<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>
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 33-63963
SUBJECT TO COMPLETION, DATED JANUARY 26, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 18, 1996)
$150,000,000
HERITAGE MEDIA CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2006
The % Senior Subordinated Notes due 2006 (the "Notes") are being offered
by Heritage Media Corporation ("Heritage" or the "Company"). The net proceeds of
this offering will be used to finance the acquisition (the "Acquisition") of
DIMAC Corporation ("DIMAC"). See "Use of Proceeds."
The Notes will mature on , 2006. The Notes will bear interest
from the date of issuance at the rate of % per annum, payable semi-annually
on and of each year, commencing , 1996. The
Notes are subject to redemption, at the option of the Company, in whole or in
part, at any time on or after , 2001 at the redemption price set
forth in this Prospectus Supplement, plus accrued and unpaid interest to the
date of redemption.
The Notes offered hereby will be subject to a mandatory redemption on March
31, 1996 (the "Special Redemption Date") at 101% of their issue price to the
public, plus accrued interest to the date of redemption, in the event that the
Acquisition is not consummated on or before the Special Redemption Date.
Although the Acquisition is expected to occur in the first quarter of 1996,
there can be no assurance that the Acquisition will be consummated. See "Recent
Developments." Prior to the consummation of the Acquisition, the net proceeds
from the sale of the Notes offered hereby will be held by and pledged to the
Trustee (as defined) pursuant to the Indenture (as defined) and invested in Cash
Equivalents (as defined), and the obligation of the Company to redeem the Notes
on the Special Redemption Date will be secured by such proceeds. See
"Description of the Notes -- Special Redemption." The Notes have no sinking fund
provisions.
The Notes will be subordinated unsecured obligations of the Company and will
be subordinated to all existing and future Senior Indebtedness (as defined
herein). See "Description of Notes" herein and "Description of Securities" in
the accompanying Prospectus.
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 SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(2) COMPANY(1)(3)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.............................. % % %
Total................................. $ $ $
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF THE ISSUANCE.
(2) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.
(3) BEFORE DEDUCTING EXPENSES OF $ PAYABLE BY THE COMPANY.
The Notes are being offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters, and subject to various
prior conditions, including their right to reject orders in whole or in part. It
is expected that delivery of the Notes will be made through the book-entry
facilities of The Depository Trust Company, against payment thereof in New York
funds, on or about February , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CITICORP SECURITIES, INC.
SMITH BARNEY INC.
NATIONSBANC CAPITAL MARKETS, INC.
February , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS, INCLUDING INFORMATION INCORPORATED THEREIN BY REFERENCE.
THIS PROSPECTUS SUPPLEMENT SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING
PROSPECTUS DATED JANUARY 18, 1996 RELATING TO THE ISSUANCE OF UP TO $300.0
MILLION AGGREGATE PRINCIPAL AMOUNT OF SECURITIES. CAPITALIZED TERMS USED AND NOT
OTHERWISE DEFINED HEREIN HAVE THE MEANINGS SET FORTH IN THE PROSPECTUS.
THE COMPANY
Heritage Media Corporation, through its Actmedia, Inc. ("Actmedia")
subsidiary, is the world's largest independent provider of in-store marketing
products and services, primarily to consumer packaged goods manufacturers. The
Company is also a participant in the broadcast industry through its ownership of
four network affiliated television stations in small to mid-sized markets and 17
radio stations in seven major markets.
Actmedia offers advertisers a broad assortment of in-store advertising and
promotional products, which are highly effective in increasing consumer
awareness and purchases of targeted products. Advertising products include print
displays on shopping carts, aisle directories and shelves, the instant coupon
machine and audio advertising played throughout the store. Promotional products
consist of customized in-store demonstrations and merchandising, as well as
coupon and sampling programs. Actmedia can provide on-line reporting to
customers concerning the sales impact of its in-store programs.
Actmedia's in-store network delivers some or all of its products and
services in over 24,000 supermarkets, 13,000 drug stores and 2,400 mass
merchandise stores across the country, a network substantially larger than that
of any other in-store marketing company in the United States. By contracting to
purchase the Company's in-store advertising and promotional products,
advertisers gain access to up to approximately 205 of the nation's 209
Designated Market Areas covering over 70% of the households in the United
States. Through the Powerforce division, Actmedia also delivers sales
merchandising services to toy, hardware, computer retail, office products and
department stores.
To expand the Company's targeted marketing services capabilities, on October
23, 1995, the Company entered into an agreement to acquire DIMAC. See "Recent
Developments." DIMAC is the largest full service, vertically-integrated direct
marketing services company in the United States. Pursuant to the Merger
Agreement (as defined), a subsidiary of the Company will merge with DIMAC,
resulting in DIMAC becoming a wholly-owned subsidiary of the Company.
S-2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ $150.0 million principal amount of % Senior
Subordinated Notes due 2006.
Maturity Date..................... , 2006.
Interest Rate..................... The Notes will bear interest at the rate of % per
annum, payable semi-annually on and
, commencing , 1996.
Interest Payment Dates............ and commencing , 1996.
Special Redemption................ The Notes offered hereby will be subject to mandatory
redemption on the Special Redemption Date at 101% of
their issue price to the public, plus accrued interest
to the date of redemption, in the event that the
Acquisition is not consummated on or before the Special
Redemption Date. Prior to the consummation of the
Acquisition, the net proceeds from the sale of the Notes
offered hereby will be held and pledged to the Trustee
pursuant to the Indenture and invested in Cash
Equivalents, and the obligation of the Company to redeem
the Notes on the Special Redemption Date will be secured
by such proceeds. See "Description of the Notes --
Special Redemption."
Optional Redemption............... The Notes are redeemable at any time on or after
, 2001 in whole or in part, at the option of
the Company, at the redemption prices set forth herein,
plus accrued and unpaid interest to the date of
redemption.
Ranking........................... The Notes will be subordinated unsecured obligations of
the Company and will be junior in right of payment to
all senior indebtedness. The Notes will rank PARI PASSU
in right of payment with the Company's existing $50.0
million 11% Senior Subordinated Notes due 2002 (the
"1992 Notes"). As of September 30, 1995, on a pro forma
basis after giving effect to the Acquisition (assuming
consideration is comprised entirely of cash), the
Company had $391.2 million of Senior Indebtedness.
Certain Covenants................. The Indenture for the Notes, among other things,
contains restrictions (with certain exceptions) on the
ability of the Company and its Restricted Subsidiaries
(as defined) to: (i) incur additional indebtedness or
issue preferred stock; (ii) make dividend payments or
other restricted payments; (iii) make asset sales; (iv)
create liens; (v) enter into transactions with
affiliates; and (vi) enter into mergers, consolidations
or sales of all or substantially all of its assets.
Absence of Public Market.......... There is no public market for the Notes. The Company
does not intend to list the Notes on any securities
exchange or to arrange for their quotation on the NASDAQ
system. The Company has been advised by the Underwriters
that they presently intend to make a market in the Notes
after the consummation of the offering, although they
are under no obligation to do so. No assurance can be
given, however, as to the liquidity of the trading
market for the Notes or that an active public market for
the Notes will develop.
Use of Proceeds................... The Company intends to use the net proceeds of this
offering together with amounts obtained under the DIMAC
Credit Facility (as defined) to finance the Acquisition.
Prior to the consummation of the Acquisition, the
proceeds from the sale of the Notes will be held by and
pledged to the Trustee and invested in certain permitted
investments. See "Use of Proceeds."
</TABLE>
S-3
<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical financial data were derived from the
audited consolidated financial statements and the unaudited interim consolidated
financial statements of the Company. The following table also presents summary
pro forma financial data for the year ended December 31, 1994 and the nine month
period ended September 30, 1995 derived from the unaudited Pro Forma Condensed
Combined Financial Statements appearing elsewhere in this Prospectus Supplement.
See "Pro Forma Condensed Combined Financial Statements."
The unaudited pro forma combined information presented below provides
financial information giving effect to certain Company and DIMAC transactions
which have occurred or are probable to occur, the Acquisition on a purchase
basis, the issuance of the Notes and the new DIMAC Credit Facility, as if such
transactions occurred on September 30, 1995, with regard to balance sheet
information, and on January 1, 1994, with regard to statements of operations
information. The pro forma information is provided for informational purposes
only and is not necessarily indicative of actual results that would have been
achieved had such transactions and the Acquisition been consummated at the
beginning of the periods presented or future results.
The following summary historical and pro forma condensed combined financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Interim Results of Operations" and the Pro Forma
Condensed Combined Financial Statements (in each case together with the related
notes thereto) and other information contained elsewhere in this Prospectus
Supplement and the accompanying Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, (1) SEPTEMBER 30, (1)
----------------------------------------------------------------- ------------------------
1994 PRO FORMA
--------------------------------
ACQUISITION
ACQUISITION PAID WITH CASH
1992 1993 1994 PAID WITH CASH AND STOCK 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $ 250,891 $ 291,205 $ 317,628 $ 529,494 $ 529,494 $ 210,826 $ 299,065
Gross profit........... 114,932 140,113 166,658 231,101 231,101 110,759 128,070
Operating income (2)... 27,550 34,995 57,838 65,805 65,805 35,332 47,473
Interest expense,
net................... (37,473) (31,515) (30,373) (58,573) (54,295) (22,196) (26,190)
Net income (loss)
(3)................... (18,560) 512 22,299 2,971 7,249 8,468 15,604
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents........... $ 1,218 $ 4,416 $ 4,270 $ 5,335 $ 1,788
Working capital........ (104) (3,631) (11,361) (10,195) 2,992
Total assets........... 496,296 492,849 514,147 492,467 551,143
Long-term debt
(including current
portion).............. 319,385 314,989 351,525 348,008 350,380
Stockholders' equity... 91,213 86,642 89,246 74,889 108,725
OTHER DATA:
EBITDA (4)............. $ 54,242 $ 68,353 $ 90,058 $ 110,805 $ 110,805 $ 58,635 $ 68,679
Depreciation,
amortization and non-
recurring charges..... 26,692 33,358 32,220 50,099 50,099 23,303 21,206
Capital expenditures
(5)................... 22,098 19,804 15,391 -- -- 8,804 13,073
Ratio of EBITDA to
interest expense,
net................... 1.45 2.17 2.97 1.89 2.04 1.66 2.62
Ratio of Debt to
EBITDA................ 5.89 4.61 3.90 -- -- 4.13(6) 3.50(6)
Ratio of Earnings to
Fixed Charges (7)..... -- 1.09x 1.78x 1.10x 1.19x 1.46x 1.77x
<CAPTION>
1995 PRO FORMA
--------------------------------
ACQUISITION
ACQUISITION PAID WITH CASH
PAID WITH CASH AND STOCK
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $ 413,730 $ 413,730
Gross profit........... 170,053 170,053
Operating income (2)... 56,379 56,379
Interest expense,
net................... (44,450) (41,241)
Net income (loss)
(3)................... 6,729 7,276
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents........... $ 1,831 $ 1,831
Working capital........ 10,855 10,855
Total assets........... 850,575 850,575
Long-term debt
(including current
portion).............. 600,051 552,516
Stockholders' equity... 117,902 165,437
OTHER DATA:
EBITDA (4)............. $ 86,018 $ 86,018
Depreciation,
amortization and non-
recurring charges..... 29,639 29,639
Capital expenditures
(5)................... -- --
Ratio of EBITDA to
interest expense,
net................... 1.94 2.09
Ratio of Debt to
EBITDA................ 4.87(6) 4.48(6)
Ratio of Earnings to
Fixed Charges (7)..... 1.26x 1.35x
</TABLE>
- ------------------------------
(1) Information reflects acquisition and investment transactions described under
Note 2 of Notes to Consolidated Financial Statements appearing in Form
10-K/A for the year ended December 31, 1994 (the "1994 Form 10-K"), Note 4
of Notes to Consolidated Financial Statements appearing in Form 10-Q/A for
the quarter ended September 30, 1995 and Note 6 of Notes to Consolidated
Financial Statements in Form 10-Q for the quarter ended September 30, 1994.
See "Management's Discussion and Analysis of Financial Condition and Interim
Results of Operations" appearing in this Prospectus Supplement.
(2) Operating income contains certain nonrecurring expenses which represent
operating costs that are unusual or infrequent in nature and are not
expected to be incurred by the Company on a regular basis in future periods.
Such costs for the year ended December 31, 1993 total $4.7 million and
relate to restructuring charges ($3.0 million) and the write-down of program
rights ($1.7 million). In addition, operating income contains compensation
expense relating to stock appreciation rights in the amounts of $500,000,
$500,000, and $4.9 million during the years ended December 31, 1992 through
1994, respectively, and $3.1 million for the nine months ended September 30,
1994. Such rights were retired in January 1995.
S-4
<PAGE>
(3) The unaudited Pro Forma Condensed Combined Statements of Operations do not
include extraordinary losses of $3.2 million and $2.4 million recognized by
DIMAC during the year ended December 31, 1994 and the nine months ended
September 30, 1995, respectively, resulting from the retirement of certain
indebtedness, nor do they include an extraordinary loss of approximately
$2.0 million to be recognized upon the retirement of DIMAC's existing credit
facility in connection with the Acquisition.
(4) EBITDA represents operating income excluding depreciation, amortization of
goodwill and other assets (as presented on the face of the income statement)
and nonrecurring charges. EBITDA is presented because management believes
that it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness, maintain current operating levels of
fixed assets and acquire additional operations and businesses. Accordingly,
significant uses of EBITDA include, but are not limited to, interest and
principal payments on long-term debt, capital expenditures, and acquisitions
of new operations or businesses. However, EBITDA should not be considered as
an alternative to operating income or net income (loss) as a measure of
operating results in accordance with generally accepted accounting
principles or to cash flows from operating, investing or financing
activities as a measure of liquidity. Items excluded from EBITDA, such as
depreciation, amortization and nonrecurring charges, are significant
components of the Company's operations and should be considered in
evaluating the Company's financial performance. Nonrecurring charges are
excluded from EBITDA due to the fact that management does not expect to
incur these charges on a regular basis in the future and does not believe
that these charges should be considered in evaluating the Company's ability
to service and/or incur indebtedness, maintain current operating levels of
fixed assets and acquire additional operations and businesses in the future.
Investors should be aware that EBITDA as described above may differ in the
method of calculation from EBITDA presented by other companies due to the
exclusion of nonrecurring charges. See footnote (2) above for a description
of nonrecurring charges.
(5) Capital expenditures represent expenditures for long-term fixed assets which
are necessary to grow or maintain existing products or services sold by the
Company. Capital expenditures exclude cash outlays relating to acquisitions
of new operations or businesses of $11.9 million, $5.1 million and $6.9
million for the years ended December 31, 1992 through 1994, respectively,
and $7.8 million and $16.6 million for the nine months ended September 30,
1994 and 1995, respectively.
(6) The historical ratio of Debt to EBITDA at September 30, 1994 and 1995 is
calculated using EBITDA of $84.2 million and $100.1 million for the twelve
month periods ending September 30, 1994 and 1995, respectively. The pro
forma ratio of debt to EBITDA at September 30, 1995 is calculated using the
sum of historical EBITDA for the twelve months ended September 30, 1995 of
$100.1 million and the pro forma impact of the Acquisition and certain other
transactions on pro forma EBITDA of $23.1 million based on annualized nine
months' results.
(7) For the year ended December 31, 1992, earnings were insufficient to cover
fixed charges by $18.6 million.
S-5
<PAGE>
RECENT DEVELOPMENTS
ACQUISITION OF DIMAC
On October 23, 1995, the Company entered into an agreement (the "Merger
Agreement") with DIMAC. Pursuant to the Merger Agreement, a subsidiary of the
Company would merge with DIMAC, resulting in DIMAC becoming a wholly-owned
subsidiary of the Company. As a result of the Acquisition, each share of DIMAC
common stock would be converted into the right to receive $28.00 in cash (the
"Merger Consideration"). The Company may elect to pay up to $7.00 of the Merger
Consideration by issuing shares of the Company's Class A Common Stock, par value
$.01 per share ("Company Common Stock").
Consummation of the Acquisition is subject to approval of the transaction by
the DIMAC stockholders and certain other customary closing conditions. The
Company anticipates that the Acquisition will be consummated on or about
February 21, 1996. The shareholders of DIMAC are expected to approve the
Acquisition at a shareholders' meeting scheduled for February 21, 1996.
Immediately prior to the Acquisition, DIMAC will enter into a $175.0 million
senior bank facility guaranteed by the Company (the "DIMAC Credit Facility").
The Company anticipates that approximately $111.6 million of borrowings drawn
under the DIMAC Credit Facility, together with the net proceeds from the
issuance of the Notes, will be used to finance the Acquisition.
DIMAC was founded in 1921 and has evolved into the largest full service,
vertically-integrated direct marketing services company in the United States.
DIMAC creates and implements comprehensive, custom-tailored marketing programs
that enable clients nationwide to focus their marketing expenditures on a highly
targeted potential customer base. As a full service, vertically-integrated firm,
DIMAC provides every component of a complete direct marketing program, including
customized market research, strategic and creative planning, creation and
management of relational databases, telemarketing, media buying, production
services, fulfillment services and subsequent program analysis. Throughout the
last thirty years, DIMAC has successfully expanded the range of its marketing
services and increased the size of its customer base to include major
corporations such as AT&T, American Express, Blockbuster Video, The Walt Disney
Company, several Blue Cross/Blue Shield organizations, Medco Containment
Services and a significant number of U.S. public television stations.
For the year ended December 31, 1994 and for the nine months ended September
30, 1995, DIMAC had sales of approximately $100.0 million and $89.0 million,
respectively, and EBITDA of $14.0 million and $15.0 million, respectively.
RECENT RESULTS OF OPERATIONS
The Company recently announced preliminary unaudited results of operations
for the year ended December 31, 1995. Consolidated net revenues of $435.8
million for 1995 represented a 37.2% increase over the 1994 net revenues of
$317.6 million. Operating income of $73.0 million in 1995 exceeded 1994
operating income of $57.8 million by 26.2%. Net income of $26.6 million for 1995
represented a 19.2% increase over the 1994 net income of $22.3 million. Net
income reported for 1995 gives effect to a write-off, net of income taxes, of
$2.8 million relating to the Company's investment in Media Meervoud (its
Netherlands in-store marketing subsidiary).
USE OF PROCEEDS
The net proceeds to be received by the Company for the sale of the Notes are
estimated at $145.8 million after the deduction of the underwriting discount and
of the estimated expenses payable by the Company. Such net proceeds will
initially be deposited with and held by and pledged to the Trustee pursuant to
the Indenture as security for the Notes. In the event that the Special
Redemption occurs, such proceeds together with funds provided by the Company,
will be used to fund the Special Redemption. See "Description of Notes --
Special Redemption." If the acquisition of DIMAC is consummated, the Company
intends to use the net proceeds of the Offering, together with amounts obtained
under the DIMAC Credit Facility, to finance the Acquisition. See "Recent
Developments."
S-6
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1995 and as adjusted to give effect to the Acquisition and this
offering and the application of the proceeds thereof. See "Use of Proceeds."
This table should be read in conjunction with the Pro Forma Condensed Combined
Financial Statements and the notes thereto included elsewhere in this Prospectus
Supplement.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
-------------------------------------
PRO FORMA
------------------------
ACQUISITION
ACQUISITION PAID WITH
PAID WITH CASH AND
ACTUAL CASH STOCK
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................................. $ 1,788 $ 1,831 $ 1,831
----------- ----------- -----------
----------- ----------- -----------
Current installments of long-term debt..................................... $ 3,278 $ 3,852 $ 3,852
----------- ----------- -----------
Long-term debt:
HMSI Credit Agreement (1)................................................ 120,400 106,352 58,817
DIMAC Credit Facility (2)................................................ -- 111,612 111,612
Canadian credit agreement................................................ 16,263 16,263 16,263
HMSI 11% Senior Notes due 2002........................................... 150,000 150,000 150,000
HMC 11% Senior Subordinated Notes due 2002............................... 50,000 50,000 50,000
HMC % Senior Subordinated Notes offered hereby....................... -- 150,000 150,000
Other.................................................................... 10,439 11,972 11,972
----------- ----------- -----------
Total long-term debt................................................... 347,102 596,199 548,664
----------- ----------- -----------
Stockholders' equity:
Preferred stock, no par value. 60,000,000 shares authorized; none
outstanding............................................................. -- -- --
Common Stock:
Class A, $.01 par value. 40,000,000 shares authorized; 17,736,359
shares outstanding; 19,496,899 shares pro
forma if the Acquisition is paid with cash and stock (3).............. 177 177 195
Additional paid-in capital............................................... 222,418 225,083 272,600
Unrealized gain on investments, net (4).................................. 630 630 630
Accumulated deficit...................................................... (112,610) (106,098) (106,098)
Accumulated foreign currency translation adjustments..................... (1,436) (1,436) (1,436)
Class A Common Stock in treasury at cost (32,828 shares)................. (454) (454) (454)
----------- ----------- -----------
Total stockholders' equity............................................. 108,725 117,902 165,437
----------- ----------- -----------
Total capitalization................................................... $ 459,105 $ 717,953 $ 717,953
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Heritage Media Services, Inc. ("HMSI") is a wholly-owned subsidiary of the
Company. The HMSI Credit Agreement consists of an $80.0 million term loan
facility and a $75.0 million revolving credit facility. At September 30,
1995, $31.0 million of additional borrowings are available under the HMSI
Credit Agreement.
(2) Immediately prior to the consummation of the Acquisition, the Company will
enter into the DIMAC Credit Facility which will provide for borrowings of
up to $175.0 million. The Company expects that it will use approximately
$111.6 million under the DIMAC Credit Facility together with the net
proceeds of the offering to finance the Acquisition.
(3) Excluding shares reserved for issuance upon exercise of stock options.
(4) Although the Company does not invest in equity securities in the normal
course of business, during the third quarter the Company made a short-term
investment in marketable equity securities which are available for sale.
The investment had a gross unrealized gain of $630,000 at September 30,
1995 and is recognized as a separate component of stockholders' equity net
of applicable taxes.
S-7
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the
financial position and operating results of the Company and its subsidiaries.
This data should be read in conjunction with the Company's consolidated
financial statements and the notes thereto appearing in the Annual Report on
Form 10-K for the year ended December 31, 1994, Amendment No. 1 to such report
on Form 10-K/A filed on December 15, 1995 and Amendment No. 2 to such report on
Form 10-K/A filed on January 4, 1996 ("1994 Form 10-K") and the Quarterly
Reports on Form 10-Q for the quarters ended September 30, 1994, March 31, 1995,
June 30, 1995 and September 30, 1995 and Form 10-Q/A amending the Form 10-Q for
the period ended September 30, 1995, which such Form 10-Q/A was filed on
December 15, 1995, all of which are incorporated by reference herein, and
"Management's Discussion and Analysis of Financial Condition and Interim Results
of Operations" appearing in this Prospectus Supplement.
HERITAGE MEDIA CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, (1) SEPTEMBER 30, (2)
---------------------------------------------------------- ----------------------
1990 1991 1992 1993 1994 1994 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $ 203,854 $ 222,360 $ 250,891 $ 291,205 $ 317,628 $ 210,826 $ 299,065
Operating income (3)................ 13,451 21,950 27,550 34,995 57,838 35,332 47,473
Interest expense, net............... (38,108) (38,640) (37,473) (31,515) (30,373) (22,196) (26,190)
Income (loss) before extraordinary
items.............................. (26,009) (19,278) (14,966) 77 22,299 8,468 15,604
Net income (loss)................... (24,950) (14,958) (18,560) 512 22,299 8,468 15,604
Income (loss) per share before
extraordinary items................ (2.82) (2.39) (1.51) (.32) .15 (.64) .88
Net income (loss) per share......... ($2.72) ($1.97) ($1.76) ($.29) $.15 ($.64) $.88
BALANCE SHEET DATA (AT PERIOD END):
Property and equipment, net......... $ 52,144 $ 48,659 $ 55,832 $ 57,422 $ 54,799 $ 53,527 $ 58,374
Goodwill and other intangibles,
net................................ 378,375 375,378 373,426 363,667 382,288 365,969 392,046
Total assets........................ 497,358 481,147 496,296 492,849 514,147 492,467 551,143
Long-term debt (4).................. 352,791 345,916 319,385 314,989 351,525 348,008 350,380
Stockholders' equity................ 66,339 62,022 91,213 86,642 89,246 74,889 108,725
OTHER DATA:
EBITDA (5).......................... $ 42,595 $ 45,103 $ 54,242 $ 68,353 $ 90,058 $ 58,635 $ 68,679
Depreciation, amortization and
nonrecurring charges (3)........... 28,944 22,803 26,692 33,358 32,220 23,303 21,206
Capital expenditures (6)............ 9,884 11,421 15,531 18,534 13,271 8,804 13,073
Ratio of EBITDA to interest expense,
net................................ 1.12x 1.17x 1.45x 2.17x 2.97x 1.66x 2.62x
Ratio of Debt to EBITDA (7)......... 8.28 7.67 5.89 4.61 3.90 4.13 3.50
</TABLE>
- ------------------------
(1) Information reflects acquisition and investment transactions described
under Note 2 of Notes to Consolidated Financial Statements appearing in the
1994 Form 10-K. See "Management's Discussion and Analysis of Financial
Condition and Interim Results of Operations" appearing in this Prospectus
Supplement.
