due to the inclusion of NLP's editorial expenses of $0.2 million for the
period from December 22, 1997 through December 31, 1997. Production and
distribution expenses increased $0.2 million, or 1.7%, from $12.5 million for
the year ended December 31, 1996 to $12.7 million for the year ended December
31, 1997 due to the inclusion of NLP's production and distribution cost of $0.3
million for the period from December 22, 1997 through December 31, 1997. Selling
expenses increased $0.8 million, or 10.9%, from $7.5 million for the year ended
December 31, 1996 to $8.3 million for the year ended December 31, 1997. This
increase was a direct result of increased advertising sales and associated
commissions as well as the inclusion of $0.4 million of NLP expenses for the
period from December 22, 1997 through December 31, 1997. General and
administrative expenses decreased $0.2 million, or 0.9%, from $16.8 million to
$16.7 million over the same periods. This decrease was due, in part, to the
elimination in 1997 of certain executive bonus compensation for the former
Chairman of Old ALM, who resigned prior to the ALM Acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$2.5 million for the year ended December 31, 1996 and $4.9 million for the year
ended December 31, 1997. These expenses are not comparable for the two periods
due to purchase accounting adjustments related to the ALM and NLP Acquisitions.
Amortization of goodwill and intangibles related to the acquisition for the five
months ended December 31, 1997 was $2.4 million.
OPERATING INCOME. As a result of the foregoing factors, operating income
(excluding Internet Services) increased $2.3 million from breakeven for the year
ended December 31, 1996 to $2.3 million for the year ended December 31, 1997.
EBITDA increased $4.7 million from $2.5 million for the year ended December 31,
1996 to $7.2 million for the year ended December 31, 1997.
CAPITAL EXPENDITURES. Capital expenditures for the year ended December 31,
1997 were $0.8 million excluding $1.5 million for Internet Services. The
majority of such expenditures related to ongoing activities. Capital
expenditures for the year ended December 31, 1996 were $1.1 million excluding
$1.1 million for Internet Services.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
OVERVIEW. Net revenues increased $4.4 million, or 9.2%, from $47.5 million
for the year ended December 31, 1995 to $51.9 million for the year ended
December 31, 1996. Excluding Internet Services, revenues increased $2.1 million,
or 4.8%, from $44.3 million to $46.4 million. Operating costs and expenses
increased $1.7 million, or 3.0%, from $56.6 million to $58.3 million while
operating costs and expenses excluding Internet Services increased $0.6 million,
or 1.4%, from $45.8 million to $46.4 million. Operating loss decreased $2.7
million, or 29.5%, from $9.1 million for the year ended December 31, 1995 to
$6.4 million for the year ended December 31, 1996. Excluding Internet Services,
operating income increased $1.5 million from an operating loss of $1.5 million
for the year ended December 31, 1995 to breakeven for the year ended December
31, 1996. EBITDA increased $2.5 million from a loss of $6.4 million for the year
ended December 31, 1995 to a loss of $3.9 million for the year ended December
31, 1996. Excluding Internet Services, EBITDA increased $1.3 million, or 104.4%,
from $1.2 million to $2.5 million.
45
<PAGE>
REVENUES. Advertising revenues increased $1.6 million, or 6.5%, from $25.0
million for the year ended December 31, 1995 to $26.7 million for the year ended
December 31, 1996. This increase was attributable, in large part, to a marked
increase in advertising volume caused both by heightened demand for law-related
advertising in general and by the introduction of a new publication, AMLAW TECH.
This new magazine, coupled with an additional issue of CORPORATE COUNSEL
MAGAZINE, resulted in increased total advertising pages in 1996. In its first
year of publication, AMLAW TECH generated $0.5 million of advertising revenues.
Advertising revenue growth is also due, in part, to an increase in advertising
rates.
Subscription revenues increased $0.4 million, or 3.9%, from $10.9 million
for the year ended December 31, 1995 to $11.3 million for the year ended
December 31, 1996. An increase in subscription rates was offset, in part, by a
minimal decrease in circulation.
Revenues from ancillary products and services increased $0.1 million, or
1.0%, from $8.4 million for the year ended December 31, 1995 to $8.5 million for
the year ended December 31, 1996. This increase was due, in part, to the
introduction of a new regional lecture series, partially offset by a decrease in
revenues at ALM's printing facilities.
Revenues from Internet Services increased $2.2 million, or 69.1%, from $3.2
million for the year ended December 31, 1995 to $5.5 million for the year ended
December 31, 1996. This increase resulted from increased usage stemming from
heightened interest in law-related issues. Increased revenues were specifically
attributable to an increase in both the number of subscribers and subscription
rates.
OPERATING EXPENSES. Operating costs and expenses increased $1.7 million, or
3.0%, from $56.6 million for the year ended December 31, 1995 to $58.3 million
for the year ended December 31, 1996. Editorial expenses remained essentially
constant at $7.1 million for the years ended December 31, 1995 and December 31,
1996. Production and distribution expenses decreased $0.1 million, or 0.9%, from
$12.6 million for the year ended December 31, 1995 to $12.5 million for the year
ended December 31, 1996. The additional costs associated with the publication of
a new quarterly magazine, AMLAW TECH, were offset by cost reductions at ALM's
printing facilities. Selling expenses increased $0.6 million, or 8.2%, from $6.9
million for the year ended December 31, 1995 to $7.5 million for the year ended
December 31, 1996. This increase was a direct result of increased advertising
sales and associated commissions. General and administrative expenses increased
by $0.3 million, or 2.0%, from $16.5 million for the year ended December 31,
1995 to $16.8 million for the year ended December 31, 1996. The majority of this
increase was attributable to an increase in employee benefit expenses. Internet
Services expenses increased $1.0 million, or 9.5%, from $10.9 million for the
year ended December 31, 1995 to $11.9 million for the year ended December 31,
1996. This increase was due both to increased costs associated with growing
customer usage and to operating expenses related to COUNSEL CONNECT'S transition
from a proprietary system to an internet-based system.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
decreased $0.2 million, or 7.2%, from $2.7 million for the year ended December
31, 1995 to $2.5 million for the year ended December 31, 1996.
OPERATING INCOME. As a result of the above factors, operating loss
decreased $2.7 million, or 29.5%, from $9.1 million for the year ended December
31, 1995 to $6.4 million for the year ended December 31, 1996. Excluding
Internet Services, operating income increased $1.5 million from an operating
loss of $1.5 million for the year ended December 31, 1995 to breakeven for the
year ended December 31, 1996. EBITDA increased $2.5 million from a loss of $6.4
million for the year ended December 31, 1995 to a loss of $3.9 million for the
year ended December 31, 1996. Excluding Internet Services, EBITDA increased $1.3
million, or 104.4%, from $1.2 million for the year ended December 31, 1995 to
$2.5 million for the year ended December 31, 1996.
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CAPITAL EXPENDITURES. Capital expenditures were $2.2 million for the year
ended December 31, 1996, including $1.1 million for Internet Services. Capital
expenditures for the year ended December 31, 1995 were $1.5 million, including
$0.6 million for Internet Services.
RESULTS OF OPERATIONS--NLP
REVENUE RECOGNITION. NLP recognizes advertising revenues, net of related
advertising agency commissions, on the issue date of the related publications,
except for revenue from certain classified advertisements which are recognized
when the last of a series of advertisements runs. Advertising revenues are
generated from the placement of display and classified advertisements, as well
as legal notices. Advertising fees billed and/or received for advertisements to
be released in future months are included in deferred revenue. Subscription
revenues are deferred and recognized on a pro rata basis over the term of the
related subscription, generally one year. Ancillary revenues consist principally
of sales of professional books, subscriptions to newsletters, seminar and
conference income and income from electronic products. Book revenues are
recognized upon shipment and are reflected net of estimated returns. Newsletter
revenues are recognized on the same basis as subscription revenues. Seminar and
conference revenues are recognized when the seminar or conference is held.
Internet Services revenues consist primarily of revenues from display
advertising on LAW JOURNAL EXTRA! Internet advertising revenues are recognized,
net of related advertising agency commissions, during the period in which the
advertisement runs on the service.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
The following discussion for the year ended December 31, 1997 is derived
from the financial information for NLP until the consummation of the NLP
Acquisition, which occurred on December 22, 1997. As a result, the financial
information for the year ended December 31, 1996 is compared to the period from
January 1, 1997 through December 21, 1997.
OVERVIEW. Net revenues increased by $3.7 million, or 7.9%, from $47.2
million for the year ended December 31, 1996 to $50.9 million for the year ended
December 31, 1997. Total operating costs and expenses increased $7.7 million, or
18.8%, from $40.8 million to $48.5 million. As a result, operating income
decreased $4.0 million, or 61.9%, from $6.4 million to $2.4 million. Included in
the operating costs for 1997 however, was a special compensation charge of $6.9
million reflecting stock option and bonus payments related to the sale of NLP,
which were paid by the sellers. Without this charge, total operating costs and
expenses increased at a rate substantially less than the rate of increase in
revenues over the same period, increasing only $0.8 million, or 1.8%, from $40.8
million to $41.6 million with operating income increasing $3.0 million, or
46.6%, from $6.4 million to $9.4 million. Internet Services revenues increased
$0.4 million, or 48.5%, from $0.7 million for the year ended December 31, 1996
to $1.1 million for the year ended December 31, 1997, while Internet Services
expenses remained essentially constant at $1.7 million for the same periods.
Accordingly, excluding both the special compensation charge and the net
operating loss from Internet Services, operating income would have increased
$2.6 million, or 34.9%, from $7.3 million to $9.9 million, while EBITDA would
have increased $2.4 million, or 15.9%, from $14.8 million to $17.2 million over
the same periods.
REVENUES. Advertising revenues increased $3.1 million, or 13.2%, from $23.3
million for the year ended December 31, 1996 to $26.4 million for the year ended
December 31, 1997. This increase was due principally to an increase in
advertising rates, an overall increase in advertising pages and the publication
of three additional issues of LAW TECHNOLOGY PRODUCT NEWS partially offset by
the inclusion of the results from the final eleven days of 1997 in the Company's
figures. In relation to advertising revenues, this period includes seven issues
of the NEW YORK LAW JOURNAL and two issues of THE NATIONAL LAW JOURNAL.
Subscription revenues decreased $0.3 million, or 2.6%, from $9.8 million for
the year ended December 31, 1996 to $9.5 million for the year ended December 31,
1997 due to the inclusion of the results from the final eleven days of 1997 in
the Company's figures. Otherwise, increases in subscription rates at both
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the NEW YORK LAW JOURNAL and THE NATIONAL LAW JOURNAL were largely offset by
decreases in paid circulation at both publications.
Revenues from ancillary products and services increased $0.5 million, or
3.9%, from $13.4 million for the year ended December 31, 1996 to $13.9 million
for the year ended December 31, 1997. Significant growth was realized in
newsletters, seminars, books (driven by the addition of four new titles) and
MA/3000, NLP's case tracking and docketing service, as well as a 31.4% increase
in royalty income from licensing NLP's proprietary content to third party
information providers. Overall, however, the increase was partially offset by
the inclusion of the results from the final eleven days of 1997 in the Company's
figures. In addition, a portion of the book update sales historically recorded
in the fourth quarter was not shipped, and therefore not recorded, until 1998.
Revenues from Internet Services increased $0.4 million, or 48.5%, from $0.7
million for the year ended December 31, 1996 to $1.1 million for the year ended
December 31, 1997. This increase is attributable primarily to strong growth in
display advertising on LAW JOURNAL EXTRA!. Internet advertising revenues have
grown rapidly since the conversion of LAW JOURNAL EXTRA! from a proprietary
online system to a predominantly advertising-supported web-based service at the
end of 1995.
OPERATING EXPENSES. Total operating costs and expenses increased $7.7
million, or 18.8%, from $40.8 million, or 86.5% of revenues, for the year ended
December 31, 1996 to $48.5 million, or 95.2% of revenues, for the year ended
December 31, 1997. Included in the operating costs for 1997 however, was a
special compensation charge of $6.9 million reflecting stock option and bonus
payments related to the sale of NLP which were paid by the sellers. Without this
charge, total operating costs and expenses increased at a rate substantially
less than the rate on increase in revenues over the same period, increasing only
$0.8 million, or 1.8%, from $40.8 million to $41.6 million. Due to the nature of
the business, incremental revenue growth often does not require corresponding
increases in operating expenses. Editorial expenses decreased slightly, by $0.1
million, or 1.6%, from $5.9 million for the year ended December 31, 1996 to $5.8
million for the year ended December 31, 1997, reflecting the inclusion of the
results from the final eleven days of 1997, in the Company's figures. Editorial
expenses consist primarily of salaries of editorial staff and fees paid to
outside contributors. While the overall change in editorial expenses was
insignificant, changes were made to the mix of editorial staff to add coverage
of certain areas that have strong advertiser support.
Production and distribution expenses increased $1.2 million, or 13.7%, from
$8.7 million for the year ended December 31, 1996 to $9.9 million for the year
ended December 31, 1997. This increase is primarily the result of a change in
the expense classification of fulfillment costs of $1.0 million from selling to
production and distribution. Otherwise, the marginal increase of $0.2 million,
or 1.9%, was attributable primarily to LAW TECHNOLOGY PRODUCT NEWS, which
experienced an increase in production and distribution expenses of 39.2% due to
the addition of three issues and an increase in controlled circulation of 10,000
per issue, partially offset the final seven issues of the NEW YORK LAW JOURNAL
and two issues of THE NATIONAL LAW JOURNAL, which are included in the Company's
results.
Selling expenses decreased $0.8 million, or 8.7% from $9.0 million for the
year ended December 31, 1996 to $8.2 million for the year ended December 31,
1997. This decrease is primarily the result of a change in the expense
classification of fulfillment costs of $1.0 million from selling to production
and distribution and of bad debt expense of $0.7 million from selling to general
and administrative. Without these changes, the increase of $0.9 million, or
10.8%, is primarily due to higher subscription promotion costs, an increase in
efforts designed to update and improve the controlled circulation list of LAW
TECHNOLOGY PRODUCT NEWS and a 17.3% increase in commission expense directly
related to the increase in advertising sales.
General and administrative expenses increased $0.7 million, or 8.4%, from
$8.0 million for the year ended December 31, 1996 to $8.7 million for the year
ended December 31, 1997. This increase is primarily the result of a change in
the expense classifictaion of bad debt expenses of $0.7 million from selling to
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general and administrative. Without this change, general and administrative
expenses remained essentially constant despite the increase in revenues.
Internet Services expenses remained essentially constant at $1.7 million for
the years ended December 31, 1996 and 1997. Such expenses are comprised
primarily of website maintenance costs, advertising sales expenses and expenses
related to editorial staff for the LAW JOURNAL EXTRA! service.
Depreciation and amortization expenses decreased by $0.2 million, or 2.7%,
from $7.5 million for the year ended December 31, 1996 to $7.3 million for the
year ended December 31, 1997.
OPERATING INCOME. As a result of the above factors, and without the special
compensation charge of $6.9 million, operating income would have increased $3.0
million, or 46.6%, from $6.4 million, or 13.5% of revenues, for the year ended
December 31, 1996 to $9.4 million, or 18.4% of revenues, for the year ended
December 31, 1997, and EBITDA would have increased $2.8 million, or 20.0%, from
$13.9 million, or 29.4% of revenues, for the year ended December 31, 1996 to
$16.6 million, or 32.7% of revenues, for the year ended December 31, 1997. The
increase in operating margins was due to NLP's ability to hold increases in
operating costs and expenses to 1.8% while revenues grew at 7.9%.
CAPITAL EXPENDITURES. Capital expenditures remained essentially constant at
$0.5 million for the years ended December 31, 1996 and 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
OVERVIEW. Net revenues increased by $3.1 million, or 7.0%, from $44.1
million for the year ended December 31, 1995 to $47.2 million for the year ended
December 31, 1996. Total operating costs and expenses increased at a rate
substantially less than the rate of increase in revenues over the same period,
increasing $0.2 million, or 0.5%, from $40.6 million to $40.8 million. As a
result, operating income increased $2.9 million, or 83.6%, from $3.5 million to
$6.4 million, while EBITDA increased $4.1 million, or 41.8%, from $9.8 million
to $13.9 million. Internet Services revenues increased $0.4 million, or 133.0%,
from $0.3 million for the year ended December 31, 1995 to $0.7 million for the
year ended December 31, 1996, while Internet Services expenses decreased by $1.2
million, or 41.4%, from $2.9 million to $1.7 million for the same periods.
During 1995, the Company determined that its provisions for doubtful
accounts with respect to revenues recognized in years prior to 1995, principally
with respect to its legal advertising revenues, should be increased by $946,000
due to, among other things, the concentration of credit risk associated with its
advertising agents. This additional provision for doubtful accounts has been
included in selling expense for the twelve months ended December 31, 1995.
Excluding these additional provisions and excluding the net operating loss from
Internet Services, EBITDA increased by $0.9 million, or 6.2%, from $14.0 million
for the year ended December 31, 1995 to $14.8 million for the year ended
December 31, 1996.
REVENUES. Advertising revenues increased $1.9 million, or 8.9%, from $21.4
million for the year ended December 31, 1995 to $23.3 million for the year ended
December 31, 1996. This increase was due principally to an increase in
advertising rates, the increase from two to six in the number of issues of IP
WORLDWIDE and strong growth in advertising revenue at LAW TECHNOLOGY PRODUCT
NEWS.
Subscription revenues increased by $0.1 million, or 1.0%, from $9.7 million
for the year ended December 31, 1995 to $9.8 million for the year ended December
31, 1996. Increases in subscription rates at both the NEW YORK LAW JOURNAL and
THE NATIONAL LAW JOURNAL were largely offset by a small decrease in the number
of paid subscriptions to both publications.
Revenues from ancillary products and services increased by $0.7 million or
5.5% from $12.7 million for the year ended December 31, 1995 to $13.4 million
for the year ended December 31, 1996. This increase was due principally to
increases in revenues from MA/3000 and from books (driven by the addition of
four new titles in 1996).
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Revenues from Internet Services increased by $0.4 million, or 133.0%, from
$0.3 million for the year ended December 31, 1995 to $0.7 million for the year
ended December 31, 1996. Advertising revenues from LAW JOURNAL EXTRA! increased
dramatically, more than offsetting the corresponding decline in subscription
revenues, as LAW JOURNAL EXTRA! completed its conversion from a
subscriber-oriented proprietary system to a free, advertising-based website.
OPERATING EXPENSES. Total operating costs and expenses increased $0.2
million, or 0.5%, from $40.6 million, or 92.1% of revenues, for the year ended
December 31, 1995 to $40.8 million, or 86.5% of revenues, for the year ended
December 31, 1996. Editorial expenses increased minimally, by $0.1 million, or
1.7%, from $5.8 million for the year ended December 31, 1995 to $5.9 million for
the year ended December 31, 1996.
Production and distribution expenses increased by $0.6 million, or 7.4%,
from $8.1 million for the year ended December 31, 1995 to $8.7 million for the
year ended December 31, 1996. Much of this increase is attributable to the
reallocation of production staff from LAW JOURNAL EXTRA!, the expenses of which
are accounted for separately, to other areas following the completion of the LAW
JOURNAL EXTRA! start up and conversion. The increase from two to six in the
number of issues of IP WORLDWIDE also contributed to this increase, partially
offset by decreases in paper costs.
Selling expenses decreased by $0.8 million, or 8.2%, from $9.8 million for
the year ended December 31, 1995 to $9.0 million for the year ended December 31,
1996. This decrease is due primarily to the additional provisions in 1995
discussed in the overview above, partially offset by an increase in commissions
related to the increase in advertising sales and to increased advertising sales
efforts related to the increase in number of issues of IP WORLDWIDE.
General and administrative expenses increased $0.4 million, or 5.3%, from
$7.6 million for the year ended December 31, 1995 to $8.0 million for the year
ended December 31, 1996. This increase was due in part to the re-allocation of
staff from LAW JOURNAL EXTRA! following completion of its start up and
conversion.
Internet Services expenses decreased $1.2 million, or 41.4%, from $2.9
million for the year ended December 31, 1995 to $1.7 million for the year ended
December 31, 1996. This decrease resulted primarily from a dramatic reduction in
staff as well as in advertising and promotion expenses relating to LAW JOURNAL
EXTRA! due to its shift away from a subscriber-based system following the
completion of its start up and conversion.
Depreciation and amortization expenses increased $1.2 million, or 19.0%,
from $6.3 million for the year ended December 31, 1995 to $7.5 million for the
year ended December 31, 1996. This increase resulted primarily from the
amortization of goodwill created by the acquisition of NLP by Boston Ventures
Limited Partnership IV, Boston Ventures Limited Partnership IVA and James A.
Finkelstein in December 1995, partially offset by the write off in 1995 of
unamortized deferred financing costs in connection with such acquisition.
OPERATING INCOME. As a result of the above factors, operating income
increased $2.9 million, or 82.9%, from $3.5 million, or 7.9% of revenues, for
the year ended December 31, 1995 to $6.4 million, or 13.5% of revenues, for the
year ended December 31, 1996, and EBITDA increased $4.1 million, or 41.8%, from
$9.8 million, or 22.2% of revenues, for the year ended December 31, 1995 to
$13.9 million, or 29.4% of revenues, for the year ended December 31, 1996.
CAPITAL EXPENDITURES. Capital expenditures decreased by $0.1 million, or
16.7%, from $0.6 million for the year ended December 31, 1995 to $0.5 million
for the year ended December 31, 1996.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. The Company had historically financed its working capital
and capital expenditures through operating activities, and in the case of Old
ALM, borrowings from its parent company. Old ALM's
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use of cash was substantially due to the operation of the Counsel Connect
business. See "Business-- Operating Strengths--Favorable Cash Flow
Characteristics." The Company has favorable cash flow characteristics resulting
from its high level of advance payments by subscribers, low working capital
investment, minimal capital expenditure requirements, predictable cost structure
and high margins. Because cash receipts associated with subscriptions are
received toward the beginning of a subscription cycle, the Company's periodicals
business requires minimal investment in working capital.
LIQUIDITY. Holdings is a holding company which has no significant assets
other than its investments in its direct and indirect subsidiaries, and
therefore, its ability to make payments with respect to the Exchange Discount
Notes is dependent upon the receipt of dividends or other payments from the
Company. For the last twelve months ended March 31, 1998, the Company's ratio of
total indebtedness to pro forma EBITDA was approximately 8.04 to 1 and
accordingly, under the Indentures neither Holdings, the Company nor the
Company's Restricted Subsidiaries would currently be able to incur additional
indebtedness. For the purposes of the Indentures, borrowings under the Revolving
Credit Facility are a form of Permitted Indebtedness (as defined in the
Indentures) and do not contravene the financial restriction regarding incurrence
of additional indebtedness. See "Description of the Discount Notes--Certain
Definitions."
Holdings' principal sources of funds are anticipated to be cash flows from
operating activities, which may be supplemented by borrowings under the
Revolving Credit Facility. For a description of certain provisions of the
Revolving Credit Facility, see "Description of Other Indebtedness--Revolving
Credit Facility." See also "Risk Factors--Substantial Leverage; Liquidity."
Based upon the successful implementation of their strategy, Holdings and the
Company believe that these funds will be sufficient to meet its current and
future financial obligations, including the payment of principal and interest on
the Discount Notes, working capital, capital expenditures and other obligations.
No assurance can be given, however, that this will be the case. The Company's
future operating performance and ability to service or refinance the Senior
Notes and to repay, extend or refinance any credit agreements to which it is a
party and Holdings ability to service or refinance the Discount Notes will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control. See "Risk Factors."
The Senior Note Indenture and the Revolving Credit Facility significantly
restrict the distribution of funds by Holdings' subsidiaries. See "Description
of Other Indebtedness--Description of the Senior Notes." There can be no
assurance that the agreements governing indebtedness of Holdings' subsidiaries
will permit such subsidiaries to distribute funds to Holdings in amounts
sufficient to pay the Accreted Value or the principal or interest on the
Exchange Discount Notes when the same becomes due (whether at maturity, upon
acceleration or redemption or otherwise). The Exchange Discount Notes will be
effectively subordinated in right of payment to all existing and future claims
of creditors of subsidiaries of Holdings, including the holders of the Senior
Notes and trade creditors. After giving effect to the Transactions as of
December 31, 1997, the subsidiaries of Holdings had approximately $208.4 million
aggregate principal amount of liabilities outstanding.
CAPITAL EXPENDITURES. Holdings' and the Company's operations are not
capital intensive. Capital expenditures were $0.2 million for the three months
ended March 31, 1998. Capital spending in 1998 is expected to be $3.5 million.
This is higher than historical and expected future spending due to the
anticipated consolidation of ALM and NLP offices in 1998. The Company currently
anticipates total capital expenditures of approximately $3.5 million in fiscal
1998. This is higher than historical and expected future spending due to the
anticipated consolidation of ALM and NLP offices in 1998.
NET CASH USED IN OPERATING ACTIVITIES. Net cash provided by operating
activities was $4.7 million for the three months ended March 31, 1998 primarily
due to a net loss of $5.4 million offset by depreciation and amortization of
$5.9 million and an accrual of $4.3 million for interest expense on the Senior
Notes which will be paid in June 1998. Net cash used in operating activities was
approximately $2.5 million for the
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five months ended December 31, 1997 due to a net loss of $7.7 million partially
offset by depreciation and amortization of $3.3 million. The net loss includes a
$4.8 million loss for Counsel Connect whose operations were shut down at the end
of 1997.
NET CASH USED IN INVESTING ACTIVITIES. Net cash used in investing
activities was $11.2 million for the three months ended March 31, 1998. In March
1998, Holdings acquired Corporate Presentations, Inc. for $10.8 million in cash
and incurred $0.2 million of deal costs. In addition, capital expenditures were
$0.2 million for the first quarter 1998. Net cash used in investing activities
was approximately $265.4 million for the five months ended December 31, 1997
consisting primarily of the purchase prices for the ALM Acquisition and the NLP
Acquisition.
NET CASH PROVIDED BY FINANCING ACTIVITIES. Net cash provided by financing
activities was $1.1 million for the three months ended March 31, 1998. This
represents accretion of interest on the Discount Notes. Net cash provided by
financing activities was $277.3 million for the five months ended December 31,
1997. In December 1997, Holdings received $75.0 million in capital contributions
from its stockholders, Wasserstein & Co., Inc. and U.S. Equity Partners L.P. and
U.S. Equity Partners (Offshore) L.P. Holdings also issued $35.0 million of
12 1/4% Senior Discount Notes while the Company issued $175.0 million of 9 3/4%
Senior Notes to finance the ALM Acquisition and the NLP Acquisition.
YEAR 2000 COMPLIANCE
The Company is in the process of modifying, upgrading or replacing its
computer software applications and systems which the Company expects will
accommodate the "Year 2000" dating changes necessary to permit correct recording
of year dates for 2000 and later years. The Company does not expect that the
cost of its Year 2000 compliance program will be material to its financial
condition or results of operations. The Company believes that it will be able to
achieve compliance by the end of 1999, and does not currently anticipate any
material disruption in its operations as the result of any failure by the
Company to be in compliance. The Company does not currently have any information
concerning the compliance status of its suppliers and customers.
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BUSINESS
UNLESS REFERENCE IS MADE SPECIFICALLY TO ALM OR NLP, THE DISCUSSIONS IN THIS
SECTION REFER TO THE COMPANY ON A PRO FORMA BASIS, AFTER GIVING EFFECT TO THE
ACQUISITIONS.
COMPANY OVERVIEW
Holdings is a holding company, the principal assets of which consist of all
the outstanding capital stock of ALM. All of Holdings' operations are conducted
through the Company. The Company believes that the combination of ALM and NLP
creates the nation's largest legal journalism organization, with estimated
readership of over one million. The Company publishes 16 periodicals, including
several leading national periodicals and regional publications serving four of
the five largest state legal markets. The Company's nationally-recognized
periodicals include THE AMERICAN LAWYER, a monthly magazine containing articles
and features targeted to attorneys practicing in large law firms, and THE
NATIONAL LAW JOURNAL, the nation's largest selling legal newspaper, which covers
the law, lawyers and the business of the legal profession. The Company's
regional publications are led by the NEW YORK LAW JOURNAL, which has the largest
circulation of any regional legal newspaper in the United States. In addition to
the NEW YORK LAW JOURNAL, the Company publishes five other daily newspapers
serving Georgia, Northern California, Miami, Fort Lauderdale and Palm Beach, as
well as four weekly newspapers serving New Jersey, Texas, Washington, D.C. and
Connecticut.
The Company's periodicals are well established in their markets and are
widely recognized for editorial excellence and for providing sophisticated news
reporting and analysis of legal issues. The Company's newspapers function as
professional tools that are indispensable to attorneys (particularly litigators)
in their day-to-day practices, providing important information such as news,
court opinions, court calendars and legal notices. The Company believes that its
newspapers are among the leaders in their local markets as measured by paid
circulation. In 1997, the Company's newspapers maintained an average
subscription renewal rate of approximately 80%.
In addition to the periodicals referred to above, the Company publishes
CORPORATE COUNSEL MAGAZINE, a leading magazine for corporate in-house attorneys,
LAW TECHNOLOGY PRODUCT NEWS and AMLAW TECH, two leading legal technology
magazines, as well as IP WORLDWIDE, a leading specialty magazine focusing on
intellectual property.
The Company has also successfully established an ancillary products and
services business that creates and packages information for attorneys and
business professionals. This business includes a portfolio of publications
covering a variety of specialized legal interests and practice areas, including
26 newsletters and 112 books on topics of national and regional interest. Each
year, the Company organizes or sponsors numerous professional seminars and
conferences that cover issues of current legal interest. The Company also
provides case tracking and monitoring services and publishes various directories
used by legal professionals.
In addition, the Company has begun to develop an internet services business
and currently has a number of law-related internet websites including LAW
JOURNAL EXTRA!, COUNSEL CONNECT, CAL LAW, ILLINOIS LAW and TEX LAW. These
websites give attorneys online access to news and other legal materials and
facilitate the exchange of information among members of the legal community.
The Company derives its revenues principally from advertising and
subscriptions, with additional revenues generated by its ancillary products and
services business. The Company had pro forma net revenues of $105.9 million and
pro forma EBITDA of $26.3 million for the twelve months ended March 31, 1998.
For the three months ended March 31, 1998 approximately 56.7% of the Company's
revenues were from advertising, 19.5% were from subscriptions, 21.3% were from
ancillary products and services and 2.5% were from Internet Services.
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Because the Company's periodicals are the preeminent legal publications in
each of their respective regional markets, they are relied upon by many
advertisers as the primary advertising vehicle to reach attorneys in those
markets. The Company believes that its large readership and broad coverage of
the U.S. legal market uniquely position the Company to enable national
advertisers of law- and business-related products to reach the legal industry in
a targeted and cost-efficient manner. The Company also believes that its
newly-created national presence, combined with the affluence and other favorable
demographic characteristics of its readership, will enhance its ability to
attract national consumer advertisers, particularly those targeting upscale
consumers.
NLP has operated in a centralized manner and has focused on the continued
development of its periodicals business and on expanding into various ancillary
products and services, including books, newsletters and seminars. ALM, on the
other hand, has operated eight autonomous regional businesses and has focused
primarily on developing a geographically diverse periodicals business (although
each regional business from time to time developed various ancillary products
and services). The Company intends to centralize and consolidate its ancillary
products and services business as well as certain selling, general and
administrative functions. Furthermore, the Company intends to aggressively
cross-sell its various periodicals, products and services to both readers and
advertisers. The Company expects that implementing these elements of its
business strategy will result in substantial cost savings, enhanced subscription
and advertising revenues and accelerated growth in its ancillary products and
services business. No assurance can be given, however, that the implementation
of the Company's business strategy will result in such consequences.
BUSINESS STRATEGY
ALM's geographic breadth and emphasis on high-quality editorial content have
placed it at the forefront of legal journalism; NLP's historical marketing
strengths and meticulous business execution have permitted it to produce
consistently high levels of operating profit and cash flow. The fundamental
strategy underlying the ALM-NLP combination is to leverage the strengths of both
businesses by adopting the best practices of each across the Company as a whole
and to capitalize on the opportunities inherent in the combination.
The Company believes that the ALM-NLP combination presents numerous cost
savings opportunities including:
- CONSOLIDATING AND REDUCING SG&A: Cost savings opportunities from the
ALM-NLP combination include (i) consolidating and centralizing certain
functions, including national advertising sales, accounting, tax,
information systems, human resources, cash management, risk management and
legal; (ii) reducing employee benefit costs through the combination of
disparate employee plans and programs; (iii) reducing rent expense by
combining ALM's and NLP's corporate headquarters into a single location;
and (iv) taking advantage of increased purchasing power resulting from the
expanded size of the Company.
- CENTRALIZING ANCILLARY PRODUCTS AND SERVICES: The Company intends to draw
on NLP's experience and success in product development by consolidating
the development and marketing of various ancillary products and services
across the broad regional coverage of ALM's publications to realize cost
savings and efficiencies.
- RATIONALIZING THE COMPANY'S INTERNET BUSINESS: The Company decided to shut
down the Counsel Connect internet service and is currently transferring
certain remaining components into a new, combined service.
The ALM-NLP combination is also expected to result in numerous revenue
enhancement opportunities including:
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- LEVERAGING ANCILLARY PRODUCTS AND SERVICES: NLP has an extensive portfolio
of ancillary products and services, including newsletters, books, seminars
and conferences. The Company believes that the market penetration of these
products and services will be substantially enhanced by selling across the
combined companies through (i) advertising in all of the Company's
periodicals, (ii) marketing to new customer lists, (iii) pursuing a
broader direct mail effort and (iv) more aggressive telemarketing. The
Company believes that the expanded scope of the operations created as a
result of the ALM-NLP combination will allow the Company to develop and
market new products and services that would not previously have been
feasible.
- ENHANCED ABILITY TO ATTRACT NATIONAL ADVERTISING: The Company believes
that there are substantial opportunities to attract increased amounts of
national advertising. As the nation's largest legal journalism
organization with a combined readership of over one million, the Company
believes it will be able to provide advertisers with a unique ability to
effectively and efficiently reach the legal community on a national level.
The Company intends to form a national sales group, which neither ALM nor
NLP had prior to the combination. The Company also believes that it will
be able to increasingly attract national consumer advertising directed
toward the Company's large and affluent readership.
- ACQUISITIONS AND DEVELOPMENT: While the Company publishes 16 periodicals
including periodicals in four of the five largest state legal markets and
several national legal periodicals, the Company believes that there are
numerous opportunities to expand into new markets. As a result of
synergies among the Company's various publications and its resulting
ability to efficiently create content, sell advertising and provide
administrative services, the Company believes that it will be able to
enter new markets with a competitive advantage. Accordingly, the Company
intends to (i) selectively pursue acquisitions of additional regional
legal publishing businesses and ancillary businesses, such as newsletters,
books and seminars, (ii) create new publications in geographic areas in
which the Company does not currently operate and (iii) develop ancillary
products or services not currently offered by the Company.
OPERATING STRENGTHS
The Company believes that it has the following operating strengths:
HIGH REVENUE STABILITY. The Company's high subscription renewal rates
(historically averaging approximately 80%) and high advertiser retention rates
provide considerable revenue and profit stability and form a strong base of
business from which to grow. The Company believes that its high subscription
renewal rates result from (i) the high editorial quality of its publications,
(ii) its coverage of increasingly complex legal issues that are not adequately
covered in other publications, and (iii) the indispensable nature of the
Company's publications for the day-to-day practice of law for many attorneys.
The Company attributes its high advertiser retention rates to the fact that its
periodicals are the primary legal publications in their respective markets and
are therefore relied upon by many advertisers as their primary vehicles for
reaching attorneys in those markets.
FAVORABLE CASH FLOW CHARACTERISTICS. The Company has favorable cash flow
characteristics resulting from its stable revenues, high level of advance
payments by subscribers, low working capital investment, minimal capital
expenditure needs, predictable cost structure and high margins. The Company
outsources most of its printing and all of its distribution requirements to
third parties. As a result, the Company requires minimal capital expenditures.
Capital expenditures for the three months ended March 31, 1998 were
approximately $0.2 million. Because cash receipts associated with subscriptions
are received toward the beginning of a subscription cycle, the Company's
periodicals business requires minimal investment in working capital. Due to the
preeminent position of the Company's periodicals in each of its markets, the
Company has been able to charge relatively high advertising rates and has
enjoyed strong subscription pricing characteristics, resulting in consistently
high operating margins.
55
<PAGE>
DIVERSITY OF PUBLICATIONS. The Company publishes two leading national
publications, THE AMERICAN LAWYER and THE NATIONAL LAW JOURNAL, several national
specialty magazines including CORPORATE COUNSEL MAGAZINE, LAW TECHNOLOGY PRODUCT
NEWS, AMLAW TECH and IP WORLDWIDE, and ten newspapers serving distinct state and
local legal markets across the United States. With a diverse revenue base
generated from numerous legal markets and from subscribers practicing in an
array of specialty areas, the Company enjoys significant revenue and cash flow
stability.
EXPERIENCED STAFF. The Company's core group of editors, publishers and
journalists have built their professional careers primarily in the legal
publishing industry. These editors, publishers and journalists bring substantial
experience to the Company as well as detailed knowledge of each of the Company's
markets. Their local knowledge and depth of experience enable the Company to
continue to provide thought-provoking coverage of the legal industry and develop
new, innovative and informative periodicals, products and services.
PRODUCT LINES
PERIODICALS. The Company's newspaper and magazine business publishes 16
national, regional and local periodicals that serve legal and business
professionals. The Company's periodicals have a combined circulation of
approximately 260,000. Based on various independent subscriber surveys and
management's estimates, the Company believes that the pass-along rate for its
publications results in an estimated combined readership of over one million.
The subscription renewal rate for the Company's periodicals averages
approximately 80%.
NEWSPAPERS. The Company's newspapers provide news, features, analysis and
commentary about the world of law and advocacy. Feature articles and stories
covering the local, state and federal courts and law firms are supplemented by
reports and analyses of cutting-edge legal issues. The Company is committed to
providing high quality and balanced coverage of its local markets. Most of the
Company's newspapers serve as the newspaper of record for their respective legal
markets. Lawyers look to the newspapers for reports on local court rulings and
opinions, as well as information regarding local court dockets.
The Company publishes 11 newspapers including THE NATIONAL LAW JOURNAL, the
leading national legal newspaper based on paid circulation in the United States,
NEW YORK LAW JOURNAL, which has the largest circulation of any regional legal
newspaper, as well as nine other daily and weekly newspapers. In aggregate, the
Company's newspapers serve eight state markets, including New York, New Jersey,
Washington, D.C., Georgia, Florida, Texas, Northern California and Connecticut,
which cover approximately 46% of all active attorneys in the United States. Each
of the Company's regional newspapers has a significant presence in its
respective market. However, with publications in only eight of the top 20 state
legal markets, the Company is still positioned for significant growth and
further market penetration.
56
<PAGE>
The following table sets forth information regarding the Company's
newspapers:
NEWSPAPERS
<TABLE>
<CAPTION>
ESTIMATED
YEAR OF TOTAL TOTAL
TITLE MARKET FOUNDING CIRCULATION(1) READERSHIP(2)
- ------------------------------------------------ ---------------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
WEEKLY NEWSPAPERS
THE NATIONAL LAW JOURNAL........................ National 1978 37,622 163,800
NEW JERSEY LAW JOURNAL.......................... New Jersey 1878 9,346 58,200
TEXAS LAWYER.................................... Texas 1985 10,250 64,600
LEGAL TIMES..................................... Washington, D.C. 1978 10,815 75,900
THE CONNECTICUT LAW TRIBUNE..................... Connecticut 1974 3,082 22,600
DAILY NEWSPAPERS
NEW YORK LAW JOURNAL............................ New York 1888 15,335 66,300
THE RECORDER.................................... Northern California 1877 8,456 51,400
FULTON COUNTY DAILY REPORT...................... Georgia 1890 6,799 38,900
MIAMI DAILY BUSINESS REVIEW..................... South Florida 1926 5,092 37,400
BROWARD DAILY BUSINESS REVIEW................... South Florida 1926 2,771 20,400
PALM BEACH DAILY BUSINESS REVIEW................ South Florida 1926 2,000 14,800
</TABLE>
- ------------------------
(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap which exists among readers of the Company's various
publications. Pass-along rates are determined for the Company's publications
by third-party subscriber surveys and are defined for any given publication
as the number of readers in addition to each paid subscriber.
MAGAZINES. THE AMERICAN LAWYER anchors the Company's magazine portfolio.
Founded in 1979, THE AMERICAN LAWYER is a glossy magazine that features stories
on the strategies, successes, failures and personalities of the most important
figures in the legal world. The target audience for the publication is attorneys
practicing in large law firms and corporate legal departments across the United
States. THE AMERICAN LAWYER has been the winner of National Magazine awards
granted by the American Society of Magazine Editors four times, and has been
nominated for 22 such awards since its founding.
The Company's other magazines focus on specific practice areas or segments
within the legal profession and certain topics applicable to the business of
law. The Company's specialty legal magazines include CORPORATE COUNSEL MAGAZINE,
one of the nation's largest magazines focused on issues of importance to
in-house lawyers at large and mid-size corporations, and IP WORLDWIDE,which
covers developments in intellectual property law. The Company also publishes the
two leading technology magazines targeted to the legal community, AMLAW TECH and
LAW TECHNOLOGY PRODUCT NEWS, which focus on information technology and its
applications to the practice of law. AMLAW TECH is targeted toward partners at
law firms with purchase-making authority, while LAW TECHNOLOGY PRODUCT NEWS is
targeted toward attorneys and information services departments in law offices.
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<PAGE>
The Company publishes the following five magazines:
MAGAZINES
<TABLE>
<CAPTION>
ESTIMATED
YEAR OF TOTAL TOTAL
TITLE FOUNDING FREQUENCY CIRCULATION(1) READERSHIP(2)
- ---------------------------------------------- ----------- ------------------------ ------------- -------------
<S> <C> <C> <C> <C>
THE AMERICAN LAWYER........................... 1979 10 times per year 17,005 125,800
AMLAW TECH.................................... 1996 4 times per year 30,000 60,000(3)
CORPORATE COUNSEL MAGAZINE.................... 1994 6 times per year 38,300 76,600(3)
IP WORLDWIDE.................................. 1995 6 times per year 10,000 20,000(3)
LAW TECHNOLOGY PRODUCT NEWS................... 1993 15 times per year 55,000 110,000(3)
</TABLE>
- ------------------------
(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap which exists among readers of the Company's various
publications.
(3) These magazines are distributed primarily free of charge. For these
publications, the Company assumes only two readers per copy.
NEWSLETTERS. The Company's newsletter division publishes 26 newsletters
which cover specialized legal practice areas. Circulation for the Company's
newsletters ranges from approximately 300 to 1,700, with an average circulation
of over 700. The total number of paid subscribers for all newsletters was
approximately 18,000 as of December 31, 1997. Because the editorial content of
the Company's newsletters is targeted toward the particular interests of lawyers
practicing in various specialty areas, a typical monthly newsletter supports a
subscription rate of over $100 per year.
Of the Company's 26 newsletters, only CORPORATE CONTROL
ALERT-REGISTERED TRADEMARK-, the Company's leading newsletter, was developed by
ALM. CORPORATE CONTROL ALERT is targeted to a broad audience of attorneys,
investment bankers and corporate executives, providing exclusive reports on
corporate takeovers worldwide and commands a subscription price significantly
higher than the Company's other newsletters. The Company believes that
circulation of existing newsletters can be increased substantially by beginning
to market NLP's newsletters to subscribers in ALM's regional markets. In
addition, the Company believes that a significant number of new titles can be
developed and marketed to the Company's combined customer base. Due to low
production costs and inventory requirements, the Company estimates that the
break-even number of subscribers for a newsletter is approximately 350.
The following table sets forth a list of the Company's newsletters:
NEWSLETTERS
Accounting for Law Firms
The Bankruptcy Strategist
Business Crimes Bulletin: Compliance
and Litigation
Cable TV and New Media
Commercial Leasing Law & Strategy
Computer Law Strategist
Corporate Control Alert
The Corporate Counsellor
Employment Law Strategist
Entertainment Law & Finance
Environmental Compliance and
Litigation Strategy
Equipment Leasing
Health Care Fraud
The Intellectual Property Strategist
The Internet Newsletter: Legal &
Business Aspects
Law Firm Partnership & Benefits Report
Leader's Franchising Business & Law Alert
Legal Tech
Marketing for Lawyers
The Matrimonial Strategist
Medical Malpractice Law & Strategy
Medical/Legal Aspects of Breast Implants
Money Laundering Law Report
Multimedia Strategist
New York Real Estate Law Reporter
Product Liability Law & Strategy
58
<PAGE>
BOOKS. The Company currently publishes 112 books on a broad array of legal
topics. These books generally focus on practical legal subjects that arise in
the daily professional lives of lawyers. Most of the Company's books are updated
once or twice per year with inserts to keep the material current. These updates
are inexpensive to produce and are viewed by attorneys as necessary to preserve
the utility of the original texts. Because updates generate recurring revenues
and have higher margins than the original books, the Company focuses on
publishing books that cover particularly dynamic areas of law that lend
themselves to frequent supplementation.
The Company most often develops the concept for a new book and then solicits
an author to write the text. However, in certain cases, the Company has received
unsolicited manuscripts which it has ultimately published. Authors tend to be
receptive to working with the Company because its established market presence
and its reputation for high-quality legal journalism lend credibility to an
author's work. Authors are also attracted by the Company's ability to
efficiently promote a new book and its author through the Company's many
publications. Authors who have written books for the Company include prominent
attorneys and judges such as Martin Lipton, Judge Jed Rakoff, James Freund and
James Goodale.
Historically, most of ALM's books focused on state issues, while NLP's books
dealt primarily with national legal topics. The Company intends to capitalize on
the growing complexity of the law and the increasing need for well-written legal
information about emerging practice areas by aggressively marketing applicable
book titles in its periodicals and newsletters. The Company believes that its
book business will benefit from the combined national reach of its newspapers
and magazines, which should provide an efficient marketing platform for the
Company's legal products.
