<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 3, 1999
REGISTRATION NO. 333-83637
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN MEDIA OPERATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2721 59-2094424
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
600 EAST COAST AVENUE
LANTANA, FL 33464-0002
(561) 540-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SCOTT PRICE, ESQ.
600 EAST COAST AVENUE
LANTANA, FL 33464-0002
(561) 540-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
GARY L. SELLERS, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration number of the earlier effective
Registration Statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
ADDRESS INCLUDING ZIP CODE,
STATE OR OTHER I.R.S. AND TELEPHONE NUMBER
EXACT NAME OF JURISDICTION OF EMPLOYER INCLUDING AREA CODE,
REGISTRANT GUARANTOR INCORPORATION OR IDENTIFICATION OF REGISTRANT GUARANTOR'S
AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ------------------------------ ---------------- -------------- --------------------------------
<S> <C> <C> <C>
American Media Marketing, Inc. Florida 65-0757297 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Biocide, Inc. Delaware 58-2286482 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Country Weekly, Inc. Delaware 65-0462019 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Distribution Services, Inc. Delaware 59-1641185 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Fairview Printing, Inc. Florida 59-2521785 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Health Xtra, Inc. Florida 65-0886419 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Marketing Services, Inc. Delaware 65-0228937 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
National Enquirer, Inc. Florida 59-2764097 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
NDSI, Inc. Delaware 59-2632066 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Retail Marketing Network, Inc. Delaware 65-0503059 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Star Editorial, Inc. Delaware 59-2719233 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
SOM Publishing, Inc. Florida 59-2429187 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
Weekly World News, Inc. Florida 59-1896614 600 East Coast Avenue
Lantana, FL 33464 (561) 540-1000
</TABLE>
<PAGE> 3
SUBJECT TO COMPLETION, DATED AUGUST 3, 1999
PROSPECTUS
$250,000,000
AMERICAN MEDIA OPERATIONS, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES
DUE 2009 FOR 10 1/4% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER
- - We will exchange all old notes that are validly tendered and not validly
withdrawn for an equal principal amount of exchange notes that are freely
tradeable.
- - You may withdraw tenders of old notes at any time prior to the expiration of
the exchange offer.
- - The exchange offer expires at 5:00 p.m., New York City time, on September 2,
1999, unless extended. We do not currently intend to extend the expiration
date.
THE EXCHANGE NOTES
- - The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the old notes, except that the exchange notes will
be freely tradeable.
RESALES OF EXCHANGE NOTES
- - The exchange notes may be sold in the over-the-counter market, in negotiated
transactions or through a combination of such methods. The exchange notes will
be eligible for trading in the PORTAL market.
------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 14 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THIS EXCHANGE OFFER.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is August 5, 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE NOTES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE NOTES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE NOTES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 14
The Transactions...................... 22
Use of Proceeds....................... 23
Capitalization........................ 24
Unaudited Pro Forma Consolidated
Financial Statements................ 25
Selected Historical Consolidated
Financial Information............... 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 33
Business.............................. 41
Management............................ 51
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Outstanding Voting Securities......... 54
Certain Relationships and Related
Transactions........................ 55
Description of Other Indebtedness..... 56
The Exchange Offer.................... 58
Description of the Notes.............. 68
U.S. Federal Tax Considerations of the
Exchange Offer...................... 107
Plan of Distribution.................. 108
Legal Matters......................... 108
Experts............................... 109
Where You Can Find More Information... 109
Index to Financial Statements......... F-1
</TABLE>
SPECIAL NOTE REGARDING INDUSTRY DATA AND CIRCULATION INFORMATION
Unless otherwise specifically indicated, all statements presented in this
prospectus regarding
- circulation rankings in the United States and Canada of National Enquirer
and Star relative to other magazines based on weekly single copy
circulation and of Country Weekly in its category based on weekly
circulation,
- rankings in the United States and Canada of National Enquirer and Star
relative to other magazines based on total magazine retail dollars
generated,
- our publications' share of total weekly single copy circulation in the
United States and Canada, and
- the percentage that average weekly single copy circulation of our
publications in the United States, Canada or outside of North America
represents of total average weekly single copy circulation of our
publications
are based upon statistical data obtained from the report of the Audit Bureau of
Circulations for the six months ended December 31, 1998. Unless otherwise
indicated, all average weekly circulation information for our publications is an
average of actual weekly single copy circulation for the six months ended
December 28, 1998. All references to "circulation" are to single copy and
subscription circulation, unless otherwise specified. All information regarding
multiple readers per copy of our publications and the core demographic profile
of our readers is based on National Enquirer and Star magazine audience
estimates prepared at our request for fall 1998 by Mediamark Research Inc. The
information contained in the report of the Audit Bureau of Circulations and the
magazine audience estimate by Mediamark Research Inc. have not been
independently verified by us.