(2) Information reflects acquisition and investment transactions described
under Note 4 of Notes to Consolidated Financial Statements appearing in
Form 10-Q for the quarter ended September 30, 1995 and Note 6 of Notes to
Consolidated Financial Statements appearing in Form 10-Q for the quarter
ended September 30, 1994. See "Management's Discussion and Analysis of
Financial Condition and Interim Results of Operations" appearing in this
Prospectus Supplement.
(3) Operating income contains certain nonrecurring expenses which represent
operating costs that are unusual or infrequent in nature and are not
expected to be incurred by the Company on a regular basis in future
periods. Such costs are comprised of the
S-8
<PAGE>
following: for the year ended December 31, 1990, $8.5 million relating to
compensation expense in connection with the POP Radio merger ($6.9 million)
and the write-down of barter accounts ($1.0 million) and program rights
($.6 million), and for the year ended December 31, 1993, $4.7 million
relating to restructuring charges ($3 million) and the write-down of
program rights ($1.7 million). In addition, operating income contains
compensation expense relating to stock appreciation rights in the amounts
of $200,000, $350,000, $500,000, $500,000, and $4.9 million during the
years ended December 31, 1990 through 1994, respectively, and $3.1 million
for the nine months ended September 30, 1994. Such rights were retired in
January 1995.
(4) Includes current installments. See Note 4 of Notes to Consolidated
Financial Statements appearing in the 1994 Form 10-K, Note 2 of Notes to
Consolidated Financial Statements appearing in the Form 10-Q/A for the
quarter ended September 30, 1995 and Notes 2 and 4 of Notes to Consolidated
Financial Statements appearing in Form 10-Q for the quarter ended September
30, 1994, all such forms are incorporated by reference herein.
(5) EBITDA represents operating income excluding depreciation, amortization of
goodwill and other assets (as presented on the face of the income
statement) and nonrecurring charges. EBITDA is presented because management
believes that it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness, maintain current operating
levels of fixed assets and acquire additional operations and businesses.
Accordingly, significant uses of EBITDA include, but are not limited to,
interest and principal payments on long-term debt, capital expenditures,
and acquisitions of new operations or businesses. However, EBITDA should
not be considered as an alternative to operating income or net income
(loss) as a measure of operating results in accordance with generally
accepted accounting principles or to cash flows from operating, investing
or financing activities as a measure of liquidity. Items excluded from
EBITDA, such as depreciation, amortization and nonrecurring charges, are
significant components of the Company's operations and should be considered
in evaluating the Company's financial performance. Nonrecurring charges are
excluded from EBITDA due to the fact that management does not expect to
incur these charges on a regular basis in the future and does not believe
that these charges should be considered in evaluating the Company's ability
to service and/or incur indebtedness, maintain current operating levels of
fixed assets and acquire additional operations and businesses in the
future. Investors should be aware that EBITDA as described above may differ
in the method of calculation from EBITDA presented by other companies due
to the exclusion of nonrecurring charges. See footnote (1) under Summary
Financial Data for a description of nonrecurring charges.
(6) Capital expenditures represent expenditures for long-term fixed assets
which are necessary to grow or maintain existing products or services sold
by the Company. Capital expenditures exclude cash outlays relating to
acquisitions of new operations or businesses of $37.7 million, $4.4
million, $11.9 million, $5.1 million and $6.9 million for the years ended
December 31, 1990 through 1994, respectively, and $7.8 million and $16.6
million for the nine months ended September 30, 1994 and 1995,
respectively.
(7) The ratio of Debt to EBITDA at September 30, 1994 and 1995 is calculated
using EBITDA of $84.2 million and $100.1 million for the twelve month
periods ended September 30, 1994 and 1995, respectively.
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<PAGE>
The following table sets forth selected financial information regarding the
financial position and operating results of DIMAC. This data should be read in
conjunction with DIMAC's consolidated financial statements and the notes thereto
appearing in Heritage's Report on Form 8-K/A dated January 17, 1996, which is
incorporated by reference herein.
DIMAC CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- --------------------
1990 1991 1992 1993(1) 1994 1994 1995
--------- --------- --------- ----------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $ 44,894 $ 52,475 $ 57,810 $ 63,800 $ 100,012 $ 70,652 $ 89,030
Operating income.......................... 4,901 5,027 6,290 5,109 10,919 7,883 11,878
Interest expense, net..................... (605) (1,092) (781) (1,417) (6,069) (4,993) (3,574)
Income (loss) before extraordinary
item(2).................................. 2,576 2,476 3,363 2,259 2,985 1,729 5,117
Net income (loss)......................... 2,576 2,476 3,363 2,259 (172) (1,018) 2,738
Earnings (loss) per share before
extraordinary item(2)(3)................. .22 .64 .43 .77
Earnings (loss) per share(3).............. $ .22 $ (.04) $ (.25) $ .41
BALANCE SHEET DATA (AT PERIOD END):
Property and equipment, net............... $ 5,544 $ 7,571 $ 7,240 $ 8,124 $ 13,013 $ 13,233 $ 19,276
Goodwill and other intangibles, net....... 5,792 8,999 8,495 11,168 19,037 17,893 25,232
Total assets.............................. 26,053 36,818 32,533 41,456 64,408 66,617 81,360
Long-term debt(4)......................... 6,122 10,187 6,817 49,068 36,303 34,211 51,462
Stockholders' equity (deficiency)(5)...... 8,116 10,592 13,998 (27,573) 73 (680) 2,811
OTHER DATA:
EBITDA(6)................................. 6,233 6,965 8,539 8,862 14,019 10,099 15,004
Capital expenditures(7)................... 2,061 2,142 1,229 2,530 4,178 3,452 2,166
</TABLE>
- ------------------------------
(1) Includes certain nonrecurring compensation expenses of $1,091,000 related to
the DIMAC recapitalization in 1993 and $325,000 of reserves related to the
move of the West Coast facility.
(2) The extraordinary item represents the impact of debt extinguishment in
September 1994 and April 1995.
(3) The historical earnings per share and equivalent shares data for 1990, 1991
and 1992 has not been presented because the capitalization of DIMAC
following the recapitalization and initial public offering is not indicative
of the capitalization prior to such events.
(4) Includes current portion of long-term debt.
(5) Represents the impact of the recapitalization in 1993 and the initial public
offering in 1994.
(6) EBITDA represents operating income excluding depreciation, amortization of
goodwill and other assets and nonrecurring charges. EBITDA is presented
because management believes that it is a widely accepted financial indicator
of a company's ability to service and/or incur indebtedness, maintain
current operating levels of fixed assets and acquire additional operations
and businesses. Accordingly, significant uses of EBITDA include, but are not
limited to, interest and principal payments on long-term debt, capital
expenditures, and acquisitions of new operations or businesses. However,
EBITDA should not be considered as an alternative to operating income or net
income (loss) as a measure of operating results in accordance with generally
accepted accounting principles or to cash flows from operating, investing or
financing activities as a measure of liquidity. Items excluded from EBITDA,
such as depreciation, amortization and nonrecurring charges, are significant
components of DIMAC's operations and should be considered in evaluating
DIMAC's financial performance. Nonrecurring charges are excluded from EBITDA
due to the fact that management does not expect these charges to be
recurring in the future and does not believe that these charges should be
considered in evaluating DIMAC's ability to service and/or incur
indebtedness, maintain current operating levels of fixed assets and acquire
additional operations and businesses in the future. Investors should be
aware that EBITDA as described above may differ in the method of calculation
from EBITDA presented by other companies due to the exclusion of
nonrecurring charges. See footnote (1) above for a description of
nonrecurring charges.
(7) Capital expenditures represent expenditures for long-term fixed assets which
are necessary to grow or maintain existing services sold by DIMAC. Capital
expenditures exclude cash outlays relating to acquisitions of new operations
or businesses of $1.2 million, $0.7 million and $11.9 million for the years
ended December 31, 1990, 1991 and 1994, respectively, and $11.6 million and
$11.3 million for the nine months ended September 30, 1994 and 1995.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND INTERIM RESULTS OF OPERATIONS
GENERAL
The Company has focused its growth strategy on acquiring in-store, media,
and other communications-related properties it believes have the potential for
long-term appreciation and aggressively managing the operations of these
properties to improve their operating results. Due to the numerous acquisitions,
dispositions, and financing activities during the periods discussed below, the
results of operations from year to year are not comparable.
RESULTS OF OPERATIONS: NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1994
Consolidated net revenues of $299.1 million increased by 42% over the 1994
revenues of $210.8 million. Operating income of $47.5 million in 1995 exceeded
the comparable 1994 period by 34%. Net income of $15.6 million improved
significantly versus $8.5 million in 1994. The improvement in the Company's
operating results for the 1995 period reflects advertising and promotion revenue
growth and additional revenues from Actmedia Canada and the Powerforce
acquisition by the in-store Marketing Group and increased national and local
advertising revenues by the Television and Radio Groups. The income per share of
$0.88 improved in 1995 versus a $0.64 per share loss in 1994 due to the
favorable results from operations and the $1.13 per share impact of settlement
rights accretion and dividends in 1994. All comparisons, unless otherwise noted,
are for the nine-month period ended September 30, 1995 versus the comparable
1994 period.
IN-STORE MARKETING. The In-store Marketing Group contributed $235.1 million
of revenues in 1995, an increase of 57%, compared to $149.7 million in 1994. All
of the group's product revenues improved versus the 1994 period. The growth of
advertising, promotion, and Instant Coupon Machine ("ICM") revenues and
additional revenues from Actmedia Canada and the Powerforce acquisition were the
major contributors. Advertising revenues totaled $41.2 million in 1995, an
increase of 14% compared to 1994. Promotion revenues totaling $54.2 million
increased 36% compared to 1994, and ICM revenues grew by 8%. International
revenues of $22.3 million grew by 59% versus 1994 as Actmedia Canada contributed
an additional $7.9 million of revenues. The Powerforce acquisition added $53.2
million of revenues in the 1995 period.
Operating income of $30.6 million increased by 48%, from $20.7 million in
the 1994 period due primarily to increased revenues. The 1994 period included a
$3.1 million nonrecurring charge. The operating margin was approximately 13% in
1995 versus 14% in 1994 due to Powerforce. Excluding Powerforce, the operating
margin was 16% in 1995.
TELEVISION. The Television Group generated $32.7 million of revenues in
1995, a 1% increase compared to $32.4 million in 1994. Revenues improved 6%
compared to 1994 on a same station basis. The Television Bureau of Advertising
Time Sales Survey reported that industry-wide gross local revenues increased by
7% and national revenues were up 5% compared to 1994. The Television Group's
national revenues increased by 18% and local revenues improved 3% compared to
the 1994 period on a same station basis. The 1994 period also included $0.8
million of additional political revenues. Revenues improved 9% on a same station
basis excluding political revenues. All of the Television Group's stations,
except Charleston, WV generated improved revenues in 1995 compared to the 1994
period.
Operating income of $12.4 million increased by 16% compared to 1994
primarily as a result of the higher revenues and favorable mix of increased
national revenues. The operating margin improved from 35% in 1994 to 38% in 1995
on a same station basis. The Oklahoma City, Pensacola, and Plattsburgh/ Hanover
stations contributed substantially all of the operating income improvement.
The rate of growth of local and national advertising expenditures in the
industry softened in the third quarter and continues to be slow entering the
fourth quarter.
RADIO. The Radio Advertising Bureau reported that combined national
revenues grew 9% and local spot revenues improved 10% in 1995 versus the same
period in 1994 for the radio industry. Net revenues of
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<PAGE>
the Radio Group increased by 9% from $28.8 million in 1994 to $31.3 million in
1995. The Radio Group's national and local revenues grew by 10% and 9%,
respectively. The significant contributors to the revenue growth were the St.
Louis and Rochester duopolies and the Kansas City and Portland stations. The
Cincinnati station's revenues declined significantly as previously discussed and
the Seattle station's revenues declined due to direct competition in its format.
The Portland and Kansas City acquisitions contributed $0.6 million of revenues.
Operating income grew from $6.4 million in 1994 to $7.1 million in 1995
primarily as a result of the improved revenues. Operating income was $7.7
million excluding the acquisitions noted above. The operating margin improved
from 22% in 1994 to 25% in 1995 excluding the acquisitions.
The Radio industry has seen a softening of national advertising expenditures
in the third quarter and continuing into the fourth quarter.
CORPORATE EXPENSES. Corporate expenses of $2.7 million in 1995 increased by
$150,000 versus the 1994 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $21.2
million in 1995 increased by 5% compared to 1994.
OTHER NONRECURRING EXPENSE. Other nonrecurring expense in 1994 included
$3.1 million of noncash expense for accrued stock appreciation rights. Payment
of the rights was completed in January 1995.
INTEREST EXPENSE. Interest expense increased from $22.2 million in 1994 to
$26.2 million in 1995 due primarily to higher interest rates and higher debt
levels.
NET INCOME. Primarily as a result of an additional $12.1 million of
operating income, reduced by higher interest expense and income taxes, the
Company improved its net income from $8.5 million in 1994 to $15.6 million in
1995.
RESULTS OF OPERATIONS: 1994 COMPARED TO 1993
Consolidated net revenues of $317.6 million represented a 9% increase over
the 1993 revenues of $291.2 million. Cost of services of $151.0 million in 1994
were level with 1993. Operating income of $57.8 million in 1994 exceeded the
comparable 1993 period by 65%. The earnings per share were $0.15 versus a loss
per share of $0.29 in 1993. The improvement in the Company's operating results
for the 1994 period primarily reflects strong revenue growth from the ICM by the
In-store Marketing Group, higher revenues from the in-store international
operations, increased Television and Radio Group advertising revenues and
positive contributions from the radio stations acquired during 1993 and 1994.
The earnings per share improvement in 1994 versus 1993 was due principally to
$22.8 million of additional operating income and $1.1 million lower interest
expense. The 1994 period included a $4.9 million nonrecurring expense for stock
appreciation rights and 1993 included a $3.0 million nonrecurring charge for
Actradio, a $1.7 million write-down of television broadcast program rights, and
a $0.4 million extraordinary gain on the early extinguishment of debt. All
comparisons, unless otherwise noted, are for the year ended December 31, 1994
versus the comparable 1993 period.
IN-STORE MARKETING. The In-store Marketing Group contributed $230.1 million
of revenues in 1994, an increase of 6%, compared to $216.3 million in 1993. The
continued growth of the ICM was a major contributor to the revenue increase. The
ICM generated approximately $82.0 million of revenues in its second full year
which exceeded the $63.0 million level in 1993 by 31%. International revenues
grew from $17.7 million in 1993 to $23.2 million in 1994 due primarily to the
acquisitions of in-store marketing companies in Canada and Australia/New Zealand
in 1994. Co-operative sampling and demonstration revenues declined from $21.1
million in 1993 to $18.0 million in 1994 principally due to the loss of one
customer program and a product switch by another. Revenues generated per program
decreased from $3.5 million in 1993 to $3.0 million in 1994. Advertising
revenues in 1994 declined 5% compared to 1993 reflecting the continuing trend of
some clients directing a portion of their spending to ICM and away from the
shelf-talk product. Impact revenues declined by 11% to $47.0 million in 1994.
Revenues for demonstration services in 1994 were adversely affected by increased
competition, which has adversely affected pricing.
S-12
<PAGE>
Net revenues of Actradio increased to $6.9 million in 1994 from $6.6 million
in 1993. In 1993, Actradio terminated its Joint Operating Agreement with Muzak
Limited Partnership, forming marketing alliances with three large music network
providers to accelerate the conversion to satellite delivery and expand its in-
store audio network by approximately 9,000 stores. As a result of launching this
new program, the Company recorded a one-time nonrecurring charge of $3.0 million
in the fourth quarter of 1993 reflecting the costs of closing a tape machine
servicing center ($1.1 million), the write-off of obsolete delivery equipment
($1.5 million), and provisions for other costs ($.4 million). These actions
reduced the ongoing operating costs and long-term capital requirements, and
increased the size and quality of the in-store audio network.
In-store Marketing operating income of $37.2 million increased by 70% from
$21.9 million in the 1993 period due primarily to the increased 1994 revenues,
favorable revenue mix of increased ICM and lower promotion revenues resulting in
higher margins, store operations efficiencies and economies related to field
execution, and the elimination of the Actradio losses. The operating margin
increased to 16% in 1994 compared to 12% in 1993 (excluding the $3.0 million
Actradio charge). The termination of the MUZAK agreement improved the operating
margin by 2%.
The In-store Marketing Group contributed 72% of the Company's revenues and
64% of operating income in 1994.
TELEVISION. The Television Group generated $46.7 million of revenues in
1994, a 13% increase compared to $41.5 million in 1993. The Television Bureau of
Advertising Time Sales Survey reported that industry-wide gross local revenues
increased by 4% and national revenues were up 23%, including additional
political revenues, compared to 1993. The Television Group's local revenues
increased 9% and national revenues improved 22% compared to the 1993 period
including additional political advertising revenues of $3.3 million in 1994. All
of the Television Group's stations generated increased revenues in 1994 with 78%
of the improvement produced by the Pensacola, Oklahoma City and Plattsburgh
stations. The Pensacola station benefitted from local revenue growth of 10% and
national revenue growth of 39% including $1.8 million of political revenues. The
Oklahoma City station generated revenues of $8.3 million in 1994 compared to
$7.3 million in 1993 primarily as a result of a 15% increase in local revenues.
The continuing increase in popularity of the FOX network programming, the
success of targeting programming to the 18-49 audience, and National Football
League telecasts have favorably impacted KOKH-TV's ratings. The
Plattsburgh/Hanover stations' local and national revenues improved 5% and 25%,
respectively, including $0.6 million of political revenue.
Operating income of $15.7 million increased by 27% compared to 1993,
excluding the 1993 writedown of program rights, primarily as a result of higher
revenues. The operating margin improved from 30% in 1993 to 34% in 1994.
RADIO. Net revenues of the Radio Group increased by 22% from $33.4 million
in 1993 to $40.8 million in 1994. The Radio Advertising Bureau reported that
revenues grew by 11% in the industry in the comparable period. The radio
stations acquired in 1993 and 1994 contributed $3.9 million of the increase.
Revenues for the stations owned for all of both periods increased 11% primarily
as a result of improved station ratings and the inclusion of $0.5 million of
political revenues. The three duopolies, combined, contributed 75% of the
revenue increase from 1993-1994. The Cincinnati station incurred direct format
competition in the spring of 1994 which substantially impacted the operating
results of the station.
Operating income grew from $6.0 million in 1993 to $8.7 million in 1994
primarily as a result of the improved revenues by the stations owned for all of
both periods as a $0.2 million operating loss was incurred by the acquired
stations. The operating margin improved from 18% in 1993 to 21% in 1994.
CORPORATE EXPENSES. Corporate expenses in 1994 of $3.7 million increased 5%
compared to $3.6 million in 1993 due primarily to increased shareholder related
activities and performance related compensation expenses.
S-13
<PAGE>
OTHER OPERATING EXPENSES. The 1994 period included a $4.9 million
nonrecurring expense for the retirement of outstanding stock appreciation
rights. The 1993 period included a $1.7 million writedown of television program
rights as a result of management's assessment of their realizable value (based
upon projected future utilization of the programs) and the $3.0 million Actradio
nonrecurring expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $27.3
million in 1994 decreased by 3% compared to $28.2 million in 1993. The majority
of the decrease was due to the write-off of the obsolete Actradio delivery
equipment in 1993.
INTEREST EXPENSE. Interest expense declined from $31.5 million in June 1993
to $30.4 million in 1994 due primarily to the expiration of interest rate swaps
in June 1993.
OTHER EXPENSE. Included in the 1994 results of operations is a $1.4 million
non-cash charge to reflect the loss on the sale of television station KDLT-TV.
INCOME TAXES. Income tax expense for 1994 and 1993 relates primarily to
state income taxes. As of December 31, 1994, the Company had net operating loss
carryforwards of $76.7 million available to offset future taxable income for
federal income tax purposes. Only a portion of this amount, however, will reduce
the Company's income tax provision for financial statement purposes and the
remainder will be applied against goodwill and stockholders' equity upon
realization.
NET INCOME. Primarily as a result of an additional $22.8 million of
operating income, the Company improved its net income from $0.5 million in 1993
to $22.3 million in 1994. Net income applicable to shareholders reflects
settlement rights accretion of $19.5 million in 1994 versus $3.5 million in 1993
and preferred dividends of $0.1 million in 1994 compared to $1.8 million in
1993.
BALANCE SHEET: 1994 COMPARED TO 1993
Trade receivables increased approximately 7% from $47.9 million in 1993 to
$51.1 million in 1994 due primarily to a 9% increase in fourth quarter 1994
revenues compared to 1993. Deferred revenues declined from $17.3 million in 1993
to $13.9 million in 1994 due primarily to an approximate $9.0 million decline in
promotion revenues, which provide for substantial billings prior to execution of
the programs. Goodwill and other intangibles increased by $18.6 million from
1993 to 1994 due to $33.0 million of additions relating to acquisitions less
$13.0 million of amortization and the sale of the South Dakota television
station.
RESULTS OF OPERATIONS: 1993 COMPARED TO 1992
Consolidated net revenues of $291.2 million represented a 16% increase over
the 1992 revenues of $250.9 million. Cost of services of $151.1 million
increased 10% in 1993 compared to 1992 due primarily to the increase in net
revenues. Operating income of $35.0 million in 1993 exceeded the comparable 1992
period by 27%. The loss per share was $0.29 versus $1.76 in 1992. The
improvement in the Company's operating results for the 1993 period primarily
reflects revenue growth from the Instant Coupon Machine by the In-store
Marketing Group, increased local Television and Radio Group advertising revenues
and positive contributions from radio station acquisitions. The loss per share
in 1993 was lower than 1992 due principally to $7.4 million of additional
operating income, $6.0 million lower interest expense and increased average
shares outstanding. The 1993 period included a $3.0 million nonrecurring charge
for Actradio, a $1.7 million writedown of television broadcast program rights
and a $0.4 million extraordinary gain on the early extinguishment of debt. The
1992 period included a $3.3 million writeoff of the Company's investment in a
United Kingdom in-store marketing company and $3.6 million of extraordinary
losses, net, recognized as a result of the Company's 1992 refinancing
activities. All comparisons, unless otherwise noted, are for the year ended
December 31, 1993 versus the comparable 1992 period.
IN-STORE MARKETING. The In-store Marketing Group contributed $216.3 million
of revenues in 1993, an increase of 16% compared to $186.4 million in 1992. The
success of the ICM was a major contributor to the growth. The ICM generated
$63.0 million of revenues in its first full year which tripled the $21.0 million
level in 1992. Revenues from co-operative sampling and demonstration programs
increased by 16%, primarily as a result of management's decision to increase the
number of programs compared to 1992. Revenues generated per program registered a
small decrease from $3.6 million in 1992 to $3.5 million in 1993. The
international
S-14
<PAGE>
operations produced an additional $0.5 million of revenues in 1993 to a total of
$17.7 million. The international operations were impacted by the world-wide
recession, particularly in Canada. Advertising revenues in 1993 declined 10%
compared to 1992 reflecting the continuing trend toward promotion and the shift
to ICM and away from the shelf-talk product. Total Impact revenues declined by
16% to $53.0 million in 1993. The number of programs continued to decline from
141 in 1991 to 133 in 1992 and 108 in 1993. The demonstration business also
incurred increased competition during 1993, which adversely affected pricing.