The following tables set forth the Company's current offering of books:
BOOKS
STATE AND LOCAL SUBJECTS
Connecticut Appellate Practice and Procedure
Connecticut Criminal Caselaw Handbook
Connecticut Foreclosures
Connecticut Labor and Employment Law
Connecticut Summary Process Manual
Connecticut Unfair Trade Practices Act
Connecticut Uninsured and Underinsured Motorist
Courtroom Success: A View From the Bench
Dallas County Bench Book (Texas)
Encyclopedia of New Jersey Causes of Action
Georgia Bench Book
Guide to Connecticut Limited Liability Companies
Handbook of Forms for the Connecticut Family Lawyer
Harris County Bench Book (Texas)
Insurance Laws
Marketing and Maintaining a Family Law Mediation Practice
Mediation: A Texas Practice Guide
New Jersey Employment Law
New Jersey Insurance Law
New Jersey Product Liability Law
Pleadings and Pretrial Practice (Connecticut)
Representing Clients in Mediation
Tarrant County Bench Book (Texas)
Travis County Bench Book (Texas)
Texas Criminal Codes and Rules
Texas Legal Malpractice
Texas Legal Research
Visiting Judges Bench Book
59
<PAGE>
BOOKS
NATIONAL SUBJECTS
A Practical Guide to Equal Employment Opportunity
A Practical Guide to the Occupational Safety
and Health Act
Acquisitions Under the Hart-Scott-Rodino
Antitrust Improvements Act
All About Cable
Anatomy of a Merger: Strategies and Techniques
for Negotiating Corporate Acquisitions
Antitrust Basics
Antitrust: An Economic Approach
Changing the Situs of a Trust
Class Actions: The Law of 50 States
Communications Law and Practice
Computer Law: Drafting and Negotiating Forms
and Agreements
Corporate Internal Investigations
Corporate Sentencing Guidelines: Compliance
and Mitigation
Divorce, Separation and the Distribution of
Property
Doing Business on the Internet
Due Diligence in Business Transactions
Employee Benefits Law: ERISA and Beyond
Raoul Felder's Encyclopedia of Matrimonial Clauses
Environmental Enforcement: Civil and Criminal
Environmental Law Lexicon
Environmental Regulation of Real Property
Estate Planning
Executive Compensation
Executive Stock Options and Stock Appreciation Rights
Federal Bank Holding Company Law
Federal Rules of Civil Procedure
Federal Taxation of Intellectual Property Transfers
Federal Taxation of Real Estate
Federal Taxation of S Corporations
Federal Trade Commission: Law, Practice and Procedure
Ferrara on Insider Trading and The Wall
Franchising: Realities and Remedies
Franchising: Realities and Remedies Forms Volume
Going Private
Ground Leases and Land Acquisition Contracts
Health Care Fraud
Hospital Liability
I'd Rather Do It Myself: How to Set Up Your Own Law Firm
Insurance Coverage Disputes
Intellectual Property Law: Commercial, Creative and Industrial Property
Internet and Online Law
Law and Business in the European Single Market
Law Firm Accounting and Financial Management
Lawyering: A Realistic Approach to Legal Practice
Legal Research and Law Library Management
Lender Liability and Banking Litigation
Licensing of Intellectual Property
Marketing the Law Firm: Business Development Techniques
Maximizing Law Firm Profitability: Hiring, Training and Developing Productive
Lawyers
Merit Systems Protection Board: Rights and Remedies
Model Terms of Engagement
Modern Visual Evidence
Multifamily Housing: Federal Programs for the Private Sector
Multimedia Law: Forms and Analysis
Negotiated Acquisitions of Companies, Subsidiaries and Divisions
Negotiating and Drafting Office Leases
Negotiation: Strategies for Law and Business
Partnership and Joint Venture Agreements
Private Real Estate Syndications
Product Liability
Product Liability: Winning Strategies and Techniques
Products Liability: Recreation and Sports Equipment
Real Estate, A Guide for the Profession
Real Estate Financing
Reducing Personal Income Taxes: A Guide to Deductions and Credits
Reorganizations under Chapter 11 of the Bankruptcy Code
RICO: Civil and Criminal, Law and Strategy
Savings Institutions: Mergers, Acquisitions and Conversions
Securities Regulation: Liabilities and Remedies
Sex Discrimination and Sexual Harassment in the Workplace
Shareholder Derivative Litigation: Besieging the Board
Shopping Center and Store Leases
Start-Up Companies: Planning, Financing and Operating the Successful Business
State Antitrust Law
Structured Settlements and Periodic Payment Judgments
Takeovers and Freezeouts
Tax Aspects of Divorce and Separation
The Law and Practice of Secured Transactions: Working with Article 9
The Preparation and Trial of Medical Malpractice Cases
Trade Secrets
Travel Law
Use of Statistics in Equal Employment Opportunity Litigation
White Collar Crime: Business and Regulatory Offenses
Winning Attorney's Fees from the U.S. Government
60
<PAGE>
SEMINARS AND CONFERENCES. The Company conducts a number of seminars and
conferences for lawyers and other professionals in related fields. The Company's
seminars complement its other products and services both by serving as powerful
marketing vehicles for the Company's existing books and newsletters, and by
generating ideas for new seminars, books and newsletters. Seminars also
introduce the Company to lawyers who may subsequently write articles or books
for the Company.
In addition to its seminar business, the Company operates a small number of
conferences. While its seminars typically involve one or more speakers making
presentations to groups of 75 to 250 people, conferences generally feature an
array of booths and presentations from various participants over the course of
several days. The Company currently operates four conferences, and plans to
coordinate additional related conferences in the coming years. The Company
believes that its current status as a leading provider of law-related technology
conferences will enable it to provide similar conferences more frequently and in
different geographic regions in the future. By establishing a series of
recurring conferences, the Company expects to benefit from both a returning core
of attendees and word-of-mouth publicity.
The Company believes that its new combined national presence will enable it
to increase revenues generated by its seminar and conference business. The
Company expects that it will be able to leverage the overhead costs of
developing a seminar by holding the same seminar in multiple cities.
Furthermore, by cross-selling those seminars and conferences that have appeal
throughout its national network, the Company expects to increase attendance at
each individual event.
The following table sets forth the seminars and conferences held in 1997:
SEMINARS
New Jersey Civil Caselaw Review
Acquisitions of Subsidiaries, Divisions and Private Companies
The American Lawyer's Management Roundtable
The Art of Due Diligence and Related Drafting Techniques
Baker's Dozen: Using 13 Recent Supreme Court Cases to Improve Your Personal
Injury Practice
Computer Law: Negotiating Complex Transactions
Distribution and Dealer Termination
Employment Compensation Strategies
Entire Controversy Pathfinder
General Counsel Conference
Transferring and Protecting Intellectual Property
in Mergers and Acquisitions
Joint Ventures & Strategic Alliances
Law Firm Financial Management and Accounting
Lead Liability Litigation: Legal and Business Issues
Legal and Business Aspects of the Internet
Legal Ethics in the Electronic Age
Negotiating Contracts in the Entertainment Industry
Negotiating Corporate Acquisitions
Obstetrical Malpractice: Failure to Diagnose Fetal Distress
Securities Practice in the Electronic Era
Sports Law: Representing and Advising Athletes, Teams, Leagues and Sports
Associations
Trial of an Obstetrical Malpractice Case
Valuation of a Professional Practice
CONFERENCES
Law Tech
Legal Tech Net
Southeastern Law Tech
61
<PAGE>
INTERNET SERVICES. The Company operates several legal websites including
LAW JOURNAL EXTRA!, COUNSEL CONNECT, CAL LAW, ILLINOIS LAW and TEXAS LAW. LAW
JOURNAL EXTRA!, one of the largest commercial legal websites, provides
up-to-date legal news and information from NLP's publications as well as a
variety of other sources as a convenient gateway to other legal information on
the Internet. COUNSEL CONNECT, the leading subscription-based website, offers
subscribers a wide range of legal information, including various online seminars
and discussion groups, legal news and other services that assist attorneys in
the day-to-day practice of law. While COUNSEL CONNECT is a subscriber-based
legal website, the rapid evolution of the Internet has rendered its business
model uneconomic. As such, the Company is in the process of discontinuing
COUNSEL CONNECT and transferring those elements of the service with a strong
subscriber following as well as COUNSEL CONNECT's trade name, subscriber lists
and related technology to a new enhanced service. The Company's combined
Internet strategy is to develop several websites combining COUNSEL CONNECT's
subscriber-based model with LAW JOURNAL EXTRA!'s advertising-based model and to
supplement the combined services with various online commerce initiatives. The
Company believes the integration of these alternative models will create a
flexible platform from which to broadly serve the diverse needs of the legal
community.
OTHER PRODUCTS AND SERVICES. The Company's uniquely focused customer base
and extensive access to legal information has enabled the Company to create a
wide array of high margin ancillary businesses, including: (i)
MA/3000-REGISTERED TRADEMARK-, a case tracking and docketing software package
that allows litigators in New York to track court activity published in the NEW
YORK LAW JOURNAL, and (ii) DAILY DECISION SERVICE-TM-, a service which offers
subscribers faxed copies on request of both published and unpublished New Jersey
state and federal court opinions.
MARKETING AND SALES
At March 31, 1998, the Company had approximately 190 employees whose
responsibilities included attracting new subscribers and advertisers for its
periodicals and marketing and selling its ancillary products and services. The
Company's regional businesses have focused their sales efforts primarily on
local advertisers. The Company intends to establish a national sales staff to
oversee the sales and servicing of national accounts in an effort to
substantially increase the quantity of its national advertising. The Company
believes that its extensive readership base gives it a unique opportunity to
create a channel through which advertisers can efficiently reach a large
percentage of the nation's attorneys with a single advertising purchase.
Furthermore, the Company intends to aggressively cross-sell its periodicals and
ancillary products and services to its combined customer base.
PRINTING AND DISTRIBUTION
Layouts for the Company's publications are prepared in-house, while the
large majority of the Company's printing activities, and all of its distribution
activities, are outsourced. The Company believes that its relationships with its
printers and distributors are good. Due to economies of scale resulting from the
Acquisitions, the Company believes that opportunities may exist to streamline
certain elements of production and distribution and to purchase raw materials
more effectively. See "Risk Factors--Fluctuations in Paper Costs and Postal
Rates" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
COMPETITION
The Company competes for advertising and subscription revenues with
publishers of special-interest legal newspapers and magazines with similar
editorial content. However, in most of the Company's markets, its newspaper is
the only newspaper focused on serving the legal community. The Company also
competes for advertising revenues with other national legal publications, as
well as general-interest magazines and other forms of media, including broadcast
and cable television, radio, direct marketing and electronic media. Factors
which may affect competition for advertisers include effective costs of such
62
<PAGE>
advertising compared to other forms of media, and the size and characteristics
of the readership of the Company's publications. In competing with
general-interest publishers and other forms of media for advertising, the
Company believes it offers a more cost-effective means of reaching the legal
community in each of its regional markets. The Company also faces significant
competition from other legal publishers and legal service providers in its
ancillary products and services business.
INTELLECTUAL PROPERTY
The Company owns a number of registered and unregistered trademarks for use
in connection with its business, including trademarks in the titles of its major
periodicals such as THE AMERICAN LAWYER-REGISTERED TRADEMARK-, CORPORATE COUNSEL
MAGAZINE-TM-, THE NATIONAL LAW JOURNAL-REGISTERED TRADEMARK-, and NEW YORK LAW
JOURNAL-REGISTERED TRADEMARK-. Provided that trademarks remain in continuous use
in connection with similar goods or services, their term can be perpetual,
subject, with respect to registered trademarks, to the timely renewal of such
registrations in the United States Patent and Trademark Office.
The Company approaches copyright ownership with respect to its publications
in the same manner as is customary within the publishing industry generally.
Consequently, the Company owns the copyright in all of its newspapers, magazines
and newsletters, as compilations, and also owns the copyright in most of its
books. With respect to the specific articles in its publications, the Company
generally obtains the assignment of all right, title and interest in original
materials created by the Company's full-time journalists and editors as well as
by paid contributors. For articles authored by outside contributors, the Company
generally obtains only the exclusive "first-time publication" and non-exclusive
republication rights. Judicial opinions, court schedules and docketing
information are provided to the Company directly by the courts, on a
non-exclusive basis, and are public information. The Company also claims
ownership of the copyright in its MA/3000-REGISTERED TRADEMARK- tracking and
docketing software. See "--Product Lines--Other Products and Services."
Copyrights in software can be enforced against plagiarists of the source code or
the copyrightable "look and feel" of the program, but do not protect the
concepts and ideas contained in the program, nor do they prevent others from
developing a competing case tracking and docketing program.
The Company licenses the content of certain of its publications and forms to
third parties, including West Publishing Company, and LEXIS/NEXIS, on a
non-exclusive basis, for republication and dissemination on electronic databases
marketed by the licensees. After the expiration of their initial terms (the
latest of which is October 1999), the licenses automatically renew, subject to
either parties' right to terminate at the end of each subsequent term.
Some of the Company's products, such as the DAILY DECISION SERVICE-TM-
utilize the extensive databases of court decisions compiled by the Company. The
Company also has extensive subscriber and other customer databases which it
believes would be extremely difficult to replicate. The Company attempts to
protect these databases and lists as trade secrets by restricting access thereto
and/or by the use of non-disclosure agreements. There can be no assurance,
however, that the means taken to protect the confidentiality of these items will
be sufficient, or that others will not independently develop similar databases
and customer lists.
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PROPERTIES
The Company operates from various locations throughout the United States.
Its corporate headquarters are based in New York. Information relating to the
Company's corporate headquarters and other significant regional offices which
are owned or leased is set forth in the following table:
<TABLE>
<CAPTION>
LEASE
STREET ADDRESS CITY/STATE SQUARE FOOTAGE EXPIRATION
- ----------------------------------------------- ------------------------------ --------------- ---------------
<S> <C> <C> <C>
345 Park Avenue South.......................... New York, NY 55,000 Sept. 2008
600 Third Avenue............................... New York, NY 23,125 Dec. 1998
238 Mulberry Street............................ Newark, NJ 7,022 Dec. 2006
625 Polk Street................................ San Francisco, CA 7,100 Apr. 2000
900 Jackson Street............................. Dallas, TX 10,190 Dec. 2003
1005 Congress Street........................... Austin, TX 1,992 May 1999
815 Walker Street.............................. Houston, TX 1,724 May 2001
190 Pryor Street, S.W.......................... Atlanta, GA 20,000 Owned
1730 M Street, N.W............................. Washington, DC 8,856 Mar. 2001
1 Post Road.................................... Fairfield, CT 6,520 Dec. 2002
1 S.E. Third Avenue............................ Miami, FL 19,742 Sept. 2004
150 N.E. 7th Street............................ Miami, FL 17,001 Sept. 2004
633 South Andrews Avenue....................... Fort Lauderdale, FL 3,408 Jan. 2008
100 South Dixie Highway........................ W. Palm Beach, FL 3,053 Jan. 1999
</TABLE>
EMPLOYEES AND LABOR RELATIONS
As of March 31, 1998, the Company employed approximately 735 full-time
employees. Of the Company's employees, 19 are engaged in typesetting and
page-layout in NLP's composing room, certain of whom are subject to a collective
bargaining agreement scheduled to expire on March 30, 2000. The Company believes
that its relations with its employees are satisfactory.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or on the results of its operations.
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RECENT TRANSACTIONS
LEGALTECH ACQUISITION. On March 3, 1998, a newly formed wholly-owned
subsidiary of the Company purchased all of the assets and assumed certain of the
liabilities related to Corporate Presentations for approximately $10.8 million
in cash. The Company funded the LegalTech Acquisition with available cash flow.
For the twelve months ended February 28, 1998, LegalTech had net revenues of
approximately $2.6 million and EBITDA of approximately $1.1 million.
Corporate Presentations is a leading producer of trade shows and conferences
relating to law practice technology. Under its LegalTech-Registered Trademark-
tradename, Corporate Presentations produces conferences and exhibitions in New
York City, Los Angeles, Chicago, Atlanta and Washington. The conferences are
generally three-day events that include vendor exhibits, a seminar program and a
variety of workshops and focus sessions. Attendees typically include attorneys
in private practice, corporate counsel, law firm administrators and information
technology personnel, while exhibitors include a wide variety of software,
hardware, publishing and other technology product related companies. The Company
believes Corporate Presentations benefits greatly from its relationships with
co-sponsors. For example, Price Waterhouse is responsible for coordinating the
seminar programs at all LegalTech events and, as a result, regularly invites its
law practice and law technology consulting clients to LegalTech events,
providing LegalTech vendors with an increasingly diversified audience.
LCL ACQUISITION. On April 22, 1998, effective as of April 1, 1998, the
Company consummated the acquisition of substantially all of the legal
publishing-related assets and assumed certain liabilities of LCL for total
consideration of approximately $20 million. For the twelve months ended March
31, 1998, LCL had net revenues of approximately $8.7 million and EBITDA of
approximately $2.1 million.
LCL is a multi-media publisher of regional publications serving primarily
the Pennsylvania statewide legal community and the metropolitan Philadelphia
legal community. LCL's two principal publications have a combined circulation of
approximately 6,000. LCL publishes through four divisions: (i) the newspaper
/newsletter division; (ii) the reference text division; (iii) the specialty
publishing division; and (iv) the electronic publishing division. The
newspaper/newsletter division is anchored by THE LEGAL INTELLIGENCER, a daily
newspaper serving metropolitan Philadelphia. The newspaper/newsletter division
also produces a weekly newspaper, PENNSYLVANIA LAW WEEKLY, and a monthly
newsletter, LEGAL.ONLINE, which is offered in both print and electronic form.
The reference text division offers digested court information and decisions
through a series of texts. The specialty publishing division provides
third-party services for the Philadelphia Bar Association and the Pennsylvania
Trial Lawyers Association. LCL's relationships with the Associations enables LCL
to have access to more than 25,000 attorneys in Pennsylvania. The electronic
publishing division provides access to content and to assorted company products
through a set of internet sites, foremost among them PALAWNET, a paid-access
site comprised of all the current and archival content of LCL's publications.
REVOLVING CREDIT FACILITY. On March 25, 1998, the Company entered into a
five-year $40.0 million, senior secured revolving credit facility (the
"Revolving Credit Facility") to be available for working capital and general
corporate purposes, including acquisitions and capital expenditures. The Company
intends to use the Revolving Credit Facility, in part, for the purposes of
funding future acquisitions and internal product development and growth. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pro Forma Liquidity and Capital Resources" and "Description of Other
Indebtedness--Revolving Credit Facility."
ADDITIONAL EQUITY CONTRIBUTION. On April 14, 1998, Holdings contributed an
aggregate of $15 million to the equity capital of the Company. The proceeds of
the equity contribution are intended to be used to fund acquisitions and to
provide capital for aggressive internal growth.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding (i) the
executive officers and directors of the Company and Holdings, (ii) the executive
officers and key employees of ALM, LLC, and (iii) the executive officers and key
employees of NLP, as of March 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --------- -----------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY AND HOLDINGS
Bruce Wasserstein...................... 50 Chairman and Director
William L. Pollak...................... 42 President, Chief Executive Officer and Director
Anup Bagaria........................... 25 Director
Michael J. Biondi...................... 40 Director
Robert C. Clark........................ 54 Director
Donald G. Drapkin...................... 50 Director
James A. Finkelstein................... 49 Director
Andrew G.T. Moore, II.................. 62 Director
Randall J. Weisenburger................ 39 Director
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF ALM, LLC
Joseph Calve........................... 44 Editor and Publisher of TEXAS LAWYER
Eric Effron............................ 43 Editor and Publisher of LEGAL TIMES
S. Richard Gard, Jr.................... 38 Editor and Publisher of FULTON COUNTY DAILY REPORT
Joanne Harras.......................... 36 Vice President, Finance
Tom Januszewski........................ 31 Publisher of THE CONNECTICUT LAW TRIBUNE
Aric Press............................. 48 Editor-in-Chief of THE AMERICAN LAWYER
Peter Scheer........................... 47 Editor and Publisher of THE RECORDER
Robert Steinbaum....................... 46 Publisher of NEW JERSEY LAW JOURNAL
Edward Wasserman....................... 49 Chairman and Editor-in-Chief of DAILY BUSINESS REVIEW
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF NLP
James A. Finkelstein................... 49 President and Chief Executive Officer of NLP
Steven Farbman......................... 37 Senior Vice President and Chief Operating Officer of NLP
Ben Gerson............................. 49 Editor-in-Chief of THE NATIONAL LAW JOURNAL
Ruth Hochberger........................ 47 Editor-in-Chief of NEW YORK LAW JOURNAL
Alan Kaplan............................ 53 Vice President of NLP
Paul Mastronardi....................... 39 Vice President, Finance of NLP
Rose-Ann Morangelli.................... 49 Vice President and Director of Marketing of NLP
Kevin Vermuelen........................ 34 Vice President of Sales; Associate Publisher, LAW TECHNOLOGY
PRODUCT NEWS
Mark S. Winwood........................ 46 President of Law Journal Information Systems
Stuart Wise............................ 45 Publisher of Leader Publications
</TABLE>
Each Director is elected annually and serves until the next annual meeting
of stockholders or until his or her successor is duly elected and qualified. The
Directors are each compensated $20,000 per year for their service as Directors
and receive reimbursement of expenses incurred from their attendance at Board of
Directors meetings. Directors will also be eligible to participate in an equity
participation plan to be established.
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EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY AND HOLDINGS
BRUCE WASSERSTEIN is Chairman of the Board of Directors of ALM and Holdings.
He is Chairman, Chief Executive Officer and founder of WPG. Previously, Mr.
Wasserstein served as a Director and the Chairman of Maybelline, Inc. and as a
Director of Collins & Aikman Corp. Before establishing WPG, Mr. Wasserstein was
Co-Head of Investment Banking at The First Boston Corporation, and a Managing
Director and Member of its Management Committee. Prior to joining First Boston
in 1977, Mr. Wasserstein was an attorney at Cravath, Swaine & Moore in New York
City. Mr. Wasserstein graduated with honors from the University of Michigan in
1967. In 1971 he graduated from Harvard Business School as a Baker Scholar with
high distinction, and earned a J.D., CUM LAUDE, from Harvard Law School. In 1972
he was a Knox Traveling Fellow at Cambridge University, graduating with a
graduate diploma in Comparative Legal Studies in Economic Regulation. Mr.
Wasserstein is a member of the Council on Foreign Relations. He has served as a
member of the SEC's Advisory Committee on Tender Offers and as a member of the
Visiting Committees of Harvard Law School and the University of Michigan.
WILLIAM L. POLLAK has served as President, Chief Executive Officer and
Director since March 1998. Before joining the Company, Mr. Pollak spent 16 years
at the New York Times, where he held a variety of positions, most recently as
Executive Vice President, Circulation. Mr. Pollak received an M.B.A. from
Harvard Business School in 1982 and a B.A. from Harvard College in 1978.
ANUP BAGARIA has served as a Director of ALM and Holdings since their
founding. He is a Vice President of WP Management Partners, LLC. He graduated
from the Massachusetts Institute of Technology in 1993 and since then has been a
member of the merchant banking group of Wasserstein Perella & Co., Inc.
MICHAEL J. BIONDI has served as a Director of ALM and Holdings since March
1998. He is Chairman and Chief Executive Officer of Wasserstein Perella & Co.,
Inc. Mr. Biondi holds M.B.A. and J.D. degrees from the Wharton School and the
University of Pennsylvania Law School, respectively. Prior to joining
Wasserstein Perella, Mr. Biondi was a member of the First Boston Mergers &
Acquisitions Group, and practiced law at Skadden, Arps, Slate, Meagher & Flom.
ROBERT C. CLARK has served as a Director of ALM and Holdings since their
founding. He has been Dean of the Harvard Law School since 1989 and is Royall
Professor of Law. Mr. Clark joined Harvard Law School in 1979 after four years
at Yale Law School, where he was a tenured professor. Mr. Clark is a corporate
law specialist and author of numerous texts and legal articles. Prior to his
academic career, he was an attorney with Ropes & Gray. Professor Clark has a
Ph.D. from Columbia University and a J.D. MAGNA CUM LAUDE from Harvard Law
School. He is currently a Director of Collins & Aikman Corp. and of Beneficial
Corporation. He was previously a Director of Maybelline, Inc.
DONALD G. DRAPKIN has served as a Director of ALM and Holdings since their
founding. He has been a Director and Vice Chairman of MacAndrews & Forbes
Holdings Inc. and various of its affiliates since March 1987. Prior to joining
MacAndrews & Forbes, Mr. Drapkin was a partner in the law firm of Skadden, Arps,
Slate, Meagher & Flom for more than five years. Mr. Drapkin also is a Director
of the following corporations which file reports pursuant to the Exchange Act:
Algos Pharmaceutical Corporation, Black Rock Asset Investors, Cardio
Technologies, Inc., The Cosmetic Center, Inc., The Coleman Company, Inc.,
Coleman Worldwide Corporation, Genta, Inc., Marvel III Holdings Inc., Revlon
Consumer Products Corporation, Revlon, Inc., Revlon Worldwide Inc., Playboy
Enterprises, Inc., Weider Nutrition International, Inc., and VIMRx
Pharmaceuticals Inc. On December 27, 1996, Marvel Holdings Inc., Marvel (Parent)
Holdings Inc., Marvel Entertainment Group, Inc., of which Mr. Drapkin was a
Director, and several of their respective subsidiaries, and Marvel III Holdings
Inc., of which Mr. Drapkin is a Director, filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code.
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<PAGE>
JAMES A. FINKELSTEIN has served as a Director of ALM and Holdings since
March 1998.
ANDREW G. T. MOORE, II has served as a Director of ALM and Holdings since
their founding. He is a Managing Director of Wasserstein Perella and is a former
Justice of the Delaware Supreme Court. Justice Moore served on the Delaware
Supreme Court for 12 years until 1994. Justice Moore has served as the Lehmann
Distinguished Visiting Professor of Law at Washington University in St. Louis.
He has also served as an adjunct professor of law at the Georgetown University
Law Center, University of Iowa College of Law and Widener University School of
Law, where he taught seminars in advanced corporation law. He also teaches
comparative principles of international corporation law at the Tulane University
Institute of European Legal Studies in Paris, and has been a guest lecturer at
various law schools and national corporate law programs in the United States,
Canada and Europe. He graduated from Tulane University with B.B.A. and J.D.
degrees. He served as law clerk to Delaware Chief Justice Charles L. Terry, Jr.
in 1963. From 1964-1982 Justice Moore practiced law in Wilmington, Delaware,
primarily in the field of corporate litigation. He was a partner of the firm of
Connolly, Bove, Lodge & Hutz.
RANDALL J. WEISENBURGER has served as a Director of ALM and Holdings since
their founding. He is a Managing Director of Wasserstein Perella & Co., Inc.
("Wasserstein Perella") and is the President and CEO of WP Management Partners,
LLC. Mr. Weisenburger is a Director and the Co-Chairman of Collins & Aikman
Corp. and a Director of Sunbelt Manufacturing, Inc., Alliance Entertainment
Corp. and Yardley of London, Inc. Previously, Mr. Weisenburger was a Director
and Vice Chairman of Maybelline, Inc. and a Director of Pneumo Abex Corp. Mr.
Weisenburger is a founding member of Wasserstein Perella. He holds an M.B.A.
from the Wharton School of Business, where he was named the Henry Ford II
Scholar, and a B.S. in Accounting and Finance from Virginia Tech.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF ALM, LLC
JOSEPH CALVE has served as Editor and Publisher of TEXAS LAWYER since 1995.
Prior to that, he was employed at THE CONNECTICUT LAW TRIBUNE. Mr. Calve is a
former practicing attorney, specializing in litigation at two firms, Cole &
Deitz in New York City and Rucci, Gruss, Jex & Gleason in Darien, Connecticut.
Mr. Calve received his J.D. from Western New England College School of Law in
1985, his M.A. from New York University and his B.A. from the University of
Colorado in 1981 and 1977, respectively.
ERIC EFFRON has served as Editor and Publisher of LEGAL TIMES since 1991.
From 1986 to 1991, he served in a number of editorial posts at LEGAL TIMES.
Prior to such time, his journalism experience included positions at THE NATIONAL
LAW JOURNAL, THE LOS ANGELES DAILY JOURNAL and THE NEW HAVEN REGISTER. Mr.
Effron received an M.S. from the Columbia University Graduate School of
Journalism in 1979 and a B.A., MAGNA CUM LAUDE, from Clark University in 1977.
S. RICHARD GARD, JR. has served as Editor and Publisher of FULTON COUNTY
DAILY REPORT since 1995. He has held several editorial positions at FULTON
COUNTY DAILY REPORT since joining as one of its first staff reporters in 1987.
Prior to that, Mr. Gard was an associate at Carter & Ansley, an Atlanta law
firm, where he had an insurance defense and general civil litigation practice.
Mr. Gard received his J.D. from the University of Georgia School of Law in 1984
and a B.A. with distinction from the University of Virginia in 1981.
JOANNE HARRAS has served as Vice President, Finance of ALM, LLC since 1995.
She joined Old ALM in 1987 as Assistant Controller and served as the Controller
of The American Lawyer magazine group from 1991 to 1995. Prior to joining Old
ALM, Ms. Harras was employed for three years with Seymour Schneidman and
Associates, a mid-size accounting firm specializing in publishing. Ms. Harras
graduated from Pace University in 1983 with a B.B.A. in Accounting and is a
Certified Public Accountant.
TOM JANUSZEWSKI has served as Publisher of THE CONNECTICUT LAW TRIBUNE since
January, 1998. Prior to that, Mr. Januszewski served as New England regional
director for Counsel Connect. He graduated from
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Fairfield University with a B.A. in English in 1988 and earned his law degree
from the Quinnipiac College School of Law in 1993. After graduation, he worked
as a content developer for GTE Main Street, an interactive television project.
He created programming and contributed to the design and operation of the
service.
ARIC PRESS has served as Editor-in-Chief of THE AMERICAN LAWYER magazine
since January 1998. From 1979 to January 1998, he was employed at NEWSWEEK
magazine where he most recently served as a senior editor. At NEWSWEEK, Mr.
Press was responsible for supervising law, science, education, religion and
sports coverage. Mr. Press received his J.D. from New York University and his
B.A. from Cornell University.
PETER SCHEER has served as Editor and Publisher of THE RECORDER since 1991.
Mr. Scheer started with Old ALM in 1987 as publisher of LEGAL TIMES. Prior to
joining Old ALM, Mr. Scheer was a lawyer specializing in appellate litigation in
Washington, D.C. and held various government and private legal positions since
his graduation from Harvard Law School in 1978. He graduated PHI BETA KAPPA from
Amherst College in 1973.
ROBERT STEINBAUM has served as Publisher of the NEW JERSEY LAW JOURNAL since
1987. Prior to that, he was an Assistant U.S. Attorney in Newark, New Jersey and
a private practitioner in Washington, D.C. and Newark, New Jersey. Mr. Steinbaum
received his J.D. from Georgetown University Law Center in 1976 and a B.A.
degree, MAGNA CUM LAUDE, from Yale University in 1973.
EDWARD WASSERMAN is Chairman and Editor-in-Chief of South Florida's three
DAILY BUSINESS REVIEWS. Before joining Old ALM in 1986, he served as Executive
Business Editor of THE MIAMI HERALD. Mr. Wasserman received a Ph.D. from the
London School of Economics in 1980, a Masters of Philosophy from the University
of Paris in 1972 and a B.A. degree, CUM LAUDE, in politics and economics from
Yale University in 1970.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF NLP
JAMES A. FINKELSTEIN joined The New York Law Publishing Company in 1970 and
became its President and Chief Executive Officer in 1974. In addition, he
currently serves as President and Chief Executive Officer of NLP and is the
founder and Publisher of THE NATIONAL LAW JOURNAL and the Publisher of the NEW
YORK LAW JOURNAL. Mr. Finkelstein holds a B.A. from New York University and an
Honorary Doctor of Laws degree from Hofstra Law School. He currently serves on
the Faculty of Arts and Sciences Board of Overseers at New York University.
STEVEN FARBMAN has served in a variety of capacities at NLP since January
1986, including President of Law Journal Seminars-Press since 1988 and Senior
Vice President and Chief Operating Officer since 1992. Prior to joining NLP, Mr.
Farbman spent two years as Business Manager of NEW YORK CONSTRUCTION NEWS, a
weekly newspaper based in New York City and worked in marketing for Warner
Communications, Inc. Mr. Farbman graduated from The George Washington University
in Washington, D.C.
BEN GERSON has served as Editor-in-Chief of THE NATIONAL LAW JOURNAL since
1994. He originally joined NLP in 1981 as News Editor and later became Legal
Editor for THE NATIONAL LAW JOURNAL. From 1986 to 1990, he served as the
founding editor of the Op-Ed page for NEW YORK NEWSDAY, and later became Sunday
and Op-Ed Editor for both LONG ISLAND NEWSDAY and NEW YORK NEWSDAY. He received
his J.D. from Boston College Law School in 1979 and his B.A. degree from
Brandeis University in 1970.
RUTH HOCHBERGER has served as Editor-in-Chief of the NEW YORK LAW JOURNAL
since 1989. She originally joined NLP in 1976 as a feature reporter for the NEW
YORK LAW JOURNAL and was founding publisher of NLP's newsletter division, Leader
Publications, before returning to the NEW YORK LAW JOURNAL in 1989. Ms.
Hochberger received her J.D. in 1975 and her B.A. degree from Boston College in
1972.
ALAN KAPLAN has been a Vice President of NLP since 1993. Mr. Kaplan
originally joined NLP in 1982 responsible for special projects. He became
President of Law Journal Seminars-Press in 1983 and held that
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<PAGE>
position until 1987, at which time he left NLP. Mr. Kaplan rejoined NLP in 1993
and is currently working on performance improvement programs at NLP's newsletter
division. Mr. Kaplan holds a B.A. from Tufts University and a J.D., MAGNA CUM
LAUDE, from New York Law School.
PAUL MASTRONARDI joined NLP in March 1996 as Chief Financial Officer and was
elected Vice President, Finance in April 1996. He served as Director of
Financial Planning for Bantam Doubleday Bell, a division of Bertelsmann Inc.,
from April 1995 to March 1996. Prior to that time, Mr. Mastronardi spent
fourteen years at Gruner & Jahr USA Publishing, where he served in a variety of
capacities, including Staff Accountant, Manager of Information Systems, Senior
Financial Manager and Director of Financial Planning. Mr. Mastronardi holds a
B.S. in Accounting and an M.S. in Finance from St. John's University.
ROSE-ANN MORANGELLI has been a Vice President and Director of Marketing for
NLP since 1990. Prior to such time, Ms. Morangelli served as Vice President of
Law Journal Seminars-Press. Ms. Morangelli joined NLP when Law Journal
Seminars-Press was launched in 1971. She was previously employed by the
Practicing Law Institute.
KEVIN VERMUELEN has been a Vice President of Sales for NLP since 1996. In
addition, he also serves as Associate Publisher of LAW TECHNOLOGY PRODUCT NEWS
and Director of Advertising for the NEW YORK LAW JOURNAL. Mr. Vermuelen joined
NLP in October 1992. He previously worked for Miller Freeman and Gordon
Publications as a Regional Manager. Mr. Vermuelen graduated from Brockport State
University in 1985.
MARK S. WINWOOD has been a President of NLP's Law Journal Information
Systems Division since 1986. Mr. Winwood joined NLP as Assistant Editor on the
founding staff of THE NATIONAL LAW JOURNAL in 1978 and served as Art Director
during the first five years of its publication. Mr. Winwood was responsible for
the 1986 startup of Law Journal Information Systems, and supervises, on a daily
basis, all aspects of the division's operations.
STUART WISE has been Publisher of Leader Publications at NLP since 1990. Mr.
Wise joined NLP in 1980. He has worked in the Newsletter Division since 1987,
when he became Managing Editor. In 1990 Mr. Wise became the Publisher of the
division with overall responsibility for the day-to-day editorial and business
operations.
EXECUTIVE COMPENSATION
The Company was formed in August 1997 and did not conduct any operations or
have any employees prior to the ALM Acquisition in August 1997. For the year
ended December 31, 1997, the only executive officers of the Company were Randall
J. Weisenburger, who served as President and Chief Executive Officer, and Anup
Bagaria, who served as Vice President and Secretary of the Company. Neither of
Mr. Weisenburger or Mr. Bagaria received compensation from any person in respect
of their service rendered to the Company. Effective March 1998, the Company
hired William L. Pollak as its President and Chief Executive Officer, replacing
Mr. Weisenburger. See "Certain Transactions."
INCENTIVE COMPENSATION PROGRAMS
As part of its business strategy, the Company intends to adopt a new
compensation program for key employees designed to more closely link
compensation to the Company's overall performance. Furthermore, for senior
executives, the Company intends to establish a long-term incentive compensation
program setting aside options to purchase between 3.0% and 5.0% of the Company's
common stock. The Company has made no final determination with respect to whom
such securities will be issued.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established an Executive Committee and intends to establish
two other standing committees: (i) an Audit Committee and (ii) Compensation
Committee. There is no standing nominating committee of the Board.
The Executive Committee consists of three members, currently Bruce
Wasserstein, Randall J. Weisenburger and Anup Bagaria. The Executive Committee
has been delegated the authority to approve (i) the acquisition and divestiture
by the Company or an affiliate of the Company of all or a portion of one or more
business entities for a price of up to $25 million, (ii) the appointment of
senior officers of the Company or its affiliates and termination of such
employment, (iii) the preparation and approval of short-term and long-term
budgets, and (iv) other material policy-level decisions to the extent permitted
by the Delaware General Corporation Law.
The Audit Committee shall review and, as it shall deem appropriate,
recommend to the Board internal accounting and financial controls for the
Company and auditing practices and procedures to be employed in the preparation
and review of financial statements of the Company. The Audit Committee shall
make recommendations to the Board concerning the engagement of independent
public accountants to audit the annual financial statements of the Company and
the scope of the audit to be undertaken by such accountants. Arthur Andersen LLP
presently serves as the independent auditors of the Company. The Company expects
that two or three Directors will be appointed to the Audit Committee.
The Compensation Committee shall review and, as it deems appropriate,
recommend to the Board policies, practices and procedures relating to the
compensation of managerial employees and the establishment and administration of
employee benefit plans. The Compensation Committee shall have and exercise all
authority under any employee stock option plans of the Company, if any, as the
committee therein specified (unless the Board resolution appoints any other
committee to exercise such authority), and shall otherwise advise and consult
with the officers of the Company as may be requested regarding managerial
personnel policies. The Company expects that two or three Directors will be
appointed to the Compensation Committee.
CERTAIN TRANSACTIONS
The Company is a wholly-owned subsidiary of Holdings. A majority of
Holdings' equity securities are held by USEP and its affiliates. USEP is a
Delaware limited partnership investment fund of which WPMP is the general
partner. WPMP is controlled by Wasserstein Perella & Co., Inc. In accordance
with the Notes, WPMP is entitled to receive a monitoring fee in respect of any
year. The monitoring fee will be based on customary arrangements in similar
transactions. The monitoring fee will be a flat fee, in an amount not to exceed
$1.0 million per year, based on services rendered by WPMP to the Company.
Services to be provided by WPMP will or may include advice regarding the
strategic direction and focus of the business of the Company, the oversight of
the senior management team of the Company and the monitoring of the Company
generally. No monitoring fee was charged during 1997. For advisory services
rendered by WPMP to the Company in connection with the LegalTech Acquisition,
the Company paid WPMP a fee of 1% of the purchase price for LegalTech. For
advisory services rendered by WPMP to the Company in connection with the LCL
Acquisition, the Company paid WPMP a fee of 1% of the purchase price for LCL.
See "Recent Transactions."
The Company may engage in transactions with its affiliates, including
entities owned or controlled by certain of its principal shareholders. The
Company believes that such transactions will be no more favorable to the Company
than similar transactions with non-affiliates. The Indenture contains a covenant
requiring that transactions with affiliates of the Company be on terms
substantially as favorable to the Company as would be obtainable by the Company
at the time in a comparable arm's length transaction
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with a person other than an affiliate. See "Description of the Notes--Certain
Covenants--Limitation on Transactions with Affiliates."
The Company has an employment agreement with William L. Pollak which
provides for the employment of Mr. Pollak with the Company as President and
Chief Executive Officer (effective March 9, 1998) until March 9, 2003, unless
sooner terminated (the "Employment Period"). The employment agreement provides
for an annual base salary of $400,000, subject to annual increases commencing on
March 9, 1999. In addition to the base salary, the employment agreement provides
for a bonus of $400,000 after the first year of the Employment Period and a
bonus of not less than 50% and not more than 150% of the base salary, as
determined by the Board of Directors, in each of the remaining years of the
Employment Period. Mr. Pollak will also receive a payment for options granted to
him and forfeited upon his resignation from THE NEW YORK TIMES COMPANY. The
employment agreement provides that if Mr. Pollak's employment is terminated by
the Company without cause or by Mr. Pollak with good reason, Mr. Pollak will be
entitled to severance equal to the total value of Mr. Pollak's salary through
the termination date to the extent accrued, but unreimbursed, and his salary for
one year commencing on the termination date and any accrued but unpaid bonus.
PRINCIPAL STOCKHOLDERS
All of the outstanding shares of the Company are beneficially owned by
Holdings. The following table sets forth certain information regarding
beneficial ownership of Holdings by (i) each person (or group of affiliate
persons) known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of Holdings, (ii) each Director, Director nominee, and
the Chief Executive Officer and Vice President of the Company, and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OF PERCENTAGE OF TOTAL SHARES
OF BENEFICIAL OWNER COMMON STOCK OF COMMON STOCK OUTSTANDING
- --------------------------------------------------------- ------------------- ----------------------------
<S> <C> <C>
U.S. Equity Partners, L.P. (1)........................... 36,996 36.996 %
ALM Offshore Intermediate Holdings, Inc. (2)............. 14,411 14.411 %
Wasserstein & Co., Inc. (3).............................. 100,000 100.000 %
</TABLE>
- ------------------------
(1) Includes approximately 3.4% of the issued and outstanding common stock of
Holdings held by a co-investor of U.S. Equity Partners, L.P. ("USEP"), which
has granted to WPMP, the general partner of USEP, an irrevocable proxy to
vote such shares of common stock. Wasserstein & Co., Inc. has shared voting
and dispositive power with respect to the shares held by USEP. See footnote
(3).
(2) ALM Offshore Intermediate Holdings, Inc. ("ALM Offshore") is a wholly-owned
subsidiary of U.S. Equity Partners (Offshore), L.P. Wasserstein & Co., Inc.
has shared voting and dispositive power with respect to the shares held by
ALM Offshore. See footnote (3).
(3) Includes 36,996 shares as to which Wasserstein & Co., Inc. shares voting and
dispositive power with USEP and 14,411 shares as to which Wasserstein & Co.,
Inc. ALM Offshore shares voting and dispositive power with ALM Offshore.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Discount Notes were originally sold by Holdings on December 22, 1997
to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Discount Notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act. As a condition of the
Purchase Agreement, Holdings entered into the Registration Rights Agreement with
the Initial Purchasers pursuant to which Holdings has agreed, for the benefit of
the holders of the Old Discount Notes, at Holdings' cost, (i) to file the
Exchange Offer Registration Statement within 120 days after the date of the
original issue of the Old Discount Notes with the Commission with respect to the
Exchange Offer for the Exchange Discount Notes; (ii) use its reasonable best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 180 days after the date of the
original issuance of the Old Discount Notes and (iii) use its best efforts to
cause the Exchange Offer Registration Statement to be effective continuously, to
keep the Exchange Offer open for a period of not less than 20 business days and
to cause the Exchange Offer to be consummated no later than the 30th business
day after it is declared effective by the Commission. Upon the Exchange Offer
Registration Statement being declared effective, the Company will offer the
Exchange Discount Notes in exchange for surrender of the Old Discount Notes. For
each Old Discount Note surrendered to the Company pursuant to the Exchange
Offer, the holder of such Old Discount Note will receive an Exchange Discount
Note having a principal amount equal to that of the surrendered Old Discount
Note. Interest on each Old Discount Note will accrue from the last interest
payment date on which interest was paid on the Old Discount Note surrendered in
exchange therefor or, if no interest has been paid on such Old Discount Note,
from the date of its original issue. Interest on each Exchange Discount Note
will accrue from the date of its original issue.
The Registration Rights Agreement provides that (i) if Holdings fails to
file an Exchange Offer Registration Statement with the Commission on or prior to
the 120th day after the date of original issue of the Old Discount Notes, (ii)
if the Exchange Offer Registration Statement is not declared effective by the
Commission on or prior to the 180th day after the date of original issue of the
Old Discount Notes, (iii) the Exchange Offer is not consummated on or before the
30th business day after the Exchange Offer Registration Statement is declared
effective, (iv) if obligated to file the Shelf Registration Statement and
Holdings fails to file the Shelf Registration Statement with the Commission on
or prior to the 30th business day after such filing obligation arises, (v) if
obligated to file a Shelf Registration Statement and the Shelf Registration
Statement is not declared effective on or prior to the 90th day after the
obligation to file a Shelf Registration Statement arises, or (vi) if the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is declared effective but thereafter ceases to be effective or
useable in connection with resales of the Transfer Restricted Securities (as
defined below), such time of non-effectiveness or non-useability (each, a
"Registration Default"), Holdings agrees to pay to each holder of Transfer
Restricted Securities affected thereby liquidated damages ("Liquidated Damages")
in an amount equal to $0.10 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of Liquidated
Damages shall increase by an additional $0.05 per week per $1,000 in principal
amount of Transfer Restricted Securities with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages of $0.25 per week, per $1,000 in principal amount of
Transfer Restricted Securities. Holdings shall not be required to pay Liquidated
Damages for more than one Registration Default at any given time. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will cease.