i
<PAGE> 5
FORWARD-LOOKING STATEMENTS
Some of the information presented in this prospectus constitutes
forward-looking statements, including, in particular, the statements about our
plans, strategies and prospects under the headings "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." We have based these forward-looking statements on
our current assumptions, expectations and projections about future events. We
caution you that a variety of factors could cause business conditions and
results to differ materially from what is contained in the forward-looking
statements. These forward-looking statements are subject to risks, uncertainties
and assumptions about us, including, among other things:
- - our high degree of leverage and significant debt service obligations,
- - our ability to increase circulation and advertising revenues,
- - market conditions for our publications,
- - our ability to develop new publications and services,
- - outcomes of pending and future litigation,
- - increasing competition by domestic and foreign media companies,
- - changes in the costs of paper used by us,
- - any future changes in management,
- - general risks associated with the publishing industry, and
- - the potential effect of year 2000 computer issues.
ii
<PAGE> 6
SUMMARY
This summary highlights information contained elsewhere or incorporated by
reference in this prospectus. It is not complete and may not contain all of the
information that is important to you. Unless the context otherwise requires,
references in this prospectus to "American Media Operations," the "Company" or
"us," "we" or "our" are to American Media Operations, Inc. and its subsidiaries.
All references to a particular fiscal year are to the four fiscal quarters
ended the last Monday in March of the fiscal year specified. All references to
"notes" are to the exchange notes and the old notes.
AMERICAN MEDIA OPERATIONS
OVERVIEW
We are a leading publisher in the field of general interest magazines,
publishing National Enquirer, Star, Weekly World News and Country Weekly, with a
current aggregate weekly circulation of approximately 4.7 million copies.
National Enquirer and Star, our premier titles, have the second and fourth
highest weekly single copy circulation, respectively, of any weekly periodical
in the United States. We are the leader in total weekly single copy circulation
of magazines in the United States and Canada with approximately 34% of total
U.S. and Canadian circulation for weekly publications. We derive approximately
85% of our revenues from circulation, predominantly single copy sales in retail
outlets, and the remainder from advertising and other sources. National Enquirer
and Star are distributed in approximately 165,000 retail outlets in the United
States and Canada, representing, in the opinion of management, substantially
complete coverage of periodical outlets in these countries. Distribution
Services, Inc., or DSI, our subsidiary, arranges for the placement and
merchandising of our publications and third-party publications at retail outlets
throughout the United States and Canada. In addition, DSI provides marketing,
merchandising and information-gathering services for third parties. For the
fiscal year ended March 29, 1999, we had pro forma revenues and pro forma EBITDA
of $272.2 million and $95.8 million, respectively.
Our publications are among the most well-known and widely distributed
titles in the publishing industry. While our publications have a current
aggregate weekly circulation of approximately 4.7 million copies, they enjoy a
weekly readership of over 20 million people due to multiple readers per copy
sold. As a result, we believe our publications enjoy strong consumer brand
awareness with a large and loyal readership base. Our publications include the
following titles:
- National Enquirer is a weekly general interest periodical with an
editorial content devoted to celebrity features, human interest stories
and articles covering lifestyle topics such as health, food and household
affairs. National Enquirer is the second highest selling weekly
periodical in the United States and Canada based on single copy
circulation, selling on average 1,814,000 copies per week. National
Enquirer has a total average weekly circulation of 2,201,000 copies,
including subscriptions, with an average of approximately 7 readers per
copy. National Enquirer has a core demographic profile of women aged
18-49. National Enquirer's cover price is $1.59 in the United States.