Net revenues of the Actradio product increased to $6.6 million in 1993 from
$6.0 million in 1992.
In-store Marketing operating income of $21.9 million increased by 38% from
$15.9 million in the 1992 period due primarily to the increased 1993 revenues,
store operations efficiencies, and reduced Actradio losses. The operating margin
increased to 12%, excluding the $3.0 million Actradio charge, compared to 9% in
1992.
TELEVISION. The Television Group generated $41.5 million of revenues in
1993, a 5% increase compared to $39.7 million in 1992. The Television Bureau of
Advertising Time Sales Survey reported that industry-wide gross local revenues
increased by 4.4% and national revenues were up 1% compared to 1992. The
Television Group's local revenues increased 13% and national revenues improved
9% compared to the 1992 period. This favorable performance was substantially
offset by the decline of political advertising from $2.3 million in 1992 to $0.1
million in 1993. The revenue improvement was produced by the Oklahoma City and
Pensacola stations. The Pensacola station benefitted from local revenue growth
of 9% and national revenue growth of 19%. The Oklahoma City station (KOKH-TV)
generated revenues of $7.3 million in 1993 compared to $6.3 million in 1992
primarily as a result of a 21% increase in local revenues. The Television
Group's 1993 results included a $1.7 million write-down of the carrying value of
the rights to two television broadcast programs at two stations.
Operating income of $12.4 million, excluding the writedown, increased by 9%
compared to 1992 primarily as a result of higher revenues. The operating margin
improved from 29% in 1992 to 30% in 1993 excluding the write-down.
RADIO. Net revenues of the Radio Group increased by 35% from $24.7 million
in 1992 to $33.4 million in 1993 as all of the Company's stations experienced
increased revenues. The radio stations acquired in June 1992 contributed $3.0
million of the increase and the 1993 acquisitions contributed $1.5 million of
the increase. Revenues for the stations owned for all of both periods increased
21% primarily as a result of improved station ratings. The St. Louis station
increased revenues from $4.9 million to $7 million in 1993 primarily due to the
achievement of the number one ranking station in the market.
Operating income grew from $3.3 million in 1992 to $6.0 million in 1993
primarily as a result of the improved revenues by the stations owned for all of
both periods and an additional $0.2 million contributed by the acquired
stations.
CORPORATE EXPENSES. Corporate expenses in 1993 of $3.6 million increased
compared to $2.9 million in 1992 due primarily to increased investor relations
activities and performance related compensation payments.
OTHER OPERATING EXPENSES. As noted above, the 1993 period included a $1.7
million write-down of television program rights as a result of management's
assessment of their realizable value (based upon projected future utilization of
the programs) and the $3.0 million of Actradio nonrecurring expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $28.2
million in 1993 increased by 8% compared to $26.1 million in 1992. The majority
of the increase was due to higher depreciation associated with the capital
expenditures to support the growth of Instant Coupon Machine revenues.
INTEREST EXPENSE. Interest expense in 1993 of $31.5 million decreased
compared to $37.5 million in 1992, reflecting a decrease in both current and
deferred interest. The decrease in current interest expense from 1992 to 1993 is
due to lower debt levels and interest rates. Deferred interest, resulting from
the accretion of certain debt obligations, decreased to zero in 1993 as a result
of the retirement of these obligations in 1992.
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NET INCOME (LOSS). Primarily as a result of an additional $12.1 million of
operating income (excluding writedowns and nonrecurring charges) and $6.0
million lower interest expense, the Company improved its operating results from
an $18.6 million loss in 1992 to $.5 million in earnings in 1993. The loss per
share in 1993 is due to the preferred dividend payments and settlement rights
accretion.
SEASONALITY AND INFLATION
The advertising revenues of the Company vary over the calendar year, with
the fourth quarter reflecting the highest revenues for the year. Stronger fourth
quarter results are due in part to the In-store Marketing Group having one extra
four-week cycle in the fourth quarter and increased retail advertising for
broadcasting in election years. The slowdown in retail sales following the
holiday season accounts for the relatively weaker results generally experienced
in the first quarter. The Company believes inflation generally has had little
effect on its results.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities totaling $32.5 million for the
nine months ended September 30, 1995 decreased slightly compared to $34.7
million for the same period in 1994 as the improved operating results in 1995
were more than offset by higher working capital requirements. For the nine
months ended September 30, 1995, cash flows from operations of $32.5 million and
cash on hand were principally utilized for acquisitions and investments ($20.3
million), capital expenditures ($13.1 million), and debt and other liabilities
reduction ($3.0 million).
Cash flows provided by operating activities totaling approximately $50.0
million for the year ended December 31, 1994 increased compared to approximately
$41.0 million in the year ended December 31, 1993 due primarily to the improved
operating results reduced by additional working capital requirements. For the
year ended December 31, 1994, cash flows from operations of $50.0 million and
net long-term borrowings of $11.0 million were principally utilized for the
retirement of settlement rights ($39.0 million), net capital expenditures and
investments ($10.9 million), acquisitions ($6.9 million), and other debt
reduction ($2.8 million).
Cash flows provided by operating activities increased to approximately $41.0
million for the year ended December 31, 1993 from $17.0 million in the year
ended December 31, 1992. This improvement was primarily attributed to improved
operating results, a $4.0 million decrease in interest payments in 1993 and
improved receivable collections. For the year ended December 31, 1993,
significant uses of cash for investing and financing activities included the
following: $9.0 million for the retirement of debt and other liabilities, $2.8
million for retirement of settlement rights, $5.1 million for acquisitions, and
$19.2 million for net capital expenditures and investments. For the year ended
December 31, 1992, cash flows from financing activities included $42.1 million
of net proceeds from the issuance of additional Company Common Stock. These
proceeds were used primarily to fund the $30.0 million cash component of the
Company's 8% subordinated note retirement and to fund the $7.9 million
acquisition of the Kansas City and Cincinnati radio stations.
At September 30, 1995, the Company, through Heritage Media Services, Inc.
("HMSI"), a wholly owned subsidiary of the Company, had a $155.0 million bank
credit facility (the "HMSI Credit Agreement"). HMSI owns ACTMEDIA and the
Company's broadcasting properties. The HMSI Credit Agreement was comprised of an
$80.0 million term loan which began to amortize on December 31, 1994, continuing
until June 1999 and a $75.0 million reducing revolving credit facility. The
Company completed an amendment to the HMSI Credit Agreement on May 24, 1995
which renewed the available funds to $151.4 million deferring principal payments
to 1997 through 1999. At September 30, 1995, $76.4 million of the term loan
facility and $44.0 million of the revolving credit facility were outstanding and
$31.0 million of additional borrowings were available under the HMSI Credit
Agreement. The HMSI Credit Agreement includes a number of financial and other
covenants, including the maintenance of certain operating and financial ratios
and limitations on or prohibitions of dividends, indebtedness, liens, capital
expenditures, asset sales and certain other items. Loans under the HMSI Credit
Agreement are guaranteed by the Company and HMSI's domestic subsidiaries and are
secured by a pledge of the capital stock of HMSI and its domestic subsidiaries.
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On June 22, 1992, HMSI issued $150.0 million of 11% Senior Secured Notes
(the "HMSI Notes") due June 15, 2002. Interest on the HMSI Notes is payable
semi-annually. The HMSI Notes rank on a parity with the obligations under the
HMSI Credit Agreement, are guaranteed by the Company and HMSI's domestic
subsidiaries and are secured by a pledge of capital stock of HMSI and its
domestic subsidiaries.
On October 1, 1992 the Company issued $50.0 million of 11% Senior
Subordinated Notes (the "1992 Notes") due October 1, 2002. Interest on the 1992
Notes is payable semi-annually. The 1992 Notes are subordinate in right of
payment to the prior payment in full of the HMSI Credit Agreement and the HMSI
Notes.
The Company has reduced its debt to EBITDA ratio from 8.3 in 1990 to 3.9 in
1994. The EBITDA to interest coverage ratio has increased from one in 1989 to
three in 1994. However, the Company is still highly leveraged and is expected to
continue to have a high level of debt for the foreseeable future. See "Risk
Factors" in the Prospectus.
The Company estimates that net cash provided by operations during the fourth
quarter of 1995 was in excess of $40.0 million. The major requirements for cash
during such period included $2.0 million for debt principal payments, $13.0
million for interest payments, $3.0 million for lease and contractual
obligations and approximately $3.5 million for capital expenditures. As a
result, subject to any future investments and/or acquisitions, the Company
anticipates reducing debt outstanding under its Credit Agreement with the
remainder of the net cash generated from operations.
FINANCING OF DIMAC ACQUISITION
On October 23, 1995, the Company and DIMAC Corporation announced that they
have entered into the Merger Agreement, pursuant to which DIMAC will become a
wholly owned subsidiary of the Company in a transaction valued at approximately
$255.0 million. Under the terms of the Merger Agreement, each of the
approximately 6.95 million fully diluted shares of DIMAC common stock will be
exchanged for the Merger Consideration. The Company may elect to pay up to $7.00
of the Merger Consideration by issuing shares of Company Common Stock. The
merger will be accounted for by the Company as a purchase.
Closing of the Acquisition is anticipated on or about February 21, 1996 and
is subject to the satisfaction of various conditions, including certain
regulatory filings and the approval of the shareholders of DIMAC. The Company
entered into agreements with certain principal stockholders who hold
approximately 33% of DIMAC's common stock to vote their shares in favor of the
Acquisition.
Immediately prior to the Acquisition, the Company will enter into the DIMAC
Credit Facility. The Company anticipates that approximately $111.6 million of
borrowings drawn under the DIMAC Credit Facility, together with the net proceeds
from the issuance of the Notes, will be used to finance the Acquisition. The
Company has received a commitment from a group of commercial banks (for which
NationsBank of Texas, N.A. and Citibank, N.A. will serve as agents) to provide
such financing in the maximum amount of $175.0 million. The commitment specifies
that $125.0 million of the financing will be in the form of a revolving credit
facility in the initial amount of $125.0 million and reducing in installments
commencing March 31, 1998 through the final maturity date of March 31, 2003. The
commitment further specifies that $50.0 million of the financing will be in the
form of a 7 1/4 year term loan facility, payable in quarterly installments
commencing September 30, 1997. Advances under the DIMAC Credit Facility will
bear interest at fluctuating rates, initially estimated to be Citibank's base
rate plus .125%, or (at the option of the Company) LIBOR plus 1.375%. The
Company will guarantee DIMAC's obligations under the new DIMAC Credit Facility
and will pledge the stock of DIMAC to secure advances thereunder. The new DIMAC
Credit Facility is expected to contain various restrictive covenants, including
limitations on additional indebtedness, sales of assets, acquisitions of assets
and payment of dividends, and is also expected to require DIMAC to maintain
compliance with various financial ratios. The terms of the new DIMAC Credit
Facility are subject to the satisfactory negotiation of definitive documents.
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<PAGE>
FOREIGN EXCHANGE
The Company has foreign operations, primarily in Canada, Europe, and
Australia/New Zealand. Exchange rate fluctuations between the currencies of
these countries and the U.S. Dollar result in the translation and reporting of
carrying amounts of foreign investments which vary from year to year in the
Company's consolidated financial statements. Based on the current scope of its
foreign operations, the Company believes that any such fluctuations would not
have a material adverse effect on the Company's consolidated financial condition
or results of operations as reported in U.S. Dollars.
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DESCRIPTION OF NOTES
The following description of the particular terms of the Notes supplements
and, to the extent inconsistent therewith, replaces the description of the
general terms of the Securities set forth under the heading "Description of Debt
Securities" in the accompanying Prospectus, to which description reference is
made. The Notes will be issued under an Indenture, as supplemented by a
Supplemental Indenture (together the "Indenture"), dated as of February ,
1996, between the Company and The Bank of New York as Trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act"), as in effect on the date of the Indenture. The following is a
summary of the material terms and provisions of the Notes and the Indenture.
This summary does not purport to be a complete description of the Notes and the
Indenture and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Notes and the Indenture (including the definitions
contained therein). 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.
GENERAL
The Notes will be limited in aggregate principal amount to $150.0 million.
The Notes will be senior subordinated obligations of the Company, subordinated
in right of payment to Senior Indebtedness of the Company, including amounts
outstanding under the credit agreements of the Company's Subsidiaries
(guaranteed by the Company), and senior in right of payment to any current or
future subordinated indebtedness of the Company. The Notes will rank PARI PASSU
in right of payment with the 1992 Notes.
MATURITY AND INTEREST
The Notes will mature on , 2006. Interest on the Notes will accrue
at the rate of % per annum and will be payable semi-annually in arrears on
and in each year (each, an "Interest Payment Date"), commencing
, 1996. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
OPTIONAL REDEMPTION
The Notes are not redeemable at the option of the Company prior to ,
2001, except as expressly provided below. Thereafter, the Notes will be subject
to redemption, at the option of the Company, either in whole or in part, upon
not less than 30 nor more than 60 days' prior notice mailed to each Holder of
Notes to be redeemed at the address appearing in the register, at any time or
from time to time at the following redemption prices (expressed as percentages
of principal amount), in each case together with accrued and unpaid interest to
the date fixed for redemption if redeemed during the 12-month period beginning
of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001.................................................................... %
2002.................................................................... %
2003.................................................................... %
2004 and thereafter..................................................... 100.00%
</TABLE>
In addition, the Company will be required to redeem the Notes as described
below under "--Special Redemption" and may be required to offer to repurchase
Notes at any time as described below under "--Change of Control" and
"--Covenants--Limitations on Sales of Assets."
SPECIAL REDEMPTION
The Notes offered hereby will be subject to mandatory redemption (the
"Special Redemption") at a redemption price equal to 101% of their issue price
to the public, plus accrued interest to the date of redemption, if the
Acquisition is not consummated on or before the Special Redemption Date. See
"Recent Developments."
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Pursuant to the Indenture, the Company will deposit the net proceeds from
the sale of the Notes offered hereby with the Trustee on the date of issuance
thereof, together with such other amount as, when added to such net proceeds,
equals $ million, plus an amount equal to the interest thereon at the rate
of % per annum until the Special Redemption Date. All amounts deposited with
the Trustee and any accrued interest thereon (collectively, the "Trust Funds")
will be pledged to and held by the Trustee pursuant to the Indenture as security
for the Notes. The Indenture will provide that if, on or prior to the Special
Redemption Date, the Company delivers to the Trustee a certificate stating that
the Acquisition has been consummated, then the Trustee will release the Trust
Funds to the Company. Following release of the Trust Funds, the Notes will be
unsecured obligations of the Company.
Pending release of the Trust Funds as provided in the Indenture, the Trust
Funds will be invested in Cash Equivalents as directed by the Company. If a
Special Redemption is required, the Notes will be redeemed with the Trust Funds.
See "--Covenants--Deposit of Proceeds with Trustee Pending Consummation of
Acquisition."
RANKING
The indebtedness evidenced by the Notes will be subordinated to the prior
payment when due of all Senior Indebtedness of the Company. At September 30,
1995, there was an aggregate of approximately $292.1 million of Senior
Indebtedness outstanding including $291.7 million of the Company's Guarantee
Obligations. At September 30, 1995, on a pro forma basis after giving effect to
the Acquisition (assuming that the consideration is comprised entirely of cash),
there will be an aggregate of approximately $391.2 million of Senior
Indebtedness outstanding.
The Indenture provides that in the event that any default in the payment of
principal of (or premium, if any), interest on, or sinking fund obligation with
respect to any Senior Indebtedness beyond any applicable period of grace shall
have occurred and be continuing, permitting the holders of such Senior
Indebtedness (or a trustee on behalf of the holders thereof) to accelerate the
maturity thereof, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no payment may be made on or in respect of
the Notes, including any payment for the repurchase of Notes upon Change of
Control.
In the event that any default with respect to any Senior Indebtedness (other
than a default in the payment of any principal of (or premium, if any), interest
on, or sinking fund obligation with respect to such Senior Indebtedness) beyond
any applicable period of grace shall have occurred and be continuing, permitting
the holders of such Senior Indebtedness (or a trustee on behalf of the holders
thereof) to accelerate the maturity thereof, or if an event of default in
respect of Senior Indebtedness would result upon any payment with respect to the
Notes, then unless such default or event of default has been cured or waived or
otherwise has ceased to exist, upon receipt by the Trustee of written notice
from the holders of at least a majority in principal amount of such Senior
Indebtedness then outstanding, no such payment may be made by the Company upon
or in respect of the Notes for a period ("Payment Blockage Period") commencing
on the date of receipt of such notice and ending 179 days thereafter (unless
such Payment Blockage Period shall be terminated by written notice to the
Trustee from such holders initiating the Payment Blockage Period). Any number of
such notices may be given; PROVIDED, HOWEVER, that (i) during any 360
consecutive days, the aggregate of all Payment Blockage Periods shall not exceed
179 days, (ii) there shall be a period of at least 181 consecutive days in each
360-day period when no Payment Blockage Period is in effect and (iii) any
default or event of default that resulted in the commencement of a 179-day
Payment Blockage Period may not be the basis for the commencement of any other
179-day Payment Blockage Period.
CHANGE OF CONTROL
In the event that a Change of Control (as defined below) has occurred, each
Holder of Notes will have the right, subject to the terms and conditions of the
Indenture, to require that the Company repurchase all or a portion of such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the Repurchase Date (as
defined below), in accordance with the terms set forth below (the "Change of
Control Offer"). Any rights of Holders arising pursuant to a Change of Control
Offer shall be subordinated in right of payment to all Senior Indebtedness of
the Company to the same extent as the Notes are subordinated to Senior
Indebtedness of the Company.
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Within 30 days following a Change of Control, the Company will mail a notice
to each Holder of a Note stating: (i) that a Change of Control has occurred and
that such Holder has the right to require the Company to repurchase all or a
portion of such Holder's Notes at a repurchase price in cash equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
Repurchase Date; (ii) the circumstances and relevant facts regarding such Change
of Control (including information with respect to income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
repurchase date specified by the Company (which shall be not earlier than 45
days or later than 60 days from the date such notice is mailed (the "Repurchase
Date"); and (iv) the instructions determined by the Company consistent with the
Indenture that a Holder of Notes must follow in order to have its Notes
repurchased. Holders of Notes will have the right to have their Notes
repurchased by the Company if such Notes are properly tendered for repurchase at
any time beginning on the date such notice is mailed and ending at the close of
business on the fifth business day prior to the applicable Repurchase Date.
As used herein, a "Change of Control" means (i) directly or indirectly, a
sale, transfer or other conveyance of all or substantially all of the assets of
the Company, on a consolidated basis, (ii) 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) being or becoming the "beneficial owner" (as such
term is used for purposes of Section 13(d) of the Exchange Act, whether or not
applicable), directly or indirectly, of more than 50% of the total Voting Power
of the Company or (iii) the Continuing Directors cease for any reason to
constitute a majority of the directors of the Company then in office.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1 thereunder, in connection
with any offer required to be made by the Company to repurchase Notes as a
result of a Change of Control.
COVENANTS
LIMITATIONS ON INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK
The Indenture prohibits the Company and any Restricted Subsidiary of the
Company from (i) creating, issuing, incurring or assuming any Indebtedness and
(ii) issuing any Disqualified Capital Stock unless at the time of such
Incurrence or issuance and after giving effect thereto, all Indebtedness of the
Company and its Restricted Subsidiaries and Disqualified Capital Stock of the
Company, on a consolidated basis, shall not be more than 6.5 times Pro Forma
Operating Cash Flow for the four full fiscal quarters immediately preceding such
Incurrence.
Notwithstanding the foregoing, the Indenture does not limit the incurrence
of any of the following (collectively "Permitted Indebtedness"):
(i) Indebtedness evidenced by the Notes;
(ii) Indebtedness incurred by the Company or a Restricted Subsidiary or
Disqualified Capital Stock issued by the Company that does not exceed $40.0
million at any time outstanding;
(iii) Indebtedness incurred by the Company or a Restricted Subsidiary of
the Company or Disqualified Capital Stock issued by the Company, the
proceeds of which are used to refinance outstanding Indebtedness of the
Company or such Restricted Subsidiary in a principal amount not to exceed
the principal amount so refinanced plus financing fees and other reasonable
expenses associated with such refinancing; PROVIDED, HOWEVER, that (x) the
Weighted Average Life to Maturity of such Indebtedness shall be no shorter
than the Weighted Average Life to Maturity of the refinanced Indebtedness
and (y) if the refinanced Indebtedness is not Senior Indebtedness, such
refinanced Indebtedness is subordinated in all respects to the Notes;
(iv) Indebtedness outstanding at any time under, or in respect of, the
Credit Agreements in an aggregate principal amount not to exceed $330.0
million at any one time outstanding;
(v) Indebtedness entered into pursuant to Interest Swap Agreements; and
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(vi) Indebtedness issued to and held or owned by the Company or a Wholly
Owned Subsidiary of the Company that is a Restricted Subsidiary (but only so
long as held or owned by the Company or such Wholly Owned Subsidiary of the
Company that is a Restricted Subsidiary); PROVIDED, HOWEVER, that the
obligations of the Company to any of its Wholly Owned Subsidiaries with
respect to such indebtedness shall be evidenced by an intercompany
promissory note and shall be subordinated in right of payment to the payment
and performance of the Company's obligations under the Indenture and the
Notes.
LIMITATIONS ON SALES OF ASSETS
The Indenture prohibits the Company and any of its Restricted Subsidiaries
from making any Asset Sale unless:
(i) the consideration received by the Company or such Restricted
Subsidiary at the time of the Asset Sale is at least equal to the fair
market value of the shares or assets subject to such Asset Sale and
(ii) at least 85% of the consideration received consists of cash or
readily marketable cash equivalents, PROVIDED THAT (a) any Indebtedness
assumed by the acquiror in the Asset Sale shall be deemed to be cash for
purposes of this covenant and (b) an Asset Sale which is all or a portion of
an Asset Swap shall not be subject to this requirement.
The provisions of this covenant shall not apply to a Permitted Spin-Off. The
Company or a Restricted Subsidiary may, within 365 days of such Asset Sale,
invest the Net Proceeds, as defined below, in the acquisition of a Related
Business. The amount of such Net Proceeds not invested in a Related Business as
set forth in this paragraph constitutes "Excess Proceeds."
For purposes of the foregoing, "Net Proceeds" means the aggregate amount of
cash (including other consideration that is converted into cash) received by the
Company or a Restricted Subsidiary in respect of such Asset Sale, less the sum
of (i) all fees, commissions and other expenses incurred in connection with such
Asset Sale, including the amount of income taxes required to be paid by the
Company or such Restricted Subsidiary in connection therewith and (ii) the
aggregate amount of cash so received which is used to retire any existing Senior
Indebtedness of the Company and its Restricted Subsidiaries or Indebtedness that
is ranked PARI PASSU with the Notes which is required to be repaid in connection
therewith. If at any time any funds are received by or for the account of the
Company or any of its Restricted Subsidiaries upon the sale, conversion,
collection or other liquidation of any non-cash consideration received in
respect of an Asset Sale, such funds shall, when received, constitute Net
Proceeds and may within 180 days after the receipt of such funds, be applied as
provided in the preceding paragraph as determined by the Company.
The Indenture provides that when the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company is required to make an offer to purchase the
Notes (the "Offer to Purchase") pro rata with any purchase of the 1992 Notes
pursuant to the indenture thereunder in an aggregate principal amount equal to
such Excess Proceeds at a purchase price of 100% of their principal amount plus
accrued and unpaid interest thereon to the date of purchase in accordance with
provisions (including provisions for prorations in the event of
oversubscription) set forth in the Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to the Offer to Purchase is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. Upon completion of the purchase of Notes tendered pursuant
to an Offer to Purchase, the amount of Excess Proceeds shall be reset to zero.