All accrued Liquidated Damages shall be paid by Holdings to the holders entitled
thereto in the same manner as interest payments on the Old Discount Notes on
semi-annual damages payment dates which correspond to interest payment dates for
the Old Discount Notes.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each Old Discount Note until the earliest of the date of which
(i) such Old Discount Note is exchanged in the Exchange Offer and entitled to be
resold to the public by the holder thereof without complying with the
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prospectus delivery requirements of the Securities Act, (ii) such Old Discount
Note has been disposed of in accordance with the Shelf Registration Statement,
(iii) such Old Discount Note is disposed of by a broker-dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of this Prospectus) or (iv) such Old Discount Note is
distributed to the public pursuant to Rule 144 under the Securities Act or is
salable pursuant to Rule 144(k) under the Securities Act.
The Registration Rights Agreement describes certain representations that
holders of Old Discount Notes are required to make to Holdings in order to
participate in the Exchange Offer. Holders of Old Discount Notes also are
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Old Discount Notes included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set forth
above.
The foregoing is a summary of the material terms and provisions of the
Registration Rights Agreement. This summary does not purport to be a complete
and is subject to the detailed provisions of, and qualified in its entirety by
reference to, the Registration Rights Agreement, a copy of which is filed as an
exhibit to the Exchange Offer Registration Statement of which this Prospectus is
a part.
Following the consummation of the Exchange Offer, holders of the Old
Discount Notes who were eligible to participate in the Exchange Offer but who
did not tender their Old Discount Notes will not have any further registration
rights and such Old Discount Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such Old
Discount Notes 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 Discount
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. Holdings will issue $1,000 principal amount of Exchange
Discount Notes in exchange for each $1,000 principal amount of outstanding Old
Discount Notes accepted in the Exchange Offer. Holders of Old Discount Notes may
tender some or all of their Old Discount Notes pursuant to the Exchange Offer.
However, Old Discount Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Discount Notes are the same as the form
and terms of the Old Discount Notes except that (i) the Exchange Discount Notes
bear a Series B designation, (ii) the Exchange Discount Notes will be registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof and (iii) the holders of the Exchange Discount Notes will not
be entitled to certain rights under the Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Old
Discount Notes in certain circumstances relating to the timing of the Exchange
Offer, all of which rights will terminate when the Exchange Offer is
consummated. The Exchange Discount Notes will evidence the same debt as the Old
Discount Notes and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $63,275,000 aggregate principal amount at
maturity of Old Discount Notes was outstanding. Holdings has fixed the close of
business on , 1998 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially.
Holders of Old Discount Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or in 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 Discount
Notes when, as and if Holdings has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as
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agent for the tendering holders for the purpose of the receiving the Exchange
Discount Notes from Holdings.
If any tendered Old Discount Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth in this
Prospectus or otherwise, the certificates for any such unaccepted Old Discount
Notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old Discount Notes 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 the exchange of Old
Discount Notes pursuant to the Exchange Offer. Holdings will pay all charges and
expenses, other than transfer taxes in certain circumstances, 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
, 1998, unless Holdings, in its sole discretion, extends the Exchange
Offer, 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 mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
If in the reasonable opinion of Holdings any of the conditions set forth
below under "--Conditions" shall not have been satisfied, Holdings may (i) delay
accepting any Old Discount Notes, extend the Exchange Offer or terminate the
Exchange Offer, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) 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 oral or written notice thereof to
the registered holders.
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 all holders, and
Holdings will extend the Exchange Offer for a minimum term of between five and
ten business days, depending upon the significance of the amendment and the
manner of disclosure to holders, if the Exchange Offer would otherwise expire
during such five to ten business day period. During any extension of the
Expiration Date, all Old Discount Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by Holdings.
ACCRETION OF THE DISCOUNT NOTES; INTEREST
The Old Discount Notes that are tendered in the Exchange Offer will accrete
at a rate of 12 1/4, compounded semi-annually, to but excluding the date of
issuance of the Exchange Discount Notes. Any Old Discount Notes not tendered or
accepted for exchange will continue to accrete in accordance with their terms
and will cease to accrete upon cancellation of the Old Discount Notes and
issuance of the Exchange Discount Notes. From and after the date of issuance of
the Exchange Discount Notes, the Exchange Discount Notes shall accrete at the
rate of 12 1/4% per annum, but no cash interest will accrue or be payable in
respect of the Exchange Discount Notes prior to December 15, 2002. Thereafter,
cash interest on the Exchange Discount Notes will be payable until maturity at a
rate of 12 1/4% per annum, semi-annually in arrears, on each June 15 and
December 15, commencing June 15, 2003.
PROCEDURES FOR TENDERING
Only a holder of Old Discount Notes may tender such Old Discount Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the accompanying Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal
or transmit an Agent's Message in connection with a book-entry transfer, and
mail or
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otherwise deliver such Letter of Transmittal or such facsimile or Agent's
Message, together with the tendered Old Discount Notes 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 Discount Notes, Letter of
Transmittal or Agent's Message and other required documents must be completed
and 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.
Delivery of the Old Discount Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Discount Notes that such
participant has received and agrees: (i) to participate in the Automated Tender
Option Program ("ATOP"); (ii) to be bound by the terms of the Letter of
Transmittal; and (iii) that Holdings may enforce such agreement against such
participant.
By executing the Letter of Transmittal or Agent's Message, each holder will
make to Holdings the representations set forth above in the second paragraph
under the heading "--Resale of the Exchange Discount Notes."
The tender of Old Discount Notes by a holder and the acceptance thereof by
Holdings will constitute 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 or Agent's Message.
THE METHOD OF DELIVERY OF OLD DISCOUNT NOTES AND THE LETTER OF TRANSMITTAL
OR AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT
THE ELECTION AND SOLE RISK OF THE HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY CONFIRMED BY THE EXCHANGE AGENT. AS AN ALTERNATIVE TO DELIVERY BY
MAIL, HOLDERS MAY WISH TO CONSIDER 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 DISCOUNT NOTES
SHOULD BE SENT TO THE COMPANY. 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 Discount Notes 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. See instructions
for "Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures" included as part of the Letter of Transmittal.
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 Discount Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
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 the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Discount Notes listed therein, such Old Discount Notes 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 Discount
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Discount Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a
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fiduciary or representative capacity, such persons should so indicate when
signing, and evidence satisfactory to Holdings of their authority to so act must
be submitted with the Letter of Transmittal.
Holdings understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the Old
Discount Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereto, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Discount Notes by causing such Book-Entry
Transfer Facility to transfer such Old Discount Notes into the Exchange Agent's
account with respect to the Old Discount Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the Old
Discount Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, unless an Agent's Message
is received by the Exchange Agent in compliance with ATOP, an appropriate Letter
of Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Discount Notes and withdrawal of tendered
Old Discount Notes 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 Discount Notes not properly tendered or any Old Discount
Notes Holdings' acceptance of which would, in the opinion of counsel for
Holdings, be unlawful. Holdings also reserves the right in its sole discretion
to waive any defects, irregularities or conditions of tender as to particular
Old Discount Notes. 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 Discount Notes 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 Discount Notes, neither
Holdings , the Exchange Agent nor any person shall incur any liability for
failure to give such notification. Tender of Old Discount Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Old Discount Notes 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.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Discount Notes and (i) whose Old
Discount Notes are not immediately available, (ii) who cannot deliver their Old
Discount Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution; and
(b) prior to the Expiration Date, the Exchange Agent received 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 the such Old Discount Notes and the principal amount of Old
Discount Notes tendered, stating that the tender is being made thereby
and guaranteeing that, within five New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof) (or, in the case of a book-entry transfer, an Agent's Message)
together with the certificate(s) representing the Old Discount Notes (or
a confirmation of book-entry transfer of such Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), and any other
documents
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required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) the certificate(s) representing all tendered Old Discount Notes in
proper form for transfer (or a confirmation of a book-entry transfer of
such Old Discount Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), together with a Letter of Transmittal (of
facsimile thereof), properly completed and duly executed, with any
required signature guarantees (or, in the case of a book-entry transfer,
an Agent's Message) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five 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 Discount Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Discount Notes 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 Discount Notes in the Exchange Offer, a
telegram, telex, letter 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 Discount Notes
to be withdrawn (the "Depositor"), (ii) identify the Old Discount Notes to be
withdrawn (including the certificate number(s) and principal amount of such Old
Discount Notes, or, in the case of Old Discount Notes transferred by book-entry
transfer, the name and number of the account at the Book-Entry Transfer Facility
to be credited), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Discount Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Discount Notes register the transfer of such Old Discount Notes into the name of
the person withdrawing the tender and (iv) specify the name in which any such
Old Discount Notes 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, whose
determination shall be final and binding on all parties. Any Old Discount Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Discount Notes will be issued with respect
thereto unless the Old Discount Notes so withdrawn are validly retendered. Any
Old Discount Notes which have been tendered but which are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Discount Notes may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, if in the reasonable
opinion of Holdings any of the conditions listed below have not been met,
Holdings shall not be required to accept for exchange, or exchange Notes for,
any Old Discount Notes, and may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Old Discount Notes, 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 judgment of Holdings, might materially impair the ability
of Holdings to proceed with the Exchange Offer, 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 law, statue, rule, regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which, in the judgment of
Holdings, might materially impair the ability of
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Holdings to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to Holdings; or
(c) any governmental approval has not been obtained, which approval Holdings
shall, in its discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
If in the reasonable opinion of Holdings any of the conditions above are not
satisfied, Holdings may (i) refuse to accept any Old Discount Notes and return
all tendered Old Discount Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Discount Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Old Discount Notes (see "--Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Discount Notes which have not been withdrawn.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
BY REGISTERED OR CERTIFIED FACSIMILE TRANSMISSION BY HAND OR OVERNIGHT DELIVERY:
MAIL: NUMBER:
The Bank of New York (Eligible Institutions Only) The Bank of New York
101 Barclay Street, 7E (212) 815-6339 101 Barclay Street
New York, New York 10286 Corporate Trust Services
Attn: Reorganization Section Window
CONFIRM BY TELEPHONE Ground Level
OR FOR INFORMATION CALL: New York, New York 10286
(212) 815-5788 Attn: Reorganization Section--
Floor 7E
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
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, telecopy, 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.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by Holdings. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Discount Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Discount Notes or Old Discount Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Old Discount Notes tendered, or if a transfer tax is imposed for any
reason other than the exchange of Old Discount Notes 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
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of payment of such taxes or exemption therefrom is not submitted to the Exchange
Agent, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The Exchange Discount Notes will be recorded at the same carrying value as
the Old Discount Notes, which is face value, as reflected in Holdings'
accounting records on the date of exchange. Accordingly, no gain or loss for
accounting purposes will be recognized by Holdings. The expenses of the Exchange
Offer will be capitalized and expensed over the term of the Exchange Discount
Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Discount Notes that are not exchanged for Exchange Discount Notes
pursuant to the Exchange Offer will remain restricted securities. Accordingly,
such Old Discount Notes may be resold only (i) to Holdings (upon redemption
thereof or otherwise), (ii) so long as the Old Discount Notes are eligible for
resale pursuant to Rule 144A, to a person inside the United States whom the
seller reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A under the Securities Act in a transaction meeting the requirements
of Rule 144A, in accordance with Rule 144A under the Securities Act, or pursuant
to another exemption from the registration requirements, of the Securities Act
(and based upon an opinion of counsel reasonably acceptable to Holdings), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE DISCOUNT NOTES
Based upon interpretations by the staff of the Commission set forth in
certain no-action letters issued to third parties in similar transactions,
Holdings believes that the Exchange Discount Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
any holder thereof (other than any such holder that is (i) an "affiliate" of
Holdings within the meaning of Rule 405 under the Securities Act, or (ii) a
broker-dealer that acquired the Old Discount Notes in a transaction other than
part of its market-making or other trading activities) without compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Discount Notes are acquired in the ordinary course
of such holder's business and such holder has no arrangement or understanding
with any person to participate in the distribution of such Exchange Discount
Notes. However, the Commission has not considered the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances.
As contemplated by the Registration Rights Agreement and the staff's
no-action letters referred to above, each holder accepting the Exchange Offer is
required to represent to Holdings in the Letter of Transmittal that (i) the
Exchange Discount Notes are to be acquired by the holder or the person receiving
such Exchange Discount Notes, whether or not such person is the holder, in the
ordinary course of business, (ii) the holder or any such other person (other
than a broker-dealer referred to in the next sentence) is not engaging and does
not intend to engage, in distribution of the Exchange Discount Notes, (iii) the
holder or any such other person has no arrangement or understanding with any
person to participate in the distribution of the Exchange Discount Notes, (iv)
neither the holder nor any such other person is an "affiliate" of Holdings
within the meaning of Rule 405 under the Securities Act, and (v) the holder or
any such other person acknowledges that if such holder or any other person
participates in the Exchange Offer for the purpose of distributing the Exchange
Discount Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Discount Notes and cannot rely on those no-action letters. Holders of Old
Discount Notes wishing to accept the Exchange Offer must represent to Holdings,
as required by the Registration Rights Agreement, that such conditions have been
met. Each Participating Broker-Dealer that receives Exchange Discount Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a
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prospectus in connection with any resale of such Exchange Discount Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating 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
Participating Broker-Dealer in connection with resales of Exchange Discount
Notes received in exchange for Old Discount Notes where such Old Discount Notes
were acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. Holdings has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available to
any Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of the Exchange Discount Notes cannot rely on the position of the staff of the
Commission enunciated in no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Failure to comply with such requirements in such instance may result in such
holder incurring liability under the Securities Act for which the holder is not
indemnified by Holdings. For a description of the procedures for resales by
Participating Broker-Dealers, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit Holdings to effect the Exchange Offer,
or if for any other reason the Exchange Offer is not consummated within 180 days
of the date of the original issuance of the Old Discount Notes, Holdings will
(i) file the Shelf Registration Statement covering the resale of the Old
Discount Notes, (ii) use its reasonable best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and
(iii) use its reasonable best efforts to keep effective the Shelf Registration
Statement for two years after its effective date. Holdings will, in the event of
the filing of the Shelf Registration Statement, provide to each applicable
holder of the Old Discount Notes copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resale of the Old Discount Notes. A holder
of the Old Discount Notes that sells such Old Discount Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each holder
of the Old Discount Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the Exchange
Offer Registration Statement.
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DESCRIPTION OF THE DISCOUNT NOTES
The Old Notes were issued and the Exchange Discount Notes will be issued
pursuant to an Indenture, dated as of December 22, 1997 among Holdings and The
Bank of New York, as trustee (the "Trustee"). The terms of the Exchange Discount
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") as in effect on the date of the Indenture. The Exchange Discount
Notes are subject to all such terms, and holders of the Exchange Discount Notes
are referred to the Indenture and the Trust Indenture Act for a statement of
them. The following is a summary of the material terms and provisions of the
Exchange Discount Notes. This summary does not purport to be a complete
description of the Exchange Discount Notes and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Exchange
Discount Notes and the Indenture (including the definitions contained therein).
The form and terms of the Exchange Discount Notes are the same as the form and
terms of the Old Discount Notes (which they replace) except that (i) the
Exchange Discount Notes bear a Series B designation, (ii) the Exchange Discount
Notes will be registered under the Securities Act and will not bear legends
restricting the transfer thereof, and (iii) the holders of Exchange Discount
Notes will not be entitled to certain rights under the Registration Rights
Agreement relating to the Old Discount Notes, including the provisions providing
for the payment of Liquidated Damages in certain circumstances relating to the
timing of the Exchange Offer, which rights will terminate when the Exchange
Offer is consummated. A copy of the form of Indenture may be obtained from
Holdings by any holder or prospective investor upon request. Definitions
relating to certain capitalized terms are set forth under "--Certain
Definitions" and throughout this description. Capitalized terms that are used
but not otherwise defined herein have the meanings assigned to them in the
Indenture and such definitions are incorporated herein by reference. Wherever
particular provisions of the Indenture are referred to in this summary, such
provisions are incorporated by reference as a part of the statements made and
such statements are qualified by such reference.
GENERAL
The Exchange Discount Notes will be senior, unsecured, general obligations
of Holdings, limited in initial aggregate principal amount to $35.0 million
(accreting to $63.275 million principal amount at maturity) and will be PARI
PASSU in right of payment to all existing and future unsubordinated Indebtedness
of Holdings and senior in right of payment to all subordinated Indebtedness of
Holdings. The operations of Holdings are conducted entirely through its
Subsidiaries and, therefore, the Exchange Discount Notes will be effectively
subordinated in right of payment to all existing and future obligations of
Holdings' Subsidiaries. In addition, Holdings will be dependent upon the cash
flow of its Subsidiaries to meet its obligations, including its obligations
under the Discount Notes. See "Risk Factors--Limitation on Access to
Subsidiaries' Cash Flow; Holding Company Structure."
The Senior Note Indenture will, and it is expected that any Credit Agreement
(as such term is defined below) will, restrict the ability of ALM to pay
dividends or make any other distributions to Holdings. The ability of ALM to
comply with the conditions in the Senior Note Indenture and any Credit Agreement
permitting such dividends and distributions may be affected by events beyond
ALM's control. As of December 31, 1997, after giving effect to the consummation
of the Transactions, Holdings' Subsidiaries had approximately $208.4 million
aggregate principal amount of liabilities outstanding, including indebtedness
under the Senior Notes, trade payables and deferred revenues. The Indenture will
permit the incurrence of certain additional Indebtedness of Holdings and
Holdings' Subsidiaries in the future. See "-- Certain Covenants--Limitation on
Incurrence of Additional Indebtedness." The Discount Notes will be issued only
in fully registered form, without coupons, in denominations of $1,000 and
integral multiples thereof.
As of the Issue Date, all of Holdings' direct and indirect Subsidiaries will
be Restricted Subsidiaries. However, under certain circumstances, Holdings and
ALM will be able to designate current or future
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Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
The Discount Notes will mature on December 15, 2008. The Discount Notes will
be issued at a substantial discount to their aggregate principal amount at
maturity such that the gross proceeds from the issuance of the Discount Notes
will be $35.0 million. Until December 15, 2002, no interest will accrue on the
Discount Notes, but the Accreted Value will increase (representing amortization
of original issue discount) between the date of original issuance and December
15, 2002, on a semi-annual bond equivalent basis using a 360-day year comprised
of twelve 30-day months, such that on December 15, 2002 the Accreted Value will
be equal to the full principal amount at maturity of the Discount Notes.
Beginning on December 15, 2002, interest on the Discount Notes will accrue at
the rate of 12 1/4% per annum and will be payable until maturity semi-annually
in arrears on June 15 and December 15 of each year, commencing on June 15, 2003,
to Holders of record on the immediately preceding June 1 and December 1,
respectively. Interest on the Discount Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
December 15, 2002.
Principal of, premium, if any, and accrued and unpaid interest on the
Discount Notes (and Liquidated Damages, if any) will be payable, and the
Discount Notes 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 of the Discount Notes 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 Discount Notes, 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 office of the Trustee in the Borough of Manhattan, The
City of New York.
OPTIONAL REDEMPTION
Holdings will not have the right to redeem any Discount Notes prior to
December 15, 2002 (other than as described in the next following paragraphs).
The Discount Notes will be redeemable for cash at the option of Holdings, in
whole or in part, at any time on or after December 15, 2002, upon not less than
30 days' nor more than 60 days' notice to each Holder of Discount Notes, at the
following redemption prices (expressed as percentages of the principal amount at
maturity) if redeemed during the 12-month period commencing December 15 of the
years indicated below, in each case (subject to the right of holders of record
on a Record Date to receive the corresponding accrued and unpaid interest due
thereon (and the corresponding Liquidated Damages, if any) 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 (and Liquidated
Damages, if any) thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- -----------
<S> <C>
2002.......................................................... 106.125%
2003.......................................................... 104.083%
2004.......................................................... 102.042%
2005 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to December 15, 2000,
Holdings may (but shall not have the obligation to) redeem all but not less than
all of the aggregate principal amount of the Discount Notes then outstanding, at
a redemption price equal to 112.25% of the Accreted Value thereof (plus
Liquidated Damages, if any) to the Redemption Date out of the Net Cash Proceeds
of a Public Equity Offering; PROVIDED HOWEVER, that such redemption shall occur
within 90 days of the closing of such Public Equity Offering.
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The Discount Notes will also be subject to redemption, at any time or from
time to time prior to December 15, 2002, upon not less than 10 nor more than 20
days' notice to each Holder of Discount Notes redeemed, at the option of
Holdings, in whole or in part, in integral multiples of $1,000, at a redemption
price equal to 100% of the Accreted Value thereof plus the applicable Make-Whole
Premium plus accrued and unpaid Liquidated Damages, if any, to but excluding the
Redemption Date. "Make-Whole Premium" means, with respect to a Discount Note at
any time, the greater of (a) 12.25% of the Accreted Value of such Discount Note
and (b) the excess of (i) the present value at such time, discounted from the
first date on which such Discount Note could be redeemed at the option of
Holdings, of the principal amount at maturity of such Discount Note plus the
amount of premium that would be due on such Discount Note were it to be redeemed
on the first date on which such Discount Note could be redeemed at the option of
Holdings, computed using a discount rate equal to the Treasury Rate plus 50
basis points, over (ii) the then outstanding Accreted Value of such Discount
Note. "Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least five Business Days prior to the date
fixed for repayment (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the then
remaining Weighted Average Life to Maturity of the Discount Notes (calculated as
if the first date on which the Discount Notes can be redeemed at the option of
Holdings were the final maturity of the Discount Notes); PROVIDED, HOWEVER, that
if such Weighted Average Life to Maturity of the Discount Notes is not equal to
the constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if such Weighted Average Life to Maturity of the Discount
Notes is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
If less than all of the Discount Notes are to be redeemed at any time,
selection of Discount Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Discount Notes are listed, or, if the Discount Notes are
not so listed, on a pro rata basis, by lot or by such other method as the
Trustee shall deem fair and appropriate; PROVIDED, that no Discount Notes of
$1,000 or less shall be redeemed in part. Notices of redemption shall be mailed
by first class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Discount Notes to be redeemed at its registered address.
If any Discount Note is redeemed in part only, the notice of redemption that
relates to such Discount Note shall state the portion of the principal thereof
to be redeemed. A new Discount Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Discount Note. On and after the Redemption Date,
interest ceases to accrue on Discount Notes or portions of them called for
redemption unless Holdings defaults on such payments due on such Redemption
Date.
The Discount Notes will not have the benefit of any sinking fund.
CERTAIN COVENANTS
REPURCHASE OF DISCOUNT NOTES 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 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 Discount Notes (PROVIDED, that the principal amount
of such Discount Notes must be $1,000 or an integral multiple thereof) on a date
(the "Change of Control Purchase Date") that is no later than 90 Business Days
after the date of occurrence of such Change of Control, at a cash price equal to
101% of the Accreted Value thereof, together with accrued and unpaid interest if
any thereon (and Liquidated Damages, if any), (the "Change of Control Purchase
Price") to the Change of Control
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Purchase Date. The Change of Control Offer shall be made within 60 Business Days
following a Change of Control and shall remain open for at least 20 Business
Days following the mailing of such Change of Control Offer but in no event
longer than 30 Business Days, unless required by law (the "Change of Control
Offer Period"). Upon expiration of the Change of Control Offer Period, Holdings
promptly shall purchase all Discount Notes properly tendered in response to the
Change of Control Offer.
As used herein, a "Change of Control" means (a) 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 a Permitted
Transferee, is or becomes the "beneficial owner" (as defined in Rules 13(d) and
14(d) of the Exchange Act), directly or indirectly, of more than 50% of the
total voting power in the aggregate normally entitled to vote in the election of
members of the board of directors, managers, or trustees, as applicable, of the
transferee(s) or surviving entity or entities, (b) 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 a Permitted Transferee, is or
becomes the "beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate of all classes of Equity Interests of
Holdings then outstanding normally entitled to vote in elections of members of
the board of directors, managers, or trustees, as applicable, or (c) 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 with any new directors whose election by such Board of
Directors or whose nomination for election by the holders of Equity Interests of
Holdings was approved 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.
The Indenture will provide that, prior to the commencement of a Change of
Control Offer, but in any event within 30 days following any Change of Control,
Holdings will, or will cause ALM to, (a)(i) repay in full (and, as applicable,
terminate all commitments under) the Senior Notes, any Credit Agreement, and all
other Indebtedness of Restricted Subsidiaries requiring repayment upon a Change
of Control or (ii) offer to repay in full (and, as applicable, terminate all
commitments under) such Credit Agreement, the Senior Notes and all such other
Indebtedness of Restricted Subsidiaries and repay the Indebtedness owed to each
lender which has accepted such offer in full or (b) obtain the requisite
consents under such Credit Agreement, the Senior Notes and all such other
Indebtedness of Restricted Subsidiaries to permit the repurchase of the Discount
Notes as provided herein. Holdings' failure to comply with the preceding
sentence shall constitute an Event of Default described in clause (c) and not in
clause (b) under "--Events of Default and Remedies" below.
On or before the Change of Control Purchase Date, Holdings will (a) accept
for payment Discount Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (b) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any), of all Discount Notes so tendered and
(c) deliver to the Trustee Discount Notes so accepted together with an Officers'
Certificate listing the Discount Notes or portions thereof being purchased by
Holdings. The Paying Agent promptly will pay the Holders of Discount Notes so
accepted an amount equal to the Change of Control Purchase Price (together with
accrued and unpaid interest, if any, and Liquidated Damages, if any), and the
Trustee promptly will authenticate and deliver to such Holders a new Discount
Note equal in principal amount to any unpurchased portion of the Discount Note
surrendered. Any Discount Notes not so accepted will be delivered promptly by
Holdings to the Holder thereof. Holdings will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
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Holdings will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by Holdings and
purchases all Discount Notes validly tendered and not withdrawn under such
Change of Control Offer.
The Change of Control purchase feature of the Discount Notes may make more
difficult or discourage a takeover of Holdings, and, thus, 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 any or all of the Discount Notes 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. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this covenant, compliance by
Holdings with such laws and regulations shall not in and of itself cause a
breach of its obligations under such covenant.
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 (and Liquidated Damages, if any, due on such
Interest Payment Date) will be paid to the Person in whose name a Discount Note
is registered at the close of business on such record date, and such accrued and
unpaid interest (and Liquidated Damages, if applicable) will not be payable to
Holders who tender the Discount Notes pursuant to the Change of Control Offer.
The Senior Note Indenture restricts, and any Credit Agreement may restrict,
the ability of ALM to pay dividends or make other distributions to Holdings. If
Holdings is unable to obtain dividends or other distributions from ALM
sufficient to permit the repurchase of the Discount Notes upon a Change of
Control, Holdings will likely not have the financial resources to purchase
Discount Notes. 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
The Indenture provides that, except as set forth in this covenant, Holdings
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, issue, assume, guarantee, 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, unless (a)
in the case of an incurrence of Indebtedness by ALM or any of its Restricted
Subsidiaries, after giving effect to the incurrence of such Indebtedness and the
receipt and application of the proceeds thereof, the ratio of the total
Indebtedness of ALM and its Restricted Subsidiaries (excluding (x) any
Indebtedness owed to a Restricted Subsidiary of ALM by any other Restricted
Subsidiary of ALM or by ALM and (y) any Indebtedness owed to ALM by any
Restricted Subsidiary of ALM) to ALM's Consolidated EBITDA (determined on a PRO
FORMA basis for the last four fiscal quarters of ALM for which financial
statements are available at the date of determination) is less than (i) 6.5 to 1
if the Indebtedness is incurred prior to December 15, 1999 and (ii) 6.0 to 1 if
the Indebtedness is incurred on or after December 15, 1999, (b) in the case of
an incurrence of Indebtedness by Holdings or any of its Restricted Subsidiaries,
after giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof, the ratio of the total Indebtedness of
Holdings and its Restricted Subsidiaries (excluding (x) any Indebtedness owed to
a Restricted Subsidiary of Holdings by any other Restricted Subsidiary of
Holdings or by Holdings and (y) any Indebtedness owed to Holdings by a
Restricted Subsidiary of Holdings) to Holdings'
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consolidated EBITDA (determined on a PRO FORMA basis for the last four fiscal
quarters of Holdings for which financial statements are available at the date of
determination) is less than (i) 7.5 to 1 if the Indebtedness is incurred prior
to December 15, 1999 and (ii) 7.0 to 1 if the Indebtedness is incurred on or
after December 15, 1999 and (c) no Default or Event of Default shall have
occurred and be continuing at the time of the incurrences of such Indebtedness
(the "Incurrence Date") or shall occur as a consequence of the incurrence of
such Indebtedness. In determining the ratio of total Indebtedness to
Consolidated EBITDA for purposes of the immediately preceding sentence, (a) if
the Indebtedness which is the subject of a determination under this provision is
Acquired Indebtedness, or Indebtedness incurred in connection with the
simultaneous acquisition of any Person, business, property or assets, then such
ratio shall be determined by giving effect to (on a PRO FORMA basis, as if the
transaction had occurred at the beginning of the four-quarter period) both the
incurrence or assumption of such Acquired Indebtedness or such other
Indebtedness by Holdings or any Restricted Subsidiary, as the case may be
(together with any other Acquired Indebtedness or other Indebtedness incurred or
assumed by Holdings or any Restricted Subsidiary, as the case may be, in
connection with Acquisitions consummated by Holdings or such Restricted
Subsidiary, as the case may be, during such four-quarter period) and the
inclusion in the Consolidated EBITDA of Holdings or any Restricted Subsidiary,
as the case may be, of the Consolidated EBITDA of the acquired Person, business,
property or assets and any PRO FORMA expense and cost reductions calculated on a
basis consistent with Regulation S-X under the Securities Act as in effect and
as applied as of the Issue Date (together with the Consolidated EBITDA of, and
PRO FORMA expense and cost reductions relating to, any other Person, business,
property or assets acquired or disposed of by Holdings or such Restricted
Subsidiary, as the case may be, during such four-quarter period) and (b) if
since the end of such four-quarter period any Indebtedness of Holdings or any of
its Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and has not been replaced), Indebtedness as of the end of such
four-quarter period shall be calculated after giving effect on a PRO FORMA basis
as if such Indebtedness had been repaid, repurchased, defeased or otherwise
discharged as of the beginning of such four-quarter period. The accretion of
original issue discount (and any accruals of interest) on the Discount Notes and
on any other Indebtedness that has been issued with an original issue discount
shall not be deemed an incurrence of Indebtedness for purposes of this covenant.
Notwithstanding the foregoing, Holdings will not incur any Indebtedness that
is either senior to or PARI PASSU in right of payment to the Discount Notes,
except that, to the extent that such Indebtedness is otherwise permitted to be
incurred under the Indenture, up to $1.0 million of Indebtedness at any time
outstanding may rank PARI PASSU with the Discount Notes.
Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary of Holdings (including upon designation of any
subsidiary or other Person as a Restricted Subsidiary) or is merged with or into
or consolidated with Holdings or a direct or indirect Restricted Subsidiary of
Holdings shall be deemed to have been incurred at the time such Person becomes
such a direct or indirect Restricted Subsidiary of Holdings or is merged with or
into or consolidated with Holdings or a direct or indirect Restricted Subsidiary
of Holdings, as applicable.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that Holdings will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, make any Restricted Payment
if, after giving effect to such Restricted Payment on a PRO FORMA basis, (a) a
Default or an Event of Default shall have occurred and be continuing, (b)
Holdings is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to clause (b) of the first paragraph of the "Limitation on Incurrence
of Additional Indebtedness" covenant, or (c) the aggregate amount of all
Restricted Payments made by Holdings and its Restricted Subsidiaries, including
after giving effect to such proposed Restricted Payment, from and after the
Issue Date, would exceed the sum of (i) 50% of the aggregate Adjusted
Consolidated Net Income of Holdings for the period (taken as one
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accounting period), commencing January 1, 1998, to and including the last day of
the fiscal quarter ended immediately prior to the date of each such calculation
(or, in the event Adjusted Consolidated Net Income for such period is a deficit,
then minus 100% of such deficit), plus (ii) the aggregate Net Cash Proceeds
received by Holdings from the sale of its Qualified Equity Interests (other than
(A) to a Subsidiary of Holdings and (B) to the extent applied in connection with
a Qualified Exchange), after the Issue Date, plus (iii) 100% of the aggregate
amount of cash and the Determined Fair Market Value of property other than cash
contributed to the capital of Holdings following the Issue Date, plus (iv) the
amount by which Indebtedness of Holdings or any Restricted Subsidiary is reduced
on Holdings' balance sheet upon the conversion or exchange (other than by a
Subsidiary) subsequent to the Issue Date of any Indebtedness of Holdings or a
Restricted Subsidiary convertible or exchangeable for Qualified Equity Interests
of Holdings (less the amount of any cash or other property (other than such
Qualified Equity Interest) distributed by Holdings or any Restricted Subsidiary
upon such conversion or exchange), plus (v) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash, or otherwise
liquidated or repaid for cash, the amount of the cash return of capital with
respect to such Restricted Investment (less any taxes and transaction costs
associated with such sale or liquidation), plus (vi) in case any Unrestricted
Subsidiary has been redesignated a Restricted Subsidiary or has been merged,
consolidated or amalgamated with or into, transfers or conveys assets to, or is
liquidated into, Holdings or a Restricted Subsidiary, the Determined Fair Market
Value of the Investment of Holdings or a Restricted Subsidiary, as the case may
be, in such Unrestricted Subsidiary at the time of such redesignation,
combination or transfer (or of the assets transferred or conveyed, as
applicable), after deducting any Indebtedness associated with the Unrestricted
Subsidiary so designated or combined or with the assets so transferred or
conveyed.
The provisions of the immediately preceding paragraph will not prohibit (a)
a Qualified Exchange or (b) the payment of any dividend on Qualified Equity
Interests within 60 days after the date of its declaration if such dividend
could have been made on the date of such declaration in compliance with the
foregoing provisions. In addition, clauses (b) and (c) of the immediately
preceding paragraph will not prohibit (a) repurchases of Equity Interests from
officers or employees of Holdings or its Subsidiaries upon death, disability or
termination of employment in an aggregate amount with respect to all officers
and employees not to exceed $250,000 per year or $2.0 million in the aggregate
on and after the Issue Date and repurchases of Equity Interests deemed to occur
upon exercise of stock options if such Equity Interests represent a portion of
the exercise price of such options, (b) dividends or other Restricted Payments
to Holdings, which do not in the aggregate exceed (i) the actual amount used by
Holdings to pay legal fees and expenses, audit expenses, Commission filing fees,
corporate franchise or similar taxes plus (ii) the actual amount used by
Holdings to pay directors' fees, employee costs and miscellaneous administrative
expenses, PROVIDED that the aggregate amount expended in any calendar year for
the purposes set forth in this subclause (ii) shall not exceed $250,000 plus
(iii) payments to Holdings to permit Holdings to pay federal, state, local or
foreign tax liabilities, not to exceed with respect to any calendar year the
amount of all such tax liabilities that would be otherwise payable by the
Company and its Subsidiaries to the appropriate taxing authorities if they filed
separate tax returns for such calendar year, but only to the extent that
Holdings has an obligation to pay such tax liabilities relating to the assets,
operations or capital of the Company and its Subsidiaries, PROVIDED, HOWEVER,
that (x) in determining the amount of any such tax payments that is permitted to
be paid by the Company and its Subsidiaries in respect of their federal income
tax liability, such payment shall be determined on the basis of assuming that
the Company is the parent company of an affiliated group filing a consolidated
federal income tax return and that Holdings and each such Subsidiary is a member
of such affiliated group and (y) any payments made pursuant to this subclause
(iii) shall either be used by Holdings to pay such tax liabilities within 90
days of Holdings' receipt of such payment or refunded to the payee; and
PROVIDED, FURTHER, that the amount of all payments made pursuant to this clause
(b) shall be excluded from the calculation of the amount available for
Restricted Payments pursuant to the preceding paragraph, (c) distributions not
to exceed $100,000 in the aggregate to Holdings to make payments of Liquidated
Damages to the holders of Discount Notes as may be required under the
registration rights agreement relating to the Discount Notes, (d) the purchase
or redemption of
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any Indebtedness from the Net Cash Proceeds of any Asset Sale to the extent
permitted under the terms of the "Limitation on Sales of Assets and Subsidiary
Stock" covenant, (e) the purchase or redemption of any Indebtedness following a
Change of Control pursuant to provisions of such Indebtedness substantially
similar to those described under the "Repurchase of Discount Notes at the Option
of Holder upon a Change of Control" covenant above after Holdings shall have
complied with the provisions under such covenant, including the payment of the
applicable Change of Control Purchase Price, (f) the payment by Holdings or any
Restricted Subsidiary of monitoring fees paid to WPMP or an Affiliate not in
excess of $1.0 million in respect of any year, whether or not actually paid in
such year or deferred and paid in any subsequent year; PROVIDED that the
obligation to pay any such fees shall be subordinated to the Discount Notes, (g)
payments by Holdings or any of its Subsidiaries to Wasserstein Perella or an
Affiliate made for any financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures which
payments are approved by a majority of the Board of Directors of Holdings in
good faith, (h) investments in Unrestricted Subsidiaries, partnerships or joint
ventures involving Holdings or any of its Restricted Subsidiaries, if the amount
of such Investment (after taking into account the amount of all other
Investments made pursuant to this clause (h), less any return of capital
realized or any repayment of principal received on such Investments, or any
release or other cancellation of any guarantee constituting such Investments,
which has not at such time been reinvested in Investments made pursuant to this
clause (h)), does not exceed $5.0 million, PROVIDED, that the aggregate amount
of all such Investments in Unrestricted Subsidiaries shall not exceed $5.0
million at any one time outstanding, and (i) dividends and other distributions
made by ALM to, or the purchase, redemption or other Acquisition or retirement
for value of Equity Interests of ALM from, all holders of ALM's Equity Interests
on a pro rata basis. The full amount of any Restricted Payment made pursuant to
clauses (a), (d), (e) and (h) 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 (c) of the immediately
preceding paragraph.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the Determined Fair Market Value thereof; PROVIDED,
that in the case of a Restricted Payment consisting of a Restricted Investment
arising as the result of the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary, the amount of the Investment in such Unrestricted
Subsidiary resulting therefrom shall, if greater than $5.0 million, be
determined by the opinion of a Third-Party Evaluator.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Indenture provides that Holdings will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, assume or suffer to
exist any consensual restriction on the ability of any Restricted Subsidiary 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 Restricted Subsidiary, except (a) restrictions imposed by the Discount Notes
or the Indenture, (b) restrictions imposed by the Senior Notes or the Senior
Note Indenture or by other indebtedness of ALM ranking senior to or PARI PASSU
with the Senior Notes or the guarantees thereof, as applicable, provided such
restrictions are no more restrictive than those imposed by the Senior Note
Indenture or the Senior Notes, (c) restrictions imposed by applicable law, (d)
existing restrictions under Indebtedness outstanding on the Issue Date, (e)
restrictions pursuant to any Credit Agreement or any amendment thereto whether
or not such Credit Agreement is in effect on the Issue Date or is placed into
effect later, or any Refinancing Indebtedness in respect thereof (PROVIDED any
restrictions or requirements of any such amendment or Refinancing Indebtedness
are no more restrictive than those imposed by any Credit Agreement as of the
first date after the Issue Date that such Credit Agreement is in place), (f)
restrictions under any Acquired Indebtedness not incurred in violation of the
Indenture or any agreement relating to any Person, property, asset, or business
acquired by any Restricted Subsidiary, 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, property,
asset
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or business other than the Person, property, asset or business acquired, (g)
restrictions solely with respect to a Restricted Subsidiary 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 Restricted
Subsidiary, PROVIDED such restrictions apply solely to the Equity Interests or
assets of such Restricted Subsidiary which are being sold, (h) restrictions on
transfer contained in Purchase Money Indebtedness incurred pursuant to paragraph
(f) of the definition of "Permitted Indebtedness" PROVIDED such restrictions
relate only to the transfer of the property acquired with the proceeds or
otherwise secured by such Purchase Money Indebtedness, and (i) in connection
with and pursuant to permitted Refinancings, replacements or restrictions
imposed pursuant to clause (a), (b), (d), (e), (f) or (h) of this paragraph that
are not more restrictive than those being replaced and do not apply to any other
person or assets other 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 or other contract entered into in the ordinary course of business,
consistent with industry practice, nor (b) Liens permitted under the terms of
the Indenture on assets securing Indebtedness ranking senior to the Senior Notes
or Purchase Money Indebtedness incurred in accordance with the "Limitation on
Incurrence of Additional Indebtedness" covenant shall in and of themselves be
considered a restriction on the ability of the applicable Restricted Subsidiary
to transfer such agreement or assets, as the case may be.
LIMITATION ON LIENS SECURING INDEBTEDNESS
The Indenture provides that Holdings will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist 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 Restricted
Subsidiaries to provide, concurrently therewith, that the Discount Notes are
equally and ratably so secured, PROVIDED that, if such Indebtedness is
Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness
shall be subordinate and junior to the Lien securing the Discount Notes.
LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Indenture provides that Holdings will not, and will not permit any
Restricted Subsidiary 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, including by merger or consolidation (in the
case of a Restricted Subsidiary of Holdings), and including any sale or other
transfer or issuance of any Capital Stock of any Restricted Subsidiary, whether
by Holdings or a Restricted Subsidiary of either or through the issuance, sale
or transfer of Capital Stock by a Restricted Subsidiary, and including any sale
and leaseback transaction (any of the foregoing, an "Asset Sale"), unless (a)(i)
within 300 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 Discount Notes in accordance with the terms of the Indenture or any other
Indebtedness of Holdings ranking on a parity with the Discount Notes from time
to time outstanding with similar provisions requiring Holdings to make an offer
to purchase or to redeem such Indebtedness with the proceeds of asset sales, PRO
RATA in proportion to the Accreted Value of the Discount Notes and the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of such other Indebtedness then
outstanding, or to the repurchase of the Discount Notes 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 Discount Notes and such other Indebtedness then
outstanding) (the "Asset Sale Offer") at a purchase price of 100% of the
Accreted Value of the Discount Notes or the principal amount (or accreted value
in the case of Indebtedness issued with an original issue discount) of such
other Indebtedness (the "Asset Sale Offer Price") together with accrued and
unpaid interest and Liquidated Damages, if any, to the date of payment, or (ii)
within 300 days following such Asset Sale, the Asset Sale Offer Amount is (A)
invested (or committed, pursuant to a
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binding commitment subject only to reasonable, customary closing conditions, to
be invested, and in fact is so invested, within an additional 90 days) in a
Person, business, assets or property which in the good faith reasonable judgment
of the Board of Directors will constitute or be a part of a Related Business of
Holdings or such Restricted Subsidiary (if it continues to be a Subsidiary)
immediately following such transaction or (B) used to retire or repay
Indebtedness of Holdings and/or any Restricted Subsidiary that is senior to or
PARI PASSU with the Discount Notes or to permanently reduce the amount of such
Indebtedness (provided that, in the case of a revolving credit arrangement or
similar arrangement that makes credit available, such commitment is permanently
reduced by such amount), (b) with respect to any Asset Sale or related series of
Asset Sales involving securities, property or assets with an aggregate
Determined Fair Market Value in excess of $500,000, at least 75% of the
consideration for such Asset Sale or series of related Asset Sales consists of
(x) cash or Cash Equivalents or (y) property or assets usable by Holdings or any
Restricted Subsidiary in the ordinary course of conduct of a Related Business;
PROVIDED, that if the Determined Fair Market Value of property or assets of the
kind specified in this subclause (y) exceeds $5.0 million, then the Determined
Fair Market Value thereof shall be determined by a Third-Party Evaluator; and
PROVIDED, FURTHER, that the principal amount of the following shall be deemed to
be cash for purposes of this clause (b): (i) any Indebtedness (as shown on
Holdings' or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of Holdings or any Restricted Subsidiary that is assumed or
forgiven by the transferee of any such assets and (ii) any securities, notes or
other obligations received by Holdings or any such Restricted Subsidiary from
such transferee that are converted by Holdings or such Restricted Subsidiary
into cash within 30 days of the closing of such Asset Sale (but in the case of
this subclause (ii), only to the extent of the cash received), (c) 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 Asset Sale, and (d)
the Board of Directors of Holdings determines in good faith that Holdings or
such Restricted Subsidiary, as applicable, receives at least the Determined Fair
Market Value as a result of such Asset Sale.
The Indenture provides that an Acquisition of Discount Notes 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 above (the "Excess Proceeds")
exceeds $5.0 million and that each Asset Sale Offer shall remain open for 20
Business Days following its commencement but in no event longer than 30 Business
Days (the "Asset Sale Offer Period"). Not later than five Business Days after
the termination of the Asset Sale Offer Period (the "Asset Sale Purchase Date"),
Holdings shall apply the Asset Sale Offer Amount plus an amount equal to accrued
and unpaid interest and Liquidated Damages, if any, to the purchase of all
Discount Notes or any other Indebtedness properly tendered (on a PRO RATA basis
if the Asset Sale Offer Amount is insufficient to purchase all Discount Notes
and any other Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued and unpaid interest and Liquidated Damages, if any). To the extent
that the aggregate amount of Discount Notes and such other 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. If required by applicable law,
the Asset Sale Offer Period may be extended as so required; however, if so
extended it shall nevertheless constitute an Event of Default if within 60
Business Days of its commencement the Asset Sale Offer is not consummated or the
properly tendered Discount Notes are not purchased pursuant thereto. Holdings
may apply as a credit in satisfaction of all or any part of Holdings' obligation
to make an Asset Sale Offer the aggregate principal amount of Discount Notes
purchased by Holdings in open-market transactions (i.e., excluding Discount
Notes optionally redeemed, or required to be purchased by Holdings, pursuant to
the terms of the Indenture) within the previous 300 days immediately preceding
the close of the Asset Sale Offer Period.