- Star is a weekly celebrity news-based periodical with a strong emphasis
on television and movie performers and the lives of the rich and famous.
Star complements this focus with human interest stories about ordinary
people in unusual circumstances. Every issue also includes a variety of
features on topics such as food, fashion, health, fitness and parenting.
Star is the fourth highest selling weekly periodical in the United States
and Canada based on single copy circulation, selling on average 1,487,000
copies per week. Star has a total average weekly circulation of 1,776,000
copies, including subscriptions, with an average of approximately 4
readers per copy. Star has a core demographic profile of women aged
18-49. Star's cover price is $1.59 in the United States.
- Weekly World News is a tabloid devoted to the publication of entertaining
and unusual stories. The editorial content is derived principally from
rewritten stories and photographs purchased from
1
<PAGE> 7
agencies and periodicals around the world. Weekly World News has an
average weekly single copy circulation of 355,000 copies, with a total
average weekly circulation of 379,000 copies, including subscriptions.
Weekly World News' cover price is $1.39 in the United States.
- Country Weekly is a special interest magazine presenting various aspects
of country music, lifestyles, events and personalities, and has the
highest weekly circulation of any such magazine in its category. Country
Weekly has an average weekly single copy circulation of 171,000 copies,
with a total average weekly circulation of 363,000 copies, including
subscriptions. Country Weekly's cover price is $1.99 in the United
States.
COMPETITIVE STRENGTHS
We believe that the following factors have contributed to the leading
market position of our publications:
- Strong, well-established brand names
- Extensive editorial sourcing capabilities
- Broad distribution base
- Experienced management team
BUSINESS STRATEGY
The key elements of our business strategy are to:
- Enhance editorial content to drive single copy circulation
- Aggressively promote our brands
- Increase advertising revenues
- Build on the strength of DSI
- Utilize price flexibility
- Leverage brand equity
- Pursue complementary acquisitions
THE TRANSACTIONS
THE MERGER. On May 7, 1999, EMP Acquisition Corp., a company formed by
Evercore Capital Partners L.P., a private equity firm, entered into a merger
agreement with our parent company, American Media, Inc., pursuant to which (a)
EMP Acquisition Corp. merged into American Media, Inc., (b) the existing
stockholders of American Media, Inc. received aggregate cash consideration of
$299.4 million and (c) Evercore and certain other investors, including David
Pecker, our chairman, acquired 100% of the common stock of American Media, Inc.
FINANCING FOR THE TRANSACTIONS. The investors made an equity investment of
$235.0 million in EMP Acquisition Corp. to fund a portion of the total cost of
the transactions. In addition, we
- entered into, and made initial borrowings under, a new senior secured
bank credit facility with The Chase Manhattan Bank, as agent, and a
syndicate of other financial institutions, providing for a credit
facility of up to $400.0 million consisting of a $60.0 million revolving
credit facility, a $100.0 million tranche A term loan facility and a
$240.0 million tranche B term loan facility,
- issued the notes,
- repaid all outstanding borrowings under, and terminated, our old senior
secured bank credit facility, and
- consummated a debt tender offer for our 11 5/8% Senior Subordinated Notes
due 2004.
2
<PAGE> 8
The following table sets forth sources and uses of funds in connection with
the foregoing transactions, giving effect to the sale of our soap opera
publications (as discussed below):
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
<S> <C>
SOURCES:
New credit facility(1)...................................... $352.0
Notes....................................................... 250.0
Equity investment........................................... 235.0
------
Total sources.......................................... $837.0
======
USES:
Cash consideration.......................................... $299.4
Repayment of old credit facility............................ 267.0
Purchase of our 11 5/8% senior subordinated notes........... 199.3
Payment of accrued interest on old credit facility and
11 5/8% senior subordinated notes......................... 12.7
Transaction fees and expenses(2)............................ 58.6
------
Total uses............................................. $837.0
======
</TABLE>
- ---------------
(1) Represents borrowings under the new credit facility made on the closing date
of the merger, consisting of $100.0 million under the tranche A term loan
facility, $240.0 million under the tranche B term loan facility and $12.0
million under the revolving credit facility.