LIMITATIONS ON RESTRICTED PAYMENTS
The Indenture prohibits the Company and its Restricted Subsidiaries from
making any Restricted Payment unless at the time of and after giving effect to
such Restricted Payment (i) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; (ii) the Company
could incur at least $1.00 of additional Indebtedness (pursuant to the
provisions described under "-- Limitations on Indebtedness and Disqualified
Capital Stock" above (without regard to the second paragraph thereof); and (iii)
the total of all Restricted Payments of the Company and its Restricted
Subsidiaries on or after the date of the Indenture does not exceed an amount
equal to the sum of (a) Cumulative Operating Cash Flow of the Company and its
Restricted Subsidiaries LESS 1.4 times Cumulative Total Interest Expense of the
Company and its Restricted Subsidiaries PLUS (b) an amount equal to 100% of the
aggregate Qualified
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<PAGE>
Capital Stock Proceeds PLUS (c) $15.0 million. Notwithstanding the foregoing,
the provisions of this covenant will not prohibit (x) aggregate Restricted
Payments by the Company equal to 100% of aggregate Qualified Capital Stock
Proceeds from the contemporaneous sale of Qualified Capital Stock of the Company
if such Restricted Payments are used to redeem, repurchase or retire outstanding
shares of Capital Stock of the Company after the date of the Indenture or (y)
payment of any dividend within 60 days of the date of its declaration if at the
date of declaration such payment would have been permitted. The provisions of
this covenant shall not apply to a Permitted Spin-Off.
LIMITATIONS ON LIENS
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will incur, assume, suffer to exist, create or otherwise cause to
be effective Liens upon any of their respective assets to secure Indebtedness
except: (i) Liens existing on the date of the Indenture; (ii) Liens incurred or
pledges and deposits in connection with workers' compensation, unemployment
insurance and other social security benefits, leases, appeal bonds and other
obligations of like nature incurred by the Company or any Restricted Subsidiary
in the ordinary course of business; (iii) Liens imposed by law, including,
without limitation, mechanics', carriers', warehousemen's, materialmen's,
suppliers' and vendors' Liens, incurred by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; (iv) zoning restrictions,
easements, licenses, covenants, reservations, restrictions on the use of real
property or minor irregularities of title incident thereto, which do not in
aggregate have a material adverse effect on the operation of the business of the
Company or its Subsidiaries taken as a whole; (v) Liens for AD VALOREM, income
or property taxes or assessments and similar charges either (a) not delinquent
or (b) contested in good faith by appropriate proceedings and as to which the
Company has set aside on its books reserves to the extent required by GAAP; (vi)
Liens in respect of purchase money Indebtedness incurred to acquire assets,
PROVIDED THAT such Liens are limited to the assets or acquired with the proceeds
of such Indebtedness (and the proceeds of such assets); (vii) Liens securing
assets leased pursuant to Capital Lease Obligations permitted by the covenant
described under "--Limitations on Indebtedness and Disqualified Capital Stock";
(viii) Liens securing Indebtedness permitted by the covenant described above
under "--Limitations on Indebtedness and Disqualified Capital Stock"; (ix) Liens
on any assets of any Restricted Subsidiary of the Company which assets are
acquired by the Company or any of its Restricted Subsidiaries subsequent to the
date of the Indenture, and which Liens were in existence on or prior to the
acquisition of such assets of such Restricted Subsidiary (to the extent that
such Liens were not created in contemplation of such acquisition), PROVIDED THAT
such Liens are limited to the assets so acquired and the proceeds thereof; and
(x) Liens imposed pursuant to condemnation or eminent domain or substantially
similar proceedings.
LIMITATIONS ON RANKING OF FUTURE INDEBTEDNESS
The Indenture provides that the Company will not create, issue, incur,
assume, guarantee or otherwise become directly or indirectly liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness of the Company and senior in any respect in right of payment to the
Notes.
LIMITATIONS ON ISSUANCE OF RESTRICTED SUBSIDIARY STOCK
The Indenture provides that the Company and its Restricted Subsidiaries
shall not transfer, convey, sell, lease or otherwise dispose of any Capital
Stock of any such Restricted Subsidiary to any Person other than the Company and
no Restricted Subsidiary shall issue shares of its Capital Stock or securities
convertible into, or warrants, rights or options, to subscribe for or purchase
shares of, its Capital Stock to any Person other than the Company. The
provisions of this covenant shall not apply to a Permitted Spin-Off.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Indenture prohibits the Company and its Restricted Subsidiaries from
entering into any transaction (including, without limitation, any purchase,
sale, lease or exchange of property or the rendering of any service) with (i)
any holder of 10% or more of any class of equity securities of the Company or
any Affiliate of the Company or (ii) any Affiliate (other than the Company or a
Restricted Subsidiary) of (a) any such holder or (b) any Restricted Subsidiary
of any such holder, unless a majority of the disinterested members of the Board
of Directors of the Company determine (which determination will be evidenced by
a resolution submitted to the Trustee) that (x) such transaction is in the best
interests of the Company and (y) such
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transaction is on terms that are no less favorable to the Company, or such
Restricted Subsidiary, as the case may be, than those which might be obtained at
the time from Persons who are not such a holder or Affiliate; PROVIDED, HOWEVER,
that any transaction or series of related transactions with an aggregate value
of $5.0 million or more shall, in addition to the foregoing, require an opinion
delivered to the Trustee by a nationally recognized investment bank to the
effect that such transaction is fair from a financial point of view to the
Company; PROVIDED, FURTHER, if there are no disinterested members of the Board
of Directors any transactions or series of related transactions with an
aggregate value of $1.0 million or more shall, in lieu of requiring the approval
of such disinterested members, require such a fairness opinion; and PROVIDED,
FURTHER, if there are no disinterested members of the Board of Directors, as
applicable, any transactions or series of related transactions with an aggregate
value of less than $1.0 million shall require the determination required above
by a vote of the Board of Directors. The foregoing restrictions shall not apply
to (i) Restricted Payments permitted under "--Limitation on Restricted
Payments," (ii) payment of any dividend within 60 days of the date of its
declaration if at the date of declaration such payment would have been permitted
or (iii) other transactions expressly permitted to be made under the Indenture.
REPORTS TO HOLDERS OF THE NOTES
The Company will furnish the information required by Sections 13 and 15(d)
of the Exchange Act to the Commission and to the Holders of the Notes. The
Indenture provides that even if the Company is entitled under the Exchange Act
not to furnish such information to the Commission and to the Holders of the
Notes, it shall nonetheless continue to furnish such information to the
Commission, the Trustee and the Holders of the Notes as if it were subject to
such periodic reporting requirements.
DEPOSIT OF PROCEEDS WITH TRUSTEE PENDING CONSUMMATION OF ACQUISITION.
On the date of issuance of the Notes offered hereby, the Company shall
deposit with the Trustee the net proceeds from the sale of the Notes offered
hereby, together with such other amount as, when added to such net proceeds,
equals $ million, plus an amount equal to the interest thereon at the rate
of % per annum until the Special Redemption Date.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company (i) shall not consolidate with or
merge into any Person, (ii) shall not permit any other Person to consolidate
with or merge into the Company or any Restricted Subsidiary of the Company,
(iii) shall not, directly or indirectly, transfer, sell, convey, lease or
otherwise dispose of all or substantially all of its assets as an entirety and
(iv) shall not, and shall not permit any Restricted Subsidiary of the Company
to, directly or indirectly (a) acquire Capital Stock or other ownership
interests in any other Person such that such Person becomes a Subsidiary of the
Company or (b) purchase, lease or otherwise acquire all or substantially all of
the property and assets of any Person as an entirety or an existing business
unless (1) the successor or transferee (if other than the Company) is a United
States corporation, (2) the successor or transferee (if other than the Company)
assumes all of the obligations of the Company under the Notes and the Indenture,
(3) the Consolidated Net Worth of the Company or such successor or transferee
immediately after the transaction is at least equal to the Company's
Consolidated Net Worth immediately prior to the transaction, (4) immediately
after giving effect to such transaction, the Company would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the provisions described
under "--Covenants--Limitation on Indebtedness and Disqualified Capital Stock"
above (without regard to the second paragraph thereof) and (5) after giving
effect to such transaction no Event of Default or event which, with the notice
or lapse of time or both, would become an Event of Default has occurred and is
continuing. For the purposes of this covenant, a Transaction defined in
sub-paragraph (iii) of the definition of a Permitted Spin-Off will constitute an
indirect disposition of substantially all of the assets of the Company within
sub-paragraph (iii) above, and will be subject to the provisions contained
herein.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (i) failure to pay
(a) principal of or premium, if any, on the Notes when due whether at maturity
or otherwise or (b) the repurchase price of the Notes payable pursuant to the
exercise of a repurchase option upon a Change of Control or upon an Asset Sale;
(ii) failure to pay any interest on the Notes when due, continued for 30 days;
(iii) failure to perform any other
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covenant, or the breach of any warranty, in the Indenture, continued for 60 days
after written notice by the Trustee or by the Holders of at least 25% in
principal amount of the outstanding Notes as provided in the Indenture; (iv) a
default under any Indebtedness of the Company or any of its Subsidiaries whether
such Indebtedness exists as of the date of the Indenture or is thereafter
created, which default shall have resulted in such Indebtedness in excess of
$5.0 million becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable without such acceleration
having been annulled or rescinded as provided in the Indenture; (v) failure by
the Company or any of its Subsidiaries to pay certain final judgments
aggregating in excess of $5.0 million which judgments are not stayed within 60
days after their entry; and (vi) certain events of bankruptcy, insolvency or
reorganization of the Company or any of its Material Subsidiaries. If an Event
of Default shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Notes outstanding, by notice
as provided in the Indenture, may declare the principal amount of the Notes to
be due and payable immediately. However, at any time after a declaration of
acceleration with respect to the Notes has been made, but before a judgment or
decree based on such acceleration has been obtained, the Holders of a majority
in aggregate principal amount of the Notes may, under certain circumstances,
rescind and annul such acceleration. For information as to waiver of defaults,
see "--Modification and Waiver" below.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the Holders of at least 25% in aggregate principal amount of
the Outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the Outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a Holder of a
Note for enforcement of payment of the principal of (and premium, if any) or
interest on such Note on or after the respective due dates expressed in such
Note.
DEFEASANCE
The Indenture provides that (i) the Company will be discharged from any and
all obligations in respect of Outstanding Notes or (ii) the Company may omit to
comply with certain restrictive covenants, and that such omission shall not be
deemed to be an Event of Default under the Indenture and the Notes, in either
case (i) or (ii) upon irrevocable deposit with the Trustee, in trust, of money
and/or U.S. government obligations which will provide money in an amount
sufficient in the opinion of a nationally recognized accounting firm to pay the
principal of, and premium, if any, and each installment of interest, if any, on
the Outstanding Notes. With respect to clause (ii), the obligations under the
Indenture other than with respect to such covenants and the Events of Default
other than the Event of Default relating to such covenants above shall remain in
full force and effect. Such trust may only be established if, among other
things, (i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or there has been a change in law, which in
the Opinion of Counsel provides that Holders of the Notes will not recognize
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred; (ii) no Event of
Default or event which, with notice or the lapse of time, or both, shall
constitute an Event of Default shall have occurred and be continuing; (iii) the
Company has delivered to the Trustee an Opinion of Counsel to the effect that
such deposit shall not cause the Trustee or the trust so created to be subject
to the Investment Company Act of 1940; and (iv) certain other customary
conditions precedent.
THE TRUSTEE
The Indenture provides that, subject to the duty of the Trustee during an
Event of Default to act with the required standard of care, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable security or indemnity. Subject to certain
provisions, including those requiring
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security or indemnification of the Trustee, the Holders of a majority in
aggregate principal amount of the Notes 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.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of its obligations under the Indenture and
as to any default in such performance.
CERTAIN DEFINITIONS
"Adjusted Net Income" means net income before extraordinary gains or losses
and before gains or losses in respect of the sale, lease, conveyance or other
disposition of assets not in the ordinary course of business realized during any
given period.
"Affiliate" of a Person means any other Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with such
Person. For purposes of this definition, "control," when used with respect to
any Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Asset Sale" by any Person means any transfer, conveyance, sale, lease or
other disposition by such Person or any of its Subsidiaries (including a
consolidation, merger or other sale of any such Subsidiaries with, into or to
another Person in a transaction in which such Subsidiary ceases to be a
Subsidiary, but excluding a disposition by a Subsidiary of such Person to such
Person or a Wholly Owned Subsidiary of such Person or by such Person to a Wholly
Owned Subsidiary of such Person) of (i) shares of Capital Stock (other than
directors' qualifying shares) or other ownership interests of a Subsidiary of
such Person, (ii) substantially all of the assets of such Person or any of its
Subsidiaries representing a division or line of business or (iii) other assets
or rights of such Person or any of its Subsidiaries, whether owned on the date
of the Indenture or thereafter acquired, in one or more related transactions,
having a value of $5.0 million or more, in the aggregate.
"Asset Swap" means any transaction pursuant to which property or assets of
the Company or a Restricted Subsidiary of the Company constituting a part of the
Company's Broadcasting Business or all of the shares of Capital Stock of a
Restricted Subsidiary of the Company, the property and assets of which
constitute a part of the Company's Broadcasting Business are to be exchanged for
property or assets constituting a part of the Broadcasting Business of another
Person or all of the shares of Capital Stock of another Person the property and
assets of which constitute a part of a Broadcasting Business.
"Broadcasting Business" of any Person means any or all of the television
stations or radio stations owned by such Person.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP. The stated
maturity of such obligation shall be the date of the last payment of rent or
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
partnership interests of such Person.
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition, issued, fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit, time
deposits, overnight bank deposits, bankers' acceptances and repurchase
agreements issued by a Qualified Issuer having maturities of 270 days or less
from the date of acquisition, (c) commercial paper of an issuer rated at least
A-2 by Standard & Poor's Corporation or P-2 by Moody's Investors Service, or
carrying an equivalent rating by a nationally recognized rating agency if both
of the two named rating agencies cease publishing ratings of investments and
having maturities of 270 days or less from the date of acquisition, and (d)
money market accounts or funds with or issued by Qualified Issuers.
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"Consolidated Net Worth" means, with respect to any Person (i) other than a
partnership, the stockholders' equity of such Person and its Subsidiaries, other
than Disqualified Capital Stock, as determined on a consolidated basis, LESS (a)
all investments in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, investments in marketable securities) and
(b) all unamortized debt discount and expense and unamortized deferred charges
and (ii) that is a partnership, the common and preferred partnership equity of
such Person and its Subsidiaries, other than Disqualified Capital Stock, as
determined on a consolidated basis, all of the foregoing determined in
accordance with GAAP.
"Continuing Directors" means any member of the Board of Directors of the
Company who (i) is a member of that Board of Directors on the date of the
Indenture or (ii) was nominated for election or elected to the Board of
Directors with the affirmative vote of a majority of the Continuing Directors
who were members of the Board at the time of such nomination or election.
"Credit Agreements" means (i) the Credit Agreement entered into by and among
the Company, Heritage Media Services, Inc., certain financial institutions
parties thereto, Citibank, N.A. ("Citibank"), as agent, and NationsBank of
Texas, N.A. ("NationsBank"), as co-agent, initially providing for an $80.0
million term loan facility and a $75.0 million revolving loan facility, and (ii)
the Credit Agreement entered into by and among DIMAC Corporation, certain
financial institutions parties thereto, Citibank and NationsBank, as agents,
initially providing for a $50.0 million term loan facility and a $125.0 million
revolving loan facility; WHEREBY both clauses (i) and (ii) include any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, in each case as the same may be amended, modified,
renewed, refunded or refinanced from time to time as permitted by the covenant
described under "Limitation on Indebtedness and Disqualified Capital Stock."
"Cumulative Operating Cash Flow" of a Person means the Operating Cash Flow
of such Person and its consolidated Subsidiaries for the period beginning
, , through and including the end of the most recently ended fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment.
"Cumulative Total Interest Expense" of a Person means the Total Interest
Expense of such Person and its consolidated Subsidiaries for the period
beginning , , through and including the end of the most recently
ended fiscal quarter (taken as one accounting period) preceding the date of any
proposed Restricted Payment.
"Default" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that, by its terms (or by the terms of any security into
which it is convertible or for which it is exercisable, redeemable or
exchangeable), matures, or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the Stated Maturity of the Notes.
"GAAP" means generally accepted accounting principles as applied in the
United States 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 may be approved by a significant
segment of the accounting profession in the United States, which are applicable
as of the date of the Indenture; PROVIDED, HOWEVER, that the definitions in the
Indenture and all ratios and calculations contained in the covenants shall be
determined in accordance with GAAP as in effect and applied by the Company, as
applicable, on the date of the Indenture, consistently applied; PROVIDED,
FURTHER, that in the event of any such change in GAAP or in any change by the
Company in GAAP applied that would result in any change in any such ratio or
calculation, the Company shall deliver to the Trustee, for informational
purposes only, each time any such ratio or calculation is required to be
determined or made, an Officer's Certificate setting forth the computations
showing the effect of such change or application on such ratio or calculation.
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"Guarantee Obligations" of any Person means any obligation, contingent or
otherwise, of such Person guaranteeing any Indebtedness of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, and including,
without limitation, any obligation of such Person (i) to purchase or pay (or
advance or supply funds for the purchase of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Indebtedness, (ii) to purchase property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to cause
the primary obligor to pay such Indebtedness or (iv) otherwise primarily to
assure or hold harmless the owner of any such Indebtedness against loss in
respect thereof; PROVIDED, HOWEVER, that the Guarantee Obligation of any Person
shall not include endorsements of instruments for collection or deposit in the
ordinary course of business.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Indebtedness or other obligation
on the balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); PROVIDED,
HOWEVER, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Indebtedness
shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than, in the case of any such deferred
purchase price, trade payables, on normal trade terms, incurred in the ordinary
course of business), (ii) except to the extent supporting Indebtedness of such
Person (but no other Indebtedness) of the type described in clause (i) above,
the face amount of all letters of credit issued for the account of such Person
and, without duplication, all unreimbursed drawings thereunder, (iii) all
liabilities secured by any Lien on any property owned by such Person, whether or
not such liabilities have been assumed, (iv) Capital Lease Obligations of such
Person, (v) all obligations to purchase, redeem, retire, defray or otherwise
acquire for value any Disqualified Capital Stock of such Person and (vi) all
Guarantee Obligations of such Person.
"Interest Swap Agreements" means interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements, interest rate insurance
and other agreements or arrangements designed to provide protection against
fluctuations in interest rates entered into by the Company.
"Investments" of any Person means all investments in other Persons in the
form of loans, advances, capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases (or other acquisitions for consideration) of Indebtedness,
Capital Stock or other securities and all other items that are or would be
classified as investments (including, without limitation, purchases of assets
outside the ordinary course of business) on a balance sheet prepared in
accordance with GAAP.
"Lien" means any mortgage, lien, pledge, charge, security interest or other
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give any security interest in and filing or other agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"Material Subsidiary" means any Subsidiary of the Company which at the time
of determination has total assets with a fair market value of five percent (5%)
or more of the fair market value of the total assets of the Company and its
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees and other
liabilities payable under the documentation governing any Indebtedness.
"Operating Cash Flow" means, for any period, the sum of (i) Adjusted Net
Income for such period PLUS (ii) provision for taxes based on income or profits
included in computing Adjusted Net Income PLUS
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(iii) consolidated interest expense (including amortization of original issue
discount and non-cash interest payments or accruals and the interest component
of Capital Lease Obligations) of the Company and its Restricted Subsidiaries for
such period PLUS (iv) other non-cash charges deducted from consolidated revenues
in determining Adjusted Net Income of such period, in each case determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Permitted Investments" means purchase of (a) marketable obligations of or
obligations guaranteed by the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
(b) marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having the highest rating
obtainable from either Moody's Investors Service or Standard & Poor's
Corporation, (c) commercial paper having a rating in one of the two highest
rating categories of Moody's Investors Service or Standard & Poor's Corporation,
(d) certificates of deposit issued by, bankers' acceptances and deposit accounts
of, and time deposits with, commercial banks of recognized standing chartered
in, or with branches or agencies chartered in, the United States of America or
Canada with capital, surplus and undivided profits aggregating in excess of
$200.0 million (a "Qualified Bank"), (e) Eurodollar time deposits having a
maturity of less than one year purchased directly from any Qualified Bank, (f)
repurchase agreements and reverse repurchase agreements with a term of not more
than one year with a Qualified Bank relating to marketable direct obligations
issued or unconditionally guaranteed by the United States of America and (g)
shares of money market funds that invest solely in Permitted Investments of the
kind described in clauses (a) through (f) above.
"Permitted Spin-Off" means any series of integrated transactions (the
"Transaction") pursuant to which the Company or its Restricted Subsidiaries
shall (i) transfer, convey, sell, lease or otherwise dispose of all or
substantially all of the assets of the Company or a Restricted Subsidiary
constituting the Company's Broadcasting Business or Capital Stock of any such
Restricted Subsidiary to any Person; (ii) issue shares of Capital Stock or
securities convertible into, or warrants, rights or options, to subscribe for or
purchase shares of Capital Stock of a Restricted Subsidiary which owns assets
constituting part of the Company's Broadcasting Business; or (iii) the Company
distributes to its own stockholders the shares of Capital Stock of a currently
existing Subsidiary or newly created Subsidiary (the "Successor") which owns all
or substantially all of the Company's non-Broadcasting Business assets in a
transaction that would qualify for tax-free treatment under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code") and would not trigger any
other significant tax liabilities, and immediately thereafter, the Company
merges with or is acquired by an unrelated United States corporation in a
tax-free transaction and the Company has received an opinion of counsel to the
effect that the assumption of the Notes by the Successor in connection with such
transaction is tax-free to the holders of the Notes; PROVIDED that the
Transaction satisfies the following conditions (a) the Board of Directors of the
Company determines that the Transaction is fair and reasonable and in the best
interests of the Company and which determination shall be evidenced by a
resolution of the Board of Directors of the Company filed with the Trustee and
(b) after giving pro forma effect to such Transaction, the ratio for all
Indebtedness of the Company and its Restricted Subsidiaries and Disqualified
Stock of the Company (or in the case of a Transaction specified in subparagraph
(iii) above, of the Successor and its Restricted Subsidiaries), on a
consolidated basis, to Pro Forma Operating Cash Flow for the four full fiscal
quarters immediately preceding such Transaction is 0.5 times less than the same
ratio immediately prior to such Transaction.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, incorporated organization or government
or any agency or political subdivision thereof.
"Pro Forma Operating Cash Flow" means, Operating Cash Flow after giving
effect to the following: (a) if, during such period, the Company or any of its
Restricted Subsidiaries shall have made any Asset Sale, Pro Forma Operating Cash
Flow of the Company for such period shall be computed so as to give pro forma
effect to such Asset Sale and (b) if, during such period, the acquisition of any
Person or business shall occur and immediately after such acquisition such
Person or business is a Subsidiary or its assets are held directly by the
Company or a Subsidiary, Pro Forma Operating Cash Flow shall be computed so as
to give pro forma effect to the acquisition of such Person or business.
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"Qualified Capital Stock" means, with respect to any Person, any and all
Capital Stock issued by such Person after the date on which the Notes are issued
that is not Disqualified Capital Stock.
"Qualified Capital Stock Proceeds" means, with respect to any Person, (a) in
the case of any sale of Qualified Capital Stock (other than pursuant to a
transaction in which such Person incurs, guarantees or otherwise becomes liable
for any Indebtedness incurred in connection with the issuance or acquisition of
such Capital Stock), the aggregate net cash proceeds received by such Person,
after payment of expenses, commissions and the like incurred in connection
therewith and (b) in the case of any exchange, exercise, conversion or surrender
of any Indebtedness of such Person or any Subsidiary issued for cash after the
date of the Indenture for or into shares of Qualified Capital Stock of such
Person, the net book value of such Indebtedness as adjusted on the books of such
Person to the date of such exchange, exercise, conversion or surrender PLUS any
additional amount paid by the security holder to such Person upon such exchange,
exercise, conversion or surrender and LESS any and all payments made to the
security holders, and all other expenses (including commissions and the like)
incurred by such Person or any Subsidiary in connection therewith.