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Notwithstanding the foregoing provisions of the prior paragraph, Holdings
and each of its Restricted Subsidiaries may:
(a) in the ordinary course of business, convey, sell, transfer, assign
or otherwise dispose of inventory, other personal property and services in
the ordinary course of business;
(b) convey, sell, transfer, assign or otherwise dispose of assets
pursuant to and in accordance with the covenant "Limitation on Merger, Sale
or Consolidation" and the covenant "Limitation on Restricted Payments";
(c) convey, sell, transfer, assign or otherwise 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 Restricted Subsidiary, as applicable;
(d) may convey, sell, transfer or assign assets to Holdings or any of
its Restricted Subsidiaries;
(e) surrender or waive contract rights or the settle, release or
surrender contract, tort or other claims of any kind;
(f) grant Liens not prohibited by the Indenture;
(g) engage in any transaction or series of related transactions that
would otherwise be an Asset Sale where the Determined Fair Market Value of
the assets sold, leased, conveyed or otherwise disposed of was less than
$1.0 million; and
(h) sell or discount, in each case without recourse (other than recourse
for a breach of a representation or warranty), accounts receivable arising
in the ordinary course of business, but only in connection with the
collection or compromise thereof.
In addition to the foregoing, Holdings will not and will not permit any
Restricted Subsidiary to directly or indirectly make any Asset Sale of any of
the Equity Interests of any Restricted Subsidiary (other than ALM) if after
giving effect to such Asset Sale, Holdings or any such Restricted Subsidiary
would own less than a majority of the Equity Interests of such Restricted
Subsidiary unless such Asset Sale is of Holdings' or such Restricted
Subsidiary's entire Equity Interest in such Restricted Subsidiary.
The Senior Note Indenture restricts, and any Credit Agreement may restrict,
the ability of ALM and its Restricted Subsidiaries to pay dividends or make any
other distributions to Holdings. If Holdings is unable to obtain dividends or
other distributions from ALM and its Restricted Subsidiaries sufficient to
permit the repurchase of the Discount Notes, Holdings will likely not have the
financial resources to purchase Discount Notes pursuant to an Asset Sale Offer.
There can be no assurance that Holdings' Restricted Subsidiaries will have the
resources available to pay any such dividend or make any such distribution.
Holdings' failure to make an Asset Sale Offer when required or to purchase
Discount Notes when tendered would constitute an Event of Default under the
Discount Notes Indenture. See "Risk Factors--Substantial Leverage; Liquidity"
and "--Limitation on Access to Subsidiaries' Cash Flow; Holding Company
Structure."
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this covenant, compliance by
Holdings or any of its Subsidiaries with such laws and regulations shall not in
and of itself cause a breach of its obligations under such covenant.
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 (and Liquidated Damages,
if any, due on such Interest Payment Date) will be paid to the person in whose
name a Discount Note is registered at the close of business on such Record Date,
and such interest
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(or Liquidated Damages, if applicable) will not be payable to holders who tender
Discount Notes pursuant to such Asset Sale Offer.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that neither Holdings nor any of its Restricted
Subsidiaries will be permitted on or after the Issue Date to enter into or
suffer to exist any contract, agreement, arrangement or transaction with any
Affiliate (an "Affiliate Transaction"), or any series of related Affiliate
Transactions (other than Exempted Affiliate Transactions), (a) unless it is
determined that the terms of such Affiliate Transaction are fair and reasonable
to Holdings, and no less favorable to Holdings than could have been obtained in
an arm's length transaction with a non-Affiliate, (b) if involving consideration
to either party in excess of $1.0 million, unless such Affiliate Transaction(s)
is evidenced by an Officers' Certificate addressed and delivered to the Trustee
certifying that such Affiliate Transaction (or Transactions) has been approved
by a resolution of the Board of Directors and (c) if involving consideration to
either party in excess of $5.0 million, unless in addition, Holdings, prior to
the consummation thereof, obtains a written favorable opinion as to the fairness
of such transaction to Holdings from a financial point of view from a
Third-Party Evaluator.
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 (a) either (i) Holdings is the continuing entity or (ii) 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 Discount Notes and the
Indenture; (b) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a PRO FORMA basis to such transaction; (c)
immediately after giving effect to such transaction on a PRO FORMA basis, the
Consolidated Net Worth of the consolidated 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 (d) 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 clause (a) of the first paragraph of the
"Limitation on Incurrence of Additional Indebtedness" covenant above.
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 Discount Notes 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 Restricted 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.
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LIMITATION ON LINES OF BUSINESS
The Indenture provides that neither Holdings nor any Restricted Subsidiary
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.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits Holdings and its Subsidiaries from taking any action
or conducting their businesses and operations in such a way as would cause them
to be required to register as an "investment company" (as that term is defined
in the Investment Company Act of 1940, as amended), or would otherwise cause
them to become subject to regulation under the Investment Company Act.
REPORTS
The Indenture provides that whether or not Holdings is subject to the
reporting requirements 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 Discount Notes identified to Holdings by an Initial Purchaser, 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 that
would be so required and, unless the Commission will not accept such reports,
file with the Commission the annual, quarterly and other reports that 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 (a) the failure to pay any
installment of interest (or Liquidated Damages, if any) on the Discount Notes as
and when the same becomes due and payable and the continuance of any such
failure for 30 days, (b) the failure to pay all or any part of the principal, or
premium, if any, on the Discount Notes 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, (c) the failure by either of Holdings or any
Restricted Subsidiary to observe or perform any other covenant or agreement
contained in the Discount Notes or the Indenture and the continuance of such
failure for a period of 45 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 Discount Notes outstanding specifying the
default and demanding that same be remedied, (d) certain events of bankruptcy,
insolvency or reorganization in respect of Holdings or any of its Significant
Subsidiaries, (e) a default in Indebtedness of Holdings or any of its Restricted
Subsidiaries with an aggregate principal amount in excess of $5.0 million (i)
resulting from the failure to pay principal at final maturity or (ii) as a
result of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity, and (f) final unsatisfied judgments not covered by
insurance aggregating in excess of $5.0 million, at any one time rendered
against Holdings or any of its Significant Subsidiaries and not stayed, bonded
or discharged within 60 days. The Indenture will provide that if a Default
occurs and is continuing, the Trustee must, within 90 days after the occurrence
of such Default, give to the Holders notice of such Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (d) above with respect to Holdings or any
Significant Subsidiary), then in every such case, unless the principal of all of
the Discount Notes shall have already become due and payable, either the Trustee
or the
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Holders of at least 25% in aggregate principal amount of the Discount Notes (or,
if prior to December 15, 2002, 25% of the then aggregate Accreted Value of the
Discount Notes) then outstanding, by notice in writing to Holdings (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare the
Accreted Value of and accrued and unpaid interest on (and Liquidated Damages, if
any) all the outstanding Discount Notes to be due and payable immediately,
provided that if there are any amounts outstanding under any Credit Agreement,
such obligations shall become immediately due and payable upon the first to
occur of an acceleration under any Credit Agreement or the Senior Notes or 5
business days after receipt by Holdings and the Representative under any Credit
Agreement and the trustee under the Senior Note Indenture of such an
acceleration notice but only if such Event of Default is then continuing. If an
Event of Default specified in clause (d) above occurs with respect to Holdings
or any Significant Subsidiary, the Accreted Value of and accrued and unpaid
interest on (and Liquidated Damages, if any) all the outstanding Discount Notes
will be immediately due and payable without any declaration or other act on the
part of the Trustee or the Holders. The Holders of a majority of the aggregate
Accreted Value of the Discount Notes generally are authorized to rescind any
such acceleration if all existing Events of Default (other than (a) the
non-payment of the principal of, premium, if any, and accrued and unpaid
interest and Liquidated Damages, if any, on the Discount Notes which have become
due solely by such acceleration, (b) with respect to defaults with respect to
any provision requiring a supermajority approval to amend, which default may
only be waived by such a supermajority and (c) with respect to any covenant or
provision which cannot be modified or amended without the consent of the Holder
of each outstanding Discount Note affected) have been cured or waived as
provided in the Indenture.
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 of the aggregate Accreted Value of the Discount Notes 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.
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 Discount Note 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 Discount
Note 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
Redemption Date, upon surrender of such Discount Note, a new Discount Note or
Discount Notes in a principal amount equal to the unredeemed portion thereof
will be issued. On and after the Redemption Date, interest will cease to accrue
on the Discount Notes or portions thereof called for redemption, unless Holdings
defaults in the payment thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Holdings may, at its option and at any time, elect to have its obligations
discharged with respect to the outstanding Discount Notes ("Legal Defeasance").
Such Legal Defeasance means that Holdings shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Discount
Notes, except for (a) the rights of Holders to receive payment in respect of the
principal of, premium, if any, and interest on the Discount Notes when such
payments are due, (b) Holdings' obligations with respect to the Discount Notes
concerning issuing temporary Discount Notes, registration of Discount Notes,
mutilated, destroyed, lost or stolen Discount Notes and the maintenance of an
office or agency for payments, (c) the rights, powers, trust, duties and
immunities of the Trustee and Holdings' obligations in connection therewith and
(d) 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
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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 Discount Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described under
"Events of Default and Remedies" will no longer constitute Events of Default
with respect to the Discount Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (a)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, 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 at
maturity of, premium, if any, and interest and Liquidated Damages on the
Discount Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be; (b) in the case of Legal Defeasance,
Holdings shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (i) Holdings has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) 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 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; (c) in the case of Covenant Defeasance,
Holdings shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (d) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than an
Event of Default or Default resulting from the borrowing of funds to be applied
to such deposit); (e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under 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; (f) Holdings shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by Holdings with the intent of preferring
the Holders over any other creditors of Holdings or with the intent of
defeating, hindering, delaying or defrauding any other creditors of Holdings or
others; (g) Holdings shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; (h) Holdings shall have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and (i) certain other customary conditions precedent are
satisfied.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Discount Notes when due, then the obligations of Holdings
under the Indenture will be revived and no such defeasance will be deemed to
have occurred.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of Holdings may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary, PROVIDED, that (a) no Default or Event of Default
is existing or will occur as a consequence thereof, (b) immediately after giving
effect to such designation, on a PRO FORMA basis, Holdings could incur at least
$1.00 of additional Indebtedness pursuant to clause (a) of the first paragraph
of the "Limitation on Incurrence of Additional Indebtedness" covenant and (c)
the amount of the Investment in such Unrestricted Subsidiary (as determined
pursuant to the definition of "Investment" above) is permitted to
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be made under the "Limitation on Restricted Payments" covenant. 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. If, at
any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture, and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
Holdings as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the "Limitation on Incurrence of Additional
Indebtedness" covenant, Holdings shall be in default of such covenant). The
Board of Directors of Holdings may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
Holdings of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (a) such Indebtedness is permitted
under the "Limitation on Incurrence of Additional Indebtedness" covenant and (b)
no Default or Event of Default would be in existence immediately following such
designation.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting 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 of the aggregate Accreted Value of the Discount Notes 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% of the aggregate Accreted Value of Discount Notes at the time
outstanding, modify the provisions (including the defined terms used therein) of
the covenant "Repurchase of Discount Notes at the Option of the Holder upon a
Change of Control" in a manner adverse to the Holders and, PROVIDED, FURTHER,
that no such modification may, without the consent of each Holder affected
thereby: (a) change the Stated Maturity on any Discount Note, 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 Discount Note 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 Discount Notes in a manner adverse to the Holders, or (b) reduce the
percentage in the Accreted Value of the outstanding Discount Notes, the consent
of whose Holders is required for any such amendment, supplemental indenture or
waiver provided for in the Indenture, or (c) 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 Discount Note affected thereby.
In connection with any amendment, supplement or waiver under the Indenture,
the Company may, but shall not be obligated to, offer to any Holder who consents
to such amendment, supplement or waiver, or to all Holders, consideration for
such Holders' consent to such amendment, supplement or waiver.
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NO PERSONAL LIABILITY OF MEMBERS, PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect holder of Equity
Interests, member, management committee member, partner, employee, officer or
director, as such, past, present or future of Holdings or any successor entity
shall have any personal liability in respect of the obligations of Holdings
under the Indenture or the Discount Notes solely by reason of his or its status
as such stockholder, member, partner, employee, officer or director.
GOVERNING LAW
The Indenture provides that it and the Discount Notes will be governed by,
and construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflict of law to the extent that the
application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the Trust Indenture Act contain certain
limitations on the rights of the Trustee, should it become a creditor of
Holdings, to obtain payments of claims in certain cases or to realize on certain
property received in respect of any such claim as security or otherwise. Subject
to the Trust Indenture Act, the Trustee will be permitted to engage in other
transactions; PROVIDED, that if the Trustee acquires any conflicting interest as
described in the Trust Indenture Act, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACCRETED VALUE" means, as of any date of determination, the sum (rounded to
the nearest whole dollar) of (a) the initial offering price of each $1,000 in
principal amount at maturity of Discount Notes and (b) the portion of the excess
of the principal amount of Discount Notes over such initial offering price which
shall have been accreted thereon through such date, such amounts to be so
accreted on a daily basis at the rate of 12 1/4% per annum (computed on a
semi-annual bond equivalent basis) compounded semi-annually on each June 15 and
December 15 from the date of issuance of the Discount Notes through the date of
determination. On and after December 15, 2002, the Accreted Value of each
Discount Note shall be equal to its principal amount at maturity.
"ACQUIRED INDEBTEDNESS" means Indebtedness of any Person existing at the
time such Person becomes a Restricted Subsidiary of Holdings, including by
designation, or is merged or consolidated into or with Holdings or one of its
Restricted Subsidiaries or is assumed by Holdings or a Restricted Subsidiary in
connection with the acquisition of assets from such Person.
"ACQUISITION" means the purchase or other acquisition of any Person or all
or substantially all the assets of any Person by any other Person or any
division or line of business of such Person, whether by purchase, merger,
consolidation, or other transfer, and whether or not for consideration.
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"ADJUSTED CONSOLIDATED NET INCOME" means, with respect to any Person, for
any Period, the Consolidated Net Income of such Person for such Period plus any
non-cash charges for such Period relating to the amortization of goodwill or
other intangibles or any other purchase accounting adjustment resulting from any
Acquisition.
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. 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.
"BENEFICIAL OWNER" or "BENEFICIAL OWNER" for purposes of the definitions 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, except that a "person" shall be deemed to have "beneficial
ownership" of all shares or other Equity Interests that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time.
"BOARD OF DIRECTORS" means, with respect to any Person, the board of
directors (or, in the case of a partnership, limited liability company or
similar entity, the management committee or other body exercising substantially
similar functions) 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.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"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.
"CAPITAL STOCK" means (a) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of common stock and preferred stock of such Person and (b) with respect to any
Person that is not a corporation, any and all partnership, membership or other
equity interests of such Person.
"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.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the U.S. Government or issued by any agency
thereof and backed by the full faith and credit of the United States, in each
case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United 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, having at least the second highest
rating obtainable from either Standard & Poor's Rating Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having at least the second highest rating obtainable from either S&P or Moody's;
(iv) certificates of deposit or bankers' acceptances maturing within one year
from the date of acquisition thereof issued by any commercial bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia
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having at the date of acquisition combined capital and surplus of not less than
$500.0 million; (v) shares of any money market mutual fund that (a) has its
assets invested continuously in the types of investments referred to in clauses
(i) and (ii) above, (b) has net assets of not less than $500.0 million and (c)
has at least the second highest rating obtainable from either S&P or Moody's;
and (vi) repurchase agreements with respect to, and which are fully secured by a
perfected security interest in, obligations of a type described in clause (i) or
clause (ii) above and are with any commercial bank described in clause (iv)
above.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
Adjusted 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 (a) consolidated income tax
expense, (b) consolidated depreciation and amortization expense, PROVIDED that
consolidated depreciation and amortization of a Subsidiary that is a less than
wholly owned Subsidiary shall only be added to the extent of the equity interest
of such Person in such Subsidiary, (c) Consolidated Fixed Charges, and (d) all
other expenses reducing Consolidated Net Income for such period that do not
represent cash disbursements for such period (excluding any expense to the
extent it represents an accrual of or reserve for cash disbursements for any
subsequent period prior to the Stated Maturity of the Discount Notes) less, to
the extent included in the calculation of Consolidated Net Income, the amount of
all cash payments made by such Person or any of its Subsidiaries during such
period to the extent such payments relate to non-cash charges that were added
back in determining Consolidated EBITDA for such period or any prior period,
PROVIDED that with respect to Holdings each of the foregoing items shall be
determined on a consolidated basis with respect to Holdings and its Restricted
Subsidiaries only.
"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, 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 or
Hedging Obligations, in each case to the extent attributable to such period, and
(b) the amount of dividends accrued or payable (or guaranteed) 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, (a) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined in good faith by the Company to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP, (b) interest expense
attributable to any Indebtedness represented by the guarantee 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 and (c)
with respect to Holdings, each of the foregoing items shall be determined on a
consolidated basis with respect to Holdings and its Restricted Subsidiaries
only.
"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 (but not losses) which are
either extraordinary (as determined in accordance with GAAP) or are nonrecurring
(including any gain from the sale or other 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 Restricted
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 Restricted 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
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period prior to the date of such acquisition, and (d) the net income, if
positive, of any of such Person's Consolidated Subsidiaries (other than ALM and
its Restricted Subsidiaries, if the Person in question is Holdings) 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.
"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 Equity Interests 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.
"CREDIT AGREEMENT" means an agreement by and among Holdings (which term, for
the purposes of this definition only, shall also include any of Holdings'
Affiliates that shall be a party thereto), ALM, and the lenders, arrangers and
syndication agents from time to time party thereto providing for a senior
revolving credit facility or similar facility, as such Credit Agreement and/or
related documents may be amended, restated, supplemented, renewed, replaced,
refinanced, restructured or otherwise modified from time to time whether or not
with the same agent, trustee, representative lenders or holders, PROVIDED that
any such Credit Agreement may be secured. Without limiting the generality of the
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
thereof, including any agreement (a) extending the maturity of any Indebtedness
incurred thereunder or contemplated thereby, (b) adding or deleting borrowers or
guarantors thereunder, so long as such borrowers and guarantors include one or
more of Holdings and its Subsidiaries and their respective successors and
assigns, (c) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder or (d) otherwise altering the terms and
conditions thereof in a manner not prohibited by the terms of the Indenture.
"DETERMINED FAIR MARKET VALUE" shall mean Fair Market Value as determined by
the Board of Directors, except that with respect to the evaluation of any
Person, business, property, asset or transaction, or series or group thereof,
involving more than $5.0 million, Determined Fair Market Value shall be
determined by a Third-Party Evaluator.
"DISQUALIFIED EQUITY INTERESTS" means (a) except as set forth in (b), with
respect to any Person, Equity Interests of such Person that, by its terms, or by
the terms of any agreement or instrument pursuant to which such Equity Interests
are issued or by the terms of any security into which such Equity Interest 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 redeemed or repurchased
(including at the option of the holder thereof) by such Person or any of its
Restricted Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Discount Notes and (b) with respect to any Restricted Subsidiary of such
Person (including with respect to any direct or indirect Restricted Subsidiary
of Holdings), any Equity Interests other than any common equity with no
preference, privileges, or redemption or repayment provisions.
"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.
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"EXEMPTED AFFILIATE TRANSACTION" means (a) transactions with any officer,
director, partner or managing member in his or her capacity as such, entered
into in the ordinary course of business, including without limitation customary
employee, director or manager compensation or indemnification arrangements
approved by the Board of Directors of Holdings, (b) Permitted Investments and
transactions otherwise permitted under the terms of the "Limitation on
Restricted Payments" covenant discussed above, and (c) transactions solely
between Holdings and any of its Restricted Subsidiaries or solely among
Restricted Subsidiaries of Holdings.
"FAIR MARKET VALUE" means, with respect to any Person, business, asset,
property or transaction, the price that could be negotiated in an arm's length,
free market transaction, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction.
"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.
"INDEBTEDNESS" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of 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 other than trade
letters of credit, to the extent not issued pursuant to the Revolving Credit
Facility or any Refinancing Indebtedness in respect thereof, but only to the
extent such letters of credit are drawn upon and not paid or reimbursed by such
Person within 30 days of incurrence; (c) all net obligations of such Person
under Interest Swap or Hedging Obligations; (d) all liabilities and obligations
of others of the kind described in the preceding clause (a), (b) or (c) that
such Person has guaranteed or that is otherwise its legal liability or which are
secured by any assets or property of such person and all obligations to
purchase, redeem or acquire any Equity Interests; (e) any and all refinancings
and refundings (whether direct or indirect) of, or amendments, modifications or
supplements to (in any such case, which increases the principal amount of
Indebtedness thereunder or the assets covered by any associated Lien), 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 Equity Interests 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 Equity Interests which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Equity
Interests as if such Disqualified Equity Interests 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 Equity Interests, such Fair Market Value to be determined in good
faith by the Board of Directors (or managing general partner) of the issuer of
such Disqualified Equity Interests.
"INTEREST SWAP OR 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
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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, membership 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, trade credit,
endorsements for collection or deposits arising in the ordinary course of
business); (c) other than guarantees of Indebtedness to the extent permitted by
the "Limitation on Incurrence of Additional Indebtedness" covenant, 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 (including without limitation a Restricted Subsidiary) to be an
Unrestricted Subsidiary. Holdings shall be deemed to make an Investment in an
amount equal to the Determined Fair Market Value of the net assets of any
Restricted Subsidiary (or, if neither Holdings nor any of its Restricted
Subsidiaries has theretofore made an Investment in such Subsidiary, in an amount
equal to the Investments being made), at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from Holdings or a Restricted
Subsidiary shall be deemed an Investment valued at its Determined Fair Market
Value at the time of such transfer.
"ISSUE DATE" means the date of first issuance of the Discount Notes under
the Indenture.
"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.
"NET CASH PROCEEDS" means the aggregate amount of cash or Cash Equivalents
received by Holdings in the case of a sale of Qualified Equity Interests and by
Holdings and its Restricted Subsidiaries in respect of an Asset Sale plus, in
the case of an issuance of Qualified Equity Interests upon any exercise,
exchange or conversion of securities (including options, warrants, rights and
convertible or exchangeable debt) of Holdings 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 Equity Interests, and, in the case of an Asset Sale
only, less (i) the amount (estimated reasonably and in good faith by the Board
of Directors of 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 and (ii) appropriate amounts to be provided by
the Company or any Restricted Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by Holdings or any Restricted Subsidiary, as the case may be, after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither Holdings nor
any of its Restricted Subsidiaries (a) provide credit support of any kind
(including any undertaking, agreement or instrument
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that would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise) or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Discount Notes) of Holdings or any of its Restricted Subsidiaries to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of Holdings or any of its Restricted Subsidiaries.
"OBLIGATIONS" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED INDEBTEDNESS" means any of the following:
(a) Indebtedness of Holdings and its Restricted Subsidiaries, as
applicable, evidenced by (i) the Discount Notes represented by the Indenture
up to the amounts specified therein as of the date thereof; and (ii) the
Senior Notes and the Subsidiary Guarantees thereof and represented by the
Senior Note Indenture up to the amount specified therein as of the date
thereof;
(b) Refinancing Indebtedness incurred by Holdings or a Restricted
Subsidiary, as applicable, with respect to any Indebtedness described in
clause (a), (c), (f), (g) or (h) of this definition or incurred under the
first paragraph of the covenant "Limitation on Incurrence of Additional
Indebtedness," or which is Existing Indebtedness (after giving effect to the
Transactions), PROVIDED that (i) any such Refinancing Indebtedness that is
secured refinances only other Indebtedness that is similarly secured and
(ii) such secured Refinancing Indebtedness, to the extent secured, is
secured only by the assets that secured the Indebtedness so refinanced;
(c) Indebtedness of Holdings and its Restricted Subsidiaries solely in
respect of bankers acceptances, letters of credit and performance or surety
bonds (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 of such Indebtedness
at any one time outstanding (including any Refinancing Indebtedness in
respect thereof) shall not exceed $2.5 million;
(d) Indebtedness of Holdings to any Restricted Subsidiary, and
Indebtedness of any Restricted Subsidiary to any other Restricted Subsidiary
or to Holdings; PROVIDED, that in the case of Indebtedness of Holdings,
Holdings' Obligations under such Indebtedness shall be unsecured and,
whether or not expressly so stated in writing, shall be deemed to be
subordinated in all respects to Holdings' Obligations under the Discount
Notes and the Indentures;
(e) Guarantees by Holdings or any Restricted Subsidiary of Indebtedness
of Holdings or another Restricted Subsidiary, and Guarantees by Holdings of
any Indebtedness of any Restricted Subsidiary, in each case that is
otherwise permitted to be incurred pursuant to the Indenture;
(f) Purchase Money Indebtedness incurred by Holdings and its Restricted
Subsidiaries 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 (f) (including any
Refinancing Indebtedness with respect to such Indebtedness) shall not exceed
$2.0 million, and (ii) in each case, such Indebtedness shall not constitute
more than 100% of the cost (determined in accordance with GAAP) to Holdings
or such Restricted Subsidiary, as applicable, of the property so purchased
or leased;
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(g) provided that no Event of Default shall have occurred and be
continuing, unsecured Indebtedness of Holdings and its Restricted
Subsidiaries (in addition to Indebtedness permitted by any other clause of
this definition) in an aggregate principal amount outstanding at any time
(including Refinancing Indebtedness in respect thereof) of up to $5.0
million (which, if such Indebtedness is incurred under a Credit Agreement,
may be secured Indebtedness);
(h) Indebtedness of Holdings and its Restricted Subsidiaries pursuant to
any Credit Agreement up to an aggregate principal amount outstanding at any
time (including any Refinancing Indebtedness with respect to such
Indebtedness) of $40.0 million, minus the amount of any such Indebtedness
(i) retired with the Net Cash Proceeds from any Asset Sale applied to
permanently reduce the outstanding amounts or the commitments with respect
to such Indebtedness pursuant to clause (a)(ii)(B) of the first paragraph of
the "Limitation on Sale of Assets and Subsidiary Stock" covenant, or (ii)
assumed by a transferee in an Asset Sale;
(i) Indebtedness arising from agreements of Holdings or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary; PROVIDED, HOWEVER,
that the maximum assumable liability in respect of all such Indebtedness
shall at no time exceed 25% of the gross proceeds (with proceeds other than
cash or Cash Equivalents being valued at the fair market value thereof by
the Board of Directors of Holdings at the time received and without giving
effect to any subsequent changes in value) actually received by Holdings and
its Restricted Subsidiaries in connection with such disposition; and
(j) Interest Swap or Hedging Obligations of Holdings covering
Indebtedness of Holdings or any of its Restricted Subsidiaries and Interest
Swap or Hedging Obligations of any Restricted Subsidiary of Holdings
covering Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER, that
such Interest Swap or Hedging Obligations are entered into to protect
Holdings and its Restricted Subsidiaries from fluctuations in interest rates
on Indebtedness incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap or Hedging Obligation does
not exceed the principal amount of the Indebtedness to which such Interest
Swap or Hedging Obligation relates.
"PERMITTED INVESTMENT" means Investments in (a) any of the Discount Notes or
the Senior Notes; (b) Cash Equivalents; (c) intercompany indebtedness to the
extent permitted under clause (d) of the definition of "Permitted Indebtedness";
(d) any Investments in Holdings or any Restricted Subsidiary by Holdings or
another Restricted Subsidiary, as applicable; (e) Investments by Holdings or any
Restricted Subsidiary in a Person, if as a result of such Investment (i) such
Person becomes a Restricted Subsidiary of Holdings or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, Holdings or a
Restricted Subsidiary of Holdings; (f) Investments in existence on the Issue
Date; (g) loans and advances to employees of Holdings or any of its Subsidiaries
in the ordinary course of business and on terms consistent with Holdings' and
ALM's practices in effect prior to the Issue Date, including travel, moving and
other like advances; (h) stock, obligations or securities received in the
ordinary course of business in settlement of debts owing to Holdings or a
Restricted Subsidiary thereof as a result of foreclosure, perfection,
enforcement of any Lien or in a bankruptcy proceeding; (i) Investments in
Persons to the extent any such Investment represents the non-cash consideration
otherwise permitted under the terms of the Indenture to be received by Holdings
or its Restricted Subsidiaries in connection with an Asset Sale; (j) Interest
Swap or Hedging Obligations to the extent permitted under the definition of
"Permitted Indebtedness"; (k) any issuance of Equity Interests of Holdings or
any Restricted Subsidiary in exchange for Equity Interests, property or assets
of another Person; (l) Investments consisting of the licensing or contribution
of intellectual property pursuant to joint marketing arrangements with other
Persons; (m) Investments consisting of purchases and acquisitions of inventory,
supplies, materials and equipment or licenses or leases of intellectual
property, in any case, in the ordinary course of business; and (n) additional
Investments in an aggregate amount not exceeding $1.0 million at any one time
outstanding.
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"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 30 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 or its Restricted Subsidiary, as the case
may be, 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 Restricted Subsidiaries) or interfere with the
ordinary conduct of the business of Holdings or any of its Restricted
Subsidiaries; (f) Liens arising by operation of law in connection with
judgments, but 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 Discount Notes; (i) Liens securing Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or is merged
with or into Holdings or a Restricted 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, merger or consolidation, 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 pursuant
to clause (f) of the definition of "Permitted Indebtedness," 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 Restricted Subsidiaries or materially detracting from
the value of the relative assets of Holdings or any Restricted Subsidiary; (l)
Liens arising from precautionary Uniform Commercial Code financing statement
filings regarding operating leases entered into by Holdings or any of its
Restricted Subsidiaries in the ordinary course of business; (m) Liens securing
Refinancing Indebtedness incurred to refinance any Indebtedness that was
previously so secured in a manner no more adverse to the Holders of the Discount
Notes in any material respect than the terms of the Liens securing such
refinanced Indebtedness PROVIDED that the Indebtedness secured is not increased
and the lien is not extended to any additional assets or property that would not
have been security for the Indebtedness refinanced; (n) Liens securing
Indebtedness of ALM and its Restricted Subsidiaries including, without
limitation, Liens securing the Senior Notes and Liens securing indebtedness
under any Credit Agreement; (o) Liens arising under options or agreements to
sell assets; (p) other Liens securing obligations incurred in the ordinary
course of business, which obligations do not exceed $1.0 million in the
aggregate at any one time outstanding; (q) Liens securing Interest Swap or
Hedging Obligations; (r) Liens on any property or assets of a Restricted
Subsidiary granted in favor of Holdings or any Wholly-Owned Restricted
Subsidiary; and (s) any extension, renewal or replacement, in whole or in part,
of any Lien described in the foregoing clauses (a) through (r); PROVIDED, that
any such extension, renewal or replacement shall not extend to any additional
property or assets.
"PERMITTED TRANSFEREE" means U.S. Equity Partners, L.P. and U.S. Equity
Partners (Offshore), L.P. or any of their respective Affiliates or successors.
The term "Permitted Transferee" shall be deemed to include any other holder or
holders of Equity Interests of Holdings having ordinary voting power if
Wasserstein Perella, or any Affiliate thereof, shall hold the irrevocable
general proxy of each such holder in respect of the shares held by such Holder.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
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"PREFERRED STOCK" of any Person means any Equity Interest of such Person
that has preferential rights to any other Equity Interest of such Person with
respect to dividends or redemptions or upon liquidation.
"PUBLIC EQUITY OFFERING" means a public offering by Holdings of shares of
its common stock (however designated and whether voting or non-voting) and any
and all rights, warrants or options to acquire such Qualified Equity Interests.
"PURCHASE MONEY INDEBTEDNESS" of any Person means any Indebtedness of such
Person to any seller or other Person incurred solely to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease) or
construction of any real or personal tangible property which, in the reasonable
good faith judgment of the Board of Directors of Holdings, is directly related
to a Related Business of Holdings and which is incurred concurrently with such
acquisition and is secured only by the assets so financed.
"QUALIFIED EQUITY INTERESTS" means any Equity Interests of Holdings that are
not Disqualified Equity Interests.
"QUALIFIED EXCHANGE" means any defeasance, redemption, retirement,
repurchase or other Acquisition of Equity Interests 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 Qualified Equity Interests or
any exchange of Qualified Equity Interests for any Equity Interests or
Indebtedness of Holdings issued on or after the Issue Date.
"REFINANCING INDEBTEDNESS" means Indebtedness (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 in a principal
amount or having a liquidation preference not to exceed (after deduction of
reasonable and customary fees and expenses incurred in connection with the
Refinancing) the lesser of (i) the principal amount or liquidation preference of
the Indebtedness so refinanced (including premiums, if any, and fees in
connection therewith) 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 shall (I) not have Weighted Average Life to Maturity
shorter than that of the Indebtedness to be so refinanced at the time of such
Refinancing and (II) in all respects, be no less subordinated or junior, if
applicable, to the rights of Holders of the Discount Notes than was the
Indebtedness to be refinanced, (B) such Refinancing Indebtedness shall have no
installment of principal (or mandatory redemption payment) scheduled to come due
earlier than the scheduled maturity of any installment of principal of the
Indebtedness to be so refinanced which was scheduled to come due prior to the
Stated Maturity, and (C) such Refinancing Indebtedness shall be secured (if
secured) in a manner no more adverse to the Holders of the Discount Notes than
the terms of the Liens (if any) securing such refinanced Indebtedness,
including, without limitation, the amount of Indebtedness secured shall not be
increased.
"RELATED BUSINESS" means the business conducted (or proposed to be
conducted) by Holdings and its Restricted Subsidiaries 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.
"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 Restricted Subsidiary otherwise permitted 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 Wholly Owned Restricted 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 parent or Subsidiary of
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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 or parent 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 a parent or
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 and (d) any Restricted Investment by such Person; 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 an
issuer to the extent payable solely in shares of Qualified Equity Interests of
such issuer; (ii) any dividend, distribution or other payment to Holdings by any
Restricted Subsidiary; and (iii) dividends or distributions by a Restricted
Subsidiary of Holdings, provided that to the extent that a portion of such
dividend or distribution is paid to a holder of Equity Interests of such
Restricted Subsidiary other than the Company or a Restricted Subsidiary, such
portion of such dividend or distribution is not greater than such holder's pro
rata aggregate common equity interest in such Restricted Subsidiary.
"RESTRICTED SUBSIDIARY" means a Subsidiary of Holdings or of any Restricted
Subsidiary that is not an Unrestricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date, and in addition shall
include ALM.
"STATED MATURITY," when used with respect to any Discount Note, means
December 15, 2008.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of Holdings or a Restricted
Subsidiary that is expressly subordinated in right of payment by its terms or
the terms of any document or instrument or instrument relating thereto to the
Discount Notes.
"SUBSIDIARY," with respect to any Person, means (a) 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 by such Person, by
such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person, (b) 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 (c) a
partnership in which such Person or a Subsidiary of such Person is, at the time,
a general partner and in which such Person, directly or indirectly, at the date
of determination thereof has at least a majority ownership interest. Unless the
context requires otherwise, Subsidiary means each direct and indirect Subsidiary
of Holdings.
"THIRD-PARTY EVALUATOR" shall mean an investment banking firm of national
reputation that is not an Affiliate of Holdings or a Subsidiary; PROVIDED, that,
if the subject matter, type or scope of the evaluation is outside the scope of
evaluation customarily done by investment banking firms, then such Third-Party
Evaluator shall be an accounting firm or appraisal or valuation firm of national
reputation that is not an Affiliate of, and is otherwise independent of,
Holdings and its Subsidiaries.
"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 Restricted 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 such Subsidiary (a) shall not engage,
to any substantial extent, in any line or lines of business activity other than
a Related Business, (b) has no Indebtedness other than Non-Recourse Debt, (c) is
a Person with respect to which neither Holdings nor any of its Restricted
Subsidiaries has any direct or indirect obligation to subscribe for additional
Equity Interests or maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified level of operating results
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and (d) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Holdings or any of its Restricted Subsidiaries.
"U.S. GOVERNMENT OBLIGATIONS" means direct noncallable 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.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means a Restricted Subsidiary all the
Equity Interests of which are owned by Holdings or one or more Wholly-Owned
Restricted Subsidiaries of Holdings (other than directors' qualifying shares and
nominal amounts required to be held by foreign nationals under applicable law).
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Exchange Discount Notes initially will be represented by one or more
notes in registered, global form without interest coupons (collectively, the
"Global Note"). The Global Note will be deposited upon issuance with the
Trustee, as custodian for The Depository Trust Company ("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 as described below. Discount
Notes sold to Institutional Accredited Investors may be represented by the
Global Note or, if such an investor may not hold an interest in the Global Note,
a certificated Discount Note.
Except as set forth below, the Global Note 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 Note may be exchanged for Exchange
Discount Notes in certificated form without interest coupons ("Certificated
Notes") in certain limited circumstances. See "--Exchange of Book-Entry Discount
Notes for Certificated Notes."
The Discount Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
DTC has advised Holdings that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Direct Participants through
electronic book-entry changes in accounts of Direct Participants. The Direct
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 other entities that
clear through or maintain a direct or indirect, custodial relationship with a
Direct Participant (collectively, the "Indirect Participants"). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or the Indirect Participants and such person's ownership interest
and transfer of ownership interest will be recorded only on the records of the
Direct Participants and the Indirect Participants, and not on the records
maintained by DTC.
DTC has also advised Holdings that, pursuant to DTC's procedures, (i) upon
deposit of the Global Note, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Note allocated by the Initial Purchasers to such Direct
Participants, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Note and the transfer of ownership
interests by and between Direct Participants. DTC will not
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maintain records of the ownership interests of, or the transfer of ownership
interests by and between, Indirect Participants or other owners of beneficial
interests in the Global Note. Direct Participants and Indirect Participants must
maintain their own records of the ownership interests of, and the transfer of
ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the Global Note.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in the Global Note to such
persons. Because DTC can act only on behalf of the Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having beneficial interests in the Global Note 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 such Discount Notes see "--Exchange of Book-Entry Discount
Notes for Certificated Discount Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTE
WILL NOT HAVE DISCOUNT NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE
PHYSICAL DELIVERY OF DISCOUNT NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the Indenture, Holdings and the Trustee will treat
persons in whose names the Discount Notes are registered (including Discount
Notes represented by Global Note) as the owners thereof for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, Liquidated Damages, if any, and interest on
Global Note registered in the name of DTC or its nominee will be payable by the
Trustee to DTC or its nominee as the registered holder under the Indenture.
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 Direct Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Note or for maintaining, supervising or reviewing any of DTC's records or
any Direct Participant's or Indirect Participant's records relating to the
beneficial ownership interests in any Global Note or (ii) any other matter
relating to the actions and practices of DTC or any of its Direct Participants
or Indirect Participants.
DTC has advised Holdings that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the
Discount Notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Note as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Discount Notes will be governed by standing
instructions and customary practices between them 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 its Direct Participants or Indirect
Participants in identifying the beneficial owners of the Discount Notes, and
Holdings and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
Discount Notes for all purposes.
The Global Note will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of such
Direct Participant but generally will settle in immediately available funds.
DTC has advised Holdings that it will take any action permitted to be taken
by a holder of Discount Notes only at the direction of one or more Direct
Participants to whose account with DTC interests in the Global Note are credited
and only in respect of such portion of the aggregate principal amount of the
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Discount Notes as to which such Direct Participant or Direct Participants has or
have given such direction. However, if any of the events described under
"--Exchange of Book-Entry Discount Notes for Certificated Discount Notes"
occurs, DTC reserves the right to exchange the Global Note for Discount Notes in
certificated form, and to distribute such Discount Notes to its Direct
Participants.
The information in this section concerning DTC and its book-entry system 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 Note among accountholders 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 nor
any agent of Holdings or the Trustee will have any responsibility for the
performance by DTC or its respective participants, indirect participants or
accountholders of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF BOOK-ENTRY DISCOUNT NOTES FOR CERTIFICATED DISCOUNT NOTES
The Global Note is exchangeable for definitive Discount Notes in registered
certificated form if (i) DTC (x) notifies Holdings that it is unwilling or
unable to continue as depository for the Global Note and Holdings thereupon
fails to appoint a successor depository within 90 days 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
Discount Notes in certificated form or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the Discount Notes.
In all cases, certificated Discount Notes delivered in exchange for the Global
Note or beneficial interests therein will be registered in the names, and issued
in any approved denominations, requested by or on behalf of DTC (in accordance
with its customary procedures).
DTC has advised Holdings that it will take any action permitted to be taken
by a holder of Discount Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Note are credited and only
in respect of such portion of the aggregate principal amount of the Discount
Notes as to which such Direct Participant or Direct Participants has or have
given direction.
Neither Holdings nor the Trustee will be liable for any delay by the holder
of the Global Note or the DTC in identifying the beneficial owners of Discount
Notes, and Holdings and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note or the
DTC for all purposes.
111
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
REVOLVING CREDIT FACILITY
The Company has entered into a $40.0 million, five-year senior secured
revolving credit facility (the "Revolving Credit Facility") with a group of
banks to be available for working capital and general corporate purposes,
including acquisitions and capital expenditures.
GUARANTEES; SECURITY. The Revolving Credit Facility is guaranteed by
Holdings and by all existing and future subsidiaries of the Company. In
addition, the Revolving Credit Facility is secured by a first priority security
interest in substantially all of the properties and assets of the Company and
its existing and future domestic subsidiaries, including a pledge of all of the
stock of such subsidiaries, and a pledge by Holdings of all of the stock of the
Company.
INTEREST. The Revolving Credit Facility bears interest at a fluctuating
rate determined by reference to (i) the Base Rate (as defined in the Revolving
Credit Facility) plus a margin ranging from .25% to 1.5%, or (ii) the Eurodollar
Rate (as defined in the Revolving Credit Facility) plus a margin ranging from
1.25% to 2.5%, as the case may be. The applicable margin is based on the
Company's consolidated total leverage ratio.
The Base Rate equals the higher of (a) the rate of interest publicly
announced from time to time by Bank of America as its reference rate, or (b) the
Federal funds rate plus .5%. The Eurodollar Rate is based on (i) the interest
rate per annum at which deposits in U.S. Dollars are offered by Bank of
America's applicable lending office to major banks in the offshore market in an
aggregate principal amount approximately equal to the amount of the loan made to
the Company, and (ii) the maximum reserve percentage in effect under regulations
issued from time to time by the Federal Reserve Board.
FEES. The Company is required to pay customary fees with respect to the
Revolving Credit Facility, including an up-front arrangement fee, annual
administrative agency fees, and commitment fees on the unused portion of the
Revolving Credit Facility.
COMMITMENT REDUCTIONS. The commitments of the lenders under the Revolving
Credit Facility are required to be reduced to the extent of the proceeds of
asset sales and certain financings.
COVENANTS; EVENTS OF DEFAULT. The Revolving Credit Facility contains
customary covenants commensurate with the size of the Revolving Credit Facility
that restrict the ability of the Company to take certain actions. Such covenants
restrict the ability of the Company to, among other things: (i) declare
dividends or redeem or repurchase capital stock; (ii) incur liens and engage in
sale and leaseback transactions; (iii) make loans and investments; (iv) incur
indebtedness and contingent obligations; (v) make capital expenditures; (vi)
engage in mergers, consolidations, acquisitions and asset sales; (vii) enter
into transactions with affiliates; and (viii) make changes in their lines of
business or accounting methods. In general, such covenants are subject to
materiality concepts and baskets and other exceptions. The Company is also
required to comply with certain financial covenants, including: (i) a maximum
total leverage ratio; (ii) a minimum interest coverage ratio; and (iii) a
minimum fixed charge coverage ratio. The Revolving Credit Facility also contains
customary affirmative covenants and events of default, including a Change of
Control, as defined therein.
DESCRIPTION OF THE SENIOR NOTES
Concurrent with the Initial Discount Note Offering, the Company offered
$175.0 million aggregate principal amount of its 9 3/4% Senior Notes due 2007.
Interest on the Senior Notes will accrue at a rate of 9 3/4% per annum from
December 22, 1997, and will be payable in cash semi-annually on June 15 and
December 15 of each year, commencing June 15, 1998.
112
<PAGE>
The Senior Notes will be senior unsecured general obligations of the
Company, PARI PASSU in right of payment to all existing and future senior
indebtedness of the Company and senior in right of payment to all subordinated
indebtedness of the Company.
The Senior Notes will be guaranteed (the "Subsidiary Guarantees") by each of
the Company's existing and future Restricted Subsidiaries (each, a "Guarantor"
and collectively, the "Guarantors"). Each Subsidiary Guarantee will be a senior
unsecured general obligation of the respective Guarantor, PARI PASSU in right of
payment to all existing and future senior indebtedness of such Guarantor and
senior in right of payment to all indebtedness of such Guarantor that is
subordinated to such Subsidiary Guarantee. Each Subsidiary Guarantee will be
unconditional, but limited in amount to the extent required by laws relating to
fraudulent transfer or similar laws.
The Senior Notes may be redeemed on or after December 15, 2002 at the option
of the Company, in whole or in part, at the redemption prices set forth in the
Senior Note Indenture, plus accrued and unpaid interest thereon (and liquidated
damages, if any) to the date of redemption. At any time or from time to time
prior to December 15, 2002, the Senior Notes will also be subject to redemption
at the option of the Company, in whole or in part, at a redemption price equal
to 100% of the principal amount thereof plus the Make-Whole Premium (as defined
in the Senior Note Indenture) at the time of redemption plus accrued and unpaid
interest thereon (and liquidated damages, if any). At any time or from time to
time on or prior to December 15, 2000, the Company may redeem in the aggregate
up to 35% of the aggregate principal amount of the Senior Notes originally
outstanding, at a redemption price of 109.75% of the aggregate principal amount
so redeemed, together with accrued and unpaid interest (and liquidated damages,
if any) to the date of redemption out of the net cash proceeds of one or more
public equity offerings; PROVIDED, HOWEVER, that immediately following such
redemption not less than $113.8 million aggregate principal amount of the Senior
Notes remains outstanding; and PROVIDED FURTHER, that such redemption shall
occur within 90 days of the closing of such public equity offering.
Upon a Change of Control (as defined in the Senior Note Indenture), each
holder of Senior Notes will have the right to require the Company to repurchase
all or any part of such holder's Senior Notes at a repurchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest thereon
(and liquidated damages, if any) to the date of repurchase.
The Company will be obligated in certain instances to make an offer to
repurchase the Senior Notes at a purchase price equal to 100% of the principal
amount at maturity thereof, together with accrued and unpaid interest thereon
(and liquidated damages, if any) to the purchase date, with the net cash
proceeds of certain asset sales.