(2) Transaction fees and expenses include, among other things, the debt tender
offer premium and consent fee, the initial purchaser's discount and other
expenses incurred in the offering of the old notes and fees and expenses
associated with the merger, the existing credit facility and the debt tender
offer.
SALE OF SOAP OPERA PUBLICATIONS. On February 3, 1999, we ceased
publication of Soap Opera News and Soap Opera Magazine and sold certain of the
trademarks and other soap opera publishing assets relating to these magazines to
Primedia, Inc. for $10.0 million in cash. We used the entire cash proceeds to
repay borrowings under our old credit facility. In addition, we may receive
future consideration based upon increased financial performance above certain
levels of Primedia Inc.'s Soap Opera Digest and Soap Opera Weekly publications.
There can be no assurance, however, that we will receive any such future
consideration.
3
<PAGE> 9
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On May 7, 1999, we completed the private offering of our 10 1/4% Senior
Subordinated Notes due 2009. References to "notes" in this prospectus are
references to both the old notes and the exchange notes.
We and our note guarantors entered into an exchange and registration rights
agreement with the initial purchaser in the private offering in which we and our
guarantors agreed to deliver to you this prospectus and we agreed to complete
the exchange offer within 195 days after the date of original issuance of the
old notes. You are entitled to exchange in the exchange offer your old notes for
exchange notes which are identical in all material respects to the old notes
except that:
- the exchange notes have been registered under the Securities Act;
- the exchange notes are not entitled to certain registration rights which
are applicable to the old notes under the exchange and registration
rights agreement; and
- certain contingent interest rate provisions are no longer applicable.
The Exchange Offer............ We are offering to exchange up to $250.0
million aggregate principal amount of 10 1/4%
senior subordinated notes which have been
registered under the Securities Act for up to
$250.0 million aggregate principal amount of
10 1/4% senior subordinated notes which were
issued in May 1999. Old notes may be exchanged
only in integral multiples of $1,000.
Resales....................... Based on an interpretation by the staff of the
Securities and Exchange Commission set forth in
no-action letters issued to third parties, we
believe that the exchange notes issued pursuant
to the exchange offer in exchange for old notes
may be offered for resale, resold and otherwise
transferred by you (unless you are our
"affiliate" within the meaning of Rule 405
under the Securities Act) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that
you are acquiring the exchange notes in the
ordinary course of your business and that you
have not engaged in, do not intend to engage
in, and have no arrangement or understanding
with any person to participate in, a
distribution of the exchange notes.
Each participating broker-dealer that receives
exchange notes for its own account pursuant to
the exchange offer in exchange for old notes
that were acquired as a result of market-making
or other trading activity must acknowledge that
it will deliver a prospectus in connection with
any resale of the exchange notes. See "Plan of
Distribution."
Any holder of old notes who
- is our affiliate,
- does not acquire exchange notes in the
ordinary course of its business, or
- tenders in the exchange offer with the
intention to participate, or for the purpose
of participating, in a distribution of
exchange notes,
cannot rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated
or similar no-action letters and, in the
absence of
4
<PAGE> 10
an exemption, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with the resale of
the exchange notes.
Expiration Date; Withdrawal of
Tenders..................... The exchange offer will expire at 5:00 p.m.,
New York City time, on September 2, 1999, or
such later date and time to which we extend it
(the "expiration date"). We do not currently
intend to extend the expiration date. A tender
of old notes pursuant to the exchange offer may
be withdrawn at any time prior to the
expiration date. Any old notes not accepted for
exchange for any reason will be returned
without expense to the tendering holder
promptly after the expiration or termination of
the exchange offer.
Certain Conditions to the
Exchange Offer................ The exchange offer is subject to customary
conditions, which we may waive. Please read the
section captioned "The Exchange
Offer -- Certain Conditions to the Exchange
Offer" of this prospectus for more information
regarding the conditions to the exchange offer.