"Qualified Issuer" means (A) any lender that is a party to the Credit
Agreements, and (B) any commercial bank (i) which has capital and surplus in
excess of $200.0 million, and (ii) the outstanding short-term debt securities of
which are rated at least A-2 by Standard & Poor's Corporation or at least P-2 by
Moody's Investors Service, or carry an equivalent rating by a nationally
recognized rating agency if both the two named rating agencies cease publishing
ratings of investments.
"Related Business" means marketing, advertising and related businesses
world-wide and the broadcasting business conducted in the United States.
"Restricted Investment" means any Investment other than (i) a Permitted
Investment or (ii) an investment in assets in a Related Business.
"Restricted Payment" means, with respect to any Person, without duplication,
(i) any dividend or other distribution of any shares of such Person's Capital
Stock (other than (a) dividends payable solely in shares of its Capital Stock or
options, warrants or other rights to acquire its Capital Stock and (b) any
payments made to the Company or a Wholly Owned Subsidiary of the Company by a
Subsidiary); (ii) any payment (other than a payment in Qualified Capital Stock)
on account of the purchase, redemption, retirement or acquisition of (a) any
shares of such Person's Capital Stock or (b) any option, warrant or other right
to acquire shares of such Person's Capital Stock (other than any purchase,
redemption or retirement in exchange for, or solely from the proceeds of the
issuance of, Qualified Capital Stock); (iii) principal or interest payments on
any loans from any Affiliate of such Person other than a Wholly Owned Subsidiary
of such Person; (iv) any loan, advance, capital contribution to, or investment
in, or payment on a guaranty of any obligation of, or purchase, redemption or
other acquisition of any shares of Capital Stock or any Indebtedness of, any
Affiliate (other than such Person or a Wholly Owned Subsidiary of such Person);
(v) the making of any Restricted Investment; and (vi) any redemption,
defeasance, repurchase or other acquisition or retirement for value prior to any
scheduled maturity, repayment or sinking fund payment, of any Indebtedness of
such Person which is (a) PARI PASSU with or subordinate in right of payment to
the Notes or (b) owed to any Affiliate of such Person other than a Wholly Owned
Subsidiary of such Person, other than a redemption, defeasance, repurchase or
other acquisition or retirement for value that is (1) part of a refinancing of
such Indebtedness permitted under the covenants described under
"--Covenants--Limitations on Indebtedness and Disqualified Capital Stock" or (2)
required to be repaid in connection with an Asset Sale.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary is an
Unrestricted Subsidiary.
"Senior Indebtedness" means, with respect to any Person, the Obligations
(including interest that, but for the filing of a petition initiating any
proceeding pursuant to any bankruptcy law with respect to such Person, would
accrue on such Obligations, whether or not such claim is allowed in such
bankruptcy proceeding) with respect to (i) any Indebtedness or Guarantee
Obligations by such Person, whether incurred on or prior to the date of the
Indenture or thereafter incurred and (ii) amendments, renewals, extensions,
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modifications, refinancings and refundings of any such debt. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by
the Notes, (b) Indebtedness which by the terms of the instrument creating or
evidencing the same is not superior in right of payment to the Notes, (c)
Indebtedness that is expressly subordinate or junior in right of payment to any
Indebtedness of such Person, (d) any liability for federal, state, provincial,
local or other taxes owed or owing by such Person and (e) Indebtedness of such
Person to a Subsidiary of such Person.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Capital Stock of which is owned, directly or indirectly, by such
Person or by one or more other subsidiaries of such Person or by such Person and
one or more other Subsidiaries thereof or (ii) any other person (other than a
corporation) in which such Person or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership.
"Total Interest Expense" of a Person means (i) the total amount of interest
expense (including amortization of original issue discount and noncash interest
payments or accruals and the interest component of any Capital Lease Obligations
but excluding any intercompany interest owed by any Subsidiary to any other
Subsidiary) and (ii) all fees, commissions, discounts and other charges of the
Company and its Subsidiaries with respect to letters of credit and bankers'
acceptances, determined on a consolidated basis in accordance with GAAP.
"Unrestricted Subsidiary" means any Subsidiary organized or acquired after
the date of the Indenture as to which both of the following conditions apply:
(i)(a) neither the Company nor any of its other Subsidiaries (other than
Unrestricted Subsidiaries) (1) provides credit support for any Indebtedness of
such Subsidiary (including any undertaking, agreement or instrument evidencing
such Indebtedness) or (2) is directly or indirectly liable for any Indebtedness
of such Subsidiary, (b) no default with respect to any Indebtedness of such
Subsidiary (including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company and its other
Subsidiaries (other than other Unrestricted Subsidiaries) to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity, other than as permitted in clause (a)
above, and (c) neither the Company nor any of its other Subsidiaries (other than
Unrestricted Subsidiaries) has made an Investment in such Subsidiary unless such
Investment was permitted by the provisions described under
"--Covenants--Limitation on Restricted Payments" and (ii) the Board of Directors
of the Company, as provided below, shall designate such Subsidiary as an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Subsidiary organized or acquired after the date of the Indenture, which meets
the requirements in the preceding sentence, to be an Unrestricted Subsidiary,
PROVIDED THAT, notwithstanding the foregoing and subject to the provisions of
the definition of Permitted Spin-Off, no Subsidiary which is a Restricted
Subsidiary as of the date of the Indenture shall be reclassified as an
Unrestricted Subsidiary or be a Subsidiary of an Unrestricted Subsidiary. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complies with the
foregoing conditions.
"Voting Power" of any Person means the aggregate number of votes of all
classes of Capital Stock of such Person which ordinarily has voting power for
the election of directors or their equivalents of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) which will elapse between such date and
the making of such payment.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person,
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares or a nominal
S-31
<PAGE>
limited partnership interest of one other partner) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
MODIFICATION AND WAIVER
The Indenture contains provisions for convening meetings of the Holders to
consider matters affecting their interests. Subject to certain exceptions, the
Indenture contains provisions permitting the Company and the Trustee, with the
consent of the Holders of not less than a majority in principal amount of the
Notes at the time outstanding, to amend or supplement the Indenture and modify
the rights of the Holders of the Notes, PROVIDED THAT no such modification may,
without the consent of each Holder of the Notes, (i) reduce the amount of Notes
the Holders of which must consent to an amendment, supplement or waiver, (ii)
reduce the rate of or change the time for payment of interest on any Note, (iii)
reduce the principal or change the fixed maturity of any Note, (iv) waive a
default in the payment of the principal of or interest on any Note, (v) make any
Note payable in money other than that stated in the Note or (vi) change the
terms upon which Notes are required to be repurchased in the event of a Change
of Control. Notwithstanding the foregoing, in no event shall the vote of any
Person be included in calculating any consents received in determining whether
the Holders of the requisite aggregate principal amount of Notes have consented,
if the consent of such Person is obtained in connection with a tender offer for
the Notes of the Company held by such Person for which consideration is paid in
an amount which is disproportionate to the amount offered to all Holders of
Notes of the Company. Without the consent of any Holder of Notes, the Company
may amend or supplement the Indenture or the Notes to cure any ambiguity, defect
or inconsistency. Subject to certain exceptions, the Holders of a majority in
aggregate principal amount of the Notes may waive any past defaults under the
Indenture, not including defaults in payments of principal of and interest on
the Notes and certain other restrictive covenants and provisions of the
Indenture.
FORM OF NOTES
Upon issuance, the Notes will be represented by the Global Security. The
Global Security representing the Notes will be deposited with, or on behalf of,
the Depositary and registered in the name of a nominee of the Depositary. Notes
represented by the Global Security will not be exchangeable for certificated
notes, PROVIDED THAT if the Depositary is at any time unwilling or unable to
continue as Depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will issue certificated notes in exchange
for the Global Security representing the Notes.
Upon the issuance of the Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Notes represented by the Global Security to the accounts of institutions
that have accounts with the Depositary ("Participants"). The accounts to be
credited shall be designated by the Underwriters. Ownership of beneficial
interests in the Global Security will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
the Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary with respect to
Participants' interests or by Participants or by persons that hold through
Participants with respect to beneficial owners' interests. The laws of some
states require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such ownership limits and such laws may
impair the ability to transfer beneficial interests in the Global Security.
Principal and interest payments on Notes registered in the name of the
Depositary or its nominee will be made to the Depositary or its nominee, as the
case may be, as the registered owner of the Global Security representing the
Notes. The Company expects that the Depositary, upon receipt of any payment of
principal or interest in respect of the Global Security, will immediately credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Security
as shown on the records of the Depositary. The Company also expects that
payments by Participants to owners of beneficial interests in the Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participants.
S-32
<PAGE>
None of the Company, the Trustee, any paying agent or any registrar for the
Notes will have any responsibility or liability for any aspect of the records
relating to or payment made on account of beneficial ownership interests in the
Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Depository Trust Company, New York, New York ("DTC"), will be the
initial Depositary with respect to the Notes. DTC has advised the Company that
it is a limited-purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC was created to hold securities
of its Participants and to facilitate the clearance and settlement of securities
transactions among its Participants in such securities through electronic
book-entry changes in accounts of the Participants, thereby eliminating the need
for physical movement of securities certificates. DTC's Participants include
securities brokers and dealers (including the Underwriters), banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. Access to DTC's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly. Persons who are not Participants may beneficially
own securities held by DTC only through Participants.
So long as the Depositary, or its nominee, is the holder of the Global
Security, the Depositary or its nominee, as the case may be, will be considered
the sole owners or Holder of the Notes represented by the Global Security for
all purposes under the Indenture or the Global Security. Except as set forth
above, owners of beneficial interests in the Global Security will not be
entitled to have Notes represented by the Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Notes or
the Global Security and will not be considered the owners or Holders thereof
under the Indenture or the Global Security. Accordingly, each person owning a
beneficial interest in such Global Security must rely on the procedures of the
Depositary and, if such person is not a Participant, on the procedures of the
Participant through which such person directly or indirectly owns its interest,
to exercise any rights of a Holder under the Indenture or the Global Security.
DTC has informed the Company that under existing DTC policies and industry
practices, if the Company requests any action of Holders, or if any owner of a
beneficial interest in such Global Security desires to give any notice or take
any action (including, without limitation, any action to enforce payment of
principal, premium, if any, and interest on the Notes) that a Holder is entitled
to give or take under the Indenture or the Global Security, DTC would authorize
and cooperate with each Participant to whose account any portion of the Notes
represented by such Global Security is credited on DTC's books and records to
give such notice or take such action. Any person owning a beneficial interest in
such Global Security that is not a Participant must rely on any contractual
arrangements it has directly, or indirectly through its immediate financial
intermediary, with a Participant to give such notice or take such action.
S-33
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to Donaldson, Lufkin & Jenrette Securities
Corporation, Citicorp Securities, Inc., Smith Barney Inc., and NationsBanc
Capital Markets, Inc. (the "Underwriters") and the Underwriters severally have
agreed to purchase from the Company, at the price to the public set forth on the
cover page of this Prospectus Supplement less the underwriting discounts and
commissions, the following respective principal amounts of the Notes:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..................................... $
Citicorp Securities, Inc. ..............................................................
Smith Barney Inc........................................................................
NationsBanc Capital Markets, Inc........................................................
--------------
Total............................................................................... $ 150,000,000
--------------
--------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to certain conditions precedent. The Underwriting
Agreement also provides that the Company will indemnify the Underwriters against
certain liabilities and expenses, including those under the Securities Act. The
nature of the Underwriters' obligations is such that they are committed to
purchase all of the Notes if the Notes are purchased.
The Underwriters propose to offer the Notes directly to the public initially
at the price to the public set forth on the cover page of this Prospectus
Supplement and to certain dealers at such price less a concession not in excess
of % of the principal amount of the Notes. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of % of the principal
amount of the Notes to certain other dealers. After the initial offering of the
Notes the offering price and other selling terms may be changed by the
Underwriters.
Donaldson, Lufkin & Jenrette Securities Corporation has from time to time
provided customary investment banking services to the Company and expects in the
future to provide such services, for which they have received and will receive
customary fees and commissions. Affiliates of Citicorp Securities, Inc. and
NationsBanc Capital Markets, Inc. act as agents under the HMSI Credit Agreement
and the DIMAC Credit Facility.
The Company has been advised by the Underwriters that they presently intend
to make a market in the Notes in the secondary market, as permitted by
applicable laws and regulations, but that they are not obligated to do so and
may discontinue any such market making at any time without notice. The Notes
will not be listed on any securities exchange, and there can be no assurance
that a secondary market for the Notes will develop.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Crouch & Hallett, L.L.P., Dallas, Texas, and will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York. Crouch & Hallett,
L.L.P. and Davis Polk & Wardwell may rely as to all matters of Iowa law upon the
opinion of Wayne Kern, Esq., Senior Vice President and Secretary of the Company.
S-34
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial information
consists of an unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1995 and the related unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1994 and the nine
months ended September 30, 1995 (collectively, the "Pro Forma Statements"). The
Pro Forma Statements reflect adjustments to the historical consolidated
financial statements of the Company and DIMAC to give effect to certain
transactions which have either occurred or (in the case of the pending
disposition of television station KEVN by the Company) are probable to occur.
The Pro Forma Statements have been further adjusted to give effect to the
Acquisition, the issuance by the Company of $150.0 million of the Notes and the
DIMAC Credit Facility under two possible scenarios--(a) assuming the Acquisition
is consummated entirely for cash and (b) assuming the Acquisition is consummated
for a combination of cash and shares of Company Common Stock--both as discussed
in more detail in the notes to the Pro Forma Statements. The Pro Forma Condensed
Combined Balance Sheet has been prepared assuming the Acquisition, issuance of
the Notes and the DIMAC Credit Facility occurred at September 30, 1995, and the
Pro Forma Condensed Combined Statements of Operations have been prepared
assuming the Acquisition, issuance of the Notes and the DIMAC Credit Facility
occurred on January 1, 1994. The unaudited Pro Forma Condensed Combined
Statements of Operations do not include extraordinary losses of $3.2 million and
$2.4 million recognized by DIMAC during the year ended December 31, 1994 and the
nine months ended September 30, 1995, respectively, resulting from the
retirement of certain indebtedness, nor do they include an extraordinary loss of
approximately $2.0 million to be recognized upon the retirement of DIMAC's
existing credit facility.
The Acquisition will be accounted for as a purchase. The purchase price has
been allocated in the Pro Forma Statements to the assets to be acquired and the
liabilities to be assumed on a preliminary basis based on management's estimates
of their fair values. The allocation of the purchase price is subject to change
based on the completion of an independent appraisal. Management does not believe
that the final allocation of the purchase price or the related useful lives
assigned to acquired assets will be materially different from the preliminary
amounts presented in the Pro Forma Statements.
As a result of the Acquisition, the amounts of the Company's goodwill and
other intangible assets and indebtedness will substantially increase from
historical levels. The Company continually reevaluates the propriety of the
carrying amount of goodwill and other intangibles as well as the related
amortization period to determine whether current events and circumstances
warrant adjustments to the carrying values and/or revised estimates of useful
lives. This evaluation is based on the Company's projection of the undiscounted
operating income before depreciation, amortization and interest over the
remaining lives of the amortization periods of related goodwill and intangible
assets. The projections are based on the historical trend line of actual results
since the commencement of operations and adjusted for expected changes in
operating results. To the extent such projections indicate that the undiscounted
operating income (as defined above) is not expected to be adequate to recover
the carrying amounts of related intangibles, such carrying amounts are written
down by charges to expense in amounts equal to the excess of the carrying amount
of intangible assets over related undiscounted operating income. Based on
undiscounted operating income (as defined above) derived from current operating
projections, management does not believe that an impairment of goodwill and
other intangibles will exist on the effective date of the Acquisition.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the consolidated financial statements and related notes of the
Company, DIMAC and the financial statements of other companies acquired by DIMAC
included herein or previously filed with the Securities and Exchange Commission.
The Pro Forma Statements do not purport to present what the Company's results of
operations or financial position actually would have been had such transactions
or events occurred on the dates indicated, or to project the Company's results
of operations or financial position for any future period or at any future date.
The pro forma adjustments are based upon available information and certain
adjustments that management believes are reasonable. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the Pro Forma Statements.
S-35
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR
COMPANY OTHER COMPANY COMPANY AS DIMAC OTHER DIMAC DIMAC AS
HISTORICAL TRANSACTIONS (A) ADJUSTED HISTORICAL TRANSACTIONS (B) ADJUSTED
----------- ----------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $ 1,788 $ (23) $ 1,765 $ -- $ 66 $ 66
Short-term investments................... 4,750 4,750 -- --
Trade receivables, net................... 66,308 (472) 65,836 26,552 3,391 29,943
Inventory................................ 6,201 6,201 8,737 8,737
Prepaid expenses and other............... 6,372 (66) 6,306 1,397 72 1,469
Deferred income taxes.................... 5,385 5,385 166 166
----------- ------- ----------- ----------- ------- -----------
Total current assets................... 90,804 (561) 90,243 36,852 3,529 40,381
Property and equipment, net.............. 58,374 (1,987) 56,387 19,276 1,500 20,776
Goodwill and other intangibles, net...... 392,046 (5,202) 386,844 25,232 13,227 38,459
Other assets............................. 9,919 (75) 9,844 --
----------- ------- ----------- ----------- ------- -----------
$ 551,143 $ (7,825) $ 543,318 $ 81,360 $ 18,256 $ 99,616
----------- ------- ----------- ----------- ------- -----------
----------- ------- ----------- ----------- ------- -----------
LIABILITIES AND EQUITY
Current portion of long-term debt........ $ 3,278 $ (35) $ 3,243 $ 6,856 $ 3 $ 6,859
Accounts payable and accrued expenses.... 56,011 (171) 55,840 14,268 1,561 15,829
Other current liabilities................ 28,523 (54) 28,469 10,589 690 11,279
----------- ------- ----------- ----------- ------- -----------
Total current liabilities.............. 87,812 (260) 87,552 31,713 2,254 33,967
Long-term debt, less current portion..... 347,102 (14,048) 333,054 44,606 16,002 60,608
Other long-term liabilities.............. 2,503 (29) 2,474 2,230 2,230
Deferred income taxes.................... 5,001 5,001 -- --
Stockholders' equity..................... 108,725 6,512 115,237 2,811 2,811
----------- ------- ----------- ----------- ------- -----------
$ 551,143 $ (7,825) $ 543,318 $ 81,360 $ 18,256 $ 99,616
----------- ------- ----------- ----------- ------- -----------
----------- ------- ----------- ----------- ------- -----------
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FOR ADJUSTMENTS
ACQUISITION FOR OPTIONAL PRO FORMA
AND DEBT PRO FORMA STOCK COMBINED AS
OFFERING COMBINED CONSIDERATION ADJUSTED
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $ 146,413(c) $ 1,831 $ $ 1,831
3,669(d)
(150,082)(f)
Short-term investments................... 4,750 4,750
Trade receivables, net................... 95,779 95,779
Inventory................................ 14,938 14,938
Prepaid expenses and other............... 7,775 7,775
Deferred income taxes.................... 5,551 5,551
----------- ----------- ------------- -----------
Total current assets................... -- 130,624 -- 130,624
Property and equipment, net.............. 77,163 77,163
Goodwill and other intangibles, net...... 195,423(f) 627,726 627,726
7,000(h)
Other assets............................. 3,587(c) 15,062 15,062
1,631(g)
----------- ----------- ------------- -----------
$ 207,641 $ 850,575 $ -- $ 850,575
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Current portion of long-term debt........ $ (6,250)(e) $ 3,852 $ $ 3,852
Accounts payable and accrued expenses.... 4,500(f) 76,169 76,169
Other current liabilities................ 39,748 39,748
----------- ----------- ------------- -----------
Total current liabilities.............. (1,750) 119,769 -- 119,769
Long-term debt, less current portion..... 150,000(c) 596,199 (47,535)(i) 548,664
6,250(e)
44,656(f)
1,631(g)
Other long-term liabilities.............. 4,704 4,704
Deferred income taxes.................... 7,000(h) 12,001 12,001
Stockholders' equity..................... 3,669(d) 117,902 47,535(i) 165,437
2,665(f)
(6,480)(f)
----------- ----------- ------------- -----------
$ 207,641 $ 850,575 $ -- $ 850,575
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
</TABLE>
See accompanying notes to Pro Forma Statements.
S-36
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR ADJUSTMENTS FOR
COMPANY OTHER COMPANY COMPANY AS DIMAC OTHER DIMAC DIMAC AS ACQUISITION AND
HISTORICAL TRANSACTIONS (A) ADJUSTED HISTORICAL TRANSACTIONS (B) ADJUSTED DEBT OFFERING
----------- ------------------- ----------- ----------- ------------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues........ $ 317,628 $ 64,859 $ 382,487 $ 100,012 $ 46,995 $ 147,007 $
----------- ------- ----------- ----------- ------- ----------- ---------------
Cost of services.... 150,970 53,323 204,293 65,430 28,670 94,100
Selling, general and
administrative..... 76,600 11,392 87,992 20,629 11,844 32,473 (346)(j)
Depreciation........ 14,676 (87) 14,589 2,155 1,413 3,568
Amortization........ 12,622 1,277 13,899 744 938 1,682 6,340(k)
Other............... 4,922 4,922 135 42 177
----------- ------- ----------- ----------- ------- ----------- ---------------
Total operating
expenses......... 259,790 65,905 325,695 89,093 42,907 132,000 5,994
----------- ------- ----------- ----------- ------- ----------- ---------------
Operating income.. 57,838 (1,046) 56,792 10,919 4,088 15,007 (5,994)
----------- ------- ----------- ----------- ------- ----------- ---------------
Interest expense,
net................ (30,373) (3,503) (33,876) (6,069) (577) (6,646) (18,051)(l)
Other expense,
net................ (2,424) 1,439 (985) -- --
----------- ------- ----------- ----------- ------- ----------- ---------------
Income before in-
come taxes....... 25,041 (3,110) 21,931 4,850 3,511 8,361 (24,045)
Income taxes........ 2,742 2,742 1,865 1,370 3,235 (2,701)(m)
----------- ------- ----------- ----------- ------- ----------- ---------------
Income (loss)
before extraordi-
nary item........ 22,299 (3,110) 19,189 $ 2,985 $ 2,141 $ 5,126 $ (21,344)
----------- ------- ----------- ---------------
----------- ------- ----------- ---------------
Dividends and accre-
tion............... (19,651) 19,651 --
----------- ------- -----------
Income applicable to
common stock before
extraordinary
item............... $ 2,648 $ 16,541 $ 19,189
----------- ------- -----------
----------- ------- -----------
Income per share
before
extraordinary
item............... $ 0.15 $ 1.10 $ 0.64 $ 0.79
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
shares
outstanding........ 17,381 94 17,475
----------- ------- -----------
----------- ------- -----------
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR PRO FORMA
PRO FORMA OPTIONAL STOCK COMBINED AS
COMBINED CONSIDERATION ADJUSTED
----------- ---------------- ------------
<S> <C> <C> <C>
Net revenues........ $ 529,494 $ $ 529,494
----------- ------ ------------
Cost of services.... 298,393 298,393
Selling, general and
administrative..... 120,119 120,119
Depreciation........ 18,157 18,157
Amortization........ 21,921 21,921
Other............... 5,099 5,099
----------- ------ ------------
Total operating
expenses......... 463,689 -- 463,689
----------- ------ ------------
Operating income.. 65,805 -- 65,805
----------- ------ ------------
Interest expense,
net................ (58,573) 4,278(n) (54,295)
Other expense,
net................ (985) (985)
----------- ------ ------------
Income before in-
come taxes....... 6,247 4,278 10,525
Income taxes........ 3,276 3,276
----------- ------ ------------
Income (loss)
before extraordi-
nary item........ 2,971 $ 4,278 $ 7,249
------
------
Dividends and accre-
tion............... -- --
----------- ------------
Income applicable to
common stock before
extraordinary
item............... $ 2,971 $ 7,249
----------- ------------
----------- ------------
Income per share
before
extraordinary
item............... $ .17 $ .38
----------- ------------
----------- ------------
Weighted average
shares
outstanding........ 17,475 1,761(n) 19,236
----------- ------ ------------
----------- ------ ------------
</TABLE>
See accompanying notes to Pro Forma Statements.