The Senior Note Indenture under which the Senior Notes were issued contains
certain covenants that, among other things, limit (i) the incurrence of
additional indebtedness by the Company and its Restricted Subsidiaries, (ii) the
payment of dividends and other restricted payments by the Company and its
Restricted Subsidiaries, (iii) the creation of restrictions on distributions
from Restricted Subsidiaries of the Company, (iv) asset sales, (v) transactions
with affiliates, (vi) the incurrence of liens and (vii) mergers and
consolidations. These limitations are subject to a number of important
exceptions.
Pursuant to a registration rights agreement by and among the Company, the
Guarantors and the Initial Purchasers, the Company must use its reasonable best
efforts to file within 120 days, and cause to become effective within 180 days,
of the date of issuance of the Senior Notes an Exchange Offer Registration
Statement (as defined in such agreement) with respect to an offer to exchange
the Senior Notes for notes of the Company with terms substantially identical to
the Senior Notes.
The net proceeds from the sale of the Senior Notes were used, together with
the Equity Contribution, to consummate the NLP Acquisition, to repay the
principal and accrued interest on each of the ALM Promissory Note and the WP
Promissory Note, to pay certain fees and expenses, and to pay one-time
restructuring costs in connection therewith.
113
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. Holdings recommends that each holder consult such holder's own tax
advisor as to the particular tax consequences of exchanging such holder's Old
Discount Notes for Exchange Discount Notes, including the applicability and
effect of any state, local or foreign tax laws.
Holdings believes that the exchange of Old Discount Notes for Exchange
Discount Notes pursuant to the Exchange Offer will not be treated as an
"exchange" for federal income tax purposes because the Exchange Discount Notes
will not be considered to differ materially in kind or extent from the Old
Discount Notes. Rather, the Exchange Discount Notes received by a holder will be
treated as a continuation of the Old Discount Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Discount Notes for Exchange Discount Notes pursuant to the
Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Discount Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Discount
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with the resale of
Exchange Discount Notes received in exchange for Old Discount Notes where such
Old Discount Notes were acquired as a result of market-making activities or
other trading activities. Holdings has agreed that for a period of 180 days
after the Expiration Date, they will make this Prospectus, as amended or
supplemented, available to any Participating Broker-Dealer for use in connection
with any such resale. In addition, until , 1998 (90 days after the
commencement of the date of the Prospectus), all dealers effecting transactions
in the Exchange Discount Notes may be required to deliver a prospectus.
Holdings will not receive any proceeds from any sales of the Exchange
Discount Notes by Participating Broker Dealers. Exchange Discount Notes received
by Participating 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 Exchange Discount Notes 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
Participating Broker-Dealer and/or the purchasers of any such Exchange Discount
Notes. Any Participating Broker-Dealer that resells the Exchange Discount Notes
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 Exchange
Discount Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Discount Notes 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 Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
114
<PAGE>
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 Participating Broker-Dealer that requests such documents
in the Letter of Transmittal.
LEGAL MATTERS
The validity of the Exchange Discount Notes offered hereby will be passed
upon for Holdings by Jones, Day, Reavis & Pogue, New York, New York.
EXPERTS
Old ALM's consolidated balance sheets as of December 31, 1995 and 1996, and
its respective statements of operations and cash flows for each of the years
then ended, Old ALM's consolidated balance sheet as of July 31, 1997 and its
respective statements of operations and cash flows for the seven months then
ended, Holdings' consolidated balance sheet as of December 31, 1997 and its
respective statements of operations and cash flows for the five months then
ended, and NLP's consolidated balance sheet as of December 21, 1997 and its
related statements of operations and cash flows for the period from January 1,
1997 through December 21, 1997 included in this Prospectus, have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
NLP's consolidated balance sheets as of December 31, 1995 and 1996, and its
statements of operations and cash flows for each of the years then ended,
included in this Prospectus, have been audited by Leslie Sufrin and Company,
P.C., independent certified public accountants, as stated in their report
herein.
115
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA HOLDINGS, INC.
Unaudited Consolidated Balance Sheet as of March 31, 1998 of American Lawyer Media Holdings, Inc.......... F-3
Unaudited Consolidated Statement of Operations for the Three Months Ended March 31, 1998 of American
Lawyer Media Holdings, Inc............................................................................... F-4
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended March 31,
1998 of American Lawyer Media Holdings, Inc.............................................................. F-5
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1998 of American
Lawyer Media Holdings, Inc............................................................................... F-6
Notes to Unaudited Consolidated Financial Statements as of March 31, 1998 of American Lawyer Media
Holdings, Inc............................................................................................ F-7
Independent Auditor's Report of Independent Public Accountants as of and for the Five Months Ended
December 31, 1997 of American Lawyer Media Holdings, Inc................................................. F-13
Consolidated Balance Sheet as of December 31, 1997 of
American Lawyer Media Holdings, Inc...................................................................... F-14
Consolidated Statement of Operations for the Five Months Ended December 31, 1997 of American Lawyer Media
Holdings, Inc............................................................................................ F-15
Consolidated Statement of Changes in Stockholders' Equity for the Five Months Ended December 31, 1997 of
American Lawyer Media Holdings, Inc...................................................................... F-16
Consolidated Statement of Cash Flows for the Five Months Ended December 31, 1997 of American Lawyer Media
Holdings, Inc............................................................................................ F-17
Notes to the Consolidated Financial Statements as of December 31, 1997 of
American Lawyer Media Holdings, Inc...................................................................... F-18
FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA, L.P. (OLD ALM)
Unaudited Balance Sheet as of March 31, 1997 of American Lawyer Media, L.P................................ F-29
Unaudited Statement of Operations for the Three Months Ended March 31, 1997 of American Lawyer Media,
L.P...................................................................................................... F-30
Unaudited Statement of Changes In Partners' Capital and Accumulated Deficit for the Three Months Ended
March 31, 1997 of American Lawyer Media, L.P............................................................. F-31
Unaudited Statement of Cash Flows for the Three Months Ended March 31, 1997 of American Lawyer Media,
L.P...................................................................................................... F-32
Notes to Unaudited Financial Statements as of March 31, 1997 of American Lawyer
Media, L.P............................................................................................... F-33
Independent Auditor's Report of the Financial Statements as of and for the Seven Months Ended July 31,
1997 of American Lawyer Media, L.P....................................................................... F-35
Balance Sheet as of July 31, 1997 of American Lawyer Media, L.P........................................... F-36
Statement of Operations for the Seven Months Ended July 31, 1997 of American Lawyer Media, L.P............ F-37
Statement of Changes in Partners' Capital and Accumulated Deficit for the Seven Months Ended July 31, 1997
of American Lawyer Media, L.P............................................................................ F-38
Statement of Cash Flows for the Seven Months Ended July 31, 1997 of American Lawyer Media, L.P............ F-39
Notes to the Financial Statements as of July 31, 1997 of American Lawyer Media, L.P....................... F-40
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA, L.P. (OLD ALM)
Independent Auditor's Report of the Financial Statements as of and for the Years Ended December 31, 1996
and 1995 of American Lawyer Media, L.P. ................................................................. F-45
Balance Sheets as of December 31, 1996 and 1995 of American Lawyer Media, L.P. ........................... F-46
Statements of Operations for the Years Ended December 31, 1996 and 1995 of American Lawyer Media, L.P. ... F-47
Statements of Changes in Partners' Capital and Accumulated Deficit for the Years Ended December 31, 1996
and 1995 of American Lawyer Media, L.P. ................................................................. F-48
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995 of American Lawyer Media, L.P. ... F-49
Notes to the Financial Statements as of December 31, 1996 and 1995 of American Lawyer Media, L.P. ........ F-50
CONSOLIDATED FINANCIAL STATEMENTS OF NATIONAL LAW PUBLISHING COMPANY, INC.
Unaudited Consolidated Balance Sheet as of March 31, 1997 of National Law Publishing Company, Inc......... F-55
Unaudited Consolidated Statement of Operations for the Three Months Ended March 31, 1997 of National Law
Publishing Company, Inc.................................................................................. F-56
Unaudited Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 1997 of
National Law Publishing Company, Inc..................................................................... F-57
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1997 of National Law
Publishing Company, Inc.................................................................................. F-58
Notes to Unaudited Consolidated Financial Statements as of March 31, 1997 of National Law Publishing
Company, Inc............................................................................................. F-59
Independent Auditor's Report of the Consolidated Financial Statements as of and for the Period Ended
December 21, 1997 of National Law Publishing Company, Inc................................................ F-62
Consolidated Balance Sheet at December 21, 1997 of National Law Publishing Company, Inc................... F-63
Consolidated Statement of Operations for the Period from January 1, 1997 through December 21, 1997 of
National Law Publishing Company, Inc..................................................................... F-64
Consolidated Statement of Stockholders' Equity for the Period from January 1, 1997 through December 21,
1997 of National Law Publishing Company, Inc............................................................. F-65
Consolidated Statement of Cash Flows for the Period from January 1, 1997 through December 21, 1997 of
National Law Publishing Company, Inc..................................................................... F-66
Notes to the Consolidated Financial Statements as of December 21, 1997 of National Law Publishing Company,
Inc. .................................................................................................... F-67
CONSOLIDATED FINANCIAL STATEMENTS OF NATIONAL LAW PUBLISHING COMPANY, INC.
Independent Auditor's Report of the Consolidated Financial Statements as of and for the Years Ended
December 31, 1996 and 1995 of National Law Publishing Company, Inc....................................... F-75
Consolidated Balance Sheets as of December 31, 1996 and 1995 of National Law Publishing Company, Inc...... F-76
Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1995 of National Law
Publishing Company, Inc.................................................................................. F-77
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended
December 31, 1996 and 1995 of National Law Publishing Company, Inc....................................... F-78
Consolidated Statements of Cash Flows for Years Ended December 31, 1996 and 1995 of National Law
Publishing Company, Inc.................................................................................. F-79
Notes to the Consolidated Financial Statements as of December 31, 1996 and 1995 of National Law Publishing
Company, Inc............................................................................................. F-80
</TABLE>
F-2
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................... $ 4,035
Accounts receivable, net of allowance for doubtful accounts and returns of $3,231................... 11,275
Inventories, net.................................................................................... 1,324
Other current assets................................................................................ 2,543
----------
Total current assets.............................................................................. 19,177
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $1,095............. 5,358
INTANGIBLE ASSETS, net of accumulated amortization of $4,608 ......................................... 160,552
GOODWILL, net of accumulated amortization of $3,228................................................... 168,155
DEFERRED FINANCING COSTS, net of accumulated amortization of $223..................................... 8,032
DEFERRED INCOME TAXES................................................................................. 2,878
OTHER ASSETS.......................................................................................... 188
----------
Total assets...................................................................................... $ 364,340
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................................... $ 2,690
Accrued expenses.................................................................................... 11,274
Accrued interest payable............................................................................ 4,740
Deferred income (including deferred subscription income of $16,680)................................. 18,821
----------
Total current liabilities......................................................................... 37,525
----------
SENIOR NOTES.......................................................................................... 175,000
----------
SENIOR DISCOUNT NOTES................................................................................. 36,191
----------
DEFERRED INCOME TAXES................................................................................. 50,522
----------
OTHER NONCURRENT LIABILITIES.......................................................................... 3,227
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock--par value $0.01; 200,000 shares authorized; 100,000 shares issued and outstanding..... 1
Additional paid-in-capital.......................................................................... 74,999
Accumulated deficit................................................................................. (13,125)
----------
Total stockholders' equity........................................................................ 61,875
----------
Total liabilities and stockholders' equity........................................................ $ 364,340
----------
----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
F-3
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998
---------
<S> <C>
NET REVENUES:
Periodicals
Advertising........................................................................................ $ 14,954
Subscription....................................................................................... 5,140
Ancillary Products and Services...................................................................... 5,628
Internet Services.................................................................................... 654
---------
Total net revenues............................................................................... 26,376
---------
OPERATING EXPENSES:
Editorial............................................................................................ 3,361
Production and Distribution.......................................................................... 5,472
Selling.............................................................................................. 4,250
General and Administrative........................................................................... 7,101
Internet Services.................................................................................... 1,110
Depreciation and Amortization........................................................................ 5,946
---------
Total operating expenses......................................................................... 27,240
---------
Operating loss................................................................................... (864)
INTEREST EXPENSE, net.................................................................................. (5,487)
---------
Loss before income taxes......................................................................... (6,351)
BENEFIT FOR INCOME TAXES............................................................................... 937
---------
Net Loss......................................................................................... $ (5,414)
---------
---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN NET
SHARES PAR VALUE CAPITAL LOSS TOTAL
--------- ------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997............................. 100,000 $ 1 $ 74,999 $ (7,711) $ 67,289
Net loss............................................... -- -- -- (5,414) (5,414)
--------- --- ----------- ---------- ---------
BALANCE AT MARCH 31, 1998................................ 100,000 $ 1 $ 74,999 $ (13,125) $ 61,875
--------- --- ----------- ---------- ---------
--------- --- ----------- ---------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998
----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................................ $ (5,414)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization..................................................................... 5,946
Decrease (increase) in--
Accounts receivable, net........................................................................ 1,285
Inventories..................................................................................... 158
Other current assets............................................................................ 172
Deferred financing costs........................................................................ (354)
Other assets.................................................................................... 26
Increase (decrease) in--
Accounts payable................................................................................ (776)
Accrued expenses................................................................................ (1,118)
Accrued interest payable........................................................................ 4,266
Deferred income................................................................................. 1,649
Other noncurrent liabilities.................................................................... (1,130)
----------
Total adjustments............................................................................. 10,124
----------
Net cash provided by operating activities..................................................... 4,710
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................................ (189)
Purchase of business:
Cost in excess of net assets of company acquired.................................................. (11,262)
Acquisition related costs and expenses............................................................ 262
----------
Net cash used in investing activities......................................................... (11,189)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Accretion of interest on Senior Discount Notes...................................................... 1,072
----------
Net cash provided by financing activities..................................................... 1,072
----------
Net decrease in cash and cash equivalents..................................................... (5,407)
CASH AND CASH EQUIVALENTS, beginning of period........................................................ 9,442
----------
CASH AND CASH EQUIVALENTS, end of period.............................................................. $ 4,035
----------
----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Income taxes...................................................................................... $ 234
----------
Interest.......................................................................................... $ 3
----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. ACQUISITIONS
Pursuant to an Asset Purchase Agreement, dated as of March 3, 1998, among
Corporate Presentations, Inc., its sole stockholder and LegalTech, LLC, a
wholly-owned indirect subsidiary of American Lawyer Media, Inc., LegalTech, LLC
agreed to purchase substantially all of the assets and assume certain of the
liabilities of Corporate Presentations, Inc. for approximately $10,800,000 (the
"LegalTech Acquisition"). Corporate Presentations, Inc. is a producer of
tradeshows and conferences for the legal community. For advisory services
rendered to the Company (as defined below) in connection with the LegalTech
Acquisition, the Company paid WPMP (as defined below), an affiliate of American
Lawyer Media Holdings, Inc. ("Holdings"), a fee of 1% of the purchase price of
the LegalTech Acquisition.
The LegalTech acquisition has been accounted for under the purchase method
and the results of operations of the acquired business have been included in the
financial statements since the date of acquisition (March 3, 1998). The excess
of the purchase price over net assets acquired was allocated to goodwill. In the
accompanying consolidated statement of operations, the excess of purchase price
over net assets acquired is being amortized over fifteen years.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the LegalTech
Acquisition had occurred on January 1, 1998 (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31,
1998
----------------
<S> <C>
Net revenues................................................................ $ 26,707
-------
Net loss.................................................................... $ (5,652)
-------
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill. They do not purport to be indicative of the
results of operations which actually would have resulted had the combination
been in effect on January 1, 1998 or of future results of operations of the
consolidated entities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Holdings and
its wholly-owned subsidiary, American Lawyer Media, Inc. which, unless the
context otherwise requires, are collectively referred to herein as the
"Company." The accounts of American Lawyer Media, Inc. include the accounts of
its wholly-owned subsidiaries, ALM, LLC, Counsel Connect, LLC, and National Law
Publishing Company, Inc. ("NLP"), and its 99% owned subsidiary, ALM IP, LLC. The
accounts of NLP include its wholly-owned subsidiary NLP IP Company. Intercompany
transactions and balances have been eliminated in consolidation.
The unaudited consolidated financial statements for the three months ended
March 31, 1998 have been prepared in accordance with the instructions to Form
10-Q and include, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the
F-7
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
results of operations for such periods. They do not, however, include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements.
For further information, reference is made to the consolidated financial
statements for the fiscal year ended December 31, 1997 and the footnotes related
thereto included in the Company's 1997 Annual Report on Form 10-K from which the
December 31, 1997 balances presented herein have been derived. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results of operations for the full year.
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.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company believes it is not exposed to any significant credit
risk related to cash and cash equivalents. Concentrations of credit risk with
respect to trade accounts receivable are, except for amounts due from legal
advertising ad agents ("Legal Ad Agents"), generally limited due to the large
number of customers comprising the Company's customer base. Such Legal Ad Agents
do not have significant liquid net worth and, as a result, the Company is
exposed to a certain level of credit concentration risk in this area, for which
the Company believes it has adequately provided.
REVENUE RECOGNITION
Periodical advertising revenues are generated from the placement of display
and classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications.
Periodical subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary revenues consist principally of third-party printing revenues,
newsletter subscriptions, sales of professional books, seminar and conference
income, income from a daily fax service of court decisions and income from
electronic products. Printing revenue is recognized upon shipment. Book revenues
are recognized upon shipment and are reflected net of estimated returns.
Newsletter revenues are recognized on the same basis as subscription revenues.
Seminar and conference revenues are recognized when the seminar or conference is
held. Daily fax service revenue is recognized upon fulfillment of orders. Income
from electronic products is recognized monthly as the service is provided.
F-8
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Internet Service revenues consist primarily of revenues from subscriptions
and advertising. Internet subscription income is recognized on a pro-rata basis
over the life of a subscription, generally one year. Internet advertising
revenues are recognized upon the release of an advertisement on the website.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $2,360,100 and $1,772,000 are included in accounts
receivable in the accompanying consolidated March 31, 1998 and December 31, 1997
balance sheets, respectively.
ADVERTISING AND PROMOTION COSTS
Advertising and promotion expenditures, which totaled approximately
$1,314,200 for the three months ended March 31, 1998, are expensed as the
related advertisements or campaigns are released.
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of paper and related binding materials
utilized by the Company and its outside printers and professional books
published and sold by the Company. Inventories are stated at the lower of cost,
as determined by the average cost method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, with the exception of fixed
assets acquired as part of the acquisition on August 27, 1997, effective as of
August 1, 1997, of substantially all of the publishing-related assets and
assumption of certain of the liabilities of American Lawyer Media, L.P. by the
Company (the "ALM Acquisition") and the acquisition on December 22, 1997 of all
of the issued and outstanding capital stock of NLP (the "NLP Acquisition"),
which are stated at approximate fair market value as of the date of the
acquisitions. Significant improvements are capitalized, while expenditures for
maintenance and repairs are charged to expense as incurred. Depreciation is
calculated using the straight-line method over estimated remaining useful lives
of the assets acquired as part of the ALM and NLP Acquisitions. Assets purchased
after the ALM and NLP Acquisitions are depreciated using the straight-line
method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings......................................................... 25 years
Furniture, machinery and equipment................................ 5-9 years
Computer equipment and software................................... 3-6 years
</TABLE>
F-9
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life.
GOODWILL
Goodwill represents the excess of purchase price over the fair value of net
assets acquired. It is stated at cost less accumulated amortization and is
amortized on a straight-line basis over a fifteen-year useful life. The Company
periodically assesses the recoverability of goodwill by determining whether the
amortization of goodwill over its estimated remaining life can be recovered
through projected undiscounted future consolidated operating cash flows.
INTANGIBLE ASSETS
Intangible assets represent advertiser commitments, trademarks, customer and
subscriber lists and non-compete agreements. They are stated at cost less
accumulated amortization and are amortized on a straight-line basis over a
weighted average useful life of fifteen years.
INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting and the tax basis of the Company's assets and liabilities
and principally consist of nondeductible goodwill and identified intangibles
relating to NLP, accelerated depreciation, allowance for doubtful accounts,
certain accrued liabilities not currently deductible for tax purposes and net
operating loss carryforwards.
REPORTING COMPREHENSIVE INCOME
Effective with fiscal years beginning after December 15, 1997, companies are
required to adopt the Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income." The Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income includes net
income and other comprehensive income, which comprises certain specific items
reported directly in stockholders' equity. Other comprehensive income comprises
items such as unrealized gains and losses on debt and equity securities
classified as available-for-sale securities, minimum pension liability
adjustments, and foreign currency translation adjustments. Since the Company
does not currently have any of these other comprehensive income items, the
Company's comprehensive income equals its net income. Therefore, SFAS No. 130
has no impact on the way the Company reports or has reported its financial
statements.
3. DEBT
On December 22, 1997, Holdings issued $63,275,000 of 12.25% Senior Discount
Notes (the "Senior Discount Notes") due December 15, 2008, at a discount rate of
$553.14 per Senior Discount Note. Net proceeds for Holdings were $33,775,000,
net of discounts and commissions of $1,225,000. The Senior Discount Notes
accrete interest compounded semi-annually at a rate of 12.25% to an aggregate
principal amount of $63,275,000 by December 15, 2002. Commencing June 15, 2003,
cash interest will be payable semi-annually until maturity each June 15 and
December 15. The Senior Discount Notes are senior, unsecured obligations of
Holdings. The Senior Discount Notes may be redeemed at any time by Holdings,
F-10
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
3. DEBT (CONTINUED)
in whole or in part, at various redemption prices that include accrued and
unpaid interest as well as any existing liquidating damages. The Senior Discount
Notes contain certain covenants that, among other things, limit the incurrence
of additional indebtedness by the Company and its subsidiaries, the payment of
dividends and other restricted payments by the Company and its Subsidiaries,
restrictions on distributions from Restricted Subsidiaries, asset sales,
transactions with affiliates, incurrence of liens, and mergers and
consolidations. Financing costs associated with the debt have been capitalized
and are being amortized over the term of the Senior Discount Notes. Amortization
of deferred financing costs is recorded as interest expense in the accompanying
consolidated statement of operations. Assuming that there is no redemption of
the Senior Discount Notes prior to maturity, the entire principal will be
payable on December 15, 2008.
On December 22, 1997, American Lawyer Media, Inc. ("Media") issued
$175,000,000 of 9.75% Senior Notes ("Senior Notes") due December 15, 2007. The
Senior Notes accrue interest at 9.75% which is payable in cash semi-annually on
June 15 and December 15 (beginning June 15, 1998). The Senior Notes are Senior
unsecured general obligations of Media and are fully and unconditionally
guaranteed on a joint and several and senior unsecured basis by each of Media's
existing and future subsidiaries. The Senior Notes may be redeemed at any time
by Media, in whole or in part, at various redemption prices that include accrued
and unpaid interest as well as any existing liquidating damages. The Senior
Notes contain certain covenants that, among other things, limit the incurrence
of additional indebtedness by Media and its subsidiaries, the payment of
dividends and other restricted payments by Media and its subsidiaries, asset
sales, transaction with affiliates, the incurrence of liens, and mergers and
consolidations. Financing costs associated with the debt have been capitalized
and are being amortized over the term of the Senior Notes. Amortization of
deferred financing costs is recorded as interest expense in the accompanying
consolidated statement of operations. Assuming there is no redemption of the
Senior Notes prior to maturity, the entire principal will be payable on December
15, 2007.
On March 25, 1998, Holdings and the Company (as the "Borrower") entered into
a credit agreement with various banks that established a combined revolving loan
commitment in the initial principal amount of $40,000,000 (the "Revolving Credit
Facility"). Financing costs associated with the Revolving Credit Facility have
been capitalized and are being amortized over the term of the agreement. The
Revolving Credit Facility is guaranteed by Holdings and by all subsidiaries of
the Company. In addition, the Revolving Credit Facility is secured by a first
priority security interest in substantially all of the properties and assets of
the Company and its domestic subsidiaries, including a pledge of the equity
interests of such subsidiaries, and a pledge by Holdings of all of the stock of
the Company. The Revolving Credit Facility bears interest at a fluctuating rate
determined by reference to (i) the Base Rate (as defined in the Revolving Credit
Facility) plus a margin ranging from .25% to 1.5%, or (ii) the Eurodollar Rate
(as defined in the Revolving Credit Facility) plus a margin ranging from 1.25%
to 2.5%, as the case may be. The applicable margin is based on the Company's
consolidated total leverage ratio. The Base Rate equals the higher of (a) the
rate of interest publicly announced from time to time by Bank of America as its
reference rate, or (b) the Federal funds rate plus .5%. The Eurodollar Rate is
based on (i) the interest rate per annum at which deposits in U.S. Dollars are
offered by Bank of America's applicable lending office to major banks in the
offshore market in an aggregate principal amount approximately equal to the
amount of the loan made to the Company, and (ii) the maximum reserve percentage
in effect under regulations issued from time to time by the Federal Reserve
Board. The Company is also required to pay customary
F-11
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
3. DEBT (CONTINUED)
fees with respect to the Revolving Credit Facility, including an up-front
arrangement fee, annual administrative agency fees, and commitment fees on the
unused portion of the Revolving Credit Facility. The Revolving Credit Facility
includes both affirmative and negative covenants that include meeting certain
financial ratios. As of March 31, 1998, there was no debt outstanding under the
Revolving Credit Facility.
4. SUBSEQUENT EVENTS
On April 22, 1998, effective as of April 1, 1998, the Company consummated
the acquisition of substantially all of the legal publishing-related assets and
assumed certain liabilities of Legal Communications, Ltd ("LCL") for an
aggregate purchase price of approximately $20 million. LCL is a publisher of
regional legal publications. For advisory services rendered to the Company in
connection with the LCL Acquisition, the Company paid WP Management Partners,
LLC ("WPMP"), an affiliate of Holdings, a fee of 1% of the purchase price of the
LCL Acquisition.
On April 14, 1998, Holdings contributed an aggregate of $15,000,000 to the
equity capital of the Company. The proceeds of the equity contribution are
intended to be used to fund acquisitions and to provide capital for aggressive
growth.
F-12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of American
Lawyer Media Holdings, Inc. (a Delaware corporation) as of December 31, 1997 and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the five months then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media
Holdings, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the five months then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
April 3, 1998
F-13
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................... $ 9,442
Accounts receivable, net of allowance for doubtful accounts and returns of $3,236................... 12,560
Inventories, net.................................................................................... 1,482
Other current assets................................................................................ 2,716
----------
Total current assets............................................................................ 26,200
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $613............... 5,630
INTANGIBLE ASSETS, net of accumulated amortization of $1,855.......................................... 163,305
GOODWILL, net of accumulated amortization of $498..................................................... 159,623
DEFERRED FINANCING COSTS.............................................................................. 7,678
DEFERRED INCOME TAXES................................................................................. 2,934
OTHER ASSETS.......................................................................................... 158
----------
Total assets.................................................................................... $ 365,528
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................................... $ 3,466
Accrued expenses.................................................................................... 12,604
Deferred income (including deferred subscription income of $16,502)................................. 17,172
----------
Total current liabilities....................................................................... 33,155
----------
SENIOR NOTES.......................................................................................... 175,000
----------
SENIOR DISCOUNT NOTES................................................................................. 35,119
----------
DEFERRED INCOME TAXES................................................................................. 51,515
----------
OTHER NONCURRENT LIABILITIES.......................................................................... 3,363
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock--par value $0.01; 200,000 shares authorized; 100,000 shares issued and outstanding..... 1
Additional paid-in-capital.......................................................................... 74,999
Accumulated deficit................................................................................. (7,711)
----------
Total stockholders' equity...................................................................... 67,289
----------
Total liabilities and stockholders' equity...................................................... $ 365,528
----------
----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
F-14
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
NET REVENUES:
Periodicals
Advertising........................................................................................ $ 13,410
Subscription....................................................................................... 5,260
Ancillary Products and Services...................................................................... 4,142
Internet Services.................................................................................... 40
---------
Total net revenues............................................................................... 22,852
---------
OPERATING EXPENSES:
Editorial............................................................................................ 3,323
Production and Distribution.......................................................................... 5,766
Selling.............................................................................................. 3,656
General and Administrative........................................................................... 7,145
Internet Services.................................................................................... 43
Depreciation and Amortization........................................................................ 3,273
Shutdown of Counsel Connect.......................................................................... 4,823
---------
Total operating expenses......................................................................... 28,029
---------
Operating loss................................................................................... (5,177)
INTEREST EXPENSE, net.................................................................................. (2,534)
---------
Loss before income taxes......................................................................... (7,711)
PROVISION FOR INCOME TAXES............................................................................. --
---------
Net Loss......................................................................................... $ (7,711)
---------
---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-15
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN NET
SHARES PAR VALUE CAPITAL LOSS TOTAL
--------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
INCEPTION................................................ -- $ -- $ -- $ -- $ --
Issuance of common stock............................... 100,000 1 74,999 -- 75,000
Net loss............................................... -- -- -- (7,711) (7,711)
--------- ----- ----------- --------- ----------
BALANCE AT DECEMBER 31, 1997............................. 100,000 $ 1 $ 74,999 $ (7,711) $ (67,289)
--------- ----- ----------- --------- ----------
--------- ----- ----------- --------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-16
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................................... $ (7,711)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization.................................................................... 3,273
Decrease (increase) in-
Accounts receivable, net....................................................................... 515
Inventories.................................................................................... (74)
Other current assets........................................................................... 63
Other assets................................................................................... 89
Increase (decrease) in-
Accounts payable............................................................................... 1,200
Accrued expenses............................................................................... (421)
Deferred income................................................................................ (466)
Other noncurrent liabilities................................................................... 1,035
-----------
Total adjustments............................................................................ 5,214
-----------
Net cash used in operating activities........................................................ (2,497)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................................... (364)
Purchase of businesses:
Negative working capital, other than cash...................................................... 9,229
Plant, property and equipment.................................................................. (8,058)
Intangible assets.............................................................................. (165,160)
Deferred income taxes.......................................................................... 50,107
Other noncurrent assets........................................................................ (1,748)
Cost in excess of net assets of company acquired............................................... (160,121)
Acquisition related costs and expenses 9,579
-----------
Net cash used in investing activities........................................................ (265,383)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution............................................................................... 75,000
Issuance of notes, net of fees and expenses of $7,678.............................................. 202,322
Proceeds from affiliate note....................................................................... 32,000
Repayment of affiliate note........................................................................ (32,000)
Note payable assumed in connection with acquisition................................................ 31,500
Repayment of note payable.......................................................................... (31,500)
-----------
Net cash provided by financing activities.................................................... 277,322
-----------
Net increase in cash......................................................................... 9,442
CASH, at inception................................................................................... --
-----------
CASH, end of period.................................................................................. $ 9,442
-----------
-----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period
Income taxes................................................................................... $ --
-----------
-----------
Interest....................................................................................... $ 1,954
-----------
-----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-17
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND OPERATIONS
American Lawyer Media Holdings, Inc. ("Holdings") is the parent company of
American Lawyer Media, Inc. ("Media"). Holdings was formerly named Cranberry
Partners, LLC ("Cranberry"). Except with respect to the acquisitions and
financing discussed below, neither Holdings nor Media have any operating
activities or operating assets and liabilities. Herein, Holdings, together with
Media, are referred to as the "Company".
Cranberry, a Delaware limited liability company, was formed on August 1,
1997. On August 27, 1997 (the "ALM Acquisition Closing"), Cranberry acquired
substantially all of the assets and liabilities of American Lawyer Media, L.P.
("Old ALM") for $63,000,000. The acquisition was effective retroactively to July
31, 1997. As of the ALM Acquisition Closing, all of the membership interests of
Cranberry were held by W.P. Management Partners, LLC on behalf of U.S. Equity
Partners, L.P. and certain of its affiliates. Old ALM is a publisher of legal
publications, which includes THE AMERICAN LAWYER, CORPORATE COUNSEL MAGAZINE,
AMLAW TECH, THE CONNECTICUT LAW TRIBUNE, LEGAL TIMES, NEW JERSEY LAW JOURNAL,
THE RECORDER, TEXAS LAWYER, FULTON COUNTY DAILY REPORT, and MIAMI DAILY BUSINESS
REVIEW. In addition, Old ALM operates Counsel Connect, a membership-based online
service exclusively for lawyers and legal professionals. The Company's
operations are based in New York with regional offices in seven states and the
District of Columbia.
Prior to the ALM Acquisition Closing, Cranberry formed ALM Holdings, LLC, a
Delaware limited liability company, and ALM Holdings, LLC formed two wholly
owned subsidiaries, ALM, LLC (a New York limited liability company) and Counsel
Connect, LLC; (a Delaware limited liability company) and one 99% owned
subsidiary, (the remaining 1% of which was, as of the ALM Acquisition Closing,
held by W.P. Management Partners, LLC on behalf of U.S. Equity Partners, L.P.
and certain of its affiliates), ALM IP, LLC (a Delaware limited liability
company). On the ALM Acquisition Closing, Cranberry transferred all of the
non-intellectual property publishing assets and liabilities acquired from Old
ALM to ALM, LLC, all the non-intellectual property Counsel Connect assets and
liabilities acquired from Old ALM to Counsel Connect, LLC, and all of the
intellectual property assets acquired from Old ALM to ALM IP, LLC.
On November 26, 1997, Cranberry was merged with and into ALM Capital Corp.
(a Delaware corporation); and ALM Capital Corp. was simultaneously renamed
American Lawyer Media Holdings, Inc. Also on November 26, 1997, ALM Holdings,
LLC was merged with and into ALM Capital Corp. II (a Delaware corporation), and
ALM Capital Corp. II was simultaneously renamed American Lawyer Media, Inc.
In December 1997, Holdings received capital contributions from its
stockholders, Wasserstein & Co., Inc., U.S. Equity Partners L.P. and U.S. Equity
Partners (Offshore) L.P., totaling $75 million. On December 22, 1997, Holdings
issued $35 million of 12.25% Senior Discount Notes in an offering under Rule
144A promulgated under the Securities Act of 1933, as amended (the "Act").
Simultaneously, Holdings contributed capital of $108.8 million to Media. Also on
December 22, 1997, Media issued $175 million of 9.75% Senior Notes in an
offering under Rule 144A promulgated under the Act. Media used a portion of the
capital and the proceeds from Media's Rule 144A offering to acquire all of the
outstanding capital stock of National Law Publishing Company, Inc. (a Delaware
corporation) ("Old NLP"), for approximately $203 million (the "NLP Acquisition")
through a wholly owned subsidiary, NLP Acquisition Co., Inc. (a New York
corporation) ("Acquisition"). Old NLP was then, on December 22, 1997, merged
with and into Acquisition with Acquisition surviving. Subsequent to the merger,
Acquisition was renamed National Law Publishing Company, Inc., ("NLP"). At the
closing of the NLP Acquisition, all intellectual property of
F-18
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. ORGANIZATION AND OPERATIONS (CONTINUED)
NLP and its subsidiaries was transferred to NLP IP Company, a wholly owned
subsidiary of NLP. Old NLP is a publisher of legal publications, which include
NEW YORK LAW JOURNAL, THE NATIONAL LAW JOURNAL and LAW TECHNOLOGY PRODUCT NEWS.
In addition, Old NLP operates LAW JOURNAL EXTRA!, a membership-based internet
service for lawyers and legal professionals, publishes legal text and provides
seminars targeted at the U.S. legal community.
2. ACQUISITIONS
The ALM acquisition has been accounted for under the purchase method and the
results of operations of the acquired publishing business have been included in
the financial statements since the date of acquisition (August 1, 1997). The
excess of the purchase price over net assets acquired is as follows (in
thousands):
<TABLE>
<S> <C> <C>
Total purchase price.................................... $ 63,000
Reimbursement from seller............................. (110)
---------
Adjusted purchase price................................. 62,890
Historical net liabilities at July 31, 1997........... 29,342
Elimination of historical intangible assets........... 5,545
Assets and liabilities not assumed/acquired........... (34,702)
Adjustment to record fixed assets at fair value....... (365)
Writeoff of leasehold improvements.................... 445
---------
Net liabilities assumed................................. 265
Adjustment for acquisition related costs and expenses... 4,546
---------
67,701
Identified intangibles.................................. (59,770)
---------
Excess of purchase price over net assets acquired....... $ 7,931
---------
---------
</TABLE>
In the accompanying statement of operations, the excess of purchase price
over net assets acquired are being amortized over fifteen years. As previously
discussed, the identified intangibles were transferred to ALM IP, LLC and are
being amortized on a straight-line basis over a weighted average useful life of
fifteen years. ALM IP, LLC licenses the identified intangibles, ALM IP, LLC's
only principal asset, to ALM, LLC and Counsel Connect, LLC at a market royalty
rate.
The NLP acquisition of has been accounted for under the purchase method and
the results of operations of the acquired publishing business have been included
in the financial statements since the
F-19
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. ACQUISITIONS (CONTINUED)
date of acquisition (December 22, 1997). The excess of the purchase price over
the book value of net tangible assets acquired is as follows (in thousands):
<TABLE>
<S> <C> <C>
Total purchase price.................................... $ 203,218
Historical net assets at December 22, 1997............ (64,782)
Elimination of historical intangible assets........... 122,351
Elimination of historical debt........................ (59,500)
Adjustment to record assets at fair value............. 1,153
---------
Net assets acquired..................................... (778)
Provision of deferred income taxes principally related
to identified intangibles............................. 50,107
Adjustment for acquisition related costs and expenses... 5,033
---------
257,580
Identified intangibles.................................. (105,390)
---------
Excess of purchase price over net assets acquired....... $ 152,190
---------
---------
</TABLE>
In the accompanying statement of operations, the excess of purchase price
over net assets acquired are being amortized over fifteen years. As previously
discussed, the identified intangibles were transferred to NLP IP Company and are
being amortized on a straight-line basis over a weighted average useful life of
fifteen years. NLP IP Company licenses the identified intangibles, NLP IP
Company's only principal asset, to the Company at a market royalty rate.
The results of operations of NLP are included in the accompanying
consolidated statement of operations for the period from December 22, 1997 to
December 31, 1997. The following unaudited pro forma information presents a
summary of consolidated results of operations of the Company as if the NLP
Acquisition had occurred on August 1, 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED
DECEMBER 31,
1997
-------------
<S> <C>
Net revenues................................................................... $ 45,766
Net loss....................................................................... $ 7,073
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill and other intangible assets, and interest
expense on acquisition debt. They do not purport to be indicative of the results
of operations which actually would have resulted had the combination been in
effect on August 1, 1997, or of future results of operations of the consolidated
entities.
F-20
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of American
Lawyer Media Holdings, Inc. and its wholly-owned subsidiary, American Lawyer
Media, Inc. The accounts of American Lawyer Media Inc., its wholly-owned
subsidiaries (ALM, LLC, Counsel Connect, LLC, and National Law Publishing
Company Inc.) and its 99% owned subsidiary, ALM IP, LLC. The accounts of
National Law Publishing Company, Inc. include its wholly-owned subsidiary, NLP
IP Company. Intercompany transactions and balances have been eliminated in
consolidation.
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.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company believes it is not exposed to any significant credit
risk related to cash and cash equivalents. Concentrations of credit risk with
respect to trade accounts receivable are, except for amounts due from legal
advertising ad agents ("Legal Ad Agents"), generally limited due to the large
number of customers comprising the Company's customer base. Such Legal Ad Agents
do not have significant liquid net worth and, as a result, the Company is
exposed to a certain level of credit concentration risk in this area, which the
Company believes it has adequately provided for.
REVENUE RECOGNITION
Periodical Advertising revenues are generated from the placement of display
and classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications.
Periodical Subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary revenues consist principally of third-party printing revenues,
newsletter subscriptions, sales of professional books, seminar and conference
income, income from a daily fax service of court decisions and income from
electronic products. Printing revenue is recorded upon shipment. Book revenues
are recognized upon shipment and are reflected net of estimated returns.
Newsletter revenues are recognized on the same basis as subscription revenues.
Seminar and conference revenues are recognized when the seminar or conference is
held. Daily fax service revenue is recognized upon fulfillment of orders. Income
from electronic products is recognized monthly as the service is provided.
F-21
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Internet Service revenues consist primarily of revenues from subscriptions
and advertising. Internet subscription income is recognized on a pro-rata basis
over the life of a subscription, generally one year. Internet advertising
revenues are recognized upon the release of an advertisement on the website.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $1,772,000 are included in accounts receivable in
the accompanying consolidated balance sheet.
ADVERTISING AND PROMOTION COSTS
Advertising and promotion expenditures, which totaled approximately $778,500
for the year ended December 31, 1997, are expensed as the related advertisements
or campaigns are released.
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of paper and related binding materials
utilized by the Company and it's outside printers and professional books
published and sold by the Company. Inventories are stated at the lower of cost,
as determined by the average cost method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, with the exception of fixed
assets acquired as part of the ALM and NLP Acquisitions, which are stated at
approximate fair market value as of the date of the acquisitions. Significant
improvements are capitalized, while expenditures for maintenance and repairs are
charged to expense as incurred. Depreciation is calculated using the
straight-line method over the estimated remaining useful lives of the assets
acquired as part of the ALM and NLP Acquisitions. Assets purchased after the ALM
and NLP Acquisitions are depreciated using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings......................................................... 25 years
Furniture, machinery and equipment................................ 5-9 years
Computer equipment and software................................... 3-6 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life.
F-22
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill represents the excess of purchase price over the fair value of net
assets acquired. It is stated at cost less accumulated amortization and is
amortized on a straight-line basis over a fifteen-year useful life. The Company
periodically assesses the recoverability of goodwill by determining whether the
amortization of goodwill over its estimated remaining life can be recovered
through projected undiscounted future consolidated operating cash flows.
INTANGIBLE ASSETS
Intangible assets represent advertiser commitments, trademarks, customer and
subscriber lists and non-compete agreements. They are stated at cost less
accumulated amortization and are amortized on a straight-line basis over a
weighted average useful life of fifteen years.
ACCRUED EXPENSES
Included in accrued expenses on the accompanying balance sheet is
approximately $1,851,000 of fees and costs related to the acquisition of Old ALM
and NLP.
4. SHUTDOWN OF COUNSEL CONNECT
The Company has operated Counsel Connect, a major legal internet site, since
1993. Counsel Connect operated as a subscription based service offering users
the opportunity to exchange legal information such as court opinions, insights
about judges and legal opinions and special written work. The Company, through
Counsel Connect, provided general internet access (as an "internet service
provider") to its subscribers.
Since its inception, Counsel Connect has incurred substantial operating
losses. The Company has determined that it will cease to operate Counsel Connect
and has begun the wind down of its operations. Staff reductions and curtailments
of operating activities have already taken place commencing with the ALM
Acquisition in August, 1997. In connection with the NLP Acquisition, the Company
acquired LAW JOURNAL EXTRA!, a legal internet site. The Company is currently
transferring certain Counsel Connect assets (e.g., tradename, customer list) to
a new combined service. The transfer will be substantially completed by July 1,
1998. The accompanying statement of operations includes a net expense of
$4,823,400 related to the shutdown of Counsel Connect. This amount includes
Counsel Connect revenues of $1,122,200 and Counsel Connect expenses before
depreciation of $2,945,600 for the five months ended December 31, 1997 and a
provision of $3,000,000 to cover severance costs, uncollectible receivables,
writedown of computer and network equipment and termination of contracts related
to network services which provided internet access. The provision is a
preliminary estimate of the total costs associated with these items.
5. INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting and the tax basis of the Company's assets and liabilities
and principally consist of nondeductible goodwill and identified intangibles
relating to NLP, accelerated depreciation, allowance for doubtful accounts,
certain accrued liabilities not currently deductible for tax purposes and net
operating loss carryforwards.
F-23
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. INCOME TAXES (CONTINUED)
The reconciliation between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to loss before income
taxes is as follows for the five months ended December 31, 1997:
<TABLE>
<S> <C>
Federal statutory income taxes..................................... $ (2,622)
Permanent differences (principally goodwill and intangible
amortization).................................................... 194
State and local income taxes....................................... (463)
Other.............................................................. (126)
Valuation allowance................................................ 3,017
---------
$ --
---------
---------
</TABLE>
Upon the creation of Holdings and American Lawyer Media, Inc. as discussed
in Note 1, the Company changed its tax status from an LLC to a C Corporation on
November 26, 1997. As of that date, a net deferred tax asset of $1,224,000 was
recorded relating to the Company's temporary differences. A valuation allowance
of $1,224,000 was also recorded against this net deferred tax asset.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Land................................................................................. $ 207
Buildings and improvements........................................................... 790
Furniture, machinery, and equipment.................................................. 2,739
Computer equipment and software...................................................... 2,507
---------
6,243
Accumulated depreciation and amortization............................................ (613)
---------
Net property, plant and equipment................................................ $ 5,630
---------
---------
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Advertiser commitments............................................................ $ 880
Trademarks........................................................................ 82,650
Customer and subscriber lists..................................................... 69,670
Non-compete agreements............................................................ 11,960
----------
165,160
Accumulated amortization.......................................................... (1,855)
----------
Net intangible assets......................................................... $ 163,305
----------
----------
</TABLE>
F-24
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. RELATED PARTY TRANSACTIONS
The Company and CourtRoom Television Network ("CourtTV"), an affiliate of
Old ALM's general partner, share certain administrative resources and employees.
In addition, the Company has advertising revenue from Court TV under an
agreement made by the former owner of Old ALM. This agreement was terminated in
October 1997. The cost associated with Court TV employees who devote a portion
of their time to the Company's activities is charged to the Company based on an
estimate of the time spent on such activities. These charges amounted to
$99,191, while the revenue was $44,730 for the five months ended December 31,
1997. In addition, the Company has a receivable from CourtTV of $262,600 at
December 31, 1997 reflected in accounts receivable on the accompanying balance
sheet.