Procedures for Tendering Old
Notes......................... If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a facsimile of the
letter of transmittal, according to the
instructions contained in this prospectus and
the letter of transmittal. You must also mail
or otherwise deliver the letter of transmittal,
or a facsimile of the letter of transmittal,
together with the old notes and any other
required documents, to the exchange agent at
the address set forth on the cover page of the
letter of transmittal. If you hold old notes
through The Depository Trust Company and wish
to participate in the exchange offer, you must
comply with the Automated Tender Offer Program
procedures of DTC, by which you will agree to
be bound by the letter of transmittal. By
signing, or agreeing to be bound by, the letter
of transmittal, you will represent to us that,
among other things:
- any exchange notes that you receive will be
acquired in the ordinary course of your
business;
- you have no arrangement or understanding with
any person or entity to participate in a
distribution of the exchange notes;
- if you are a broker-dealer that will receive
exchange notes for your own account in
exchange for old notes that were acquired as
a result of market-making activities, that
you will deliver a prospectus, as required by
law, in connection with any resale of such
exchange notes; and
- you are not our "affiliate," as defined in
Rule 405 of the Securities Act, or, if you
are an affiliate, you will comply with any
applicable registration and prospectus
delivery requirements of the Securities Act.
5
<PAGE> 11
Special Procedures for
Beneficial Owners............. If you are a beneficial owner of old notes
which are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee, and you wish to tender such old notes
in the exchange offer, you should contact such
registered holder promptly and instruct such
registered holder to tender on your behalf. If
you wish to tender on your own behalf, you
must, prior to completing and executing the
letter of transmittal and delivering your old
notes, either make appropriate arrangements to
register ownership of the old notes in your
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable time
and may not be able to be completed prior to
the expiration date.
Guaranteed Delivery
Procedures.................... If you wish to tender your old notes and your
old notes are not immediately available or you
cannot deliver your old notes, the letter of
transmittal or any other documents required by
the letter of transmittal or comply with the
applicable procedures under DTC's Automated
Tender Offer Program prior to the expiration
date, you must tender your old notes according
to the guaranteed delivery procedures set forth
in this prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures."
Effect on Holders of Old
Notes......................... As a result of the making of, and upon
acceptance for exchange of all validly tendered
old notes pursuant to the terms of the exchange
offer, we will have fulfilled a covenant
contained in the exchange and registration
rights agreement and, accordingly, we will not
be obligated to pay liquidated damages as
described in the exchange and registration
rights agreement. If you are a holder of old
notes and you do not tender your old notes in
the exchange offer, you will continue to hold
such old notes and you will be entitled to all
the rights and limitations applicable to the
old notes in the indenture, except for any
rights under the exchange and registration
rights agreement that by their terms terminate
upon the consummation of the exchange offer.
To the extent that old notes are tendered and
accepted in the exchange offer, the trading
market for old notes could be adversely
affected.
Consequences of Failure to
Exchange...................... All untendered old notes will continue to be
subject to the restrictions on transfer
provided for in the old notes and in the
indenture. In general, the old notes may not be
offered or sold unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. Other than in connection with the
exchange offer, we do not currently anticipate
that we will register the old notes under the
Securities Act.
Certain U.S. Federal Income
Tax Considerations............ The exchange of old notes for exchange notes in
the exchange offer will not be a taxable event
for U.S. federal income tax purposes. See "U.S.
Federal Income Tax Consequences of the Exchange
Offer."
6
<PAGE> 12
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of exchange notes pursuant to the
exchange offer.
Exchange Agent................ ChaseMellon Shareholder Services, L.L.C. is the
exchange agent for the exchange offer. The
address and telephone number of the exchange
agent are set forth in the section captioned
"The Exchange Offer -- Exchange Agent."
7
<PAGE> 13
SUMMARY TERMS OF THE EXCHANGE NOTES
Issuer........................ American Media Operations, Inc.
Notes Offered................. $250,000,000 in aggregate principal amount of
10 1/4% Senior Subordinated Notes due 2009,
which have been registered under the Securities
Act.
Maturity Date................. May 1, 2009.
Interest...................... Annual rate: 10 1/4%.
Payment frequency: every six months on May 1
and November 1.
First payment: November 1, 1999.
Optional Redemption........... On and after May 1, 2004, we may redeem some or
all of the exchange notes at the redemption
prices listed in the section entitled
"Description of the Notes -- Optional
Redemption." Prior to such date, we may not
redeem the exchange notes, except as described
in the following sentence.