S-37
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR ADJUSTMENTS FOR
COMPANY OTHER COMPANY COMPANY AS DIMAC OTHER DIMAC DIMAC AS ACQUISITION AND
HISTORICAL TRANSACTIONS (A) ADJUSTED HISTORICAL TRANSACTIONS (B) ADJUSTED DEBT OFFERING
----------- ------------------- ----------- ----------- ------------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues..... $ 299,065 $ (1,574) $ 297,491 $ 89,030 $ 27,209 $ 116,239 $
----------- ------- ----------- ----------- ------- ----------- ---------------
Cost of
services........ 170,995 (316) 170,679 55,865 17,133 72,998
Selling, general
and administra-
tive............ 59,391 (16) 59,375 18,202 6,845 25,047 (460)(j)
Depreciation..... 11,081 (214) 10,867 2,056 286 2,342
Amortization..... 10,125 289 10,414 956 490 1,446 4,570(k)
Other............ -- -- 73 73
----------- ------- ----------- ----------- ------- ----------- ---------------
Total operating
expenses...... 251,592 (257) 251,335 77,152 24,754 101,906 4,110
----------- ------- ----------- ----------- ------- ----------- ---------------
Operating in-
come.......... 47,473 (1,317) 46,156 11,878 2,455 14,333 (4,110)
----------- ------- ----------- ----------- ------- ----------- ---------------
Interest expense,
net............. (26,190) 262 (25,928) (3,574) (1,365) (4,939) (13,583)(l)
Other expense,
net............. (77) (77) --
----------- ------- ----------- ----------- ------- ----------- ---------------
Income (loss)
before income
taxes......... 21,206 (1,055) 20,151 8,304 1,090 9,394 (17,693)
Income taxes..... 5,602 5,602 3,187 433 3,620 (4,099)(m)
----------- ------- ----------- ----------- ------- ----------- ---------------
Income (loss)
before ex-
traordinary
item.......... $ 15,604 $ (1,055) $ 14,549 $ 5,117 $ 657 $ 5,774 $ (13,594)
----------- ------- ----------- ----------- ------- ----------- ---------------
----------- ------- ----------- ----------- ------- ----------- ---------------
Income per share
before
extraordinary
item............ $ 0.88 $ 0.82 $ 0.77 $ 0.87
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
shares outstand-
ing............. 17,666 17,666
----------- -----------
----------- -----------
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR PRO FORMA
PRO FORMA OPTIONAL STOCK COMBINED AS
COMBINED CONSIDERATION ADJUSTED
----------- ---------------- ------------
<S> <C> <C> <C>
Net revenues..... $ 413,730 $ $ 413,730
----------- ------ ------------
Cost of
services........ 243,677 243,677
Selling, general
and administra-
tive............ 83,962 83,962
Depreciation..... 13,209 13,209
Amortization..... 16,430 16,430
Other............ 73 73
----------- ------ ------------
Total operating
expenses...... 357,351 -- 357,351
----------- ------ ------------
Operating in-
come.......... 56,379 -- 56,379
----------- ------ ------------
Interest expense,
net............. (44,450) 3,209(n) (41,241)
Other expense,
net............. (77) (77)
----------- ------ ------------
Income (loss)
before income
taxes......... 11,852 3,209 15,061
Income taxes..... 5,123 2,662(n) 7,785
----------- ------ ------------
Income (loss)
before ex-
traordinary
item.......... $ 6,729 $ 547 $ 7,276
----------- ------ ------------
----------- ------ ------------
Income per share
before
extraordinary
item............ $ 0.38 $ 0.37
----------- ------------
----------- ------------
Weighted average
shares outstand-
ing............. 17,666 1,761(n) 19,427
----------- ------ ------------
----------- ------ ------------
</TABLE>
See accompanying notes to Pro Forma Statements.
S-38
<PAGE>
NOTES TO PRO FORMA STATEMENTS
(a) Balance sheet adjustments for Other Company Transactions give effect to the
sale of television station KEVN in Rapid City, South Dakota for $14.0
million (the KEVN sale), which sale is expected to be consummated in January
1996 and to result in a $6.5 million gain, and the related elimination of
historical assets and liabilities of KEVN, as if such sale had occurred on
September 30, 1995.
Statements of Operations adjustments for Other Company Transactions for the
year ended December 31, 1994 and the nine months ended September 30, 1995
are presented below in columnar form. The sale proceeds or fundings relating
to the transactions discussed in (1)-(6) below are assumed to be applied to
amounts outstanding under the HMSI Credit Agreement at the Company's
historical weighted average interest rates of 7% and 9% for the year ended
December 31, 1994 and the nine months ended September 30, 1995,
respectively, assuming all such transactions were consummated as of January
1, 1994. The pro forma adjustments relating to the acquisition transactions
reflect the historical operating results of the respective businesses prior
to their acquisition by the Company and include adjustments to amortization
to reflect amounts allocated to intangible assets as a result of the
acquisitions over periods of 40 and 15 years for in-store marketing and
radio station acquisitions, respectively.
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
--------------------------------------------------------- FOR OTHER
STRATEGIUM OTHER PRO FORMA COMPANY
POWERFORCE MEDIA ACQUISITIONS (1) DISPOSITIONS (2) ADJUSTMENTS TRANSACTIONS
----------- ----------- --------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............... $ 58,901 $ 8,092 $ 3,015 $ (5,149) $ -- $ 64,859
----------- ----------- ------ ------- ------------- ------------
Cost of services........... 51,658 2,005 1,280 (1,620) 53,323
Selling, general and
administrative............ 6,225 5,775 1,036 (1,644) 11,392
Depreciation............... 329 215 191 (822) (87)
Amortization............... 155 534 (224) 812(3) 1,277
Other...................... --
----------- ----------- ------ ------- ------------- ------------
Total operating
expenses................ 58,367 7,995 3,041 (4,310) 812 65,905
----------- ----------- ------ ------- ------------- ------------
Operating income
(loss).................. 534 97 (26) (839) (812) (1,046)
Interest expense, net...... (155) (143) (3,205)(4) (3,503)
Other expense, net......... 1,439(5) 1,439
----------- ----------- ------ ------- ------------- ------------
Income (loss) before
extraordinary items....... 379 97 (169) (839) (2,578) (3,110)
Dividends and accretion.... 19,651(6) 19,651
----------- ----------- ------ ------- ------------- ------------
Net income applicable to
common stock.............. $ 379 $ 97 $ (169) $ (839) $ 17,073 $ 16,541
----------- ----------- ------ ------- ------------- ------------
----------- ----------- ------ ------- ------------- ------------
Weighted average shares
outstanding............... 94(6) 94
------------- ------------
------------- ------------
</TABLE>
S-39
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
---------------------------------- FOR OTHER
OTHER PRO FORMA COMPANY
ACQUISITIONS (1) DISPOSITION (2) ADJUSTMENTS TRANSACTIONS
---------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues................................................ $ 869 $(2,443) -$- $(1,574)
------ ------- ----- ------------
Cost of services............................................ 309 (625) (316)
Selling, general and administrative......................... 583 (599) (16)
Depreciation................................................ 117 (331) (214)
Amortization................................................ 166 (123) 246(6) 289
Other....................................................... --
------ ------- ----- ------------
Total operating expenses.................................. 1,175 (1,678) 246 (257)
------ ------- ----- ------------
Operating income (loss)................................... (306) (765) (246) (1,317)
Interest expense, net....................................... (293) 555(4) 262
Other expense, net.......................................... --
------ ------- ----- ------------
Income (loss) before extraordinary items................ $ (599) $ (765) $309 $(1,055)
------ ------- ----- ------------
------ ------- ----- ------------
</TABLE>
(1) Represents historical operating results of radio stations KIHT (acquired
March 1994), KKCJ (acquired April 1995) and KXYQ (acquired June 1995) for
the periods prior to their acquisition by the Company.
(2) Represents historical operating results of KDLT (sold in October 1994)
and KEVN (expected to be sold in January 1996) for the periods prior to
their sale or anticipated sale by the Company.
(3) Represents net additional amortization expense resulting from the
Company's acquisitions and dispositions as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Eliminate historical amortization expense of acquirees..................... $(689) $(43)
Add amortization expense relating to new intangible balances for periods
prior to acquisition
Powerforce ($5.7 million over 40 years).................................. 143 --
Strategium Media ($18.4 million over 40 years)........................... 384 --
Radio station acquisitions ($19.9 million over 15 years)................. 974 289
----- -----
Pro forma adjustment................................................... $ 812 $246
----- -----
----- -----
</TABLE>
S-40
<PAGE>
(4) Represents net additional interest expense resulting from the Company's
acquisitions and dispositions as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Eliminate historical interest expense of acquirees.......... $ 298 $293
Add interest expense relating to new amounts of debt
outstanding for periods prior to acquisition
Powerforce ($7.3 million of additional debt).............. (511) --
Strategium Media ($17.8 million of additional debt)....... (1,410) --
Radio station acquisitions ($22.7 million and $14.9
million of additional debt in 1994 and 1995,
respectively)............................................ (1,179) (683)
Add interest expense for additional debt used to retire the
settlement rights ($39.0 million).......................... (1,593) --
Deduct interest expense for net proceeds from
dispositions............................................... 1,190 945
------------ -----
Pro forma adjustment.................................... $(3,205) $555
------------ -----
------------ -----
</TABLE>
(5) Represents the elimination of the historical loss on the sale of KDLT in
October 1994 of $1.4 million.
(6) Represents the elimination of historical dividends on the Company's
preferred stock which was converted to common stock in January 1994 and
accretion on the Company's settlement rights which were retired in July
1994. Assuming the conversion of preferred stock occurred on January 1,
1994 also results in an increase of 94,000 shares in the weighted average
shares outstanding for the year ended December 31, 1994.
(b) The unaudited pro forma condensed combined balance sheet as of September 30,
1995 and the unaudited pro forma consolidated statements of income for the
year ended December 31, 1995 and the nine months ended September 30, 1995
give pro forma effect for other DIMAC transactions which include the
acquisitions of The Direct Marketing Group, Inc. (acquired May 31, 1994),
Palm Coast Data, Ltd. (acquired May 1, 1995), and T.R. McClure and Company,
Inc. and Related Companies (acquired October 2, 1995), as well as the
initial public offering of DIMAC's common stock (on August 3, 1994), as
follows:
S-41
<PAGE>
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR
MCCLURE PRO FORMA OTHER DIMAC
HISTORICAL ADJUSTMENTS TRANSACTIONS
---------- ----------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents....................................................... $ 270 $ (204)(1) $ 66
Trade receivables, net.......................................................... 3,391 -- 3,391
Prepaid expenses and other...................................................... 72 -- 72
---------- ----------- -------
Total current assets.......................................................... 3,733 (204) 3,529
Property and equipment, net..................................................... 922 578(2) 1,500
Goodwill and other intangibles, net............................................. -- 13,227(2) 13,227
Other assets.................................................................... 182 (182)(1) --
---------- ----------- -------
$4,837 $13,419 $18,256
---------- ----------- -------
---------- ----------- -------
LIABILITIES AND EQUITY
Current portion of long-term debt............................................... $1,446 $(1,443)(3) $ 3
Accounts payable and accrued expenses........................................... 1,601 (40)(3) 1,561
Other current liabilities....................................................... 756 (66)(3) 690
---------- ----------- -------
Total current liabilities..................................................... 3,803 (1,549) 2,254
Long-term debt, less current portion............................................ 463 15,539(4) 16,002
Stockholders' equity............................................................ 571 (571)(5) --
---------- ----------- -------
$4,837 $13,419 $18,256
---------- ----------- -------
---------- ----------- -------
</TABLE>
- ------------------------
(1) Reflects assets not acquired by DIMAC.
(2) Reflects the preliminary allocation of the purchase price paid to
McClure stockholders over the net historical cost of assets acquired. The
preliminary allocation of the purchase price does not include amounts
payable under certain contingent payment obligations. Such payments are
based on the attainment by the newly formed McClure Group subsidiary of
certain financial and operations performance targets over the next four
years. The contingent payment obligations, if any, will be accounted for
as additional goodwill as the payments are made.
(3) Reflects elimination of debt not assumed by DIMAC.
(4) Reflects the recording of net additional debt incurred by DIMAC to
acquire McClure.
(5) Reflects the elimination of all McClure equity balances as a result of
the acquisition.
S-42
<PAGE>
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR OTHER
DMG PALM COAST MCCLURE PRO FORMA DIMAC
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS TRANSACTIONS
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues....................................... $ 6,937 $ 12,916 $ 27,142 $ -- $ 46,995
Cost of services................................... 4,455 7,372 16,843 -- 28,670
Selling, general and administrative................ 2,022 3,040 9,482 (2,700)(6) 11,844
Depreciation....................................... 171 875 225 142(7) 1,413
Amortization....................................... 32 33 -- 873(8) 938
Other.............................................. -- 42 -- -- 42
----------- ----------- ----------- ------------ ------------
Total operating expenses......................... 6,680 11,362 26,550 (1,685) 42,907
----------- ----------- ----------- ------------ ------------
Operating income................................... 257 1,554 592 1,685 4,088
Interest expense, net.............................. (267) (314) (22) 26(9) (577)
----------- ----------- ----------- ------------ ------------
Income (loss) before income taxes.................. (10) 1,240 570 1,711 3,511
Income taxes....................................... 3 -- 20 1,347 (10 1,370
----------- ----------- ----------- ------------ ------------
Income (loss) before extraordinary item............ $ (13) $ 1,240 $ 550 $ 364 $ 2,141
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR OTHER
PALM COAST MCCLURE PRO FORMA DIMAC
HISTORICAL HISTORICAL ADJUSTMENTS TRANSACTIONS
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Net revenues................................................. $ 5,198 $ 22,011 $ -- $ 27,209
Cost of services............................................. 2,874 14,259 -- 17,133
Selling, general and administrative.......................... 1,023 7,289 (1,467)(6) 6,845
Depreciation................................................. 26 218 42(7) 286
Amortization................................................. 127 -- 363(8) 490
----------- ----------- -------------- ------------
Total operating expenses................................... 4,050 21,766 (1,062) 24,754
----------- ----------- -------------- ------------
Operating income............................................. 1,148 245 1,062 2,455
Interest expense, net........................................ (89) (44) (1,232)(9) (1,365)
Other expense, net........................................... (349) -- 349 (11 --
----------- ----------- -------------- ------------
Income (loss) before income taxes............................ 710 201 179 1,090
Income taxes................................................. -- 48 385 (10 433
----------- ----------- -------------- ------------
Income (loss) before extraordinary item...................... $ 710 $ 153 $ (206) $ 657
----------- ----------- -------------- ------------
----------- ----------- -------------- ------------
</TABLE>
(6) The selling, general and administrative expense adjustment is as follows
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ ------------------
<S> <C> <C>
Elimination of costs associated with management positions
eliminated in connection with the sale of DMG to DIMAC and
certain professional fees incurred by DMG and McClure in
anticipation of each sale.................................. $ (400) $ (100)
Elimination of discretionary bonuses related to subchapter S
status..................................................... (2,300) (1,367)
------------ -------
$ (2,700) $ (1,467)
------------ -------
------------ -------
</TABLE>
S-43
<PAGE>
(7) The depreciation adjustment (based on preliminary purchase price
allocation) is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Increase in depreciation.......................... $142 $42
----- ---
----- ---
</TABLE>
(8) The amortization expense adjustment (based on preliminary purchase price
allocation) is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Increase in amortization of goodwill (based on a preliminary
weighted average life of 25 years)......................... $848 $ 490
Increase in amortization of non-compete agreements (based on
a life of 4 years)......................................... 49 --
Increase in amortization of customer list (based on
preliminary life of 10 years).............................. 41 --
Elimination of historical amortization on assets not
acquired................................................... (65) (127)
----- -----
$873 $ 363
----- -----
----- -----
</TABLE>
(9) The interest expense adjustment is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Elimination of historical interest expense on debt not
assumed.................................................... $ (481) $ (125)
Increase in interest expense on debt incurred by DIMAC for
the various acquisitions (based on the average effective
interest rate of the acquisition debt)..................... 2,694 1,357
Amortization of debt issuance costs relating to debt
incurred by DIMAC for the various acquisitions............. 111 --
Elimination of interest expense on redemption of $25,000
principal of debt retired from proceeds of the initial
public offering............................................ (2,066) --
Elimination of pro rata portion of interest expense on debt
incurred by DIMAC for the DMG acquisition repaid from
proceeds of the initial public offering.................... (140) --
Elimination of amortization of debt issuance costs and
original issue discount on debt retired from proceeds of
the initial public offering................................ (144) --
------------ ------
$ (26) $1,232
------------ ------
------------ ------
</TABLE>
(10) Reflects the tax effects of the various transactions based on DIMAC's
estimated marginal tax rate of 39.0%.
(11) Elimination of historical expense as a result of the Palm Coast
write-offs prior to acquisition.
(c) Reflects the issuance of $150.0 million of Notes at an interest rate of
9.25% and receipt of related proceeds, net of estimated financing costs of
$3.6 million.
(d) Reflects the exercise of options by DIMAC management to purchase 299,250
shares of DIMAC common stock at various exercise prices and the resultant
receipt of cash. Management believes that these optionholders will exercise
such options prior to consummation of the Acquisition.
S-44
<PAGE>
(e) Reflects the reclassification of the current portion of DIMAC's credit
agreement to long-term as the DIMAC Credit Facility will not require
principal payments until 1997.
(f) Reflects consummation of the Acquisition for total consideration as follows
(in thousands):
<TABLE>
<CAPTION>
ASSUMES CASH
ASSUMES CASH AND STOCK
MERGER MERGER
CONSIDERATION CONSIDERATION
------------- -------------
<S> <C> <C>
Consideration paid to DIMAC shareholders
Cash (6,790,655 shares outstanding x $28.00)............................ $ 190,138 $ --
Cash (6,790,655 shares outstanding x $21.00)............................ -- 142,603
Company stock (6,790,655 shares x $7.00)................................ -- 47,535
Consideration paid to remaining DIMAC optionholder........................ 2,665 2,665
Acquisition fees paid to advisors......................................... 4,600 4,600
------------- -------------
Total consideration paid.............................................. $ 197,403 $ 197,403
------------- -------------
------------- -------------
</TABLE>
If the Company elects to pay up up to $7.00 of the Merger Consideration in
shares of Company Common Stock, the number of shares of Company Common Stock
comprising the stock portion of the Merger Consideration will be equal to
the quotient determined by dividing the stock portion of the Merger
Consideration by the average closing price of the Company Common Stock on
the AMEX as published in The Wall Street Journal for the ten trading days
ending on and including the third trading day preceding, but not including,
the effective date of the Acquisition (the "Company Trading Price"). For
purposes of the Pro Forma Statements, the Company Trading Price is assumed
to be $27.00 per share, resulting in the issuance of 1,761,000 shares of
Company Common Stock. Consideration paid to the remaining DIMAC optionholder
results from the exchange of "in-the-money" options to purchase 155,000
shares of DIMAC's common stock for options to purchase the same number of
shares of Company Common Stock with equivalent exercise prices, resulting in
the issuance of Company "in-the-money" options with a market value of
$2,665,000 assuming a Company Trading Price of $27.00 per share. See (d) for
pro forma treatment of remaining DIMAC options.
S-45
<PAGE>
The purchase price has been allocated as follows (in thousands):
<TABLE>
<S> <C> <C>
Purchase price........................................... $ 197,403
Historical book values of DIMAC assets and liabilities
Cash ($66 plus $3,669 (see (d) above))................. 3,735
Trade receivables, net................................. 29,943
Inventory.............................................. 8,737
Prepaid expenses and other............................. 1,469
Deferred income taxes.................................. 166
Property and equipment, net............................ 20,776
Goodwill and other intangibles......................... 38,459
Accounts payable and accrued expenses.................. (15,829)
Other current liabilities.............................. (11,279)
Debt................................................... (67,467)
Other long-term liabilities............................ (2,230) 6,480
--------- ---------
Total remaining to be allocated...................... 190,923
Accrued liabilities resulting from the Acquisition....... 4,500
---------
Adjustment to goodwill and other intangibles............. $ 195,423
---------
---------
Source of Merger Consideration
Cash................................................... $ 150,082
Additional borrowings under the DIMAC Credit
Facility.............................................. 44,656
Equity, relating to the Company options (see (d)
above)................................................ 2,665
---------
Total................................................ $ 197,403
---------
---------
Elimination of pro forma DIMAC equity (historical equity
of $2,811 plus $3,669 (see (d) above)).................. $ 6,480
---------
---------
</TABLE>
The purchase price has been allocated on a preliminary basis to assets
acquired and liabilities assumed based on their estimated fair values. Book
values of DIMAC's working capital accounts, property and equipment and
long-term debt are assumed to approximate their fair value. The fair value
of identifiable intangible assets, such as customer lists and trained work
force, is estimated to be $20.0 million and will be amortized over an
estimated weighted average life of 8 years. Amounts allocated to customer
lists and trained work force represents management's estimates of the fair
values of such assets considering previous services provided and anticipated
future services to be provided to such customers and estimated costs of
hiring and training employees of DIMAC. The excess of purchase price over
identifiable net assets will be amortized over an estimated life of 40
years.
(g) Reflects capitalization of financing costs of $1,631,000 relating to the
DIMAC Credit Facility. Such costs are assumed to be paid with borrowings
under the agreement.
(h) Reflects the recognition of deferred income taxes at an estimated effective
rate of 35% on the excess of book value over tax bases relating to the DIMAC
net assets to be acquired.
(i) Adjusts pro forma amounts previously recorded to reflect the payment of
$7.00 of the Merger Consideration in shares of Company Common Stock. See (f)
for calculation of the pro forma adjustment.
S-46
<PAGE>
(j) Reflects the elimination of certain corporate expenses of DIMAC which will
not be incurred by the combined entities. Such expenses represent
duplicative costs or management fees which will not be paid by DIMAC
subsequent to the Acquisition and are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Directors and officers insurance............................ $ 96 $173
Public company expenses..................................... -- 100
Management fees............................................. 250 187
----- -----
Pro forma adjustment...................................... $346 $460
----- -----
----- -----
</TABLE>
(k) Reflects incremental amortization of intangible assets acquired in the
Acquisition.
(l) Reflects incremental interest and amortization of deferred finance costs
relating to the $150 million of Notes at 9.25% and the DIMAC Credit
Facility, assuming a weighted average interest rate of 9% on borrowings
under such credit agreement for the year ended December 31, 1994 and the
nine months ended September 30, 1995 as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Interest on $150 million Notes.............................. $13,875 $10,406
Interest on borrowings of $112.1 million under the DIMAC
Credit Facility............................................ 10,238 7,678
Amortization of debt issuance costs......................... 584 438
Less: DIMAC interest as adjusted............................ (6,646) (4,939)
------------ -------------
Pro forma adjustment...................................... $18,051 $13,583
------------ -------------
------------ -------------
</TABLE>
(m) Reflects the incremental adjustment necessary to present income tax expense
of the combined entities, assuming the other transactions of the Company and
DIMAC, the Acquisition and the issuance of the Notes occurred on January 1,
1994. Deferred tax assets have been recognized to the extent that they
offset deferred tax liabilities that will reverse in the carryforward
period. For the year ended December 31, 1994, pro forma federal tax was
offset by previously unrecognized deferred tax assets of $4.8 million ($6.3
million assuming the Merger Consideration is comprised of cash and stock).
For the nine months ended September 30, 1995, pro forma tax was partially
offset by previously unrecognized deferred tax assets of $6.1 million ($4.6
million assuming the Merger Consideration is comprised of cash).
(n) Reflects the reduction in interest and increase in estimated income tax
expense resulting from the payment of $7 of the Merger Consideration in
shares of Company Common Stock, assuming a Company Trading Price of $27 per
share for the Company Common Stock. Such interest adjustment is calculated
by multiplying the amount of Merger Consideration to be paid in Company
Common Stock of $47,535,000 times the assumed weighted average interest rate
under the DIMAC Credit Facility of 9% for the respective periods.