Included in accrued expenses on the accompanying balance sheet is $45,000
due to Wasserstein and Co, Inc. for payment of certain costs related to the
acquisition of Old ALM.
Approximately $6,500,000 of financing costs related to the Senior Notes as
defined in Note 11 and the Senior Discount Notes were paid to Wasserstein
Perella, an affiliate of the Company. In addition, approximately $4,150,000 of
acquisition related fees and expenses were either paid or remain due to
Wasserstein Perella.
9. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $783,000 for
the five months ended December 31, 1997. This amount includes the monthly rent
payments for corporate headquarters discussed below.
At December 31, 1997, minimum rental commitments under noncancellable leases
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL
ESTATE OTHER TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
1998................................................................ $ 2,174 $ 75 $ 2,249
1999................................................................ 2,162 64 2,226
2000................................................................ 2,165 49 2,214
2001................................................................ 1,958 38 1,996
2002 and thereafter................................................. 10,349 9 10,358
--------- ----- ---------
$18,808... $ 235 $ 19,043
--------- ----- ---------
--------- ----- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense on a straight-line basis
over the terms of the leases. Approximately $1,800,000, representing accrued pro
rata future payments, net of receipts, is included in other noncurrent
liabilities in the accompanying balance sheet as of December 31, 1997.
ALM LLC leases its corporate headquarters from Old ALM's general partner.
Because the lease can be cancelled with ninety days notice, the commitments
under this lease are excluded from the above table. Monthly rent payments under
this lease total $74,700. This lease terminates on December 31, 1998.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these
F-25
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
contingencies is not expected to have a material adverse effect on the Company's
financial position or results of operations.
10. EMPLOYEE BENEFITS
NLP has a 401(k) profit sharing plan (the "NLP Plan") for all eligible
employees who have completed one year of service. Under the NLP Plan, NLP has
the option of making a matching contribution of up to 3% of a participant's
compensation. NLP may also annually contribute additional discretionary amounts
to participants. For the five months ended December 31, 1997, NLP did not make
any matching discretionary contributions to the NLP Plan. In addition,
approximately twenty NLP employees are covered by certain defined contribution
retirement plans sponsored by the Typographical Union. NLP did not make any
contributions to these retirement plans for the five months ended December 31,
1997.
ALM, LLC sponsors a 401(k) salary deferral plan (the "ALM Plan").
Participation in the ALM Plan is available for substantially all ALM, LLC and
Counsel Connect, LLC employees. The ALM Plan provides for employer matching of
employees' contributions, as defined. The cost of the ALM Plan for the five
months ended December 31, 1997 was $137,400.
ALM, LLC also sponsored a defined benefit plan covering substantially all
ALM, LLC and Counsel Connect, LLC employees. This plan was frozen effective
December 31, 1997, resulting in an insignificant curtailment gain. The
components of net periodic pension cost for the five months ended December 31,
1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Service cost.......................................................................... $ 160
Interest cost on projected benefit obligation......................................... 94
Actual return on assets............................................................... (173)
Net amortization and deferral......................................................... 119
---------
$ 200
---------
---------
</TABLE>
The following table sets forth the funded status of the Company's pension
plan and amounts recognized in the balance sheet as of December 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................................................ $ 2,948
---------
Accumulated benefit obligation....................................................... $ 3,305
---------
Projected benefit obligation......................................................... $ 3,305
Plan assets at fair value............................................................ $ 2,613
---------
Projected benefit obligation in excess of plan assets................................ $ 692
Unrecognized net gain................................................................ --
Unrecognized net transition obligation............................................... --
---------
Accrued pension liability............................................................ $ 692
---------
---------
</TABLE>
F-26
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
10. EMPLOYEE BENEFITS (CONTINUED)
In determining the actuarial present value of the projected benefit
obligation as of December 31, 1997, the discount rate was 6.75%, the rate of
increase in future compensation levels was 3.00%, and the expected long-term
rate of return on assets was 9.00%.
ALM, LLC also sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan. The plan was frozen as of December 31, 1997.
ALM, LLC and Counsel Connect, LLC sponsor a comprehensive medical and dental
insurance plan, which is available to substantially all employees. ALM, LLC and
Counsel Connect, LLC are self insured for claims submitted under this plan up to
predetermined amounts above which third party insurance applies.
11. NOTES PAYABLE
On December 22, 1997, Holdings issued $63,275,000 of 12.25% Senior Discount
Notes (the "Discount Notes") due December 15, 2008, at a discount rate of
$553.14 per Discount Note. Net proceeds for Holdings were $33,775,000, net of
discounts and commissions of $1,225,000. The Discount Notes will accrete
interest compounded semi-annually at a rate of 12.25% to an aggregate principal
amount of $63,275,000 by December 15, 2002. Commencing June 15, 2003, cash
interest will be payable semi-annually until maturity each June 15 and December
15. The Discount Notes are senior, unsecured obligations of Holdings. The
Discount Notes may be redeemed at any time by Holdings, in whole or in part, at
various redemption prices that includes accrued and unpaid interest as well as
any existing liquidating damages. The Discount Notes contain certain covenants
that, among other things, limit the incurrence of additional indebtedness by the
Company and its subsidiaries, the payment of dividends and other restricted
payments by the Company and its subsidiaries, restrictions on distributions from
Restricted Subsidiaries, asset sales, transactions with affiliates, incurrence
of liens and mergers and consolidations. Financing costs, totaling $1,425,000,
have been capitalized on the accompanying balance sheet and are being amortized
over the term of the Discount Notes. Amortization of deferred financing costs is
recorded as interest expense. Assuming that there is no redemption of the
Discount Notes prior to maturity, the entire principal will be payable on
December 15, 2008.
On December 22, 1997, Media issued $175,000,000 of 9.75% senior notes
("Senior Notes") due December 15, 2007. The Senior Notes accrue interest at
9.75% which is payable in cash semi-annually on June 15 and December 15
(beginning June 15, 1998). The Senior Notes are unsecured general obligations of
Media and are fully and unconditionally guaranteed, on a joint and several and
senior unsecured basis, by each of Media's existing and future subsidiaries. The
Senior Notes may be redeemed at any time by Media, in whole or in part, at
various redemption prices that includes accrued and unpaid interest as well as
any existing liquidating damages. The Senior Notes contain certain covenants
that among other things, limit the incurrence of additional indebtedness by
Media and its Subsidiaries, the payment of dividends and other restricted
payments by Media and its Subsidiaries, asset sales, transaction with
affiliates, the incurrence of liens, and mergers and consolidations. Financing
costs, totaling $6,252,000, have been capitalized on the accompanying balance
sheet and are being amortized over the term of the Senior Notes. Amortization of
deferred financing costs is recorded as interest expense. Assuming there is no
redemption of the Senior Notes prior to maturity, the entire principal will be
payable on December 15, 2007.
F-27
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
12. FASB 107--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and notes payable. The
Company believes that the carrying amount for these accounts approximates fair
value.
13. SUBSEQUENT EVENTS
Pursuant to an Asset Purchase Agreement, dated as of March 3, 1998, among
Corporate Presentations, Inc., its sole stockholder and LegalTech, LLC, a wholly
owned indirect subsidiary of American Lawyer Media Inc., LegalTech, LLC, agreed
to purchase substantially all of the assets and assume certain of the
liabilities of Corporate Presentations, Inc. for approximately $10,800,000.
Corporate Presentations, Inc. is a producer of tradeshows and conferences for
the legal community. For advisory services rendered to the Company in connection
with the LegalTech Acquisition, the Company paid WPMP, an affiliate of Holdings,
a fee of 1% of the purchase price of LegalTech, LLC.
Pursuant to an Asset Purchase and Sale Agreement, dated as of March 27,
1998, among Legal Communications, Ltd., and ALM, LLC, a wholly owned subsidiary
of American Lawyer Media Inc., ALM, LLC agreed to purchase substantially all of
the assets and assume certain of the liabilities of Legal Communications, Ltd.
for a purchase price of approximately $20,000,000. Legal Communications, Ltd. is
a publisher of regional legal publications. For advisory services rendered to
the Company in connection with the Legal Communications Ltd. Acquisition, the
Company intends to pay WPMP, an affiliate of Holdings, a fee of 1% of the
purchase price of Legal Communications, Ltd.
On March 25, 1998, the Company and American Lawyer Media, Inc. (as the
"Borrower") signed a Credit Agreement with various banks that has a combined
Revolving Commitment in the initial principal amount of $40,000,000. The
revolving credit facility is guaranteed by Holdings and by all subsidiaries of
Media. In addition, the revolving credit facility is secured by a first priority
security interest in substantially all of the properties and assets of Media and
its domestic subsidiaries, including a pledge of all of the stock of such
subsidiaries, and a pledge by Holdings of all of the stock of Media. Each
revolving loan shall bear interest on the outstanding principal amount from the
borrowing date until it becomes due at a rate per annum equal to the "Base Rate"
or the Eurodollar rate plus the "Applicable Margin" of 1.5% for base rate loans
and 2.5% for Eurodollar rate loans. The Base Rate is the higher of the Bank of
America publicly announced "Reference Rate" or the Federal Funds Rate plus 0.5%.
A commitment fee must be paid on the daily unused portion of the revolving
commitment. The Credit Agreement includes both affirmative and negative
covenants that include meeting certain financial ratios.
On April 2, 1998, the Board of Directors authorized Holdings to issue shares
of Holdings' $.01 par value per share common stock to U.S. Equity Partners, L.P.
in consideration of payment by U.S. Equity Partners, L.P. of $15,000,000.
F-28
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................................ $ 456
Accounts receivable, net of allowance for doubtful accounts of $1,508................................ 6,305
Inventories, net..................................................................................... 411
Other current assets................................................................................. 705
---------
Total current assets............................................................................... 7,877
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $6,811.............. 4,773
INTANGIBLE ASSETS, net of accumulated amortization of $20,196.......................................... 4,958
GOODWILL, net of accumulated amortization of $236...................................................... 977
OTHER ASSETS........................................................................................... 123
---------
Total assets....................................................................................... $ 18,708
---------
---------
LIABILITIES AND PARTNERS' ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable..................................................................................... $ 1,132
Accrued expenses..................................................................................... 3,919
Deferred income (including deferred subscription income of $7,229)................................... 7,840
---------
Total current liabilities.......................................................................... 12,891
---------
DUE TO GENERAL PARTNER................................................................................. 32,790
---------
OTHER NONCURRENT LIABILITIES........................................................................... 1,035
---------
COMMITMENTS AND CONTINGENCIES
PARTNERS' ACCUMULATED DEFICIT.......................................................................... (28,008)
---------
Total liabilities and partners' accumulated deficit................................................ $ 18,708
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-29
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
NET REVENUES:
Periodicals
Advertising........................................................................................ $ 7,345
Subscription....................................................................................... 2,716
Ancillary Products and Services...................................................................... 1,826
Internet Services.................................................................................... 1,052
---------
Total net revenues............................................................................... 12,939
---------
OPERATING EXPENSES:
Editorial............................................................................................ 1,707
Production and Distribution.......................................................................... 2,920
Selling.............................................................................................. 1,888
General and Administrative........................................................................... 4,232
Internet Services.................................................................................... 2,690
Depreciation and Amortization........................................................................ 634
---------
Total operating expenses......................................................................... 14,071
---------
Operating loss................................................................................... (1,132)
INTEREST EXPENSE, net.................................................................................. (576)
---------
Net Loss......................................................................................... $ (1,708)
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-30
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS'
CONTRIBUTED NET ACCUMULATED
CAPITAL LOSSES DEFICIT
----------- ---------- ------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............................................... $ 31,677 $ (57,977) $ (26,300)
Net loss................................................................. -- (1,708) (1,708)
----------- ---------- ------------
BALANCE AT MARCH 31, 1997.................................................. $ 31,677 $ (59,685) $ (28,008)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-31
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................................ $ (1,708)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization......................................................................... 634
Allowance for doubtful accounts....................................................................... 152
Decrease (increase) in
Accounts receivable and due from affiliate.......................................................... 1,020
Inventories......................................................................................... 109
Other current assets................................................................................ (169)
Other assets........................................................................................ (23)
Increase (decrease) in
Accounts payable.................................................................................... (749)
Accrued expenses.................................................................................... (1,249)
Deferred income..................................................................................... (168)
Other liabilities................................................................................... 1,035
---------
Total adjustments................................................................................. 592
---------
Net cash used in operating activities............................................................. (1,116)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................................. (583)
---------
Net cash used in investing activities............................................................... (583)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from general partner..................................................................... 2,065
---------
Net cash provided by financing activities........................................................... 2,065
---------
Net (decrease) increase in cash and cash equivalents................................................ 366
CASH AND CASH EQUIVALENTS, beginning of period.......................................................... 90
---------
CASH AND CASH EQUIVALENTS, end of period................................................................ $ 456
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-32
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF PRESENTATION
The unaudited financial statements for the three months ended March 31, 1997
have been prepared in accordance with the instructions to Form 10-Q and include,
in the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results of
operations for such periods. They do not, however, include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. For further information, reference is made to
the financial statements for the fiscal year ended December 31, 1996 and the
footnotes related thereto included in American Lawyer Media, Inc.'s 1997 Annual
Report on Form 10-K. The results of operations for the three months ended March
31, 1997 are not necessarily indicative of the results of operations for the
full year.
REVENUE RECOGNITION
Periodical advertising revenues are generated from the placement of display
and classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications.
Periodical subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary revenues consist principally of third-party printing services,
newsletter subscriptions, sales of professional books, seminar income, and a
daily fax service of court decisions. Printing revenue is recognized upon
shipment. Book revenues are recognized upon shipment and are reflected net of
estimated returns. Newsletter revenues are recognized on the same basis as
subscription revenues. Seminar revenues are recognized when the seminar is held.
The daily fax service revenue is recognized upon fulfillment of orders.
Internet Service revenues consist primarily of revenues from subscriptions
and advertising. Internet subscription income is recognized on a pro-rata basis
over the life of a subscription, generally one year. Internet advertising
revenues are recognized upon the release of an advertisement on the website.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
magazine subscriptions received from subscribers. Subscription receivables of
$1,064,100 are included in accounts receivable in the accompanying balance
sheet.
CIRCULATION PROMOTION (SUBSCRIPTION DIRECT MAIL) COSTS
Circulation promotion costs are charged to expense upon the release of the
campaign.
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
F-33
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of paper utilized by the Company and its
outside printers and professional books published and sold by the Company.
Inventories are stated at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Significant improvements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Machinery and equipment........................................................... 5 years
Buildings......................................................................... 25 years
Furniture and fixtures............................................................ 5 years
Computer equipment and software................................................... 3-5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life. The cost and accumulated depreciation of
property sold or retired are removed from the accounts upon disposition.
INTANGIBLES AND GOODWILL
Intangible assets, consisting primarily of noncompete agreements and
subscription lists, are valued at the appraised market value of the assets at
the date of acquisition, net of accumulated amortization. Intangibles are
amortized over the expected useful lives of the respective assets, ranging from
two to thirteen years. Goodwill represents the excess of purchase price over the
fair value of net assets acquired, less accumulated amortization. Goodwill is
being amortized on a straight-line basis over 40 years.
ACCOUNTS PAYABLE
Included in accounts payable are $696,000 of bank overdrafts as of March 31,
1997.
2. INCOME TAXES
No provision has been made in the accompanying statement of operations for
income taxes since, pursuant to provisions of the Internal Revenue Code, the net
loss appearing on the accompanying statement of operations is reportable by each
of the partners on their individual tax returns.
3. DUE TO GENERAL PARTNER
Due to General Partner consists of borrowings from WCI/AMLAW Inc. and
interest accrued thereon. The borrowings bear interest at 1% under prime and do
not have a stated maturity date. This amount has been included in long-term
liabilities in the accompanying balance sheet since the amount is not intended
to be repaid within the next year.
F-34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media, L.P.:
We have audited the accompanying balance sheet of American Lawyer Media,
L.P. as of July 31, 1997 and the related statements of operations, changes in
partners' capital and accumulated deficit and cash flows for the seven months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media, L.P.
as of July 31, 1997, and the results of its operations and its cash flows for
the seven months then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
November 20, 1997
F-35
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
BALANCE SHEET
JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 615
Accounts receivable, net of allowance for doubtful accounts of $1,661............ 5,726
Due from affiliate............................................................... 390
Inventories, net................................................................. 399
Other current assets............................................................. 557
---------
Total current assets......................................................... 7,687
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $7,354........... 5,594
INTANGIBLE ASSETS, net of accumulated amortization of $20,665...................... 4,488
GOODWILL, net of accumulated amortization of $247.................................. 1,057
OTHER ASSETS....................................................................... 156
---------
Total assets................................................................. $ 18,982
---------
---------
LIABILITIES AND PARTNERS' ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable................................................................. $ 744
Accrued expenses................................................................. 4,745
Deferred income (including deferred subscription income of $7,466)............... 8,093
---------
Total current liabilities.................................................... 13,582
DUE TO GENERAL PARTNER............................................................. 34,742
---------
Total liabilities............................................................ 48,324
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' ACCUMULATED DEFICIT...................................................... (29,342)
---------
Total liabilities and partners' accumulated deficit.......................... $ 18,982
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-36
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF OPERATIONS (NOTE 3)
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
NET REVENUES:
Periodicals
Advertising.................................................................... $ 18,146
Subscription................................................................... 6,719
Ancillary Products and Services.................................................. 4,532
Internet Services................................................................ 2,148
---------
Total net revenues........................................................... 31,545
---------
OPERATING EXPENSES:
Editorial........................................................................ 4,023
Production and Distribution...................................................... 6,919
Selling.......................................................................... 4,640
General and Administrative....................................................... 9,531
Internet Services................................................................ 6,464
Depreciation and Amortization.................................................... 1,590
---------
Total operating expenses..................................................... 33,167
---------
Operating loss............................................................... (1,622)
INTEREST EXPENSE, net.............................................................. 1,420
---------
Net loss (Note 3)............................................................ $ (3,042)
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-37
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
AND ACCUMULATED DEFICIT
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS'
CONTRIBUTED EARNINGS/ ACCUMULATED
CAPITAL LOSSES DEFICIT
----------- ---------- ------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............................................... $ 31,677 $ (57,977) $ (26,300)
Net loss................................................................. -- (3,042) (3,042)
----------- ---------- ------------
BALANCE AT JULY 31, 1997................................................... $ 31,677 $ (61,019) $ (29,342)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-38
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $ (3,042)
Adjustments to reconcile net loss to net cash used in operating activities--
Depreciation and amortization.................................................. 1,590
Allowance for doubtful accounts................................................ 304
Decrease (increase) in--
Accounts receivable and due from affiliate................................... 1,057
Inventories.................................................................. 121
Other current assets......................................................... (21)
Other assets................................................................. (56)
Increase (decrease) in--
Accounts payable............................................................. (1,137)
Accrued expenses............................................................. 422
Deferred income.............................................................. 85
---------
Total adjustments.......................................................... 2,365
---------
Net cash used in operating activities...................................... (677)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (1,971)
---------
Net cash used in investing activities........................................ (1,971)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from general partner............................................ 3,173
---------
Net cash provided by financing activities.................................... 3,173
---------
Net increase in cash......................................................... 525
CASH, beginning of period.......................................................... 90
---------
CASH, end of period................................................................ $ 615
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-39
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
1. ORGANIZATION
American Lawyer Media, L.P. (the "Company") is a limited partnership of Time
Warner and Associated Newspapers. The sole general partner of American Lawyer
Media, L.P. is Time Warner. The Company is based in New York and has operations
in seven states and the District of Columbia. The Company publishes THE AMERICAN
LAWYER, CORPORATE COUNSEL MAGAZINE, AMLAW TECH, THE CONNECTICUT LAW TRIBUNE,
LEGAL TIMES, NEW JERSEY LAW JOURNAL, THE RECORDER, TEXAS LAWYER, FULTON COUNTY
DAILY REPORT, and the DAILY BUSINESS REVIEWS, all of which are divisions of the
Company. In addition, the Company consolidates its interest in Counsel Connect,
a New York general partnership. The partnership, which runs a membership-based
internet service exclusively for lawyers and legal professionals, was formed in
February 1994 by Mead Data Central and the Company. In February 1996, Mead Data
Central assigned its interest in the partnership to the Company and also
contributed the balance in its capital account of approximately $1,647,000, to
the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Advertising revenues are generated from the placement of display and
classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications to subscribers. Allowances for estimated doubtful accounts are
provided based upon historical experience.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary revenues consist principally of third-party printing services,
newsletter subscriptions, sales of professional books and directories,
Lexis/Nexis royalty income, seminar income, and a daily fax service of court
decisions.
Internet services revenues consist of income earned from COUNSEL CONNECT
subscriptions and usage fees.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
magazine subscriptions received from subscribers.
CIRCULATION PROMOTION (SUBSCRIPTION DIRECT MAIL) COSTS
Circulation promotion costs are charged to expense upon the release of the
campaign.
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.
F-40
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of paper utilized by the Company and its
outside printers and professional books published and sold by the Company.
Inventories are stated at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Significant improvements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Machinery and equipment........................................... 5 years
Buildings......................................................... 25 years
Furniture and fixtures............................................ 5 years
Computer equipment and software................................... 3-5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life. The cost and accumulated depreciation of
property sold or retired are removed from the accounts upon disposition.
INTANGIBLES AND GOODWILL
Intangible assets, consisting primarily of noncompete agreements and
subscription lists, are valued at the appraised market value of the assets at
the date of acquisition, net of accumulated amortization. Intangibles are
amortized over the expected useful lives of the respective assets, ranging from
two to thirteen years. Goodwill represents the excess of purchase price over the
fair value of net assets acquired, less accumulated amortization. Goodwill is
being amortized on a straight-line basis over 40 years.
ACCOUNTS PAYABLE
Included in accounts payable are $425,000 of bank overdrafts as of July 31,
1997.
3. INCOME TAXES
No provision has been made in the accompanying statement of operations for
income taxes since, pursuant to provisions of the Internal Revenue Code, the net
loss appearing on the accompanying statement of operations is reportable by each
of the partners on their individual tax returns.
F-41
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at July 31, 1997
(in thousands):
<TABLE>
<S> <C>
Machinery and equipment............................................ $ 10,323
Buildings and improvements......................................... 1,430
Furniture and fixtures............................................. 823
Land............................................................... 300
Automobiles........................................................ 72
---------
12,948
Accumulated depreciation and amortization.......................... (7,354)
---------
Net property, plant and equipment.............................. $ 5,594
---------
---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has a business relationship with Courtroom Television Network
("Court TV"), an affiliate of the Company's general partner. Revenues are
generated through licensing fees charged to Court TV for editorial content and
sales of advertisements. The licensing fees for American Lawyer publications
totaled approximately $149,000 for the seven months ended July 31, 1997.
Advertising revenues from Court TV totaled approximately $122,000 for the seven
months ended July 31, 1997. In addition, the Company and Court TV share certain
editorial and administrative resources and employees, as well as office
facilities. The cost associated with employees who devote all or a portion of
their time to Court TV activities is charged to Court TV based on an estimate of
their time spent on such activities. These charges, which include an allocation
for the chairman of the Company, amounted to $321,000 for the seven months ended
July 31, 1997. Court TV is also charged a flat annual fee of $195,000 for use of
the Company's reporters for on-camera appearances and background reports.
Finally, an allocation is made to Court TV to cover general overhead costs
(e.g., rent, utilities, etc.) which amounted to approximately $53,000 for the
seven months ended July 31, 1997. Amounts due from Court TV are reflected as due
from affiliate on the accompanying balance sheet.
The Company's general partner provides certain legal, administrative,
accounting, and tax services for the Company. Charges for such services amounted
to approximately $47,000 for the seven months ended July 31, 1997.
6. DUE TO GENERAL PARTNER
Due to General Partner consists of borrowings from WCI/AMLAW Inc. and
interest accrued thereon. The borrowings bear interest at 1% under prime and do
not have a stated maturity date. This amount has been included in long- term
liabilities in the accompanying balance sheet since the amount is not intended
to be repaid within the next year.
7. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $1,046,500 for
the seven months ended July 31, 1997, including rent accruals in excess of
payments of $6,600.
F-42
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum rental commitments under noncancellable leases as of July 31, 1997
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL SUBLEASE
ESTATE INCOME OTHER TOTAL
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
1997.............................................. $ 1,450 $ (650) $ 28 $ 828
1998.............................................. 3,161 (1,443) 70 1,788
1999.............................................. 3,094 (1,473) 59 1,680
2000.............................................. 3,087 (1,473) 44 1,658
2001.............................................. 2,906 (1,473) 33 1,466
2002 and thereafter............................... 17,424 (10,823) 5 6,606
--------- ---------- --------- ---------
$ 31,122 $ (17,335) $ 239 $ 14,026
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. An obligation of $6,600,
representing accrued pro rata future payments, net of receipts, is included in
the accompanying balance sheet.
The Company subleases a portion of its office facilities to Court TV. The
sublease charges summarized above are based on an oral agreement between the
Company and Court TV.
The lease for the Company's headquarters contains a provision whereby the
Company could elect not to renew the lease for the years 1999 through 2008 upon
payment of a $2,200,000 termination penalty.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these contingencies is not expected to have
a material adverse effect on the Company's financial position or results of
operations.
8. EMPLOYEE BENEFITS
The Company sponsors a retirement savings plan. Participation in this plan
is available for substantially all employees. The plan provides for employer
matching of employees' contributions, as defined. The cost of the plan was
$177,000 for the seven months ended July 31, 1997.
The Company has a defined benefit plan covering substantially all employees.
The Company's general funding policy is to contribute annual amounts that
satisfy the Internal Revenue Code funding requirements. The components of net
periodic pension cost for the year ended December 31, 1996 were as follows:
<TABLE>
<S> <C>
Service cost...................................................... $ 361,216
Interest cost on projected benefit obligation..................... 188,428
Actual return on assets........................................... (260,515)
Net amortization and deferral..................................... 178,602
---------
$ 467,731
---------
---------
</TABLE>
F-43
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
8. EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the funded status of the Company's defined
benefit plan and amounts recognized in the balance sheet as of December 31,
1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation....................................... $1,756,139
---------
Accumulated benefit obligation.................................. $1,988,235
---------
Projected benefit obligation.................................... $3,031,741
Plan assets at fair value....................................... 1,965,782
---------
Projected benefit obligation in excess of plan assets........... $1,065,959
Unrecognized net gain........................................... 155,802
Unrecognized net transition obligation.......................... (728,462)
---------
Accrued pension liability....................................... $ 493,299
---------
---------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation as of December 31, 1996, the discount rate was 7.5%, the rate of
increase in future compensation levels was 6%, and the expected long-term rate
of return on assets was 9%.
The Company sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan.
The Company also sponsors a comprehensive medical and dental insurance plan
which is available to substantially all employees. The Company is self insured
for claims submitted under this plan up to predetermined amounts, above which
third party insurance applies.
9. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107--FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and due to general
partner. The carrying amount of these accounts approximates fair value.
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media, L.P.:
We have audited the accompanying balance sheets of American Lawyer Media,
L.P. as of December 31, 1996 and 1995, and the related statements of operations,
changes in partner's capital and accumulated deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media, L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
November 20, 1997
F-45
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 90 $ 780
Accounts receivable, net of allowance for doubtful accounts of $1,357 in 1996 and $1,098
in 1995............................................................................... 6,496 5,899
Due from affiliate...................................................................... 981 289
Inventories, net........................................................................ 520 629
Other current assets.................................................................... 536 476
---------- ----------
Total current assets................................................................ 8,623 8,073
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $6,469 in 1996 and
$6,309 in 1995.......................................................................... 4,533 3,649
INTANGIBLE ASSETS, net of accumulated amortization of $19,911 in 1996 and $18,773 in
1995.................................................................................... 5,242 6,381
GOODWILL, net of accumulated amortization of $229 in 1996 and $198 in 1995................ 984 1,015
OTHER ASSETS.............................................................................. 100 195
---------- ----------
Total assets........................................................................ $ 19,482 $ 19,313
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable........................................................................ $ 1,881 $ 836
Accrued expenses........................................................................ 5,743 6,672
Deferred income (including deferred subscription income of $7,221 in 1996 and $7,095 in
1995)................................................................................. 8,008 7,631
---------- ----------
Total current liabilities........................................................... 15,632 15,139
DUE TO GENERAL PARTNER.................................................................... 30,150 22,114
---------- ----------
Total liabilities................................................................... 45,782 37,253
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP (Note 1).................................... -- 1,819
PARTNERS' ACCUMULATED DEFICIT............................................................. (26,300) (19,759)
---------- ----------
Total liabilities and partners' accumulated deficit................................... $ 19,482 $ 19,313
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-46
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
NET REVENUES:
Periodicals
Advertising............................................................................ $ 26,659 $ 25,037
Subscription........................................................................... 11,304 10,884
Ancillary Products and Services.......................................................... 8,467 8,387
Internet Services........................................................................ 5,474 3,238
--------- ----------
Total net revenues................................................................... 51,904 47,546
--------- ----------
OPERATING EXPENSES:
Editorial................................................................................ 7,141 7,073
Production and Distribution.............................................................. 12,469 12,587
Selling.................................................................................. 7,479 6,913
General and Administrative............................................................... 16,829 16,506
Internet Services........................................................................ 11,886 10,854
Depreciation and Amortization............................................................ 2,488 2,680
--------- ----------
Total operating expenses............................................................. 58,292 56,613
--------- ----------
Operating loss....................................................................... (6,388) (9,067)
--------- ----------
INTEREST EXPENSE, net...................................................................... 1,972 1,384
Loss before minority interest........................................................ (8,360) (10,451)
MINORITY INTEREST IN LOSS OF CONSOLIDATED PARTNERSHIP
(Note 1)................................................................................. 172 2,334
--------- ----------
Net loss (Note 3).................................................................... $ (8,188) $ (8,117)
--------- ----------
--------- ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-47
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS'
CONTRIBUTED EARNINGS/ ACCUMULATED
CAPITAL LOSSES DEFICIT
----------- ---------- ------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............................................... $ 30,030 $ (41,672) $ (11,642)
Net loss................................................................. -- (8,117) (8,117)
----------- ---------- ------------
BALANCE AT DECEMBER 31, 1995............................................... 30,030 (49,789) (19,759)
Contribution of capital from minority partner............................ 1,647 -- 1,647
Net loss................................................................. -- (8,188) (8,188)
----------- ---------- ------------
BALANCE AT DECEMBER 31, 1996............................................... $ 31,677 $ (57,977) $ (26,300)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-48
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................... $ (8,188) $ (8,117)
Adjustments to reconcile net loss to net cash used in operating activities--...............
Depreciation and amortization............................................................ 2,488 2,680
Minority interest........................................................................ (172) (2,334)
Allowance for doubtful accounts.......................................................... 259 108
Decrease (increase) in--
Accounts receivable and due from affiliate............................................. (1,548) 757
Inventories............................................................................ 109 (105)
Other current assets................................................................... (60) (97)
Other assets........................................................................... 95 13
Increase (decrease) in--
Accounts payable....................................................................... 1,045 28
Accrued expenses....................................................................... 1,043 1,238
Deferred income........................................................................ 377 357
--------- ---------
Total adjustments.................................................................... 3,636 2,645
--------- ---------
Net cash used in operating activities................................................ (4,552) (5,472)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................................................... (2,202) (1,481)
--------- ---------
Net cash used in investing activities................................................ (2,202) (1,481)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from general partner........................................................ 6,064 7,206
--------- ---------
Net cash provided by financing activities............................................ 6,064 7,206
--------- ---------
Net (decrease) increase in cash...................................................... (690) 253
CASH, beginning of year...................................................................... 780 527
--------- ---------
CASH, end of year............................................................................ $ 90 $ 780
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-49
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION
American Lawyer Media, L.P. (the "Company") is a limited partnership of Time
Warner and Associated Newspapers. The sole general partner of American Lawyer
Media, L.P. is Time Warner. The Company is based in New York and has operations
in seven states and the District of Columbia. The Company publishes THE AMERICAN
LAWYER, CORPORATE COUNSEL MAGAZINE, AMLAW TECH, THE CONNECTICUT LAW TRIBUNE,
LEGAL TIMES, NEW JERSEY LAW JOURNAL, THE RECORDER, TEXAS LAWYER, FULTON COUNTY
DAILY REPORT, and the DAILY BUSINESS REVIEWS, all of which are divisions of the
Company. In addition, the Company consolidates its interest in Counsel Connect,
a New York general partnership. The partnership, which runs a membership-based
internet service exclusively for lawyers and legal professionals, was formed in
February 1994 by Mead Data Central and the Company. In February 1996, Mead Data
Central assigned its interest in the partnership to the Company and also
contributed the balance in its capital account of approximately $1,647,000, to
the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Advertising revenues are generated from the placement of display and
classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications to subscribers. Allowances for estimated doubtful accounts are
provided based upon historical experience.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary revenues consist principally of third-party printing revenues,
newsletter subscriptions, sales of professional books and directories,
Lexis/Nexis royalty income, seminar income, and a daily fax service of court
decisions.
Internet services revenues consist of income earned from COUNSEL CONNECT
subscriptions and usage fees.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
magazine subscriptions received from subscribers.
CIRCULATION PROMOTION (SUBSCRIPTION DIRECT MAIL) COSTS
Circulation promotion costs are charged to expense upon the release of the
campaign.
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.
F-50
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of paper utilized by the Company and its
outside printers and professional books published and sold by the Company.
Inventories are stated at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Significant improvements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Machinery and equipment........................................... 5 years
Buildings......................................................... 25 years
Furniture and fixtures............................................ 5 years
Computer equipment and software................................... 3-5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life. The cost and accumulated depreciation of
property sold or retired are removed from the accounts upon disposition.
INTANGIBLES AND GOODWILL
Intangible assets, consisting primarily of non-compete agreements and
subscription lists, are valued at the appraised market value of the assets at
the date of acquisition, net of accumulated amortization. Intangibles are
amortized over the expected useful lives of the respective assets, ranging from
two to thirteen years. Goodwill represents the excess of purchase price over the
fair value of net assets acquired, less accumulated amortization. Goodwill is
being amortized on a straight-line basis over 40 years.
ACCOUNTS PAYABLE
Included in accounts payable are $1,537,000 and $335,000 of bank overdrafts
as of December 31, 1996 and 1995, respectively.
3. INCOME TAXES
No provision has been made in the accompanying statements of operations for
income taxes since, pursuant to provisions of the Internal Revenue Code, the net
losses appearing on the accompanying statement of operations is reportable by
each of the partners on their individual tax returns.
F-51
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Machinery and equipment.................................................. $ 8,469 $ 7,460
Buildings and improvements............................................... 1,398 1,349
Furniture and fixtures................................................... 763 777
Land..................................................................... 300 300
Automobiles.............................................................. 72 72
--------- ---------
11,002 9,958
Accumulated depreciation and amortization................................ (6,469) (6,309)
--------- ---------
Net property, plant and equipment.................................... $ 4,533 $ 3,649
--------- ---------
--------- ---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has a business relationship with Courtroom Television Network
("Court TV"), an affiliate of the Company's general partner. Revenues are
generated through licensing fees charged to Court TV for editorial content and
sales of advertisements. The licensing fees for American Lawyer publications
were fixed at approximately $255,000 in both 1996 and 1995. Advertising revenues
from Court TV totaled approximately $244,000 and $233,000 for 1996 and 1995,
respectively. In addition, the Company and Court TV share certain editorial and
administrative resources and employees, as well as office facilities. The cost
associated with employees who devote all or a portion of their time to Court TV
activities is charged to Court TV based on an estimate of their time spent on
such activities. These charges, which include an allocation for the chairman of
the Company, amounted to $1,266,000 and $1,309,000 in 1996 and 1995,
respectively. Court TV is also charged a flat annual fee of $195,000 for use of
the Company's reporters for on-camera appearances and background reports.
Finally, an allocation is made to Court TV to cover general overhead costs
(e.g., rent, utilities, etc.) which amounted to approximately $90,000 in both
1996 and 1995. Amounts due from Court TV at December 31, 1996 and 1995 are
reflected as due from affiliate on the accompanying balance sheets.
The Company's general partner provides certain legal, administrative,
accounting, and tax services for the Company. Charges for such services amounted
to approximately $97,000 and $103,000, in 1996 and 1995, respectively.
6. DUE TO GENERAL PARTNER
Due to General Partner consists of borrowings from WCI/AMLAW Inc. and
interest accrued thereon. The borrowings bear interest at 1% under prime and do
not have a stated maturity date. This amount has been included in long-term
liabilities in the accompanying balance sheet since the amount is not intended
to be repaid within the next year.
F-52
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
7. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $1,757,000 and
$1,726,000 for the year ended December 31, 1996 and 1995, respectively,
including rent accruals in excess of payments of $12,000 and $21,000 for the
year ended December 31, 1996 and 1995, respectively.
At December 31, 1996, minimum rental commitments under noncancelable leases
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL SUBLEASE
ESTATE INCOME OTHER TOTAL
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1997.................................................................... $ 3,481 $ (1,560) $ 67 $ 1,988
1998.................................................................... 3,161 (1,443) 70 1,788
1999.................................................................... 3,094 (1,473) 59 1,680
2000.................................................................... 3,087 (1,473) 44 1,658
2001.................................................................... 2,906 (1,473) 33 1,466
2002 and thereafter..................................................... 17,424 (10,823) 5 6,606
--------- ---------- ----- ---------
$ 33,153 $ (18,245) $ 278 $ 15,186
--------- ---------- ----- ---------
--------- ---------- ----- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. An obligation of $12,400,
representing accrued pro rata future payments, net of receipts, is included in
the accompanying balance sheet as of December 31, 1996.
The Company subleases a portion of its office facilities to Court TV. The
sublease charges summarized above are based on an oral agreement between the
Company and Court TV.
The lease for the Company's headquarters contains a provision whereby the
Company could elect not to renew the lease for the years 1999 through 2008 upon
payment of a $2,200,000 termination penalty.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these contingencies is not expected to have
a material adverse effect on the Company's financial position or results of
operations.
8. EMPLOYEE BENEFITS
The Company sponsors a retirement savings plan. Participation in this plan
is available for substantially all employees. The plan provides for employer
matching of employees' contributions, as defined. The cost of the plan for the
years ended December 31, 1996 and 1995, was $308,000 and $310,000, respectively.
The Company sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan.
F-53
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
8. EMPLOYEE BENEFITS (CONTINUED)
The Company also has a defined benefit plan covering substantially all
employees. The Company's general funding policy is to contribute annual amounts
that satisfy the Internal Revenue Code funding requirements. The components of
net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Service cost.......................................................... $ 361,216 $ 324,416
Interest cost on projected benefit obligation......................... 188,428 155,834
Actual return on assets............................................... (260,515) (90,023)
Net amortization and deferral......................................... 178,602 59,568
---------- ----------
$ 467,731 $ 449,795
---------- ----------
---------- ----------
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit plan and amounts recognized in the balance sheet as of December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation......................................... $ 1,756,139 $ 1,414,464
------------ ------------
Accumulated benefit obligation.................................... $ 1,988,235 $ 1,606,773
------------ ------------
Projected benefit obligation...................................... $ 3,031,741 $ 2,547,018
Plan assets at fair value......................................... 1,965,782 1,242,044
------------ ------------
Projected benefit obligation in excess of plan assets............. $ 1,065,959 $ 1,304,974
Unrecognized net gain (loss)...................................... 155,802 (174,550)
Unrecognized net transition obligation............................ (728,462) (788,030)
------------ ------------
Accrued pension liability......................................... $ 493,299 $ 342,394
------------ ------------
------------ ------------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the discount rate was 7.5% as of December 31, 1996 and 1995; the
rate of increase in future compensation levels was 6% as of December 31, 1996
and 1995, and the expected long-term rate of return on assets was 9% as of
December 31, 1996 and 1995.
The Company sponsors a comprehensive medical and dental insurance plan which
is available to substantially all employees. The Company is self insured for
claims submitted under this plan up to predetermined amounts, above which third
party insurance applies.
9. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107--
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and due to general
partner. The carrying amount of these accounts approximates fair value.
F-54
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997
----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................................. $ 286
Accounts receivable, net of allowances for doubtful accounts and sales returns of $717................ 7,248
Inventories, net...................................................................................... 872
Deferred income taxes................................................................................. 3,643
Other current assets.................................................................................. 577
----------
Total current assets.................................................................................. 12,626
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $1,871............. 2,633
INTANGIBLE ASSETS, net of accumulated amortization of $9,332.......................................... 127,325
DEFERRED INCOME TAXES................................................................................. 577
OTHER ASSETS.......................................................................................... 1,572
----------
Total assets.......................................................................................... $ 144,733
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................................................... $ 1,722
Accrued expenses...................................................................................... 2,909
Deferred income (including deferred subscription income of $9,068).................................... 10,016
----------
Total current liabilities............................................................................. 14,647
----------
LONG-TERM DEBT........................................................................................ 66,200
----------
OTHER NONCURRENT LIABILITIES.......................................................................... 1,596
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 125,000 shares authorized; 89,609 shares issued and outstanding......... 1
Paid-in capital....................................................................................... 66,165
Accumulated (deficit)................................................................................. (3,876)
----------
Total stockholders' equity............................................................................ 62,290
----------
Total liabilities and stockholders' equity............................................................ $ 144,733
----------
----------
</TABLE>
The accompanying notes are an integral part of this balance sheet
F-55
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
REVENUES:
Periodicals............................................................................................
Advertising.......................................................................................... $ 6,349
Subscription......................................................................................... 2,314
Ancillary products and services........................................................................ 2,861
Internet services...................................................................................... 271
---------
Total net revenues................................................................................. 11,795
---------
OPERATING EXPENSES:
Editorial.............................................................................................. 1,420
Production and distribution............................................................................ 2,267
Selling................................................................................................ 2,120
General and administrative............................................................................. 2,431
Internet services...................................................................................... 411
Depreciation and amortization.......................................................................... 1,890
---------
Total operating costs and expenses................................................................. 10,539
---------
Operating income................................................................................... 1,256
INTEREST EXPENSE, NET.................................................................................... (1,378)
---------
Loss before income taxes........................................................................... (122)
PROVISION FOR INCOME TAXES............................................................................... (754)
---------
Net loss........................................................................................... $ (876)
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement
F-56
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
--------------- --------- ---------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996................... $ 1 $ 66,165 $ (3,000) $ -- $ 63,166
Net loss..................................... -- -- (876) -- (876)
--
--------- ------- ------ ---------
BALANCE AT MARCH 31, 1997...................... $ 1 $ 66,165 $ (3,876) $ -- $ 62,290
--
--
--------- ------- ------ ---------
--------- ------- ------ ---------
</TABLE>
The accompanying notes are an integral part of this statement
F-57
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................................... $ (876)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization.......................................................................... 1,890
Decrease in deferred income taxes...................................................................... 650
Changes in operating assets and liabilities--
Decrease in accounts receivable.................................................................... 140
(Increase) in inventories.......................................................................... (36)
Decrease in prepaid expenses and other current assets.............................................. 201
(Increase) in other assets......................................................................... (11)
Increase in accounts payable and accrued expenses.................................................. 1,115
Increase in deferred income........................................................................ 868
Increase in other noncurrent liabilities........................................................... 25
---------
Net cash provided by operating activities........................................................ 3,966
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold improvements........................................... (168)
---------
Net cash used in investing activities............................................................ (168)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt..................................................................................... (4,100)
---------
Net cash used in financing activities............................................................ (4,100)
---------
Net decrease in cash and cash equivalents........................................................ (302)
CASH AND CASH EQUIVALENTS, beginning of period........................................................... 588
---------
CASH AND CASH EQUIVALENTS, end of period................................................................. $ 286
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................................................. $ 536
---------
Income taxes......................................................................................... $ --
---------
</TABLE>
The accompanying notes are an integral part of this statement
F-58
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF PRESENTATION
The unaudited financial statements for the three months ended March 31, 1997
have been prepared in accordance with the instructions to Form 10-Q and include,
in the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results of
operations for such periods. They do not, however, include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. For further information, reference is made to
the financial statements for the fiscal year ended December 31, 1996 and the
footnotes related thereto included in the American Lawyer Media Inc.'s 1997
Annual Report on Form 10-K. The results of operations for the three months ended
March 31, 1997 are not necessarily indicative of the results of operations for
the full year.
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.
CONCENTRATIONS OF CREDIT RISK
National Law Publishing Company, Inc.'s ("NLP's") financial instruments that
are exposed to concentration of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. NLP believes it is not exposed to any
significant credit risk related to cash and cash equivalents. Concentrations of
credit risk with respect to trade accounts receivables are, except for amounts
due from legal advertising ad agents ("Legal Ad Agents"), generally limited due
to the large number of customers comprising NLP's customer base. Such Legal Ad
Agents do not have significant liquid net worth and, as a result, NLP is exposed
to a certain level of credit concentration risk in this area, for which NLP
believes it has adequately provided.
REVENUE RECOGNITION
Periodical advertising revenues are generated from the placement of display
and classified advertisements, as well as legal notices, in NLP's publications.
Advertising revenue is recognized upon release of the related publications.
Periodical subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary revenues consist principally of newsletter subscriptions, sales of
professional books, seminar income and income from electronic products. Book
revenues are recognized upon shipment and are reflected net of estimated
returns. Newsletter revenues are recognized on the same basis as subscription
revenues. Seminar revenues are recognized when the seminar is held. Income from
electronic products is recognized monthly as the service is provided.
F-59
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Internet Service revenues consist primarily of revenues from subscriptions
and advertising. Internet subscription income is recognized on a pro-rata basis
over the life of a subscription, generally one year. Internet advertising
revenues are recognized upon the release of an advertisement on the website.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $1,599,000 are included in accounts receivable in
the accompanying consolidated balance sheet.
EXPENSE RECOGNITION
ADVERTISING AND PROMOTION COSTS
Advertising expenditures are expensed when the particular advertisement is
released. The Company capitalizes direct response promotion costs. At March 31,
1997 approximately $1,407,000 of direct response promotional costs was recorded
in other assets on the accompanying consolidated balance sheet. Advertising
expense was approximately $819,000 for the three months ended March 31, 1997.