At any time prior to May 1, 2002, we may, on
one or more occasions, redeem up to 35% of the
original aggregate principal amount of the
exchange notes with the net cash proceeds of
certain offerings of equity at a redemption
price equal to 110.25% of the principal amount
thereof, plus accrued and unpaid interest and
liquidated damages.
Change of Control............. Upon the occurrence of a change of control, you
will have the right to require us to repurchase
all or a portion of your exchange notes at a
purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest and liquidated damages thereon,
if any, to the date of repurchase. However, we
will not be obligated to repurchase the
exchange notes pursuant to a change of control
offer in the event that we have exercised our
right to redeem all the exchange notes, as
described under "Optional Redemption" above.
See "Description of the Notes -- Change of
Control."
Note Guarantees............... The exchange notes are fully and
unconditionally guaranteed, on an unsecured
senior subordinated basis, by each of our
subsidiaries existing on May 7, 1998, other
than Frontline Marketing, Inc., our 80%-owned
subsidiary, and by each of our future
wholly-owned domestic restricted subsidiaries.
The note guarantees will be subordinated to the
guarantees of senior indebtedness issued by the
note guarantors under our new credit facility.
See "Description of the Notes -- Note
Guarantees."
Ranking....................... The exchange notes will be unsecured and
subordinated in right of payment to all of our
existing and future senior indebtedness,
including all of our borrowings under the new
credit facility. The exchange notes will rank
equal in right of payment with all of our
existing and future senior subordinated
indebtedness and senior to all of our future
subordinated obligations. We are a holding
company and as such we derive all of our
operating
8
<PAGE> 14
income and cash flow from our subsidiaries. See
"Description of the Notes -- Ranking."
Assuming that the transactions had taken place
on March 29, 1999, as of such date we would
have had outstanding:
- $352.0 million of senior indebtedness all of
which would have been secured indebtedness
(excluding unused commitments under the new
credit facility);
- $250.9 million of senior indebtedness all of
which would have been of senior subordinated
indebtedness (other than the notes) and no
indebtedness that is subordinate or junior in
right of repayment to the notes;
- no senior indebtedness of the note guarantors
(excluding their guarantees of indebtedness
of the Company under the new credit
facility); and
- no senior subordinated indebtedness of the
note guarantors (other than the note
guarantees) and no indebtedness of the note
guarantors that is subordinate or junior in
right of payment to the note guarantees.
Certain Covenants............. We will issue the exchange notes under an
indenture among us, the note guarantors and The
Chase Manhattan Bank, as trustee. The indenture
governs both the old notes and the exchange
notes and will, among other things, restrict
our ability and the ability of our subsidiaries
to:
- borrow money;
- guarantee other indebtedness;
- use assets as security in other transactions;
- pay dividends on stock, redeem stock or
redeem subordinated debt;
- make investments;
- enter into agreements that restrict dividends
from subsidiaries;
- sell assets;
- enter into affiliate transactions;
- sell capital stock of subsidiaries;
- enter into new lines of business; and
- merge or consolidate.
For more details, see "Description of the
Notes -- Certain Covenants."
Use of Proceeds............... There will be no cash proceeds to us from the
exchange offer.
9
<PAGE> 15
RISK FACTORS
You should carefully consider the information under the caption "Risk
Factors" and all other information in this prospectus before tendering your
notes.
------------------------
Our executive offices are located at 600 East Coast Avenue, Lantana,
Florida 33464-0002. Our telephone number is (561) 540-1000.
10
<PAGE> 16
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following summary unaudited pro forma consolidated financial
information has been derived from the unaudited pro forma consolidated financial
statements and the related notes included elsewhere in this prospectus. The
summary unaudited pro forma consolidated balance sheet gives effect to the
transactions as if they had occurred on March 29, 1999. The summary unaudited
pro forma consolidated statement of income information and other financial
information for the fiscal year ended March 29, 1999 give effect to the
transactions and the sale of the soap opera assets as if they had occurred at
the beginning of such period. The summary unaudited pro forma consolidated
financial information is for informational purposes only and does not purport to
be indicative of our financial position or the results of our operations that
would have actually been obtained had the transactions and the sale of the soap
opera assets in fact occurred as of the assumed dates or for the periods
presented, nor are they indicative of, or projections for, our results of
operations or financial position for any future period or date. The pro forma
adjustments, as described in the notes to the unaudited pro forma consolidated
financial statements included elsewhere in this prospectus, are based on
available information and upon certain assumptions which we believe are
reasonable.