S-47
<PAGE>
PROSPECTUS
$300,000,000
HERITAGE MEDIA CORPORATION
SUBORDINATED DEBENTURES AND NOTES
------------------
Heritage Media Corporation (the "Company") may offer and issue from time to
time its unsecured subordinated debentures or notes (the "Securities") for an
aggregate initial offering price not to exceed $300,000,000. The Securities may
be offered in one or more separate series, in amounts, at prices and on terms to
be determined by market conditions at the time of sale and to be set forth in a
supplement or supplements to this Prospectus (a "Prospectus Supplement"). Any
Securities may be offered with other Securities or separately.
Certain terms of any Securities in respect of which this Prospectus is being
delivered will be set forth in the accompanying Prospectus Supplement including,
where applicable, the specific designation, aggregate principal amount, purchase
price, authorized denominations, maturity, prepayment, interest rate and time
and dates of payment of interest (if any), terms (if any) for the redemption or
exchange thereof, listing (if any) on a securities exchange and any other
specific terms of the Securities.
The Securities will be subordinated in right of payment to all present and
future Senior Indebtedness (as defined herein) of the Company to the extent
described herein and in the Prospectus Supplement. The Prospectus Supplement
will also contain information about certain United States federal income tax
considerations relating to the Securities, if applicable.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 HEREOF FOR A DISCUSSION OF CERTAIN
RISKS ASSOCIATED WITH AN INVESTMENT IN THE SECURITIES.
---------------------
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 ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Securities may be sold on a negotiated or competitive bid basis to or
through underwriters or dealers designated from time to time or to other
purchasers directly or through agents designated from time to time. See "Plan of
Distribution." Certain terms of the offering and sale of the Securities,
including, where applicable, the names of the underwriters, dealers or agents,
if any, the principal amount or number of shares to be purchased, the purchase
price of the Securities and the proceeds to the Company from such sale, and any
applicable commissions, discounts and other items constituting compensation of
such underwriters, dealers or agents, will be set forth in the accompanying
Prospectus Supplement.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
------------------------
The date of this Prospectus is January 18, 1996
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Heritage Media Corporation (the "Company"
or "Heritage" and, where the context indicates, includes its subsidiaries) with
the Securities and Exchange Commission (the "Commission") are hereby
incorporated in this Prospectus by reference (Commission File No. 1-10015):
1. the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as amended by Amendment No. 1 to such report on Form
10-K/A filed on December 15, 1995 and Amendment No. 2 to such report on Form
10-K/A filed on January 4, 1996 (the "Form 10-K");
2. the Company's Quarterly Reports on Form 10-Q, for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995 and the Company's
report on Form 10-Q/A amending its Quarterly Report on Form 10-Q for the
period ended September 30, 1995, which contain the unaudited consolidated
condensed financial statements of the Company; and
3. the Company's Report on Form 8-K dated December 11, 1995, as amended
by Form 8-K/A dated January 4, 1996 and Form 8-K/A dated January 17, 1996.
All documents hereafter filed by the Company with the Commission, pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing of
a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference in and to be a part of this Prospectus
from the date of filing of such documents. Any statements contained in a
document all or a portion of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified shall not be deemed a part of this Prospectus, except as so modified,
and any statement so superseded shall not be deemed to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of a security, to whom a Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated by reference herein, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Company at
its principal executive offices, One Galleria Tower, 13355 Noel Road, Suite
1500, Dallas, Texas 75240, Attention: Secretary, telephone: (214) 702-7380.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS, IF ANY, MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
THE COMPANY
Heritage Media Corporation, through its Actmedia, Inc. ("Actmedia")
subsidiary, is the world's largest independent provider of in-store marketing
products and services, primarily to consumer packaged goods manufacturers. The
Company is also a participant in the broadcast industry through its ownership of
four network affiliated television stations in small to mid-sized markets and 17
radio stations in seven major markets.
On October 23, 1995, the Company entered into an agreement to acquire DIMAC
Corporation ("DIMAC"). See "Recent Developments." DIMAC is the largest full
service, vertically integrated direct marketing services company in the United
States.
The Company's executive offices are located at One Galleria Tower, 13355
Noel Road, Suite 1500, Dallas, Texas 75240, and its telephone number is
214-702-7380.
RISK FACTORS
Prospective purchasers should consider carefully, in addition to the other
information contained in this Prospectus, the following factors:
LEVERAGE; RESTRICTIONS IMPOSED BY LENDERS
The Company has incurred substantial indebtedness in connection with the
acquisitions of its businesses. In June 1992, Heritage Media Services, Inc.
("HMSI"), a wholly-owned subsidiary of the Company, issued $150,000,000
principal amount of 11% Senior Secured Notes Due 2002 ("HMSI Notes") and entered
into a revolving credit and term loan agreement (the "Credit Agreement") under
which HMSI may borrow up to $130 million. As of September 30, 1995, HMSI had
borrowed $120.4 million under the Credit Agreement. In October 1992, the Company
issued $50,000,000 principal amount of 11% Senior Subordinated Notes (the "1992
Notes") due October 1, 2002. The Securities will rank PARI PASSU with the 1992
Notes and will be structurally subordinate to the HMSI Notes, the Credit
Agreement and all other indebtedness of the Company and its subsidiaries.
As of September 30, 1995, Heritage had indebtedness (long-term debt,
including current installments and notes payable) of approximately $350.4
million and stockholders' equity of approximately $108.7 million, and
accordingly, a consolidated debt-to-equity ratio of approximately 3.2 to 1. The
Company expects to incur substantial additional indebtedness in connection with
the acquisition of DIMAC. See "Recent Developments." Such leverage may adversely
affect the ability of the Company to finance its future operations and capital
needs and may limit its ability to pursue other business opportunities which may
be in its interests. Other than as described under "Recent Developments," the
Company does not have any present intent to incur additional indebtedness.
The discretion of the management of the Company with respect to certain
business matters is limited by covenants contained in the Indenture with respect
to the Securities (the "Indenture"), the Credit Agreement, the Indenture with
respect to the 1992 Notes (the "1992 Indenture") and the Indenture with respect
to the HMSI Notes (the "HMSI Indenture"). The restricted activities include,
among other matters, certain mergers, acquisitions and asset sales, capital
expenditures, certain investments, the incurrence of additional debt, sale and
leaseback transactions, the payment of dividends and other similar payments and
transactions with affiliates. It is anticipated that the agreements governing
the indebtedness which may be incurred in connection with the acquisition of
DIMAC will contain similar restrictions.
As a result of its leverage and in order to repay existing indebtedness, the
Company will be required to continue to generate substantial operating cash
flow. The ability of the Company to meet these requirements will depend on,
among other things, prevailing economic conditions and financial, business and
other factors, some of which are beyond its control, and there can be no
assurance that it will be able to meet such requirements.
3
<PAGE>
HOLDING COMPANY STRUCTURE
As a holding company with no material operations of its own and no material
assets other than the stock of its operating subsidiaries, the Company is
dependent upon distributions from its operating subsidiaries to service its debt
obligations, including the Securities. The ability of the Company's subsidiaries
to make such distributions is subject to the following factors: the discretion
of the Company in causing its subsidiaries to make distributions; the ability of
such subsidiaries under state corporate laws to declare dividends; and the
prohibition of, or limitation on, distributions by such subsidiaries arising
under agreements governing indebtedness issued or incurred by the Company's
subsidiaries. Both the HMSI Indenture and the Credit Agreement contain
limitations on the ability of the Company's subsidiaries to pay dividends or
make other distributions to the Company. It is also anticipated that the
agreements governing the indebtedness which may be issued or incurred in
connection with the acquisition of DIMAC will contain similar restrictions. At
September 30, 1995, the HMSI Indenture and the Credit Agreement would have
permitted dividends by the Company's subsidiaries to the Company, subject to
certain exceptions, in the amount of approximately $76 million. The Company
presently expects, although is not required, to redeem the HMSI Notes and to
refinance the indebtedness under the Credit Agreement on June 15, 1997. Claims
of creditors of the Company's subsidiaries, including the holders of the HMSI
Notes and the lenders under the Credit Agreement, will generally have priority
to the assets of such subsidiaries over the claims of the Company and the
holders of the Company's indebtedness.
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Securities comprise a new issue of securities for which there is
currently no public market. If the Securities are traded after their initial
issuance, they may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities,
performance of the Company and other factors. The Company does not intend to
apply for listing of the Securities on any securities exchange.
COMPETITION
Each of the marketing services and broadcast industries are highly
competitive. Several of the Company's competitors and potential competitors in
each of these industries may have greater access to financial resources than the
Company.
GOVERNMENTAL REGULATION
The broadcasting industry is highly regulated. The Company's operation of
its broadcast stations is dependent upon the maintenance and renewal of
broadcast licenses issued by the Federal Communications Commission and by the
continued compliance by the Company with applicable laws and regulations.
Significant changes in legislation affecting broadcasting companies are
anticipated to be enacted in 1996. There can be no assurance as to the ultimate
effect of any new legislation on the Company's operations or financial
condition.
USE OF PROCEEDS
Except as set forth in a Prospectus Supplement, the Company intends to use
the net proceeds from the sale of Securities for general corporate purposes,
including working capital, capital expenditures, investments in or loans to
subsidiaries, refinancing of debt, satisfaction of other obligations, possible
repurchases of capital stock and possible future acquisitions (including the
proposed acquisition of DIMAC) or such other purposes as may be specified in the
Prospectus Supplement. See "Recent Developments."
RECENT DEVELOPMENTS
On October 23, 1995, the Company entered into an agreement (the "Merger
Agreement") with DIMAC. Pursuant to the Merger Agreement, a subsidiary of the
Company would merge with DIMAC, resulting in DIMAC's becoming a wholly-owned
subsidiary of the Company. As a result of the merger, each share of DIMAC common
stock would be converted into the right to receive $28 in cash. The Company may
elect to pay up to $7 of the $28 merger price by issuing shares of the Company's
Class A Common Stock.
4
<PAGE>
Consummation of the merger with DIMAC is subject to approval of the
transaction by the DIMAC stockholders and certain other customary closing
conditions. The Company anticipates that the merger will be consummated in the
first quarter of 1996.
The Company will require financing of approximately $195 million to fund the
purchase price of the outstanding shares of DIMAC common stock and related
transaction expenses and approximately $70 million to refinance DIMAC's
indebtedness and provide an acquisition credit facility for DIMAC. The Company
presently expects to consummate an underwritten public offering of $150 million
principal amount of the Securities prior to the consummation of the merger. In
addition, the Company anticipates entering into a $175 million bank credit
agreement to be guaranteed by DIMAC. If the Company elects to issue shares of
its Class A Common Stock as a part of the merger consideration, the Company's
debt financing would be reduced by as much as $45 million.
DIMAC was founded in 1921 and has evolved into the largest full service,
vertically-integrated direct marketing services company in the United States.
DIMAC creates and implements comprehensive, custom-tailored marketing programs
to enable clients nationwide to focus their marketing expenditures on a highly
targeted potential customer base. As a full service, vertically-integrated firm,
DIMAC provides every component of a complete direct marketing program, including
customized market research, strategic and creative planning, creation and
management of relational databases, telemarketing, media buying, production
services, fulfillment services and subsequent program analysis. Throughout the
last thirty years, DIMAC has successfully expanded the range of its marketing
services and increased the size of its customer base to include major
corporations such as AT&T, American Express, Blockbuster Video, The Walt Disney
Company, several Blue Cross/Blue Shield organizations, Medco Containment
Services and a significant number of all U.S. public television stations.
For the year ended December 31, 1994 and for the nine months ended September
30, 1995, DIMAC had sales of approximately $100.0 million and $89.0 million,
respectively, and income before provision for income taxes and extraordinary
item of $4.85 million and $8.3 million, respectively.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratio of earnings to fixed
charges for the Company for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31
SEPTEMBER 30, ------------------------------------------
1995 1994 1993 1992 (2) 1991 (2) 1990 (2)
------------- ---- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges (1).............................. 1.77 1.78 1.09 -- -- --
</TABLE>
- ------------------------
(1) For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consists of income from continuing operations before income
taxes, extraordinary items, minority interest and fixed charges. "Fixed
charges" consists of interest expense, debt amortization costs and one-third
of rental expense representing the interest portion of rental payments made
under operating leases.
(2) For the years ended December 31, 1992, 1991 and 1990, earnings were
insufficient to cover fixed charges by $13.4 million, $18.8 million and
$26.0 million, respectively.
5
<PAGE>
BUSINESS
The Company, through its Actmedia subsidiary, is the world's largest
independent provider of in-store marketing products and services, primarily to
consumer packaged goods manufacturers. The Company also owns and operates four
network affiliated television stations in small to mid-sized markets and 17
radio stations in seven major markets. For the year ended December 31, 1994,
in-store marketing constituted approximately 72.4% of the Company's total
revenues, and television and radio constituted approximately 14.7% and 12.9%,
respectively of the Company's total revenues.
IN-STORE MARKETING
In-store marketing includes advertising displays, coupons, promotions and
product demonstrations provided within the store. Economic trends support the
continued growth of in-store marketing because this medium is inexpensive in
comparison to other marketing alternatives such as television, radio and
traditional print advertisements. In-store marketing products and services allow
advertisers to communicate with consumers at or near the point-of-purchase
before, or as, purchasing decisions are made. In addition, changing shopping
patterns have led to shorter supermarket visits, usually without shopping lists,
and declining brand loyalty, thus increasing the potential of in-store marketing
to influence consumer purchasing decisions. Industry sources estimate that a
significant percentage of brand purchase decisions are made in the supermarket.
PRODUCTS AND SERVICES. Actmedia offers advertisers a broad assortment of
in-store advertising and promotional products, which are highly effective in
increasing consumer awareness and purchases of targeted products. Advertising
products include print displays on shopping carts, aisle directories and
shelves, and audio advertising played throughout the store. Promotional products
consist of customized in-store demonstrations and merchandising, as well as
coupon and sampling programs. Actmedia can provide on-line reporting to
customers concerning the sales impact of its in-store programs.
INSTANT COUPON MACHINE. The ICM, which was developed by Actmedia and
introduced in 1992, is an electronic dispenser of coupons that is mounted on
shelf channels under or near featured products. Through independent market
research sponsored by the Company, the ICM was shown to increase brand
switching substantially and to encourage first-time purchases of featured
products. In market testing, coupons featured in Actmedia's ICM achieved an
average redemption rate of 17%, versus reported redemption rates of
approximately 2% for coupons in free-standing inserts, approximately 4% for
coupons sent to consumers in direct mailings and approximately 1% for run of
press coupons. The ICM generated approximately $82 million of revenues in
1994, as compared to approximately $63 million in 1993.
ACTNOW. Actmedia's Actnow program provides cooperative in-store coupon
and sampling programs for groups of advertisers, generally five times per
year. Under these programs, Actmedia's representatives distribute coupons,
samples and premiums inside the store entrance. Up to 16.5 million co-op
coupon booklets and up to 16.5 million solo coupons and samples are
distributed nationwide directly to shopping customers per event. In
addition, product awareness is reinforced through the placement of featured
products on a free-standing Actnow display.
IMPACT. Impact is the nation's leading in-store supermarket
demonstration program, offering advertisers complete customized events, such
as tastings, premiums, samplings and demonstrations. All demonstrations are
monitored every day by full-time and part-time supervisors at an average
ratio of one supervisor to 15 demonstrators. Impact's regular part-time
staff of demonstrators, who implement the programs, maintain a consistent
professional appearance (with matching aprons and materials). Special
display units are utilized in the programs and programs are sold on a
store-day basis. Events are generally conducted at the front of the store
but can be located elsewhere.
CARTS. Actmedia's 8" by 10", four-color advertisements, mounted in
plastic frames on the inside and outside of shopping carts, offer
advertisers continuous storewide category-exclusive advertising delivery of
a print advertisement.
6
<PAGE>
AISLEVISION. AisleVision features 28" by 18" four-color advertisement
posters inserted in stores' overhead aisle directory signs. An enhancement
of this product, AisleAction, allows the manufacturer to include motion on
the directory sign, enhancing shopper awareness of the sign.
SHELFTALK/SHELFTAKE-ONE. ShelfTalk features advertisements placed in
plastic frames mounted on supermarket or drug store shelves near its
featured product. ShelfTake-One includes rebate offers or recipe ideas which
consumers may remove from the plastic frame at the site of the featured
product.
ACTRADIO. Actradio, formerly POP (Point of Purchase) Radio, is the
nation's largest advertiser-supported, in-store radio network. Actradio
delivers its in-store audio advertising in conjunction with music
entertainment services provided by leading business music providers.
Actradio sells advertising time to manufacturers in units of 15 second, 20
second, and 30 second commercials each hour.
SALES MERCHANDISING. Through its Powerforce division, Actmedia conducts
in-store merchandising and promotional activities such as shelf restockings,
special retailer events, point of purchase installations and other sales
merchandising tasks previously performed by full-time sales forces of
consumer packaged goods manufacturers.
In September 1995, Actmedia introduced ACTPROMOTE, an electronic "paperless"
couponing network which supports price discounts distributed at the checkout
scanner with on-shelf advertising and in-store audio promotion. National rollout
of this network is expected during 1996.
IN-STORE NETWORK. Actmedia's in-store network delivers some or all of its
products and services in over 24,000 supermarkets, 13,000 drug stores and 2,400
mass merchandiser stores across the country, a network substantially larger than
that of any other in-store marketing company in the United States. By
contracting to purchase the Company's in-store advertising and promotional
products, advertisers gain access to up to approximately 200 of the nation's 214
ADIs covering over 70% of the households in the United States. Through the
Powerforce division, Actmedia also delivers sales merchandising services to toy,
hardware, computer retail, office products and department stores.
Actmedia currently has contracts with approximately 300 store chains, which
contracts generally grant it the exclusive right to provide its customers with
those in-store advertising services which are contractually specified. The
contracts are of various durations, generally extending from three to five years
and provide for a revenue-sharing arrangement with the stores. Actmedia's store
contract renewals are staggered and many of its relationships have been
maintained for almost two decades.
Actmedia's advertising and promotional programs are executed through one of
the nation's largest independent in-store distribution and service
organizations, although certain chains require the Company to utilize their own
employees. Actmedia believes the training, supervision and size of its field
service staff (approximately 300 full-time managers and up to approximately
23,800 available part-time employees) provide it with a significant competitive
advantage as its competitors generally do not have a comparable field service
staff.
CUSTOMER BASE. Actmedia's customer base includes approximately 250
companies and 700 brands. This customer base includes the 25 largest advertisers
of consumer packaged goods. In 1994, the Company's largest customers included
the following:
<TABLE>
<S> <C>
Andrew Jergens Kraft Foods
Chesebrough-Pond's Lever Brothers
Coca-Cola McNeil
General Mills Procter & Gamble
Heinz Quaker Oats
Hunt-Wesson Ralston Purina
James River RJR Nabisco
Kelloggs
</TABLE>
INTERNATIONAL OPERATIONS. Actmedia's strategy includes the establishment of
a significant business presence outside of the United States. The majority of
the Company's advertisers are large, multinational
7
<PAGE>
companies for whom the use of in-store marketing products in overseas markets is
expected to be a logical extension of their advertising and promotional budgets.
The Company's international operations are conducted principally in Canada,
Australia, New Zealand and the Netherlands. International sales in 1994
accounted for $23.2 million (approximately 10.0%) of the in-store revenues.
TELEVISION
The following table sets forth selected information relating to the
television stations owned by Heritage (excluding KEVN-TV, the Company's Rapid
City, South Dakota NBC affiliate which is scheduled to be sold during December
1995):
<TABLE>
<CAPTION>
OTHER
DMA COMMERCIAL STATION STATION
CHANNEL NETWORK TV HOMES IN MARKET STATIONS IN MARKET RANK IN
STATION AND LOCATION NUMBER AFFILIATION DMA (1) RANK (1) DMA SHARE (2) MARKET (3)
- ---------------------- ------- ----------- ----------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
KOKH-TV 25 FOX 572,300 43 4 8 4
(UHF)
Oklahoma City, OK
WCHS-TV 8 ABC 473,200 56 3 15 2
(VHF)
Charleston/
Huntington, WV
WEAR-TV 3 ABC 422,340 62 4 19 2
(VHF)
Mobile, AL/
Pensacola, FL
WPTZ-TV 5 NBC 282,740(4) 92(4) 2 13 2
(VHF)
Burlington, VT/
Plattsburgh, NY
WNNE-TV 31 NBC 282,740(4) 92(4) 3 4 4
(UHF) (5)
Hartford, VT/
Hanover, NH
</TABLE>
- ------------------------
(1) Source: Nielsen Television Designated Market Area ("DMA") rankings 1994-5.
(2) "Sign on-sign off" market shares as reported in the November 1994 Nielsen
ratings.
(3) Rankings based on relative "sign on-sign off" market shares in the November
1994 ratings of Nielsen.
(4) Does not reflect any homes in southern Quebec (including most of Montreal)
which received the WPTZ-TV signal off the air or by cable. WPTZ-TV's signal
is accessible to approximately 3.4 million people in the city of Montreal.
(5) Operated as a satellite of WPTZ-TV, but maintains some local programming and
sells advertising locally.
Heritage operates its television stations in accordance with a cost-benefit
strategy that stresses primarily revenue and cash flow generation and
secondarily audience share and ratings. The objective of this strategy is to
deliver acceptable profit margins while maintaining a balance between the large
programming investment usually required to maintain a number one ranking (with
its resultant adverse effect on profit margins), and the unfavorable impact on
revenues that results from lower audience ratings.
Components of the Company's operating strategy include management's emphasis
on obtaining local advertising revenues by market segmentation, which provides a
competitive advertising advantage, focusing
8
<PAGE>
on local news programming and tightly controlling operating expenses. By
emphasizing advertising sales from local businesses, the Company's stations
produce a higher percentage of local business (approximately 63% local and 37%
national) than the national average.
RADIO
The Company owns and operates five AM and 12 FM radio stations in seven of
the top 50 markets. The following table sets forth certain information regarding
Heritage's radio stations (excluding ratings information for stations acquired
during 1995):
<TABLE>
<CAPTION>
FM STATION FM STATION RANK
METRO RANK STATIONS IN FORMAT IN TARGET
LOCATION (1) CALL SIGN FORMAT MARKET RANK (2) AUDIENCE (3)
- --------------------------- ------------- --------------- ---------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Seattle-Tacoma, WA 13 KRPM-AM Country 31
KRPM-FM Country 2 14
St. Louis, MO 17 WRTH-AM Standards 32
WIL-FM Country 1 4
KIHT-FM Rock Oldies 1 7
Portland, OR 24 KKSN-AM Standards 28
KKSN-FM Oldies 1 3
WXYQ-FM Rock Oldies --(5) --(5)
Cincinnati, OH 25 WOFX-FM Classic Rock 25 --(4) --(4)
Milwaukee, WI 26 WEMP-AM Oldies 26
Adult
WMYX-FM Contemporary 1 8
Adult
WEZW-FM Contemporary 3 12
Rochester, NY 44 WBBF-AM Standards 17
WBEE-FM Country 1 1
WKLX-FM Oldies 1 5
Kansas City, MO-KS 27 KCFX-FM Rock Oldies 25 1 1
KICY-FM Smooth Jazz --(6) --(6)
</TABLE>
- ------------------------
(1) Metropolitan areas as defined and ranked by Arbitron, Fall 1994.
(2) Heritage's FM station ranking against all radio stations in its market with
the same programming format, based on persons aged 25 to 54 listening during
the 6:00 a.m. to midnight time period. (Source: Fall 1994 Arbitron ratings)
(3) The target ranking against all radio stations in the market, based on
listenership by adults aged 25 to 54 during the 6:00 a.m. to midnight time
period. (Source: Fall 1994 Arbitron ratings.)
(4) Station changed its call letters to WVAE-FM and launched a new smooth jazz
format in September 1995.
(5) Format was launched in July 1995.
(6) Format was launched in June 1995.
In September 1995, the Company entered into an agreement to purchase radio
stations WMYV-FM and WWST-FM, both serving the Knoxville, Tennessee market, for
an aggregate purchase price of $6.5 million. The acquisition is expected to
close in early 1996.