The amortization of direct response promotion expenditures is included in
selling expense in the accompanying consolidated statement of operations.
EDITORIAL COSTS
All editorial costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
NLP considers time deposits and certificates of deposit with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of professional books published and sold by
NLP and related binding materials utilized. Inventories are stated at the lower
of cost, as determined by the average cost method, or market.
PROPERTY, PLANT AND EQUIPMENT
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Furniture, equipment and purchased
software are depreciated on a straight-line basis over their respective
estimated useful lives. Repairs and maintenance are charged to expense as
incurred. Leasehold improvements are amortized over the lives of the
improvements or the term of the related lease, whichever is shorter.
F-60
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include deferred financing costs with the amortization
and/or write-off of such costs classified as part of amortization expense.
Goodwill represents the excess of purchase price over the fair value of net
assets acquired.
2. LONG-TERM DEBT
On December 1, 1995, NLP entered into a revolving credit facility agreement
(the "Credit Agreement") with The First National Bank of Boston (the "Bank"), as
a lender and as an agent for other lenders, under which NLP Acquisition Co.,
Inc. ("NAI") borrowed $15,674,061 and the New York Law Publishing Company
("NYLP") borrowed $55,225,939 (aggregating $70,900,000) in connection with
Boston Ventures' acquisition of NLP. Upon NAI's merger into NLP, NYLP assumed
the $15,674,061 of Bank debt, in the form of a dividend from NYLP to NLP. NLP's
borrowing capacity under the Credit Agreement, including cash loans and standby
letters of credit of up to $6.0 million, is $74.0 million at March 31, 1997, and
decreases semi-annually to $70.5 million on December 30, 1997. As of March 31,
1997, $66.2 million was outstanding under the Credit Agreement.
The Credit Agreement requires, among other things, that NLP maintain certain
minimum levels of consolidated operating cash flow and certain prescribed ratios
of consolidated funded debt to consolidated operating cash flows, consolidated
operating cash flow to interest expense and consolidated adjusted operating cash
flow to consolidated fixed charges, as defined. The Credit Agreement contains
other restrictive covenants, including limitations on indebtedness, investments
and acquisitions, the disposition of assets, transactions with affiliates and
distributions to stockholders.
F-61
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the National Law Publishing Company, Inc.:
We have audited the accompanying consolidated balance sheet of National Law
Publishing Company, Inc. (a New York corporation) and subsidiaries as of
December 21, 1997 and the related consolidated statement of operations,
stockholders' equity and cash flows for the period from January 1, 1997 through
December 21, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Law Publishing
Company, Inc. and subsidiaries as of December 21, 1997, and the results of their
operations and their cash flows for the period from January 1, 1997 through
December 21, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
April 3, 1998
F-62
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 21, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 584
Accounts receivable, net of allowances for doubtful accounts and sales returns
of $1,014..................................................................... 7,402
Inventories, net................................................................ 1,010
Deferred income taxes........................................................... 800
Other current assets............................................................ 741
---------
Total current assets........................................................ 10,537
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of
$2,250.......................................................................... 2,544
INTANGIBLE ASSETS, net of accumulated amortization of $14,306..................... 122,351
DEFERRED INCOME TAXES............................................................. 2,934
OTHER ASSETS...................................................................... 1,244
---------
Total assets................................................................ $ 139,610
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 1,522
Accrued expenses................................................................ 1,674
Deferred income (including deferred subscription income of $9,041).............. 9,545
---------
Total current liabilities................................................... 12,741
---------
LONG-TERM DEBT.................................................................... 59,500
DEFERRED INCOME TAXES............................................................. 926
---------
OTHER NONCURRENT LIABILITIES...................................................... 1,661
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 125,000 shares authorized; 89,609 shares issued
and outstanding............................................................... 1
Paid-in capital................................................................. 72,993
Accumulated (deficit)........................................................... (8,212)
---------
Total stockholders' equity................................................ 64,782
---------
Total liabilities and stockholders' equity................................ $ 139,610
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet
F-63
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUES:
<S> <C>
Periodicals......................................................................
Advertising.................................................................... $ 26,402
Subscription................................................................... 9,504
Ancillary products and services.................................................. 13,926
Internet services................................................................ 1,109
---------
Total net revenues......................................................... 50,941
---------
OPERATING EXPENSES:
Editorial........................................................................ 5,837
Production and distribution...................................................... 9,872
Selling.......................................................................... 8,211
General and administrative....................................................... 8,722
Internet services................................................................ 1,657
Depreciation and amortization.................................................... 7,283
Special compensation charge...................................................... 6,926
---------
Total operating costs and expenses......................................... 48,508
---------
Operating income........................................................... 2,433
INTEREST EXPENSE, NET.............................................................. (5,137)
---------
Loss before income taxes................................................... (2,704)
PROVISION FOR INCOME TAXES......................................................... (2,508)
---------
Net loss................................................................... $ (5,212)
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement
F-64
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............................ $ 1 $ 66,165 $ (3,000) $ -- $ 63,166
Contribution from Stockholder......................... 6,828 6,828
Net loss for the period from January 1, 1997 through
December 21, 1997................................... -- -- (5,212) -- (5,212)
----------- ----------- ------------ ----------- ---------
BALANCE AT DECEMBER 21, 1997............................ $ 1 $ 72,993 $ (8,212) $ -- $ 64,782
----------- ----------- ------------ ----------- ---------
----------- ----------- ------------ ----------- ---------
</TABLE>
The accompanying notes are an integral part of this statement
F-65
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss........................................................................ $ (5,212)
Adjustments to reconcile net loss to net cash provided by operating activities--
Depreciation and amortization................................................. 7,283
Decrease in deferred income taxes............................................. 1,134
Special compensation charges.................................................. 6,828
Changes in operating assets and liabilities--.................................
(Increase) in accounts receivable........................................... (405)
(Increase) in inventories................................................... (174)
Decrease in prepaid expenses and other current assets....................... 37
Decrease in other assets.................................................... 317
(Decrease) in accounts payable and accrued expenses......................... (320)
Increase in deferred income................................................. 788
Increase in other noncurrent liabilities.................................... 1,016
---------
Net cash provided by operating activities................................. 11,292
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold improvements, net of loss on
disposal of fixed assets of $19............................................... (496)
---------
Net cash used in investing activities..................................... (496)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt.............................................................. (10,800)
---------
Net cash used in financing activities..................................... (10,800)
---------
Net decrease in cash and cash equivalents................................. (4)
CASH AND CASH EQUIVALENTS, beginning of period.................................... 588
---------
CASH AND CASH EQUIVALENTS, end of period.......................................... $ 584
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest...................................................................... $ 5,528
Income taxes.................................................................. 341
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement
F-66
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 21, 1997
1. ORGANIZATION
The National Law Publishing Company, Inc. ("National") through its wholly
owned operating subsidiary, New York Law Publishing Company, Inc. ("NYLP" or the
"Company") is considered a leading publisher of periodicals, books and
newsletters as well as a provider of seminars and electronic information
services targeted to the U.S. legal community. NYLP's principal periodical
publications are the New York Law Journal (a daily newspaper), The National Law
Journal (a weekly publication) and Law Technology Product News (published
approximately fifteen times per year). NYLP also wholly owns Law Journal EXTRA!,
Inc. ("LJX"). LJX is an on-line service available on the World Wide Web
providing access to various legal information and related services including
electronic versions of NYLP's principal periodicals.
On December 1, 1995, Boston Ventures Limited Partnership IV and Boston
Ventures Limited Partnership IVA (collectively "Boston Ventures"), through a
wholly-owned subsidiary, NLPC Acquisition, Inc. ("NAI"), acquired approximately
71,308 shares of National's common stock from Apollo Publishing Partners, L.P.
("Apollo") and James A. Finkelstein ("Finkelstein"), the chief executive of the
Company, and initiated a series of related transactions which resulted in Boston
Ventures acquiring approximately 94.3% of National for $141,958,454 in cash plus
acquisition related costs of $757,000.
In addition, on December 1, 1995, NAI was merged into National, with
National as the surviving corporation. In connection with the merger, Boston
Ventures received 60,916.5954 shares of National's common stock (approximately
94.3% of National's outstanding stock) in exchange for its shares of NAI.
Finkelstein retained 3,691.9149 shares of National, approximately 5.7% of its
outstanding stock. In addition, under a related stock option agreement,
Finkelstein was granted options to acquire up to an additional 6,461 shares of
National which vest, subject to certain employment and operating performance
criteria, over a five year period (Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company believes it is not exposed to any significant credit
risk related to cash and cash equivalents. Concentrations of credit risk with
respect to trade accounts receivable are, except for amounts due from legal
advertising ad agents ("Legal Ad Agents"), generally limited due to the large
number of customers comprising the Company's customer base. Such Legal Ad Agents
do not have significant liquid net worth and, as a result, the Company is
exposed to a certain level of credit concentration risk in this area, which the
Company believes it has adequately provided for.
F-67
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Advertising revenues are generated from the placement of display and
classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications to subscribers.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary revenues consist principally of newsletter subscriptions, sales of
professional books, software, royalty income and seminar income.
Internet services revenues are recognized upon the release of an
advertisement on the website.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of $734,000 are included in accounts receivable in the accompanying
consolidated balance sheet.
EXPENSE RECOGNITION
ADVERTISING AND PROMOTION COSTS--Advertising expenditures are expensed when
the particular advertisement is released. The Company capitalizes direct
response promotional costs. At December 21, 1997 approximately $1,152,000 of
direct response promotional costs was recorded in other assets on the
accompanying consolidated balance sheet. Advertising expense was approximately
$3,018,000 for the period ended December 21, 1997. The amortization of direct
response promotion expenditures is included in selling expense in the
accompanying consolidated statements of operations.
EDITORIAL COSTS--All editorial costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of professional books published and sold by
the Company and related binding materials utilized. Inventories are stated at
the lower of cost, as determined by the average cost method, or market.
PROPERTY, PLANT AND EQUIPMENT
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Furniture, equipment and purchased
software are depreciated on a straight-line basis over their respective
estimated useful lives. Repairs and maintenance are charged to expense as
incurred. Leasehold improvements are amortized over the lives of the
improvements or the term of the related lease, whichever is shorter.
F-68
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include deferred financing costs with the amortization
and/or write-off of such costs classified as part of amortization expense.
Goodwill represents the excess of purchase price over the fair value of net
assets acquired.
3. PROPERTY, PLANT AND EQUIPMENT, NET
The following is a summary of property, plant and equipment at December 21,
1997:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
(IN THOUSANDS) LIVES
--------------- ---------------
<S> <C> <C>
Computer equipment and purchased software.................... $ 2,971 6 years
Furniture and office equipment............................... 1,210 5 to 9 years
Leasehold improvements....................................... 613 7 to 10 years
------
4,794
Less-accumulated depreciation and amortization............... (2,250)
------
$ 2,544
------
------
</TABLE>
4. INTANGIBLE ASSETS, NET
The following is a summary of intangible assets at December 21, 1997:
<TABLE>
<CAPTION>
(IN AMORTIZATION
THOUSANDS) PERIODS
------------- ------------
<S> <C> <C>
Goodwill........................................................ $ 135,519 20 years
Deferred financing costs........................................ 1,138 7 years
-------------
136,657
Less-accumulated amortization................................... (14,306)
-------------
$ 122,351
-------------
-------------
</TABLE>
Total amortization expense of intangibles was approximately $6,709,000 for
the period ended December 21, 1997.
5. LONG-TERM DEBT
Long-term debt was comprised of the following at December 21, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Revolving credit facilities................................................... $ 59,500
Less-current portion of revolving credit facilities reduction amount.......... --
-------
$ 59,500
-------
-------
</TABLE>
F-69
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
5. LONG-TERM DEBT (CONTINUED)
REVOLVING CREDIT FACILITIES
On December 1, 1995, the Company entered into a revolving credit facility
agreement (the "Credit Agreement") with The First National Bank of Boston (the
"Bank"), as a lender and as agent for other lenders, under which NAI borrowed
$15,674,061 and NYLP borrowed $55,225,939 (aggregating $70,900,000) in
connection with Boston Ventures' acquisition of the Company. Upon NAI's merger
into National, NYLP assumed the $15,674,061 of Bank debt, in the form of a
dividend from NYLP to National. The Company's borrowing capacity under the
revolving credit facility, including cash loans and standby letters of credit of
up to $6 million, was $70.5 million through December 21, 1997, and decreases
semi-annually until final maturity on December 31, 2002 as follows:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
January 1, 1998 through June 29, 1998......................................... $ 67,000
June 30, 1998 through December 30, 1998....................................... 63,250
December 31, 1998 through June 29, 1999....................................... 59,500
June 30, 1999 through December 30, 1999....................................... 55,250
December 31, 1999 through June 29, 2000....................................... 51,000
June 30, 2000 through December 30, 2000....................................... 45,750
December 31, 2000 through June 29, 2001....................................... 40,500
June 30, 2001 through December 30, 2001....................................... 33,750
December 31, 2001 through June 29, 2002....................................... 27,000
June 30, 2002 through final maturity date..................................... 19,000
Final maturity date (December 31, 2002)
</TABLE>
Available borrowings under this facility are further limited by the sum of
(a) the Company's letter of credit exposure and (b) certain stipulated
percentages of excess cash flow based on the ratio of the Company's consolidated
funded debt to consolidated operating cash flow, as defined. Outstanding
borrowings under the facility bear interest at a fluctuating rate, subject to
the Company's elected pricing option, at either the Base Rate, Eurodollar Rate,
and/or CD Rate, plus a variable margin based on the Company's ratio of
consolidated funded debt to consolidated operating cash flow, as defined. The
interest rate under this revolving credit facility approximated 8.0% for the
period ended December 21, 1997. Commitment fees are charged and payable
quarterly at either a .375% or .500% annual rate, depending on the Company's
ratio of consolidated funded debt to consolidated operating cash flow for the
immediately preceding quarter (the "Quarterly Funded Debt Ratio") and on the
average daily unused portion of the revolving credit facility. In addition,
letter of credit usage fees are payable at rates which range between 1.25% and
2.5% depending on the Quarterly Funded Debt Ratio and on the daily letter of
credit exposure during the three month period or portion thereof ending on such
payment date. The revolving credit facility is secured by the assets of National
and NYLP and the stock of NYLP and its subsidiaries.
The Credit Agreement requires, among other things, that the Company maintain
certain minimum levels of consolidated operating cash flow and certain
prescribed ratios of consolidated funded debt to consolidated operating cash
flows, consolidated operating cash flow to interest expense and consolidated
adjusted operating cash flow to consolidated fixed charges, as defined. The
Credit Agreement contains other restrictive covenants, including limitations on
indebtedness, investments and acquisitions, the disposition of assets,
transactions with affiliates and distributions to stockholders.
F-70
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
5. LONG-TERM DEBT (CONTINUED)
The Agreement provides that within 10 days after the Eurodollar Basic Rate
for three month Eurodollar Pricing Options first exceeds 5.875% per annum, the
Company will obtain and thereafter keep in effect one or more interest rate
protection agreements covering a notional amount of at least 50% of the
outstanding borrowings under the revolving credit facility for an aggregate
period of not less than two years.
6. INCOME TAXES
National and its subsidiaries file a consolidated Federal and combined New
York State and New York City income tax returns. NYLP also files income tax
returns in California and the District of Columbia. At December 21, 1997,
National had a net operating loss carryforwards available to offset future
taxable income for Federal income tax purposes of approximately $2.0 million.
These carryforwards expire in the years 2004 through 2010 and, as a result of
the change in ownership described in Note 1, are subject to the limitations of
Internal Revenue Code Section 382. At December 21, 1997, National had
approximately $75,000 of operating loss carryforwards for New York State and New
York City income tax purposes.
The provision for income taxes is comprised of the following for the period
from January 1, 1997 to December 21, 1997:
<TABLE>
<S> <C>
Current--
Federal.......................................................... $ 1,830
State and local.................................................. 610
---------
$ 2,440
---------
Deferred--
Federal.......................................................... 50
State and local.................................................. 18
---------
$ 68
---------
$ 2,508
---------
---------
</TABLE>
The reconciliation between the provision for income taxes and the amount
computed by applying the statutory Federal income tax rate to loss before income
taxes is as follows for the period from January 1, 1997 to December 21, 1997:
<TABLE>
<S> <C>
Federal statutory income taxes...................................... $ (947)
Permanent differences (principally goodwill amortization)........... 2,391
State and local income taxes, net of Federal benefit................ 352
Other............................................................... 712
---------
$ 2,508
---------
---------
</TABLE>
F-71
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS
In connection with and as a condition of Boston Ventures' acquisition, the
Company entered into a stock option agreement (the "Agreement") with Finkelstein
which, subject to certain terms and conditions of the Agreement, granted
Finkelstein an option to purchase an aggregate of approximately 6,461 shares of
National's common stock. One-third of the shares covered by the option vest and
become exercisable in 60 equal installments of approximately 36 shares on the
last day of each month commencing on January 31, 1996 and continuing until
December 31, 2000. The remaining shares vest and become exercisable, subject to
the Company's attainment of two separate annual operating cash flow targets, as
defined, in equal annual installments of approximately 431 shares or
approximately 862 shares, respectively (if such respective operating cash flow
targets are reached), on December 31, 1996 through 2000 or upon sale, subject to
achieving certain performance targets. The vesting of all shares is generally
subject to Finkelstein being employed by the Company on such dates. The shares
are exercisable at a price of approximately $1,083 per share and expire on the
tenth anniversary date of the Agreement.
STOCKHOLDERS' AGREEMENT
On December 1, 1995, Boston Ventures, National and Finkelstein entered into
a stockholders' agreement which, among other things, allows Finkelstein, upon
the nonrenewal of his employment, as defined in his employment agreement to
require the Company to purchase all of his shares and liquidate and cash out his
vested option shares for fair value. The Company's obligation to acquire
Finkelstein's shares is subject to it being permitted by the Credit Agreement
and applicable law to do so. In addition, the stockholders' agreement gives the
Company, along with Boston Ventures, the right of first refusal with respect to
Finkelstein's shares.
8. RETIREMENT PLANS
The Company has a 401(k) profit sharing plan (the "Plan") for all eligible
employees who have completed one year of service. Under the Plan, the Company
has the option of making a matching contribution of up to 3% of a participant's
compensation. The Company may also annually contribute additional discretionary
amounts to participants. For the period ended December 21, 1997, the Company did
not make any matching discretionary contributions to the Plan.
In addition, approximately twenty Company employees are covered by certain
defined contribution retirement plans sponsored by the Typographical Union.
Company contributions to these retirement plans for the period ended December
21, 1997 were approximately $474,000.
F-72
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space under non-cancelable operating leases which
expire at various dates through October 2008. At December 21, 1997, the future
minimum payments due under these leases, net of sublease income are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
1998.......................................................................... 1,093
1999.......................................................................... 1,173
2000.......................................................................... 1,177
2001.......................................................................... 1,177
Thereafter.................................................................... 8,611
-------
$ 13,231
-------
-------
</TABLE>
Rent expense, net of sublease income, was approximately $1,153,000 for the
period ended December 21, 1997.
At December 21, 1997, the Company had a letter of credit outstanding of
approximately $533,000 for the security deposit on its corporate office space.
EMPLOYMENT AGREEMENT
In connection with Boston Ventures' December 1, 1995 acquisition of the
Company, Finkelstein entered into a long-term employment agreement (the
"Employment Agreement") with the Company. The initial term of the Employment
Agreement is through December 31, 2000 and provides for, among other things, an
annual base salary which, beginning on June 30, 1996, and annually thereafter,
is to be increased by the greater of (i) 5% or (ii) the annual increase in the
consumer price index for all urban consumers not in excess of 8%.
LEGAL MATTERS
The Company is subject to certain legal actions and complaints that arise in
the ordinary course of its business. In the opinion of management, the amount of
the ultimate liability, if any, which may result from these legal actions and
complaints will not materially affect the consolidated financial statements of
the Company.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. These financial instruments consist of cash and cash
equivalents, long-term debt and interest rate protection agreements. The Company
estimates that the fair value of all financial instruments at December 21, 1997
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying consolidated balance sheet.
F-73
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
11. SUBSEQUENT EVENT
On December 22, 1997, Boston Ventures and Mr. James A. Finkelstein completed
a Stock Purchase Agreement with American Lawyer Media, LLC for the sale of NLP.
The purchase price for the NLP acquisition was approximately $203,200,000 in
cash. In connection with the sale of the Company, Boston Ventures cashed out
options held by certain management employees with a portion of the proceeds of
the sale. The payment totaled approximately $6,926,000 which is included as a
special compensation charge in the accompanying consolidated statement of
operations (see Note 7).
F-74
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
National Law Publishing Company, Inc.
We have audited the consolidated balance sheets of National Law Publishing
Company, Inc. (the "Company") as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1, the Company's 1995 consolidated financial
statements, effective December 1, 1995, reflect the push down accounting effects
of Boston Ventures' acquisition cost for the Company. The consolidated financial
statements for the eleven month period prior to December 1, 1995 do not reflect
the push down accounting effects of the acquisition cost basis of the Company's
former stockholders.
LESLIE SUFRIN AND COMPANY, P.C.
New York, New York
February 19, 1997, except as to Note 7
which date is March 27, 1997
F-75
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 588 $ 101
Accounts receivable, net of allowances for doubtful accounts and sales returns of
$1,086 in 1996 and $1,159 in 1995................................................... 6,997 6,496
Inventories, net...................................................................... 836 784
Deferred tax benefits (Note 9)........................................................ 4,293 3,208
Prepaid expenses and other current assets............................................. 778 860
----------- -----------
Total current assets.............................................................. 13,492 11,449
Furniture, equipment and leasehold improvements, net (Note 4)........................... 2,621 2,664
Intangible assets, net (Note 5)......................................................... 129,060 134,738
Deferred tax benefits (Note 9).......................................................... 577 4,354
Other assets (Note 6)................................................................... 1,561 920
----------- -----------
$ 147,311 $ 154,125
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................................. $ 3,516 $ 4,253
Current portion of long-term debt..................................................... 3,300 --
Due to stockholder (Note 7)........................................................... -- 5,000
Deferred revenue...................................................................... 8,757 6,913
----------- -----------
Total current liabilities......................................................... 15,573 16,166
Long-term debt (Note 7)................................................................. 67,000 70,900
Other non-current liabilities........................................................... 1,571 1,439
Commitments and contingencies
Stockholders' equity (Note 10):
Common stock, $.01 par value; 125,000 shares authorized; 89,609 shares issued and
outstanding......................................................................... 1 1
Additional paid-in capital............................................................ 66,165 66,165
Accumulated (deficit)................................................................. (2,999) (546)
----------- -----------
Total stockholders' equity........................................................ 63,167 65,620
----------- -----------
$ 147,311 $ 154,125
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-76
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
REVENUES:
Periodicals
Advertising............................................................................... $ 23,319 $ 21,387
Subscription.............................................................................. 9,759 9,694
Ancillary products and services............................................................. 13,398 12,729
Internet services........................................................................... 747 264
--------- ---------
Total net revenues.................................................................... 47,223 44,074
--------- ---------
OPERATING COSTS AND EXPENSES:
Editorial................................................................................. 5,929 5,778
Production and distribution............................................................... 8,679 8,146
Selling................................................................................... 8,991 9,776
General and administrative................................................................ 8,047 7,620
Internet services......................................................................... 1,704 2,947
Depreciation and amortization............................................................. 7,487 6,329
--------- ---------
Total operating costs and expenses.................................................... 40,837 40,596
--------- ---------
Operating income........................................................................ 6,386 3,478
INTEREST EXPENSE, NET....................................................................... (6,013) (5,458)
OTHER INCOME (EXPENSE)(Note 11)............................................................. 181 (211)
--------- ---------
Total other (expense)................................................................. (5,832) (5,669)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES........................................................... 554 (2,191)
(PROVISION) BENEFIT FOR INCOME TAXES (Note 9)............................................... (3,007) 523
--------- ---------
NET (LOSS).................................................................................. $ (2,453) $ (1,668)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-77
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
------------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995................................... $ 1 $ 2,261 $ (35,910) $ (11,194) $ (44,842)
Elimination of accumulated deficit and treasury stock at
December 1, 1995 resulting from Boston Ventures'
acquisition of approximately 94.3% of the Company (Note
1)....................................................... -- (48,226) 37,032 11,194 --
Fair value and other adjustments related to Boston
Ventures' acquisition.................................... -- 112,130 -- -- 112,130
Net (loss) for the year ended December 31, 1995............ -- -- (1,668) -- (1,668)
--
----------- ------------ ---------- ----------
Balance, December 31, 1995................................. 1 66,165 (546) -- 65,620
Net (loss) for the year ended December 31, 1996............ -- -- (2,453) -- (2,453)
--
----------- ------------ ---------- ----------
Balance, December 31, 1996................................. $ 1 $ 66,165 $ (2,999) $ -- $ 63,167
--
--
----------- ------------ ---------- ----------
----------- ------------ ---------- ----------
</TABLE>
See accompanying notes.
F-78
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)................................................................................... $ (2,453) $ (1,668)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and amortization.............................................................. 7,487 6,329
Provision for deferred rent................................................................ 136 238
Deferred income taxes...................................................................... 2,692 (546)
Loss on disposal of fixed assets........................................................... 9 --
Changes in operating assets and liabilities:
(Increase) in accounts receivable........................................................ (335) (247)
(Increase) in inventories................................................................ (52) (104)
(Increase) decrease in prepaid expenses and other current assets......................... 82 (189)
(Increase) in other assets............................................................... (641) (899)
Increase (decrease) in accounts payable and accrued expenses............................. (737) 965
Increase (decrease) in deferred revenue.................................................. 432 (178)
(Decrease) in other non current liabilities.............................................. (4) (11)
--------- ---------
Net cash provided by operating activities.............................................. 6,616 3,690
--------- ---------
Cash flows from investing activities:
Additions to furniture, equipment and leasehold improvements............................... (512) (608)
Additions to intangible assets............................................................. (17) --
--------- ---------
Net cash (used in) investing activities................................................ (529) (608)
--------- ---------
Cash flows from financing activities:
Payments on line of credit................................................................. (8,524) (44,600)
Payment of stockholder debt................................................................ (5,000) --
Proceeds from line of credit............................................................... 7,924 --
Payment of deferred financing costs........................................................ -- (1,138)
Payment of acquisition costs............................................................... -- (2,839)
Payment of subordinated debt............................................................... -- (10,000)
Issuance of long-term debt................................................................. -- 70,900
Purchase of stock, warrants and options.................................................... -- (15,674)
--------- ---------
Net cash (used in) financing activities................................................ (5,600) (3,351)
--------- ---------
Net increase (decrease) in cash and cash equivalents........................................... 487 (269)
Cash and cash equivalents--beginning of year................................................... 101 370
--------- ---------
Cash and cash equivalents--end of year......................................................... $ 588 $ 101
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................................................. $ 6,198 $ 5,303
--------- ---------
--------- ---------
Income taxes............................................................................. $ 117 $ 91
--------- ---------
--------- ---------
Supplemental disclosure of non cash activities:
Issuance of Note payable to stockholder in connection with the acquisition of a portion of
such stockholder's common stock on December 1, 1995 (Notes 1 and 7)....................... $ -- $ 5,000
--------- ---------
--------- ---------
Push-down of acquisition cost in excess of fair value of net assets acquired resulting in
an increase of stockholders' equity....................................................... $ -- $ 45,964
--------- ---------
--------- ---------
Purchase price adjustment related principally to the revaluation of deferred subscription
income at the acquisition date resulting in a corresponding increase to goodwill.......... $ 1,246 $ --
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-79
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION, NATURE OF BUSINESS AND CHANGE IN OWNERSHIP
The National Law Publishing Company, Inc. ("National") through its wholly
owned operating subsidiary, New York Law Publishing Company, Inc. ("NYLP") is a
leading publisher of periodicals, books and newsletters as well as a provider of
seminars and electronic information services targeted to the U.S. legal
community. NYLP's principal periodical publications are NEW YORK LAW JOURNAL (a
daily newspaper), THE NATIONAL LAW JOURNAL (a weekly publication) and LAW
TECHNOLOGY PRODUCT NEWS (published 12 times per year). NYLP also wholly owns Law
Journal EXTRA!, Inc. ("LJX"). LJX is an online service available on the World
Wide Web providing access to various legal information and related services
including electronic versions of NYLP's principal periodicals. In addition to
NYLP, National also owns all outstanding shares of PPC Publishing Corporation
("PPC"), whose sole asset is 25,000 shares of National's common stock. National
and its subsidiaries are collectively referred to as the "Company".
On December 1, 1995, Boston Ventures Limited Partnership IV and Boston
Ventures Limited Partnership IVA (collectively, "Boston Ventures"), through a
wholly-owned subsidiary, NLPC Acquisition, Inc. ("NAI"), acquired approximately
71,308 shares of National's common stock from Apollo Publishing Partners, L.P.
("Apollo") and James A. Finkelstein ("Finkelstein"), the chief executive of the
Company, and initiated a series of related transactions which resulted in Boston
Ventures acquiring approximately 94.3% of National for $141,958,454 in cash plus
acquisition related costs of $757,000. The following summarizes the series of
transactions which have been accounted for as acquisition related:
<TABLE>
<C> <S> <C>
(i) Purchase by NAI of 71,308.0851 shares of National stock (65,000 and
6,308.0851 shares acquired from Apollo and Finkelstein, respectively).... $77,258,645
(ii) Cash settlement and cancellation of a Finkelstein stock option and Apollo
stock warrant of 9,756 shares and 1,407 shares, respectively............. 9,415,417
(iii) Payment of NYLP bank debt and related accrued interest................... 43,083,087
(iv) Payment of National 13% subordinated notes and related accrued
interest................................................................. 10,119,167
(v) Payment of certain agreed upon transaction related expenses incurred by
the Company on behalf of Apollo and Finkelstein.......................... 2,082,138
-----------
$141,958,454
-----------
-----------
</TABLE>
In addition, on December 1, 1995, NAI was merged into National, with
National as the surviving corporation. In connection with the merger, Boston
Ventures received 60,916.5954 shares of National's common stock (approximately
94.3% of National's outstanding stock) in exchange for its shares of NAI.
Finkelstein retained 3,691.9149 shares of National, approximately 5.7% of its
outstanding stock. In addition, under a related stock option agreement,
Finkelstein was granted options to acquire up to an additional approximate 6,461
shares of National which vest, subject to certain employment and operating
performance criteria, over a five year period (See Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of National and
its direct and indirect wholly-owned subsidiaries. As a result of the
acquisition by Boston Ventures of approximately 94.3% of National's common stock
on December 1, 1995, the Company's assets and liabilities were adjusted to fair
value under what is commonly referred to as push down accounting. Since the fair
value of the Company's
F-80
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
tangible net assets approximated book value, the effect of applying push down
accounting has been to record goodwill and to adjust stockholders' equity
(deficiency) on that date to reflect Boston Ventures' acquisition cost.
Finkelstein's continuing interest in the Company has been reflected at its
historical cost basis and not at its $4 million stipulated fair value at the
time of Boston Ventures' acquisition. Had the Company made adjustments to "push
down" Finkelstein's approximate 5.7% interest at its stipulated fair value, the
Company's intangible assets and stockholders' equity at December 31, 1995 would
have each increased by $3,818,000 and its 1995 amortization expense and net loss
would have each increased by $16,000.
The Company's results of operations for the eleven months ended November 30,
1995 do not include push down accounting adjustments reflecting Apollo's and
Finkelstein's respective costs bases in the Company.
The consolidated statements of operations for 1995 reflects the Company's
consolidated results of operations for (i) the eleven months ended November 30,
1995 (the "Predecessor Period") determined without regard to the effects of push
down accounting and (ii) the month of December 1995 (the "Successor Period")
which reflects the effects of such push down accounting. The consolidated
results of operations for the Successor Period and Predecessor Periods are
summarized in Note 15.
All significant intercompany items and transactions have been eliminated in
consolidation.
B) USE OF ESTIMATES
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles and, accordingly,
include certain amounts that are based, in part, on management's best estimates
and judgments. These estimates and judgments affect the reported amounts of
assets and liabilities and the amount of reported revenues and expenses. Actual
results could differ from these estimates and judgments.
C) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased
with an original maturity of three months or less to be cash equivalents.
D) CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company's cash and cash equivalent balances are principally
maintained with one financial institution. At times, such balances may be in
excess of Federally insured limits; however, the Company believes it is not
exposed to any significant credit risk in this area. Concentrations of credit
risk with respect to trade accounts receivable are, except for amounts due from
legal advertising ad agents ("Legal Ad Agents"), generally limited due to the
large number of customers comprising the Company's customer base. Approximately
$8.4 million in 1996 and $7.6 million in 1995 of advertising revenues relate to
legal advertising in New York Law Journal. A significant portion of such revenue
is generated through Legal Ad Agents. Such Legal Ad Agents do not have
significant liquid net worth, and, as a result, the Company is exposed to a
certain level of credit concentration risk in this area, which it believes it
has adequately provided for.
F-81
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During 1995, the Company determined that its provisions for doubtful
accounts with respect to revenues recognized in years prior to 1995, principally
with respect to its legal advertising revenues, should be increased by $946,000
due to, among other things, the concentration of credit risk associated with
Legal Ad Agents. This additional provision for doubtful accounts has been
included in selling expense in the accompanying 1995 consolidated statements of
operations.
The Company's recurring provision for doubtful accounts, which is based on a
review of its customer accounts, is included in selling and shipping expense in
the accompanying consolidated statements of operations.
E) INVENTORIES
Inventories, consisting of book texts and related binding materials, are
stated at the lower of cost or market, after appropriate reserves for obsolete
inventories. Cost is determined by the average cost method.
F) FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Furniture, equipment and purchased
software are depreciated on a straight-line basis over their respective
estimated useful lives. Repairs and maintenance are charged to expense as
incurred. Leasehold improvements are amortized over the lives of the
improvements or the term of the related lease, whichever is shorter.
G) INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization.
Intangible assets are amortized on a straight-line basis over their respective
useful lives. Intangible assets include deferred financing costs with the
amortization and/or write-off of such costs classified as part of amortization
expense rather than as interest expense. Goodwill represents the excess of
purchase price over the fair value of net assets acquired, including, beginning
on December 1, 1995, the push down accounting effects attributable to the Boston
Ventures' acquisition of the Company (See Note 1). The Company periodically
assesses the recoverability of goodwill by determining whether the amortization
of goodwill over its estimated remaining life can be recovered through projected
undiscounted future consolidated operating cash flows. The amount of goodwill
impairment, if any, is charged to operations at the time impairment is
determined by management. At December 31, 1996 and 1995, management determined
that there was no impairment of goodwill.
H) SOFTWARE DEVELOPMENT COSTS
The Company capitalizes directly related software development costs incurred
from the period technological feasibility is established until the product is
ready for release. Amounts capitalized are amortized over the estimated useful
life of the product and are evaluated by management, as to recoverability, based
upon whether the estimated future undiscounted net cash flows from the product
are sufficient to fully recover the unamortized remaining book value related to
such product.
F-82
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I) REVENUE AND COST RECOGNITION
REVENUES:
(i) ADVERTISING--Advertising revenues are recognized, net of related
advertising agency commissions, on the date publications are released for
sale. Revenues billed and/or received for advertisements to be released in
future months are included in deferred revenue.
(ii) SUBSCRIPTIONS--Sales of publication subscriptions are deferred and
recognized as revenues over the term of the related subscriptions,
principally one year.
(iii) BOOKS AND RELATED UPDATES--Revenues are recognized upon shipment
date and are reflected net of estimated returns.
(iv) SEMINARS--Seminar revenues are recognized when the seminar is held.
COST AND EXPENSES:
(i) ADVERTISING AND PROMOTION COSTS--Advertising expenditures are
expensed when the particular advertisement is released. Beginning in 1995,
direct response promotion costs are capitalized, subject to a net
recoverability evaluation, and amortized, on a straight-line basis, over
their estimated future benefit period. The amortization of direct response
promotion expenditures is included in selling and shipping expense in the
accompanying consolidated statements of operations. Prior to 1995, direct
response promotional costs were expenses upon advertisement and/or promotion
release date (See Note 3).
(ii) EDITORIAL COSTS--All editorial costs are expensed as incurred.
(iii) RENT EXPENSE--In accordance with generally accepted accounting
principles, rent expense reflects the straight-line amortization, over the
terms of the respective leases, of scheduled rent payments over such lease
terms. The excess of recognized rent expense over rent payments made to date
is included in the accompanying consolidated sheets as a deferred rent
obligation, included as part of other non current liabilities.
(iv) BARTER REVENUE AND EXPENSES--Revenue from barter transactions
(advertising space provided in exchange for goods and/or services) is
recognized as income when the advertisement is run. Costs and expenses
related to barter transactions are recognized when the merchandise and/or
service is received. Barter revenue and barter expense is reflected net in
the accompanying consolidated statements of operations.
J) INTEREST EXPENSE
Interest expense includes letter of credit usage and commitment fees and
excludes the amortization and/or other charges related to deferred financing
costs. With respect to interest rate swap agreements, the differential to be
paid or received is accrued as interest rates change and is recognized as an
adjustment to interest expense.
K) INCOME TAXES
The Company, for financial statement purposes, reports certain items of
income and expense in periods different from when such items are reported for
income tax purposes. The principal differences relate to the timing and
deductibility of bad debt allowances and book returns, the capitalization of
certain direct response promotional and inventory costs, depreciation of fixed
assets, and the straight-line expense recognition of office space rentals.
Deferred income tax assets and liabilities are computed annually for
F-83
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
differences between the financial statement and income tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. In addition, the tax benefit
related to net operating loss carryforwards and alternative minimum tax ("AMT")
credit carryforwards are reflected as deferred tax assets when the realization
of such tax benefit is more likely than not. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. Income tax expense for a particular period is equal to
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
L) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with the current year presentation.
3. DIRECT RESPONSE PROMOTIONAL COSTS
Effective January 1, 1995, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 93-7. "Reporting on
Advertising Costs" (the "SOP"). The statement requires, among other things, that
direct response advertising costs, whose primary purpose is to elicit sales to
customers, be reported as an asset and amortized over the estimated period of
future benefit. Under the Company's previous accounting policy, promotional and
subscription acquisition costs were capitalized prior to the launching of a
direct marketing or subscription acquisition campaign and then expensed when the
promotional materials were mailed.
At December 31, 1996 and 1995, approximately $1,203,000 and $583,000 of
direct response promotional costs, net of accumulated amortization of $1,255,000
in 1996 and $224,000 in 1995 was recorded in other assets on the accompanying
consolidated balance sheet. Advertising expense was approximately $2,707,000 for
1996 and $2,826,000 for 1995.
4. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
The following is a summary of furniture, equipment and leasehold
improvements at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- ESTIMATED
1996 1995 USEFUL LIVES
--------- --------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS)
Computer equipment and purchase software................ $ 2,558 $ 2,171 6 years
Furniture and office equipment.......................... 1,187 1,082 5 to 9 years
Leasehold improvements.................................. 589 579 7 to 10 years
--------- ---------
4,334 3,832
Less accumulated depreciation and amortization.......... (1,713) (1,168)
--------- ---------
$ 2,621 $ 2,664
--------- ---------
--------- ---------
</TABLE>
F-84
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
5. INTANGIBLE ASSETS, NET
The following is a summary of intangible assets at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- AMORTIZATION
1996 1995 PERIODS
---------- ---------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Goodwill............................................... $ 135,519 $ 134,256 (*)
Deferred financing costs............................... 1,138 1,138 7 years
---------- ----------
136,657 135,394
Less accumulated amortization.......................... (7,597) (656)
---------- ----------
$ 129,060 $ 134,738
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(*) 38 years for periods prior to December 1, 1995 and 20 years thereafter.
Total amortization expense of intangibles was $6,941,000 and $5,303,000 for
the years ended December 31, 1996 and 1995, respectively. The 1995 amortization
expense includes an approximate $2 million charge relating to the unamortized
deferred financing cost attributable to the Predecessor Credit Facility which
was paid off as part of the Boston Ventures' December 1, 1995 acquisition.
During 1996, the Company implemented systems which, among other operational and
financial reporting enhancements, better quantify its deferred subscription
obligation for certain publications. As permitted by generally accepted
accounting principles, the Company has restated by approximately $1.3 million
the goodwill recorded on December 1, 1995 to reflect the difference between the
Company's deferred subscription obligation computed under its upgraded reporting
systems and the amount estimated by management on that date.
6. OTHER ASSETS
Other assets is comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred direct response promotional costs (a)............................... $ 1,203 $ 583
Capitalized software (b)..................................................... 204 150
Security deposits (c)........................................................ 97 89
Officers' life insurance--cash surrender value (d)........................... 43 83
Other........................................................................ 14 15
--------- ---------
$ 1,561 $ 920
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Represents direct mail promotional costs that relate to SOP 93-7 (See Note
3).
(b) During 1996, the Company introduced a CD-ROM Product. All development costs
incurred capitalized and are being amortized over a three year period.
(c) Represents security deposits required for leased properties.
(d) Represents the cash value of life insurance purchased on a former officer.
F-85
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
7. LONG-TERM DEBT
Long-term debt was comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facilities (a)......................................... $ 70,300 $ 70,900
Less: current portion of Revolving Credit Facilities reduction amount... (3,300) --
--------- ---------
$ 67,000 $ 70,900
--------- ---------
--------- ---------
</TABLE>
(A) REVOLVING CREDIT FACILITIES
On December 1, 1995, the Company entered into a revolving credit facility
agreement (the "Credit Agreement") with The First National Bank of Boston (the
"Bank"), as a lender and as agent for other lenders, under which NAI borrowed
$15,674,061 and NYLP borrowed $55,225,939 (aggregating $70,900,000) in
connection with Boston Ventures' acquisition of the Company. Upon NAI's merger
into National, NYLP assumed the $15,674,061 of Bank debt, in the form of a
dividend from NYLP to National. Therefore, at December 31, 1995, the entire Bank
debt of $70.9 million was reflected as a NYLP borrowing. In addition, on January
2, 1996, NYLP borrowed approximately $5,022,000 from the Bank to pay the
Finkelstein $5 million Note and related accrued interest. The Finkelstein $5
million Note was issued in connection with the December 1, 1995 acquisition of
the Company (See Note 1). The Finkelstein Note and related accrued interest was
secured by an irrevocable letter of credit issued by the Bank. The Company's
borrowing capacity under the revolving credit facility, including cash loans and
standby letters of credit of up to $6 million, was $80 million through December
30, 1996, and decreases semi-annually until final maturity on December 31, 2002
as follows:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
December 31, 1996 through June 29, 1997....................................... $ 74,000
June 30, 1997 through December 30, 1997....................................... 70,500
December 31, 1997 through June 29, 1998....................................... 67,000
June 30, 1998 through December 30, 1998....................................... 63,250
December 31, 1998 through June 29, 1999....................................... 59,500
June 30, 1999 through December 30, 1999....................................... 55,250
December 31, 1999 through June 29, 2000....................................... 51,000
June 30, 2000 through December 30, 2000....................................... 45,750
December 31, 2000 through June 29, 2001....................................... 40,500
June 30, 2001 through December 30, 2001....................................... 33,750
December 31, 2001 through June 29, 2002....................................... 27,000
June 30, 2002 through final maturity date..................................... 19,000
Final maturity date (December 31, 2002)
</TABLE>
Available borrowings under this facility are further limited by the sum of
(a) the Company's letter of credit exposure and (b) certain stipulated
percentages of excess cash flow based on the ratio of the
F-86
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
7. LONG-TERM DEBT (CONTINUED)
Company's consolidated funded debt to consolidated operating cash flow, as
defined. Outstanding borrowings under the facility bear interest at a
fluctuating rate, subject to the Company's elected pricing option, at either the
Base Rate, Eurodollar Rate, and/or CD Rate, plus a variable margin based on the
Company's ratio of consolidated funded debt to consolidated operating cash flow,
as defined. The interest rate under this revolving credit facility approximated
8.1% and 8.8% for the year and one month ended December 31, 1996 and 1995,
respectively. Commitment fees are charged and payable quarterly at either a
.375% or .500% annual rate, depending on the Company's ratio of consolidated
funded debt to consolidated operating cash flow for the immediately preceding
quarter (the "Quarterly Funded Debt Ratio") and on the average daily unused
portion of the revolving credit facility. In addition, letter of credit usage
fees are payable at rates which range between 1.25% and 2.5% depending on the
Quarterly Funded Debt Ratio and on the daily letter of credit exposure during
the three month period or portion thereof ending on such payment date. The
revolving credit facility is secured by the assets of National and NYLP and the
stock of NYLP and its subsidiaries.
The Credit Agreement requires, among other things, the Company maintain
certain minimum levels of consolidated operating cash flow and certain
prescribed ratios of consolidated funded debt to consolidated operating cash
flow, consolidated operating cash flow to interest expense and consolidated
adjusted operating cash flow to consolidated fixed charges, as defined. The
Credit Agreement contains other restrictive covenants, including limitations on
indebtedness, investments and acquisitions, the disposition of assets,
transactions with affiliates and distributions to stockholders.
The Company, prior to December 1, 1995, had a revolving credit facility with
two financial institutions (the "Predecessor Credit Facility"). The weighted
average interest rates under the Predecessor Credit Facility for the eleven
months ended November 30, 1995 approximated 9%. The Predecessor Credit Facility
was secured by the stock and assets of NYLP and any future NYLP subsidiaries.
(B) INTEREST RATE PROTECTION AGREEMENTS
The Agreement provides that within 10 days after the Eurodollar Basic Rate
for three month Eurodollar Pricing Options first exceeds 5.875% per annum, the
Company will obtain and thereafter keep in effect one or more interest rate
protection agreements covering a notional amount of at least 50% of the
outstanding borrowings under the revolving credit facility for an aggregate
period of not less than two years.