The merger was accounted for using the purchase method of accounting. The
purchase price will be allocated to the assets acquired and liabilities assumed,
based on their respective fair values. The allocation of the purchase price
reflected in the summary unaudited pro forma consolidated financial information
is preliminary. The adjustments that have been included in the summary unaudited
pro forma consolidated financial information will change based upon the final
allocation of the purchase price when additional information concerning asset
and liability valuation is obtained. The actual allocation of the purchase price
and the resulting effect on operating income may differ significantly from the
unaudited summary pro forma amounts included herein.
The following summary unaudited pro forma consolidated financial
information should be read in conjunction with "Unaudited Pro Forma Consolidated
Financial Statements," "Selected Historical Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included elsewhere in this prospectus.
11
<PAGE> 17
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 29, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
STATEMENT OF INCOME INFORMATION:
Operating revenues
Circulation............................................... $228,244
Advertising............................................... 22,582
Other..................................................... 21,358
--------
272,184
Operating expenses
Editorial................................................. 25,144
Production................................................ 65,488
Distribution, circulation and other cost of sales......... 59,188
Selling, general and administrative....................... 26,561
Depreciation and amortization............................. 50,564
--------
226,945
Operating income.......................................... 45,239
Interest expense............................................ (58,749)
Other income, net(1)........................................ 4,105
--------
Loss before income taxes charge........................... (9,405)
Income taxes................................................ 9,505
--------
Net loss.................................................. $(18,910)
========
OTHER FINANCIAL INFORMATION:
EBITDA(2)................................................... $ 95,803
Cash interest expense....................................... 55,909
Capital expenditures........................................ 13,070
Ratio of EBITDA to cash interest expense.................... 1.7x
BALANCE SHEET INFORMATION (END OF PERIOD):
Total debt.................................................. $602,874
Total stockholder's equity.................................. 215,539
</TABLE>
- ---------------
(1) Other income, net is comprised of miscellaneous nonrecurring items and
includes for the fiscal year ended March 29, 1999, a net gain of $4,400 from
the favorable settlement of certain litigation.
(2) EBITDA is defined as net loss before extraordinary charges, interest
expense, income taxes, depreciation and amortization and other income.
EBITDA is not a measure of performance defined by generally accepted
accounting principles. EBITDA should not be considered in isolation or as a
substitute for net income or a statement of cash flows which have been
prepared in accordance with GAAP or as a measure of our operating
performance, profitability or liquidity. We believe EBITDA provides useful
information regarding our ability to service our debt, and we understand
that such information is considered by certain investors to be an additional
basis for evaluating a company's ability to pay interest and repay debt.
EBITDA measures presented herein may not be comparable to similarly titled
measures of other companies due to differences in methods of calculation.
12
<PAGE> 18
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain of our summary historical
consolidated financial information and the notes thereto. The summary historical
consolidated financial information as of and for the fiscal years ended March
31, 1997, March 30, 1998 and March 29, 1999 has been derived from, and should be
read in conjunction with, our audited historical consolidated financial
statements and the notes thereto, which have been audited by Arthur Andersen
LLP, independent auditors, and which are included elsewhere in this prospectus.