The Company's strategy is to identify and acquire under performing radio
stations or groups and effect management and operational changes to increase
their profitability. Implementation of Heritage's strategy typically involves
the following four-step process: (1) instituting operational improvements,
usually including a change in management personnel and additional capital
investments when appropriate; (2) creating increases in audience ratings through
programming and promotional changes; (3) improving revenues as a
9
<PAGE>
result of the turnaround process; and (4) increasing EBITDA. Heritage radio
stations strive to be top rated in their programming formats, and universally
program a mass appeal music format directed at a target audience of 25 to 54
year olds. Presently, seven of the Company's 12 FM stations are format leaders
in their markets.
The FCC limits radio ownership both in the number of stations commonly
owned, operated or controlled in any one market, and in total. In late 1992, the
FCC relaxed its rules to increase the number of AM or FM stations one entity can
own in one market, if certain requirements are met. This new combination is
commonly known as a duopoly. The Company has created duopoly ownership in five
of its seven radio markets.
Each of Heritage's FM facilities is of the highest class of service
permitted by the FCC (B or C) with comprehensive signal coverage of its markets.
The AM stations operate as full-time facilities on regional or clear channels.
DESCRIPTION OF SECURITIES
The following sets forth certain general terms and provisions of the
Indenture under which the Securities may be issued. The particular terms of any
such securities will be set forth in the Prospectus Supplement relating thereto.
GENERAL
The Securities will be issued under the Indenture (the "Indenture") between
the Company and The Bank of New York, as Trustee (the "Trustee").
The statements under this caption relating to the Securities and the
Indenture are summaries and do not purport to be complete, and where reference
is made to particular provisions of the Indenture, such provisions, including
the definition of certain terms, are qualified in their entireties by reference
to all of the provisions of the Indenture. Capitalized terms not otherwise
defined below or elsewhere in this Prospectus have the meanings given to them in
the Indenture. A copy of the Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Indenture does not limit the aggregate principal amount of Securities
that may be issued by the Company thereunder and provides that Securities may be
issued from time to time in a series.
The Securities will be unsecured obligations of the Company and subordinate
in payment to certain other debt obligations of the Company, as described below
under "Subordination."
Substantially all of the operations of the Company are and will be conducted
through its subsidiaries, and therefore the Company is dependent on the cash
flow of its subsidiaries to meet the Company's obligations, including its
obligations under the Securities. See "Risk Factors -- Leverage; Restrictions
Imposed by Lenders."
Unless otherwise specified in the applicable Prospectus Supplement,
Securities will be issued in denominations of $1,000 or any integral multiples
of $1,000.
The applicable Prospectus Supplement will describe the following terms of
the Securities of any series: (1) the title; (2) any limit on the aggregate
principal amount; (3) the date or dates on which the principal and premium is
payable or the method of determination thereof; (4) the interest rate or rates
or the method of calculating such rate or rates, the date or dates from which
such interest will accrue and on which such interest will be payable, any right
of the Company to defer such payment, and the record dates for the determination
of holders to whom interest is payable on any such interest payment dates; (5)
the place or places where the principal, premium, if any, and any interest will
be payable, and where transfers or exchanges may be registered; (6) any periods
within which, prices at which, and any terms and conditions upon which, the
Securities of the series may be redeemed at the option of the Company; (7) any
obligation of the Company to redeem or purchase the Securities of the series
pursuant to any sinking fund or analogous provisions or upon the happening of a
specified event or at the option of a holder thereof and any periods
10
<PAGE>
within which, the prices at which and other terms and conditions upon which, the
Securities of the series will be so redeemed or purchased pursuant to any such
obligation; (8) any restrictions on the registration, transfer or exchange of
the Securities of the series; (9) any addition to, or modification of, or
deletion from, any Events of Default or covenants provided for with respect to
the Securities of the series; (10) if the amount of principal of, or any premium
or interest on, any of the Securities of the series may be determined with
reference to an index or pursuant to a formula or other method, the manner in
which such amounts will be determined; (11) any provisions granting special
rights to the holders of Securities of the series upon the occurrence of such
events as may be specified; (12) if other than the principal amount thereof, the
portion of the principal amount of the Securities of the series which will be
payable upon declaration of the acceleration thereof; (13) the applicability, if
any, of the defeasance or covenant defeasance provisions of the Indenture to the
Securities of the series; (13) any circumstances under which the Company will
pay additional amounts on the Securities of the series held by non-U.S. persons
in respect of taxes, assessments or similar charges; (14) whether the Securities
of the series are to be issued in whole or in part in the form of one or more
temporary or permanent global securities and, if so, the identity of the
Depositary for such global security or securities; (15) subject to the
subordination provisions of the Indenture, the relative degree to which the
Securities of the series shall be senior to or be subordinated to other
Indebtedness of the Company; (16) if the Securities of the series may be issued
or delivered or any installment of principal or interest is payable only upon
the satisfaction of other conditions in addition to those specified in the
Indenture, the form and terms of such conditions; (17) the identity of any
Registrar or Paying Agent if other than the Trustee, for the Securities of the
series; and (18) any other terms and provisions of the Securities of the series
which are not inconsistent with the applicable Indenture.
If not otherwise specified in the applicable Prospectus Supplement, the
Indenture does not restrict the ability of the Company to engage in certain
highly leveraged transactions, such as reorganizations, restructurings, mergers,
management leveraged buyouts or similar transactions, that may adversely affect
the holders of Securities. The ability of the Company to engage in such
transactions, however, is significantly restricted by the terms of the
agreements pursuant to which the material indebtedness of the Company and its
subsidiaries have been issued.
If not otherwise specified in the applicable Prospectus Supplement, the
Indenture does not protect the holders of Securities in the event of a change of
control of the Company's board of directors. Other agreements pursuant to which
the material indebtedness of the Company and its subsidiaries have been issued
require the Company to either redeem, or offer to repurchase, such indebtedness
in the event of a change of control of the Company or HMSI.
The Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain federal income tax consequences and
special considerations applicable to any such Securities will be described in
the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
principal of and premium, if any, and interest on, each Security will be
payable, and such Securities may be presented for registration of transfer or
exchange, at the office or agency of the Company maintained for such purpose. At
the option of the Company, payment of cash interest on any Security may be made
by check mailed to registered Holders thereof at the addresses set forth on the
registry books (the "Register") maintained by the Trustee, which will initially
act as registrar (the "Registrar"). Unless otherwise indicated in the applicable
Prospectus Supplement, scheduled interest payments on any Security will be made
to the person in whose name such Security is registered at the close of business
on the Regular Record Date for such interest.
No service charge will be made for any exchange or registration of transfer
of Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. Unless
otherwise specified in the applicable Prospectus Supplement or otherwise
designated by the Company, the Company's office or agency will be the Corporate
Trust Office of the Trustee.
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GLOBAL SECURITIES
The Securities of a series may be issued in whole or in part in the form of
one or more fully registered global Securities (a "Registered Global Security").
Each Registered Global Security will be registered in the name of a depositary
(the "Depositary") or a nominee for the Depositary identified in the applicable
Prospectus Supplement, will be deposited with such Depositary or a custodian
therefor and will bear a legend regarding the restrictions on exchanges and
registration of transfer thereof. Unless and until it is exchanged in whole or
in part for Securities in definitive certificated form as described hereinafter,
a Registered Global Security may not be transferred or exchanged except as a
whole by the Depositary for such Registered Global Security to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee such
Depositary or any such nominee to a successor Depositary for such series or a
nominee of such successor Depositary.
The specific terms of the depository arrangement with respect to any portion
of a series of Securities to be represented by a Registered Global Security will
be described in the applicable Prospectus Supplement.
Upon the issuance of any Registered Global Security, and the deposit of such
Registered Global Security with or on behalf of the Depositary for such
Registered Global Security, the Depositary will credit on its book-entry
registration and transfer system the respective principal amounts of the
Securities represented by such Registered Global Security to the accounts of
institutions ("Participants") that have accounts with the Depositary. The
accounts to be credited will be designated by the underwriters or agents
engaging in the distribution of such Securities or by the Company, if such
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in a Registered Global Security will be limited to Participants or
persons that may hold interests through Participants. Ownership of beneficial
interests in a Registered Global Security will be shown on, and the transfer of
that ownership will be effected only through, records maintained by the
Depositary for such Registered Global Security or by its nominee. Ownership of
beneficial interests in such Registered Global Security by persons who hold
through Participants will be shown on, and the transfer of such beneficial
interests within such Participants will be effected only through, records
maintained by such Participants.
So long as the Depositary for a Registered Global Security or its nominee,
is the owner of such Registered Global Security, such Depositary or such
nominee, as the case may be, will be considered the sole owner or Holder of the
Security represented by such Registered Global Security for all purposes under
the Indenture. Accordingly, each person owning a beneficial interest in such
Registered Global Security must rely on the procedures of the Depositary and, if
such person is not a Participant, on the procedures of the Participant through
which such person owns its interest, to exercise any rights of a holder under
such Indenture. The Company understands that under existing industry practices,
if it requests any action of holders or if an owner of a beneficial interest in
a Registered Global Security desires to give or take any instruction or action
which a holder is entitled to give or take under the Indenture, the Depositary
would authorize the Participants holding the relevant beneficial interests to
give or take such instruction or action, and such Participants would authorize
beneficial owners owning through such Participants to give or take such
instruction or action or would otherwise act upon the instructions of beneficial
owners holding through them.
Unless otherwise specified in the applicable Prospectus Supplement, payments
with respect to principal of, and, premium, if any, and interest, if any, on,
the Securities represented by a Registered Global Security registered in the
name of the Depositary or its nominee will be made to such Depositary or its
nominee, as the case may be, as the registered owner of such Registered Global
Security. The Company expects that the Depositary for any Securities represented
by a Registered Global Security, upon receipt of any payment in respect of such
Registered Global Security, will credit immediately Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the Registered Global Security as shown on the records of the Depositary. The
Company also expects that payments by Participants to owners of beneficial
interests in such Registered Global Security held through such Participants will
be governed by standing instructions and customary practices of the
Participants, and will be the responsibility of such
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Participants. None of the Company, the Trustee or any agent of the Company or
the Trustee shall have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial interests in any
Registered Global Security, or for maintaining, supervising or reviewing any
records relating to such beneficial interests.
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depositary for any Security represented by a Registered Global Security is at
any time unwilling or unable to continue as Depositary of such Registered Global
Security and a successor depository is not appointed by the Company within 90
days, or if an Event of Default is continuing upon request from the Depositary,
the Company will issue Securities in certificated form in exchange for such
Registered Global Security. In addition, the Company in its sole discretion may
at any time determine not to have any of the Securities of a series represented
by one or more Registered Global Securities and, in such event, will issue
Securities of such series in certificated form in exchange for all of the
Registered Global Securities representing such series of Securities.
OPTIONAL REDEMPTION
The terms, if any, of the optional redemption of the Securities by the
Company will be set forth in detail in the applicable Prospectus Supplement.
Notice of 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 each Holder of
Securities to be redeemed at the last address for such Holder then shown on the
Register. If less than all of the Securities are to be redeemed, the Trustee
shall select, in such manner as in its sole discretion it shall deem appropriate
and fair, the particular Securities to be redeemed or any portion thereof that
is an integral multiple of $1,000. Any notice that relates to a Security to be
redeemed only in part shall state the portion of the principal amount to be
redeemed and that on or after the redemption date, upon surrender of the
Security, a new Security will be issued in a principal amount equal to the
unredeemed portion thereof. On and after the redemption date (unless the Company
shall default in the payment of such Security at the redemption price, together
with accrued interest to the redemption date), interest will cease to accrue on
the Securities or part thereof called for redemption.
SUBORDINATION TO SENIOR INDEBTEDNESS
The Securities are expressly subordinate and subject in right of payment to
the prior payment of all Senior Indebtedness, whether outstanding at the date of
the issuance of the Securities or thereafter incurred. "Senior Indebtedness"
means (i) all principal of or interest on or in connection with Indebtedness
(whether outstanding at the date of the issuance of the Securities or thereafter
incurred), (ii) all charges, fees, expenses (including reasonable attorneys'
fees and expenses) and other amounts owing to holders of Indebtedness described
in clause (i) above in connection with such Indebtedness, and (iii) all
renewals, extensions, refundings and replacements of such Indebtedness, unless
in each case, the instrument or document evidencing such Indebtedness expressly
provides that such Indebtedness (a) is expressly subordinate to other
Indebtedness of the Company or (b) is not superior in right of payment to the
Securities; PROVIDED, HOWEVER, that Senior Indebtedness shall not include the
Securities or the 1992 Notes, or any renewals, extensions or refundings thereof.
In addition, as a result of the Company's holding company structure, the
creditors of the Company (including the holders of the Securities), effectively
rank junior to all creditors of the Company's subsidiaries, including trade
creditors. At September 30, 1995, the aggregate outstanding principal amount of
Senior Indebtedness of the Company's subsidiaries on a consolidated basis was
approximately $363 million. Subject to certain restrictions contained in the
Indenture, the 1992 Indenture, the Credit Agreement and the HMSI Indenture, the
Company and its subsidiaries are permitted to incur additional Senior
Indebtedness.
REPORTS TO HOLDERS
At all times from and after the effective date of the Indenture, whether or
not the Company is then required by the Exchange Act to file reports with the
Commission, the Company shall, to the extent required or permitted, file with
the Commission all such reports and other information as would be required to be
filed with the Commission by the Exchange Act. The Company shall supply the
Trustee and each Holder, or
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shall supply to the Trustee for forwarding to each Holder, without cost to such
Holder, copies of such reports or other information. The Company also shall
comply with the provisions of Trust Indenture Act Section 314(a).
EVENTS OF DEFAULT
The following will be Events of Default with respect to the Securities of
any series under the Indenture: (i) failure to pay any interest on any Security
of that series when due, continued for 30 days; (ii) failure to pay principal of
(or premium, if any, on) any Security of that series when due; (iii) failure to
perform or a breach of the obligations of the Company with respect to Mergers,
Consolidations, Sales and Purchases of Assets as set forth in the Indenture;
(iv) failure to perform any other covenant or warranty of the Company in the
Indenture, continued for 60 days after written notice as provided in the
Indenture; (v) failure to pay when due, or acceleration of, the principal of any
Indebtedness of the Company or any Subsidiary of the Company in an aggregate
principal amount in excess of $1,500,000; (vi) the rendering of a final judgment
or judgments (not subject to appeal) against the Company or any of its
Subsidiaries in an aggregate principal amount in excess of $2,000,000 which
remains unstayed, in effect and unpaid for a period of 60 consecutive days
thereafter, and (vii) certain events in bankruptcy, insolvency or reorganization
affecting the Company or any Subsidiary of the Company.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered to the Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the Trustee, the Holders of a majority in
aggregate principal amount of the Outstanding Securities of any series 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 in respect of such Securities.
If an Event of Default shall occur and be continuing, either the Trustee or
the Holders of at least 25% in aggregate principal amount of the Outstanding
Securities of such series may accelerate the maturity of all Securities of such
series; provided, however, that after such acceleration, but before a judgment
or decree based on acceleration, the Holders of a majority in aggregate
principal amount of Outstanding Securities of such series may, under certain
circumstances with respect to the Securities of any series, rescind and annul
such acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture.
For information as to waiver of defaults, see "Modification and Waiver."
No Holder of any Security of any series will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default with respect to the Securities of such series and
unless the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of such series shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Securities of such series a
direction inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of a Security for enforcement of payment of the principal
of (and premium, if any) or interest on such Security on or after the respective
due dates expressed in such Security.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
DISCHARGE AND DEFEASANCE
The Indenture provides that the Indenture shall cease to be of further
effect (except as to registration of transfers and exchanges of Securities and
certain other matters) with respect to the Securities of any series
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when all such Securities have or will within one year at their Stated Maturity
or Redemption Date become due and payable and the Company has paid or deposited
in trust with the Trustee a sufficient amount of funds to pay all amounts due
with respect to such Securities.
Additionally, with respect to the Securities of any series as to which the
applicable Prospectus Supplement indicates the applicability of either or both
of the defeasance and covenant defeasance provisions described hereinafter, the
Company at its option may be discharged (i) from all Indenture obligations
(except as to registration of transfers and exchanges of Securities and certain
other matters) ("defeasance") or (ii) from certain of its obligations under
various covenants ("covenant defeasance") and its failure to observe such
obligations will not constitute an Event of Default, upon irrevocable deposit
with the Trustee, in trust, of money and/or government obligations which will
provide money in an amount sufficient in the opinion of a nationally recognized
accounting firm to pay the principal of and premium, if any, and each
installment of interest, if any, on the Outstanding Securities of such series.
With respect to clause (ii), the obligations under the Indenture other than with
respect to such covenants and the Events of Default other than the Event of
Default relating to such covenants above shall remain in full force and effect.
Such additional conditions include, among other things (1) with respect to
clause (i), the Company has received from, or there has been published by, the
Internal Revenue Service of a ruling or there has been a change in law, which in
the opinion of counsel to the Company provides that Holders of the Securities of
such series will not recognize gain or loss for Federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not occurred;
or, with respect to clause (ii), the Company has delivered to the Trustee an
opinion of its counsel to the effect that the Holders of the Securities of such
series will not recognize gain or loss for Federal income tax purposes as a
result of such deposit and defeasance and will be subject to Federal income tax
on the same amount, in the same manner and at the same times as would have been
the case if such deposit and defeasance had not occurred; (2) no Event of
Default or event that, with the passing of time or the giving of notice, or
both, shall constitute an Event of Default shall have occurred and be continuing
and no bankruptcy Event of Default shall have occurred and be continuing on the
121st day after the date of such deposit; and (3) the Company has delivered to
the Trustee an opinion of its counsel to the effect that such deposit shall not
cause the Trustee or the trust so created to be subject to the Investment
Company Act of 1940.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Outstanding Securities of any series; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
Outstanding Security of such series affected thereby, (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Security of
such series, (ii) reduce the principal amount of (or the premium) or interest
on, any Security of such series, (iii) change the place of payment of principal
of (or premium) or interest on, any Security of such series, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Security of such series, (v) reduce the above-stated percentage of
Outstanding Securities of such series necessary to modify or amend the
Indenture, (vi) reduce the percentage of aggregate principal amount of
Outstanding Securities of such series necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults or (vii)
modify any provisions of the Indenture relating to the modification and
amendment of the Indenture or the waiver of past defaults or covenants, except
as otherwise specified.
The Indenture also permits certain modifications and amendments of such
Indenture to be made by the Company and the Trustee, without the consent of the
Holders for any of the following purposes: (i) to evidence the succession of
another person to the Company and the assumption by any such successor to the
covenants of the Company, (ii) to add to the covenants of the Company for the
benefit of the Holders, or to surrender any right or power conferred upon the
Company by the Indenture, (iii) to comply with any requirements of the
Commission to maintain the qualification of the Indenture under the Trust
Indenture Act, or (iv) to cure any ambiguity, to correct or supplement any
provision in the Indenture which may be inconsistent with any other provision of
the Indenture which does not adversely affect the interests of the
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Holders in any material respect. The Indenture also provides that a supplemental
indenture which changes or eliminates any covenant or other provision of such
Indenture which has expressly been included solely for the benefit of one or
more particular series of Securities, or which modified the rights of the
Holders of such series with respect to such covenant or other provision, shall
be deemed not to affect the rights under such Indenture of the Holders of
Securities of any other series.
The Holders of a majority in aggregate principal amount of the Outstanding
Securities of any series may waive compliance by the Company with certain
restrictive covenants contained in the Indenture. The Holders of a majority in
aggregate principal amount of the Outstanding Securities of such series may
waive any past default under the Indenture, except a default in the payment of
principal, premium, if any, or interest.
GOVERNING LAW
The Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York.
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 under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
PLAN OF DISTRIBUTION
The Company may sell the Securities being offered hereby in four ways: (i)
through agents, (ii) through underwriters, (iii) through dealers and (iv)
directly to certain purchasers (through a specific bidding or auction process or
otherwise). The distribution of Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices relating to such
prevailing market prices or at negotiated prices.
Offers to purchase Securities may be solicited by agents designated by the
Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the offer
or sale of the Securities in respect of which this Prospectus is delivered, will
be named, and any commissions payable by the Company to such agent will be set
forth, in a Prospectus Supplement. Unless otherwise indicated in a Prospectus
Supplement, any such agent will be acting on a best efforts basis for the period
of its appointment. Agents may be entitled under agreements which may be entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act.
If any underwriters are utilized in the sale of the Securities, the Company
will enter into an underwriting agreement with such underwriters at the time of
sale to them and the names of the underwriters and the terms of the transaction,
including compensation of the underwriters and dealers, will be set forth in the
Prospectus Supplement, which will be used by the underwriters to make resales of
the Securities in respect of which this Prospectus is delivered to the public.
The underwriters may be entitled, under the relevant underwriting agreement, to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act, and to reimbursement by the Company for
certain expenses.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to the
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at any time of resale. Dealers
may be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, and to reimbursement by the
Company for certain expenses.
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Offers to purchase the Securities may be solicited directly by the Company
and sales thereof may be made by the Company directly to institutional investors
or others. The terms of any such sales, including the terms of any bidding or
auction process, if utilized, will be described in the Prospectus Supplement
relating thereto.
The Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for the Company. Any remarketing firm will be identified
and the terms of its agreement, if any, with the Company and its compensation
will be described in the Prospectus Supplement. Remarketing firms may be deemed
to be underwriters in connection with the Securities remarketed thereby.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters or dealers to solicit offers by certain purchasers to
purchase Securities from the Company at the public offering price set forth in
the Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such contracts will be
subject to only those conditions set forth in the Prospectus Supplement and the
Prospectus Supplement will set forth the commission payable for solicitation of
such efforts.
Certain of the underwriters, agents or dealers and their associates may be
customers or engage in transactions with and perform services for the Company in
the ordinary course of business.
VALIDITY OF SECURITIES
The validity of the Securities offered hereby will be passed upon for the
Company by Crouch & Hallett, L.L.P., Dallas, Texas, and will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York. Crouch & Hallett,
L.L.P. and Davis Polk & Wardwell may rely as to all matters of Iowa law upon the
opinion of Wayne Kern, Esq., Senior Vice President and Secretary of the Company.
EXPERTS
The consolidated financial statements and schedules of Heritage Media
Corporation and subsidiaries as of December 31, 1994 and 1993, and for each of
the years in the three-year period ended December 31, 1994 have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of DIMAC at December 31, 1993 and
1994, and for each of the three years in the period ended December 31, 1994,
appearing in Heritage Media Corporation's Report on Form 8-K, as amended, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The combined financial statements of T.R. McClure and Company, Inc. and
related companies at December 31, 1993 and 1994 and for the years then ended
have been incorporated by reference herein in reliance upon the report of
Mortenson and Associates, P.C. (formerly La Vecchia & Zarro), independent
auditors, incorporated by reference herein, upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Palm Coast Data Ltd. at December 31, 1993 and
1994 and for the years then ended have been incorporated by reference herein in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, incorporated by reference herein, given upon the authority of such
firm as experts in accounting and auditing.
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The combined financial statements of The Direct Marketing Group, Inc. and
related companies at December 31, 1992 and 1993 and for the years then ended
have been incorporated by reference herein in reliance upon the report of Leslie
Sufrin and Company, P.C., independent auditors, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at its offices at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
such material may also be inspected and copied at the offices of the American
Stock Exchange, 86 Trinity Place, New York, New York 10006-1881.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Supplement Summary.................... S-2
Summary Financial Data........................... S-4
Recent Developments.............................. S-6
Use of Proceeds.................................. S-6
Capitalization................................... S-7
Selected Financial Data.......................... S-8
Management's Discussion and Analysis of Financial
Condition and Interim Results of Operations..... S-11
Description of Notes............................. S-19
Underwriting..................................... S-34
Legal Matters.................................... S-34
Pro Forma Condensed Combined Financial
Statements...................................... S-35
</TABLE>
$150,000,000
HERITAGE MEDIA CORPORATION
% SENIOR
SUBORDINATED NOTES DUE 2006
-----------------
PROSPECTUS SUPPLEMENT
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DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CITICORP SECURITIES, INC.
SMITH BARNEY INC.
NATIONSBANC CAPITAL MARKETS, INC.
February , 1996
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