F-87
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
8. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities was comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred rent (a).......................................................... $ 1,536 $ 1,400
Rent Security and deposit--sublease........................................ 23 22
Deferred compensation...................................................... 12 17
--------- ---------
$ 1,571 $ 1,439
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Represents the cumulative excess of rent expense recognized in accordance
with generally accepted accounting principles over cumulative cash rental
payments made.
9. INCOME TAXES
National and its subsidiaries file a consolidated Federal and combined New
York State and New York City income tax returns. NYLP also files income tax
returns in California and the District of Columbia. At December 31, 1996,
National had net operating loss carryforwards available to offset future taxable
income for Federal income tax purposes of approximately $11.2 million. These
carryforwards expire in the years 2004 through 2010 and, as a result of the
change in ownership described in Note 1, are subject to the limitations of
Internal Revenue Code Section 382. At December 31, 1996, National had net
operating loss carryforwards of approximately $5.3 million available to offset
future taxable income for New York State and New York City income tax purposes
which expire in the years 2005 through 2010.
The benefit (provision) for income taxes is comprised of the following for
the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Current:
Federal................................................................... $ (110) $ 53
State and local........................................................... (205) (76)
--------- ---------
(315) (23)
--------- ---------
Deferred:
Federal................................................................... (1,621) 264
State and local........................................................... (1,071) 282
--------- ---------
(2,692) 546
--------- ---------
$ (3,007) $ 523
--------- ---------
--------- ---------
</TABLE>
F-88
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
9. INCOME TAXES (CONTINUED)
Net deferred tax assets were comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
----------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Accounts receivable reserves......................................... $ 268 $ 357
Inventory capitalization............................................. 372 326
Deferred rent........................................................ 715 651
Federal, state and local operating loss carryforwards................ 4,472 6,674
Federal AMT credit................................................... 139 33
----------- ---------
5,966 8,041
----------- ---------
Deferred tax liabilities:
Depreciation......................................................... $ 442 $ 140
Deferred promotional costs........................................... 559 269
Product development costs............................................ 95 70
----------- ---------
1,096 479
----------- ---------
Net deferred tax assets.............................................. $ 4,870 $ 7,562
----------- ---------
----------- ---------
</TABLE>
The presentation of deferred tax assets and liabilities on the accompanying
consolidated balance sheet is as follows at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred tax benefits, current............................................ $ 4,293 $ 3,208
--------- ---------
Deferred tax liabilities, current......................................... -- --
--------- ---------
Net deferred tax benefits, current........................................ 4,293 3,208
--------- ---------
Deferred tax benefits, non-current........................................ 1,673 4,833
Deferred tax liabilities, non-current..................................... (1,096) (479)
--------- ---------
Net deferred tax benefits, non-current.................................... 577 4,354
--------- ---------
Net deferred tax assets................................................... $ 4,870 $ 7,562
--------- ---------
--------- ---------
</TABLE>
F-89
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
9. INCOME TAXES (CONTINUED)
The reconciliation between total tax expense (benefit) and the amount
computed by applying the statutory Federal income tax rate to income before
income taxes is as follows for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Federal statutory income taxes............................................. $ 188 $ (745)
Permanent differences (principally goodwill amortization).................. 2,181 265
State and local income taxes, net of federal benefit....................... 842 (136)
Other...................................................................... (204) 93
--------- ---------
$ 3,007 $ (523)
--------- ---------
--------- ---------
</TABLE>
10. STOCKHOLDERS' EQUITY (DEFICIENCY)
A) STOCK OPTIONS
In connection with and as a condition of Boston Ventures' acquisition, the
Company entered into a stock option agreement (the "Agreement") with Finkelstein
which, subject to certain terms and conditions of the Agreement, granted
Finkelstein an option to purchase an aggregate of approximately 6,461 shares of
National's common stock. One-third of the shares covered by the option vest and
become exercisable in 60 equal installments of approximately 36 shares on the
last day of each month commencing on January 31, 1996 and continuing until
December 31, 2000. The remaining shares vest and become exercisable, subject to
the Company's attainment of two separate annual operating cash flow targets, as
defined, in equal annual installments of approximately 431 shares or
approximately 862 shares, respectively (if such respective operating cash flow
targets are reached), on December 31, 1996 through 2000 or upon sale, subject to
achieving certain performance targets. The vesting of all shares is generally
subject to Finkelstein been employed by the Company on such dates. The shares
are exercisable at a price of approximately $1,083 per share and expire on the
tenth anniversary date of the Agreement.
B) STOCKHOLDERS' AGREEMENT
On December 1, 1995, Boston Ventures, National and Finkelstein entered into
a stockholders' agreement which, among other things, allows Finkelstein, upon
the non-renewal of his employment, as defined in his employment agreement (See
Note 13) to require the Company to purchase all of his shares and liquidate and
cash out his vested option shares for fair value. The Company's obligation to
acquire Finkelstein's shares is subject to it being permitted by the Credit
Agreement and applicable law to do so. In addition, the stockholders' agreement
gives the Company, along with Boston Ventures, the right of first refusal with
respect to Finkelstein's shares.
F-90
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
11. OTHER INCOME (EXPENSE)
Other income (expense) is comprised of the following items:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Insurance claim recovery (a).................................................. $ 235 $ (80)
Litigation settlement......................................................... -- (25)
Barter income (loss).......................................................... (54) 125
Apollo management fee......................................................... -- (231)
--------- ---------
$ 181 $ (211)
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Represents an insurance reimbursement of approximately $287,000 relating to
employee theft, net of legal and professional costs of $52,000.
12. RETIREMENT PLANS
The Company has a 401(k) profit sharing plan (the "Plan") for all eligible
employees who have completed one year of service. Under the Plan, the Company
has the option of making a matching contribution of up to 3% of a participant's
compensation. During 1996 and 1995, the Company did not make any matching
discretionary contributions to the Plan.
In addition, approximately 20 Company employees are covered by certain
defined contribution retirement plans sponsored by the Typographical Union.
Company contributions to these retirement plans for 1996 and 1995 were $476,000
and $481,000, respectively.
13. COMMITMENTS AND CONTINGENCIES
A) OPERATING LEASES
The Company leases office space under non cancelable operating leases which
expire at various dates through October 2008. At December 31, 1996, the future
minimum payments due under these leases, net of sublease income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
1997.......................................................................... $ 1,027
1998.......................................................................... 1,129
1999.......................................................................... 1,187
2000.......................................................................... 1,190
2001.......................................................................... 1,177
Thereafter.................................................................... 8,620
-------
$ 14,330
-------
-------
</TABLE>
Rent expense, net of sublease income, was approximately $1,395,000 and
$1,335,000 for the years ended December 31, 1996 and 1995, respectively.
F-91
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1996 and 1995, the Company had a letter of credit
outstanding of approximately $533,000 for the security deposit on its corporate
office space.
B) EMPLOYMENT AGREEMENT
In connection with Boston Ventures' December 1, 1995 acquisition of the
Company, Finkelstein entered into a long-term employment agreement (the
"Employment Agreement") with the Company. The initial term of the Employment
Agreement is through December 31, 2000 and provides for an annual base salary
which, beginning on June 30, 1996, and annually thereafter, is to be increased
by the greater of (i) 5% or (ii) the annual increase in the consumer price index
for all urban consumers not in excess of 8%.
C) LEGAL MATTERS
The Company is subject to certain legal actions and complaints that arise in
the ordinary course of its business. In the opinion of management, the amount of
the ultimate liability, if any, which may result from these legal actions and
complaints will not materially affect the consolidated financial statements of
the Company.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. These financial instruments consist of cash and
equivalents, long term debt and interest rate projection agreements. The Company
estimates that the fair value of all financial instrument at December 31, 1996,
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying consolidated balance sheet.
15. SUPPLEMENTARY 1995 CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION
The following table summarizes 1995's consolidated results of operations for
the Successor and Predecessor periods:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR FULL
PERIOD PERIOD YEAR
----------- ----------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues................................................... $ 3,510 $ 40,564 $ 44,074
Operating income (loss).................................... (393) 3,871 3,478
(Loss) before income taxes................................. (953) (1,238) (2,191)
Net (loss)................................................. (546) (1,122) (1,668)
</TABLE>
F-92
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. 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 OR A SOLICITATION OF
AN OFFER IN ANY JURISDICTION WHERE, 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 AN IMPLICATION THAT
THERE HAS BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF HOLDINGS SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... iv
Summary......................................... 1
Risk Factors.................................... 21
The Transactions................................ 29
Use of Proceeds................................. 30
Capitalization.................................. 30
Pro Forma Financial Information................. 31
Selected Historical Consolidated Financial
Information................................... 37
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 40
Business........................................ 53
Recent Transactions............................. 65
Management...................................... 66
Certain Transactions............................ 71
Principal Stockholders.......................... 72
The Exchange Offer.............................. 73
Description of the Discount Notes............... 82
Description of Other Indebtedness............... 112
Certain U.S. Federal Income Tax
Considerations................................ 114
Plan of Distribution............................ 114
Legal Matters................................... 115
Experts......................................... 115
Index to Financial Statements................... F-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AMERICAN LAWYER MEDIA
HOLDINGS, INC.
OFFER TO EXCHANGE
ITS 12 1/4% SENIOR DISCOUNT NOTES DUE 2008,
SERIES B FOR ANY AND ALL OF ITS OUTSTANDING
12 1/4% SENIOR DISCOUNT NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 28, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATE FRONT COVER PAGE FOR MARKET-MAKING PROSPECTUS]
AMERICAN LAWYER MEDIA HOLDINGS, INC.
12 1/4% SENIOR DISCOUNT NOTES DUE 2008, SERIES B
American Lawyer Media Holdings, Inc., a Delaware corporation ("Holdings"),
exchanged (the "Exchange Offer"), upon the terms and conditions set forth in a
prospectus dated , 1998, $1,000 principal amount of its 12 1/4%
Senior Discount Notes due 2008, Series B (the "Exchange Discount Notes"),
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement, for each $1,000 principal amount at
maturity of its outstanding 12 1/4% Senior Discount Notes due 2008 (the "Old
Discount Notes"), of which $63,275,000 aggregate principal amount at maturity is
outstanding as of the date hereof. The form and terms of the Exchange Discount
Notes are the same as the form and terms of the Old Discount Notes for which
they were exchanged pursuant to the Exchange Offer except that (i) the Exchange
Discount Notes bear a Series B designation, (ii) the Exchange Discount Notes
have been registered under the Securities Act and do not bear legends
restricting the transfer thereof, and (iii) the holders of the Exchange Discount
Notes are not entitled to the rights of holders of Old Discount Notes under the
Registration Rights Agreement (as defined). The Exchange Discount Notes evidence
the same debt as the Old Discount Notes (which they replaced) and were issued
under and are entitled to the benefits of the Indenture dated as of December 22,
1997 (the "Indenture") by and among Holdings, as issuer, and The Bank of New
York, as trustee. The Old Discount Notes and the Exchange Discount Notes are
sometimes referred to herein collectively as the "Discount Notes." See
"Description of the Discount Notes."
The Exchange Discount Notes will mature on December 15, 2008. The issue
price of the Exchange Discount Notes represents a yield to maturity of 12 1/4%
(computed on a semi-annual bond equivalent basis) calculated from December 22,
1997. The Exchange Discount Notes will accrete at a rate of 12 1/4%, compounded
semi-annually, to an aggregate principal amount of $63,275,000 by December 15,
2002. Cash interest will not accrue on the Exchange Discount Notes prior to
December 15, 2002. Commencing on June 15, 2003, cash interest on the Exchange
Discount Notes will be payable until maturity, at a rate of 12 1/4% per annum,
semi-annually in arrears on each June 15 and December 15. See "Description of
the Discount Notes."
The Exchange Discount Notes will be redeemable at the option of Holdings, in
whole or in part, at any time on or after December 15, 2002, at the redemption
prices set forth herein, together with accrued and unpaid interest thereon (and
Liquidated Damages (as defined), if any) to the date of redemption. In addition,
Holdings, at its option, at any time on or prior to December 15, 2000, may
redeem all, but not less than all, of the Exchange Discount Notes then
outstanding at a redemption price equal to 112.25% of the Accreted Value (as
defined) thereof (plus Liquidated Damages, if any) with the Net Cash Proceeds
(as defined) of a Public Equity Offering (as defined), provided that any such
redemption occurs within 90 days following the closing of any such Public Equity
Offering. See "Description of the Discount Notes--Optional Redemption."
In the event of a Change of Control (as defined), holders of the Exchange
Discount Notes will have the right to require Holdings to purchase the Exchange
Discount Notes at 101% of the Accreted Value thereof together with accrued and
unpaid interest thereon (and Liquidated Damages), if any, to the repurchase
date. No assurance can be given that Holdings will have sufficient funds to
satisfy its repurchase obligations with respect to the Exchange Discount Notes
following a Change of Control. In addition, Holdings is obligated in certain
instances to offer to repurchase the Exchange Discount Notes at a purchase price
in cash equal to 100% of the Accreted Value thereof plus accrued and unpaid
interest thereon (and Liquidated Damages, if any), to the date of repurchase
with the Net Cash Proceeds of certain asset sales. See "Description of the
Discount Notes-- Certain Covenants--Limitation on Sale of Assets and Subsidiary
Stock."
The Exchange Discount Notes are senior unsecured general obligations of
Holdings. The Exchange Discount Notes rank PARI PASSU in right of payment to all
existing and future senior indebtedness of Holdings and rank senior in right of
payment to any Subordinated Indebtedness (as defined) of Holdings. The Exchange
Discount Notes are effectively subordinated in right of payment to all existing
and future liabilities of subsidiaries of Holdings, including indebtedness under
the Senior Notes (as defined) and trade payables and deferred revenues. As of
December 31, 1997, after giving effect to the consummation of the Transactions
(as defined), such subsidiaries would have had approximately $208.4 million of
such liabilities outstanding. Holdings' pro forma earnings were insufficient to
cover fixed charges by approximately $20.6 million for the year ended December
31, 1997.
(COVER CONTINUED ON FOLLOWING PAGE)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD DISCOUNT NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1998.
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
The Old Discount Notes were sold by Holdings on December 22, 1997 to
Wasserstein Perella Securities, Inc., BancAmerica Robertson Stephens and
BancBoston Securities Inc. (the "Initial Purchasers") in a transaction not
registered under the Securities Act in reliance upon an exemption under the
Securities Act (the "Initial Discount Note Offering"). The Initial Purchasers
subsequently placed the Old Discount Notes with qualified institutional buyers
in reliance upon Rule 144A under the Securities Act. Accordingly, the Old
Discount Notes may not be reoffered, resold or otherwise transferred in the
United States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The Exchange Discount Notes were offered in order to satisfy the obligations of
Holdings under the Registration Rights Agreement entered into by Holdings and
the Initial Purchasers (the "Registration Rights Agreement") in connection with
the Initial Discount Note Offering.
This Prospectus is to be used by Wasserstein Perella Securities, Inc.
("WPS") in connection with its offers and sales of the Exchange Discount Notes
from time-to-time in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. WPS may act as principal or agent
in such transactions. Holdings does not intend to list the Exchange Discount
Notes on any securities exchange or to seek admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. WPS has
advised Holdings that it intends to make a market in the Exchange Discount
Notes, however, WPS is not obligated to do so and any market-making may be
discontinued at any time. Holdings will receive no portion of the proceeds of
the sale of any Exchange Discount Notes by WPS and will bear expenses incident
to the registration thereof. See "Plan of Distribution."
There has not previously been any public market for the Old Discount Notes
or the Exchange Discount Notes. Holdings does not intend to list the Exchange
Discount Notes on any securities exchange or to seek approval for quotation
through any automated quotation system. There can be no assurance that an active
market for the Exchange Discount Notes will develop. See "Risk Factors--Absence
of a Public Market Could Adversely Affect the Value of Exchange Discount Notes."
Concurrently with the Initial Discount Note Offering, American Lawyer Media,
Inc. (the "Company"), a subsidiary of Holdings, sold $175.0 million in initial
aggregate principal amount of its 9 3/4% Senior Notes due 2007 (the "Old Senior
Notes") (the "Initial Senior Note Offering," and together with the Initial
Discount Note Offering, the "Initial Offerings").
Concurrently with the Exchange Offer, the Company exchanged (the "Senior
Note Exchange Offer," and together with the Exchange Offer, the "Exchange
Offers"), $1,000 principal amount at maturity of its 9 3/4% Senior Notes due
2007, Series B (the "Exchange Senior Notes") registered under the Securities Act
pursuant to a registration statement, for each $1,000 principal amount at
maturity of its outstanding Old Senior Notes, of which $175.0 million aggregate
principal amount is outstanding as of the date hereof. The Old Senior Notes and
the Exchange Senior Notes are sometimes referred to herein collectively as the
"Senior Notes." See "The Transactions" and "Description of Other
Indebtedness--Description of the Senior Notes."
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN 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 AN OFFER TO BUY ANY SECURITY OTHER THAN
THE EXCHANGE DISCOUNT NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE DISCOUNT NOTES
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE
ii
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
HEREUNDER SHALL UNDER NO CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
The Exchange Discount Notes are available initially only in book-entry form
and the Exchange Discount Notes issued pursuant to the Exchange Offer were
issued in the form of a Global Note (as defined), which was deposited with, or
on behalf of, The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., its nominee. Beneficial interests in the Global Note representing
the Exchange Discount Notes will be shown on, and transfers thereof will be
effected through, records maintained by DTC and its participants. After the
initial issuance of the Global Note, Exchange Discount Notes in certificated
form will be issued in exchange for the Global Note only under limited
circumstances as set forth in the Indenture. See "Description of the Discount
Notes--Book-Entry; Delivery; Form and Transfer."
AVAILABLE INFORMATION
Holdings has filed with the Commission a registration statement on Form S-4
(File No. 333-50119) (the "Exchange Offer Registration Statement," which term
shall encompass all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the Exchange Offer contemplated hereby. This Prospectus
does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to Holdings and the
Exchange Offer, reference is made to the Exchange Offer Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and inspected at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
Upon the declaration by the Commission that the Exchange Offer Registration
Statement was effective, Holdings became subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith is required to file periodic reports and
other information with the Commission. The obligation of Holdings to file
periodic reports and other information with the Commission will be suspended if
the Discount Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of Holdings other than the fiscal year in which the
Exchange Offer Registration Statement is declared effective. Holdings has agreed
that, whether or not it is subject to the reporting requirements of Section 13
or Section 15(d) of the Exchange Act, for so long as the Old Discount Notes or
the Exchange Discount Notes remain outstanding, it will file with the Commission
and distribute to holders of the Old Discount Notes and the Exchange Discount
Notes, as applicable, copies of the financial information that would have been
contained in such annual reports and quarterly reports, including management's
discussion and analysis of financial conditions and results of operations,
iii
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
that would have been required to be filed with the Commission pursuant to the
Exchange Act. See "Description of the Discount Notes--Reports."
------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking statements" that are subject to a
number of risks and uncertainties, many of which are beyond Holdings' control.
Forward-looking statements are typically identified by the words "believe,"
"expect," "anticipate," "intend," "estimate" and similar expressions. Actual
results could differ materially from those contemplated by these forward-looking
statements as a result of factors such as those described under "Risk Factors."
In light of these risks and uncertainties, there can be no assurance that the
results and events contemplated by the forward-looking statements contained in
this Prospectus will in fact transpire. Prospective purchasers are cautioned not
to place undue reliance on these forward-looking statements. Holdings does not
undertake any obligation to update or revise any forward-looking statements. All
subsequent written or oral forward-looking statements attributable to Holdings
or persons acting on behalf of Holdings are expressly qualified in their
entirety by the discussion under "Risk Factors."
iv
<PAGE>
[ALTERNATIVE SUBSECTION FOR MARKET-MAKING PROSPECTUS]
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE DISCOUNT
NOTES
The Exchange Discount Notes constitute a new issue of securities with no
established trading market. Although the Exchange Discount Notes will generally
be permitted to be resold or otherwise transferred by holders who are not
affiliates of Holdings without compliance with the registration requirements
under the Securities Act, Holdings does not intend to list the Exchange Discount
Notes on any securities exchange or seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. WPS has
advised Holdings that it currently intends to make a market in the Exchange
Discount Notes, but WPS is not obligated to do so and may discontinue such
market making at any time. In addition, such market making activity will be
subject to the limits imposed by law. Accordingly, no assurance can be given
that an active public or other market will develop or be maintained for the
Exchange Discount Notes or as to the liquidity of the trading market for the
Exchange Discount Notes. If a trading market does not develop or develop and is
not maintained, holders of the Exchange Discount Notes may experience difficulty
in reselling the Exchange Discount Notes or may be unable to sell them at all.
If a public trading market develops for the Exchange Discount Notes, future
trading prices of such securities will depend on many factors including, among
other things, prevailing interest rates, Holdings results of operations, the
market for similar securities and general economic conditions. Depending on
prevailing interest rates, the market for similar securities, general economic
conditions and other factors, including the financial condition of Holdings, the
Exchange Discount Notes may trade at discount from their principal amount.
WPS may be deemed to be an "affiliate" of Holdings, and, as such, may be
required to deliver a prospectus in connection with its market-making activities
in the Exchange Discount Notes.
<PAGE>
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus has been prepared for use by WPS in connection with offer
and sales from time to time of the Exchange Discount Notes by WPS in
market-making transactions. Holdings will not receive any of the proceeds from
such transactions. See "Plan of Distribution".
The net proceeds to Holdings from the Initial Discount Note Offering,
approximately $33.8 million (after deducting discounts to the Initial Purchasers
and other Initial Discount Note Offering expenses), were used to fund, in part,
a capital contribution to ALM which, together with the proceeds to ALM of the
Initial Senior Note Offering, was used to consummate the NLP Acquisition, to
repay the principal and accrued interest on each of the ALM Promissory Note and
the WP Promissory Note, to pay certain fees and expenses, and to pay one-time
restructuring costs in connection with the Transactions.
<PAGE>
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This Prospectus has been prepared for use by WPS in connection with offers
and sales from time-to-time of the Exchange Discount Notes by WPS in
market-making transactions at negotiated prices relating to prevailing market
prices at the time of sale. WPS may act as principal or agent in such
transactions. WPS has advised Holdings that it currently intends to make a
market in the Exchange Discount Notes, but it is not obligated to do so and may
discontinue or suspend any such market-making activities at any time without
notice.
There is no existing market for the Exchange Discount Notes and there can be
no assurance as to the liquidity of any market that may develop for the Exchange
Discount Notes, the ability of holders of the Exchange Discount Notes to sell
their Exchange Discount Notes or the price at which holders would be able to
sell their Exchange Discount Notes. If a public trading market develops for the
Exchange Discount Notes, future trading prices of the Exchange Discount Notes
will depend on many factors, including, among other things, prevailing interest
rates, Holdings' operating results, the market for similar securities and
general economic conditions. Holdings does not currently intend to list the
Exchange Discount Notes on any securities exchange or the National Association
of Securities Dealers Automated Quotation System. Therefore, no assurance can be
given as to the liquidity of any trading market for the Exchange Discount Notes.
See "Risk Factors--Absence of a Public Market Could Adversely Affect the Value
of Exchange Discount Notes."
WPS served as an Initial Purchaser in the Initial Discount Note Offering and
received total underwriting discounts and commissions of $1.2 million in
connection therewith.
WPS, the other Initial Purchasers, and Holdings entered into the
Registration Rights Agreement with respect to the use by WPS of this Prospectus.
Pursuant to the Registration Rights Agreement, Holdings agreed to bear all
registration expenses incurred under such agreement, and Holdings agreed to
indemnify WPS against certain liabilities, including liabilities under the
Securities Act.
Affiliates of WPS currently own all of the outstanding shares of Holdings.
See "Principal Stockholders." WPS has informed Holdings that it does not intend
to confirm sales of the Exchange Discount Notes to any accounts over which it
exercises discretionary authority without the prior specific written approval of
such transactions by the customer.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ALTERNATE BACK COVER PAGE FOR MARKET-MAKING PROSPECTUS]
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. 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 OR A SOLICITATION OF
AN OFFER IN ANY JURISDICTION WHERE, 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 AN IMPLICATION THAT
THERE HAS BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF HOLDINGS SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information...........................
Summary.........................................
Risk Factors....................................
The Transactions................................
Use of Proceeds.................................
Capitalization..................................
Pro Forma Financial Information.................
Selected Historical Consolidated Financial
Information...................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................
Business........................................
Recent Transactions.............................
Management......................................
Certain Transactions............................
Principal Stockholders..........................
Description of the Discount Notes...............
Description of Other Indebtedness...............
Certain U.S. Federal Income Tax
Considerations................................
Plan of Distribution............................
Legal Matters...................................
Experts.........................................
Index to Financial Statements...................
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AMERICAN LAWYER MEDIA
HOLDINGS, INC.
12 1/4% SENIOR DISCOUNT NOTES DUE 2008,
SERIES B
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
CERTIFICATE OF INCORPORATION. Article EIGHTH of the Certificate of
Incorporation of American Lawyer Media Holdings, Inc. ("Holdings") provides that
the Directors of Holdings shall be protected from personal liability, through
indemnification or otherwise, to the fullest extent permitted by the General
Corporation Law of the State of Delaware as from time to time in effect (the
"DGCL").
Paragraph 1 of Article EIGHTH states that a Director of Holdings shall under
no circumstances have any personal liability to Holdings or its stockholders for
monetary damages for breach of fiduciary duty as a Director except for those
breaches and acts or omissions with respect to which the DGCL expressly provides
that this provision shall not eliminate or limit such personal liability of
Directors. Neither the modification or repeal of paragraph 1 of Article EIGHTH
nor any amendment to the DGCL that does not have retroactive application shall
limit the right of Directors to exculpation from personal liability for any act
or omission occurring prior to such amendment, modification or repeal.
Paragraph 2 of Article EIGHTH states that Holdings shall indemnify each
Director and Officer of Holdings to the fullest extent permitted by applicable
law, except as may be otherwise provided in Holdings' By-Laws, and in
furtherance thereof the Board of Directors is expressly authorized to amend
Holdings' By-laws from time to time to give full effect thereto, notwithstanding
possible self interest of the Directors in the action being taken. Neither the
modification or repeal of paragraph 2 nor any amendment to the DGCL that does
not have retroactive application shall limit the right of Directors and Officers
to indemnification with respect to any act or omission occurring prior to such
modification, amendment or repeal.
BY-LAWS. Article IV of the By-laws of Holdings provides for
indemnification. Section 1 of Article IV states that Holdings (1) shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of Holdings) by reason of the fact that he or she is or was a director
or an officer of Holdings and (2) except as otherwise required by Section 3 of
Article IV, may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of Holdings) by reason of the fact that he or she
is or was an employee or agent of Holdings, or is or was serving at the request
of Holdings as a director, officer, employee, agent of or participant in another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of Holdings, and with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of Holdings,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Section 2 of Article IV states that Holdings shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of Holdings to procure a judgment
in its favor by reason of the fact that he or she is or was a director, officer,
employee or agent of Holdings, or is or was serving at the request of Holdings
as a director, officer, employee, agent of or participant in another
corporation, partnership, joint venture, trust or other
II-1
<PAGE>
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Holdings
and except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to Holdings
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
Section 3 of Article IV states that, to the extent that a person who is or
was a director, officer, employee or agent of Holdings has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 1 or Section 2 of Article IV, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith.
Section 4 of Article IV states that any indemnification under Section 1 or
Section 2 of Article IV (unless ordered by a court) shall be made by Holdings
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in said Sections 1 and 2. Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 5 of Article IV states that expenses incurred by any person who may
have a right of indemnification under Article IV in defending a civil or
criminal action, suit or proceeding may be paid by Holdings in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he or she is entitled to be indemnified by the.
Company pursuant to Article IV.
Section 6 of Article IV states that the indemnification provided by Article
IV shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7 of Article IV states that Holdings may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of Holdings, or is or was serving at the request of Holdings as a
director, officer, employee or agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of such person's status as such, whether or not Holdings would have
the power to indemnify him or her against such liability under the provisions of
Article IV, Section 145 of the DGCL or otherwise.
Section 8 of Article IV states that the invalidity or unenforceability of
any provision of Article IV shall not affect the validity or enforceability of
the remaining provisions of Article IV.
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Under the DGCL, directors, officers, employees, and other individuals may be
indemnified against expenses (including attorneys' fees), judgements, fines, and
amounts paid in settlement in connection with
II-2
<PAGE>
specified actions, suits or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation--a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard of care is applicable in
the case of a derivative action, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with defense or
settlement of such an action and Delaware law requires court approval before
there can be any indemnification of expenses where the person seeking
indemnification has been found liable to the corporation.
Delaware corporations may limit the personal liability of their directors
for monetary damages for a breach of fiduciary duty, provided, however, that the
directors can still be held personally liable (i) for a breach of the duty of
loyalty to the corporation and its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (described below), and (iv) for any
transaction from which the director derived an improper personal benefit.
Section 174 of the DGCL makes directors personally liable for unlawful dividends
or unlawful stock repurchases or redemptions in certain circumstances and
expressly sets forth a negligence standard with respect to such liability.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Purchase Agreement, dated as of October 23, 1997, by and among Boston Ventures Limited Partnership IV,
Boston Ventures Limited Partnership IVA, James A. Finkelstein and ALM Holdings, LLC, as amended.
3.1 Certificate of Incorporation of Holdings
3.2 By-laws of Holdings
4.1 Indenture, dated as of December 22, 1997, among Holdings and The Bank of New York
4.2 Form of Initial Notes (included in Exhibit 4.1)
4.3 Form of Exchange Notes (included in Exhibit 4.1)
4.4 Registration Rights Agreement dated as of December 22, 1997 among Holdings and the Initial Purchasers
*5.1 Opinion of Jones, Day, Reavis & Pogue
10.1 Lease, dated September 30, 1993, between Park Avenue South/Armory, Inc. and The New York Law Publishing
Company for premises at 345 Park Avenue South, New York, New York
10.2 First Supplemental Agreement, dated November 30, 1994, between Park Avenue South/ Armory, Inc. and The
New York Law Publishing Company for premises at 345 Park Avenue South, New York, New York
10.3 Credit Agreement, dated as of March 25, 1998, among Holdings, the Company, the several lenders named
therein, Bank of America National Trust and Savings Association ("Bank of America"), BancBoston
Securities Inc. and BancAmerica Robertson Stephens (the "Credit Agreement")
10.4 Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein and The Bank
of New York
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.5 Employment Agreement, dated as of February 9, 1998, by and between the Company and William L. Pollak
*10.6 First Amendment to the Credit Agreement, dated as of April 24, 1998, among the Company, Holdings, Bank
of America and BankBoston, N.A.
*12.1 Statement re: computation of ratio of earnings to fixed charges
*21.1 List of Subsidiaries of Holdings
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Leslie Sufrin and Company, P.C.
*23.3 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
*23.4 Consent of Arthur Andersen LLP
*23.5 Consent of Leslie Sufrin and Company, P.C.
24.1 Power of Attorney of Holdings (included in Part II of the Registration Statement)
25.1 Statement on Form T-1 of the eligibility of the Trustee
27.1 Financial Data Schedule
*27.2 Financial Data Schedule
99.1 Form of Letter of Transmittal Letter
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to clients and Form of Instruction to Book-Entry Transfer Participants
</TABLE>
- ------------------------
* Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media Holdings, Inc.
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of American Lawyer Media Holdings, Inc. for
the five months ended December 31, 1997 included in this registration statement
and have issued our report thereon dated April 3, 1998. Our audit was made for
the purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedule listed below is the responsibility of Holdings'
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. The schedule for the five months ended December 31, 1997 has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
April 3, 1998
II-4
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
DEBIT DEBIT DEBIT DEBIT DEBIT
(CREDIT) (CREDIT) (CREDIT) (CREDIT) (CREDIT)
FOR THE FIVE MONTHS ENDED DECEMBER 31,
1997:
Allowance for doubtful accounts $ (1,661) $ (843) $ (1,014)(1) $ 282(2) $ (3,236)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
- ------------------------
(1) Represents the addition of the NLP allowance for doubtful accounts ($1,014)
at the date of acquisition.
(2) Represents reversals of the allowance account and write-offs of accounts
receivable, net of recoveries.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
UNAUDITED SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT)
FOR THE THREE MONTHS ENDED MARCH 31,
1998:
Allowance for doubtful accounts $ (3,636) $ (610) $ -- $ 615(1) $ (3,231)
------------ ------ ------------ ------ ------------
------------ ------ ------------ ------ ------------
</TABLE>
- ------------------------
(1) Represents reversals of the allowance account and write-offs of accounts
receivable, net of recoveries.
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-5
<PAGE>
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising out of the Securities Act
may be permitted to directors, officers or controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful
defense in any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, American Lawyer Media
Holdings, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
in the State of New York, on May 28, 1998.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
BY: /S/ WILLIAM L. POLLAK
-----------------------------------------
William L. Pollak
Director, President and Chief Executive
Officer
(PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints William
L. Pollak and Anup Bagaria and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
* * * * *
Pursuant to the Requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the date included.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
*
- ------------------------------ Chairman of the Board of May 28, 1998
Bruce Wasserstein Directors
Director, President and
/s/ WILLIAM L. POLLAK Chief Executive Officer
- ------------------------------ (PRINCIPAL EXECUTIVE May 28, 1998
William L. Pollak OFFICER)
Director, Vice President
and Secretary
* (PRINCIPAL FINANCIAL
- ------------------------------ OFFICER AND May 28, 1998
Anup Bagaria PRINCIPAL ACCOUNTING
OFFICER)
*
- ------------------------------ Director May 28, 1998
Michael J. Biondi
*
- ------------------------------ Director May 28, 1998
Robert C. Clark
*
- ------------------------------ Director May 28, 1998
Donald G. Drapkin
*
- ------------------------------ Director May 28, 1998
James A. Finkelstein
*
- ------------------------------ Director May 28, 1998
Andrew G.T. Moore, II
*
- ------------------------------ Director May 28, 1998
Randall J. Weisenburger
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM PAGE
- ----------- ------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
2.1 Purchase Agreement, dated as of October 23, 1997, by and among Boston Ventures Limited
Partnership IV, Boston Ventures Limited Partnership IVA, James A. Finkelstein and ALM Holdings,
LLC, as amended.
3.1 Certificate of Incorporation of Holdings
3.2 By-laws of Holdings
4.1 Indenture, dated as of December 22, 1997, among Holdings and The Bank of New York
4.2 Form of Initial Notes (included in Exhibit 4.1)
4.3 Form of Exchange Notes (included in Exhibit 4.1)
4.4 Registration Rights Agreement dated as of December 22, 1997 among Holdings and the Initial
Purchasers
*5.1 Opinion of Jones, Day, Reavis & Pogue
10.1 Lease, dated September 30, 1993, between Park Avenue South/Armory, Inc. and The New York Law
Publishing Company for premises at 345 Park Avenue South, New York, New York
10.2 First Supplemental Agreement, dated November 30, 1994, between Park Avenue South/Armory, Inc. and
The New York Law Publishing Company for premises at 345 Park Avenue South, New York, New York
10.3 Credit Agreement, dated as of March 25, 1998, among Holdings, the Company, the several lenders
named therein, Bank of America National Trust and Savings Association, BancBoston Securities Inc.
and BancAmerica Robertson Stephens ("the Credit Agreement")
10.4 Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein and The
Bank of New York
10.5 Employment Agreement, dated as of February 9, 1998, by and between the Company and William L.
Pollak
*10.6 First Amendment to the Credit Agreement, dated as of April 24, 1998, among the Company, Holdings,
Bank of America and BancBoston, N.A.
*12.1 Statement re: computation of ratio of earnings to fixed charges
*21.1 List of Subsidiaries of Holdings
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Leslie Sufrin and Company, P.C.
*23.3 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
*23.4 Consent of Arthur Andersen LLP
*23.5 Consent of Leslie Sufrin and Company, P.C.
24.1 Power of Attorney of Holdings (included in Part II of the Registration Statement)
25.1 Statement on Form T-1 of the eligibility of the Trustee
27.1 Financial Data Schedule
*27.2 Financial Data Schedule
99.1 Form of Letter of Transmittal Letter
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to clients and Form of Instruction to Book-Entry Transfer Participants
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
Exhibit 5.1
[Letterhead of Jones, Day, Reavis & Pogue]
May 28, 1998
American Lawyer Media Holdings, Inc.
c/o American Lawyer Media, Inc.
345 Park Avenue South
New York, New York 10010
Gentlemen:
We are acting as special counsel for American Lawyer Media Holdings,
Inc., a Delaware corporation ("Holdings"), in connection with the proposed
issuance and exchange (the "Exchange Offer") of up to $63, 275,000 principal
amount at maturity of Holdings' 121/4% Senior Discount Notes due 2008 (the
"Exchange Discount Notes") for an equal principal amount at maturity of
Holdings' 121/4% Senior Discount Notes due 2008 outstanding on the date hereof
(the "Old Discount Notes"), to be issued pursuant to the Indenture dated as of
December 22, 1997 (the "Indenture") among Holdings and The Bank of New York, as
trustee (the "Trustee"). the Exchange Discount Notes will be senior, unsecured,
general obligations of Holdings.
Our opinions expressed below are limited to the laws of the State of
New York, Delaware corporate law and the federal law of the United States of
America, as currently in effect, and we do not express any opinion herein
concerning any other law.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and based thereupon we are of the
opinion that when the Exchange Discount Notes have been duly executed by
authorized officers of Holdings, authenticated by the Trustee in accordance with
the Indenture and issued in exchange for the Old Discount Notes in accordance
with the Indenture and the Exchange Offer, the Exchange Discount Notes will be
valid and binding obligations of Holdings.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus constituting a part of such Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT (this "Amendment"), dated as of April 24, 1998, among
AMERICAN LAWYER MEDIA HOLDINGS, INC., a Delaware corporation ("Holdings"),
AMERICAN LAWYER MEDIA, INC., a Delaware corporation (the "Borrower"), the
several lenders from time to time party to the Credit Agreement referred to
below (the "Banks"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Issuing Bank, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Administrative Agent. Unless otherwise defined herein, all
capitalized terms used herein shall have the respective meanings provided
such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Banks, the Issuing Banks, the
Administrative Agent and the Arrangers are parties to a Credit Agreement,
dated as of March 25, 1998 (the "Credit Agreement"); and
WHEREAS, subject to the terms and conditions set forth herein, the
parties hereto agree as follows;
NOW, THEREFORE, it is agreed:
I. Amendment:
1. The definition of "Consolidated Total Indebtedness" appearing in
Section 1.01 of the Credit Agreement is hereby amended by deleting the
parenthetical phrase "(excluding the Holdings Senior Discount Notes)"
appearing therein.
II. Miscellaneous:
1. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
2. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Administrative
Agent.
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
<PAGE>
4. This Amendment shall become effective on the date (the "First
Amendment Effective Date") when Holdings, the Borrower and the Required Banks
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of telecopier) the
same to the Administrative Agent.
5. From and after the First Amendment Effective Date, all references
in the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement after
giving effect to this Amendment.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
AMERICAN LAWYER MEDIA HOLDINGS,
INC.
By: /s/ Anup Bagaria
----------------------------
Name: Anup Bagaria
Title: Vice President
AMERICAN LAWYER MEDIA, INC.
By: /s/ Anup Bagaria
----------------------------
Name: Anup Bagaria
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By: [Illegible]
----------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as an
Issuing Bank
By: /s/ Heidi-Anne Sandquist
----------------------------
Name: Heidi-Anne Sandquist
Title: Vice President
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/ Heidi-Anne Sandquist
----------------------------
Title: Vice President
BANKBOSTON, N.A., as Bank and as an
Issuing Bank
By: /s/ Jennifer R. Buras
----------------------------
Name: Jennifer R. Buras
Title: Director
<PAGE>
EXHIBIT 12.1
AMERICAN LAWYER MEDIA HOLDINGS, INC.
STATEMENT OF COMPUTATION OF EARNINGS TO COMBINED FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA FOR
HISTORICAL FIVE PRO FORMA FOR THREE THE THREE
MONTHS ENDED THE YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997 MARCH 31, 1998 MARCH 31, 1998
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Loss from continuing operations before
income taxes............................ $ (7,711) $ (20,558) $ (6,351) $ (5,969)
------- -------- ------- -------
Fixed charges:
Interest expense.......................... 2,534 22,105 5,487 5,487
Rent expense(a)........................... 261 888 243 216
------- -------- ------- -------
Total fixed charges....................... $ 2,795 $ 22,993 $ 5,730 $ 5,703
------- -------- ------- -------
Earnings.................................. $ (4,916) $ 2,435 $ (621) $ (266)
------- -------- ------- -------
------- -------- ------- -------
Ratio of earnings to fixed charges........ (b) (b) (b) (b)
</TABLE>
(a) Represents one-third of rent expense which is deemed to be equivalent to an
interest factor.
(b) Earnings were inadequate to cover combined fixed charges by $7,711, $20,558,
$6,351 and $5,969 for the five months ended December 31, 1997, pro forma
year ended December 31, 1997, three months ended March 31, 1998 and pro
forma three months ended March 31, 1998, respectively.
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF COMPUTATION OF EARNINGS TO COMBINED FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
-------------------------------------------- MARCH 31, JULY 31,
1993 1994 1995 1996 1997 1997
--------- ---------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Loss from continuing operations before
income taxes......................... $ (6,591) $ (10,156) $ (10,451) $ (8,360) $ (1,708) $ (3,042)
--------- ---------- ---------- --------- ------------- -------------
Fixed charges:
Interest expense...................... 478 667 1,384 1,972 576 1,420
Rent expense(a)....................... 487 432 575 586 150 349
--------- ---------- ---------- --------- ------------- -------------
Total fixed charges................... $ 965 $ 1,099 $ 1,959 $ 2,558 $ (726) $ 1,769
--------- ---------- ---------- --------- ------------- -------------
Earnings.............................. $ (5,626) $ (9,057) $ (8,492) ($ 5,802) $ (982) $ (1,273)
--------- ---------- ---------- --------- ------------- -------------
--------- ---------- ---------- --------- ------------- -------------
Ratio of earnings to fixed charges.... (b) (b) (b) (b) (b) (b)
</TABLE>
- ------------------------
(a) Represents one-third of rent expense which is deemed to be equivalent to an
interest factor.
(b) Earnings were inadequate to cover combined fixed charges by $6,591, $10,156,
$10,451, $8,360, $1,708 and $3,042, for the years ended December 31, 1993,
1994, 1995, 1996, the three months ended March 31, 1997 and the seven months
ended July 31, 1997, respectively.
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
STATEMENT OF COMPUTATION OF EARNINGS TO COMBINED FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS JANUARY 1,
YEAR ENDED DECEMBER 31, ENDED JULY 1997 TO
------------------------------------------ 31, DECEMBER 21,
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) from continuing operations
before income taxes....................... $ 1,500 $ 1,341 $ (2,191) $ 554 $ (122) $ (2,704)
--------- --------- --------- --------- ------ ------------
Fixed charges:
Interest expense............................ 4,487 4,734 5,458 6,013 1,378 5,137
Amortization of deferred financing cost..... 418 523 2,616 161 40 156
Rent expense(b)............................. 398 382 407 415 97 384
--------- --------- --------- --------- ------ ------------
Total fixed charges......................... $ 5,303 $ 5,639 $ 8,481 $ 6,589 $ 1,515 $ 5,677
--------- --------- --------- --------- ------ ------------
Earnings.................................... $ 6,803 $ 6,980 $ 6,290 $ 7,143 $ 1,393 $ 2,973
--------- --------- --------- --------- ------ ------------
--------- --------- --------- --------- ------ ------------
Ratio of earnings to fixed charges.......... 1.28 1.24 (b) 1.08 (b) (b)
</TABLE>
- ------------------------
(a) Represents one-third of rent expense which is deemed to be equivalent to an
interest factor.
(b) Earnings were inadequate to cover combined fixed charges by $2,191, $122 and
$2,704 for the year ended December 31, 1995, the three months ended March
31, 1997 and the period from January 1, 1997 through December 21, 1997,
respectively.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF AMERICAN LAWYER MEDIA HOLDINGS, INC.*
American Lawyer Media, Inc.
ALM Counsel Connect Inc.
ALM IP, LLC
ALM, LLC
Counsel Connect
Counsel Connect, LLC
Law Journal Extra, Inc.
LegalTech, LLC
National Law Publishing Company, Inc.
The New York Law Publishing Company
NLP IP Company
PPC Publishing Corporation
* each of the subsidiaries is a wholly-owned subsidiary of American Lawyer
Media Holdings, Inc. ("Holdings"), other than ALM IP, LLC which is a 99%
owned subsidiary of Holdings.
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media Holdings, Inc.:
As independent public accountants, we hereby consent to the use of our
report included in this registration statement and to all references to our Firm
included in this registration statement.
ARTHUR ANDERSEN LLP
New York, New York
May 27, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder of
National Law Publishing Company, Inc.
We hereby consent to the use in the Prospectus of American Lawyer Media
Holdings, Inc., constituting a part of this Registration Statement, of our
report dated February 19, 1997 (except as to Note 7 which date is March 27,
1997) relating to the consolidated financial statements of National Law
Publishing Company, Inc., which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ LESLIE SUFRIN AND COMPANY, P.C.
Leslie Sufrin and Company, P.C.
New York, New York
May 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM S-4
FILING AT DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS. (In Thousands)
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 4,035
<SECURITIES> 0
<RECEIVABLES> 14,506
<ALLOWANCES> 3,231
<INVENTORY> 1,324
<CURRENT-ASSETS> 19,177
<PP&E> 6,453
<DEPRECIATION> 1,095
<TOTAL-ASSETS> 364,360
<CURRENT-LIABILITIES> 37,525
<BONDS> 211,191
0
0
<COMMON> 1
<OTHER-SE> 61,874
<TOTAL-LIABILITY-AND-EQUITY> 364,360
<SALES> 26,376
<TOTAL-REVENUES> 26,376
<CGS> 8,833
<TOTAL-COSTS> 27,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,487
<INCOME-PRETAX> (6,351)
<INCOME-TAX> 937
<INCOME-CONTINUING> (5,414)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,414)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