See also "Selected Historical Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
MARCH 31, MARCH 30, MARCH 29,
1997(1) 1998 1999
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME INFORMATION:
Operating revenues
Circulation............................................... $273,567 $262,249 $248,630
Advertising............................................... 24,280 23,643 23,460
Other..................................................... 18,141 21,792 21,369
-------- -------- --------
315,988 307,684 293,459
Operating expenses
Editorial................................................. 28,369 30,497 28,906
Production................................................ 80,286 82,296 79,691
Distribution, circulation and other cost of sales......... 60,514 66,883 67,640
Selling, general and administrative....................... 30,428 27,101 26,212
Gain on sale of soap opera assets......................... -- -- (6,499)
Depreciation and amortization............................. 29,220 30,327 32,110
-------- -------- --------
228,817 237,104 228,060
Operating income.......................................... 87,171 70,580 65,399
Interest expense............................................ (56,284) (50,486) (46,897)
Other income (expense), net(2).............................. (1,705) (1,641) 2,943
-------- -------- --------
Income before income taxes and extraordinary charge....... 29,182 18,453 21,445
Income taxes................................................ 16,716 12,437 13,559
Income before extraordinary charge........................ 12,466 6,016 7,886
Extraordinary charge(3)..................................... -- -- (2,161)
-------- -------- --------
Net income................................................ $ 12,466 $ 6,016 $ 5,725
======== ======== ========
OTHER FINANCIAL INFORMATION:
EBITDA(4)................................................... $114,593 $ 99,226 $ 96,347
Capital expenditures........................................ 8,526 11,018 15,019
Cash provided from operating activities..................... 46,688 41,810 29,802
Cash used in investing activities........................... (10,762) (11,018) (5,019)
Cash used in financing activities........................... (32,339) (31,617) (28,365)
BALANCE SHEET INFORMATION (END OF PERIOD):
Total debt.................................................. $528,662 $497,535 $471,134
Total stockholder's equity.................................. 48,457 54,473 60,198
</TABLE>
- ---------------
(1) Fiscal 1997 includes 53 weeks as compared to 52 weeks for all other fiscal
years presented.
(2) Other income, net for any period is comprised of the management fee incurred
during such period and miscellaneous nonrecurring items and includes for the
fiscal year ended March 29, 1999, a net gain of $4,400 from the favorable
settlement of certain litigation.
(3) Consists primarily of the write-off of deferred debt issuance costs and
charges relating to refinancing of indebtedness.
(4) EBITDA is defined as net income before extraordinary charges, interest
expense, income taxes, depreciation and amortization and other income
(expense) (other than management fees). The management fees included in
other income (expense) were $1,798, $1,681 and $1,162, respectively, for
fiscal 1997, 1998 and 1999. The pro forma financial information presented
elsewhere herein includes a new monitoring fee of $750 per annum as a
selling, general and administrative operating expense. EBITDA is not a
measure of performance defined by GAAP. EBITDA should not be considered in
isolation or as a substitute for net income or a statement of cash flows
which have been prepared in accordance with GAAP or as a measure of our
operating performance, profitability or liquidity. We believe EBITDA
provides useful information regarding our ability to service our debt, and
we understand that such information is considered by certain investors to be
an additional basis for evaluating a company's ability to pay interest and
repay debt. EBITDA measures presented herein may not be comparable to
similarly titled measures of other companies due to differences in the
methods of calculation.
13
<PAGE> 19
RISK FACTORS
Before you tender your notes in the exchange offer, you should be aware
that there are various risks, including those described below. You should
carefully consider these risk factors, together with the other information in
this prospectus, before tendering your notes. There may be additional risks
which affect our business, financial condition or results of operations in the
future and of which we are not currently aware. The risk factors set forth below
are generally applicable to the old notes as well as the exchange notes.
IF YOU DO NOT PARTICIPATE IN THE EXCHANGE OFFER, YOU WILL CONTINUE TO BE
SUBJECT TO TRANSFER RESTRICTIONS.
If you not exchange your old notes in the exchange offer, you will continue
to be subject to restrictions on transfer on your old notes. We did not register
the old notes under the federal or any state securities laws, and we do not
intend to register them following the exchange offer. As a result, the old notes
may only be transferred in limited circumstances under the securities laws. In
addition, to the extent old notes are tendered and accepted in the exchange
offer, the trading market, if any, for the old notes would be adversely
affected. As a result, after the exchange offer, you may have difficulty selling
your old notes.
YOU MUST FOLLOW THE EXCHANGE OFFER PROCEDURES CAREFULLY IN ORDER TO RECEIVE
THE NEW NOTES.
If you do not follow the procedures described herein, you will not receive
exchange notes. The new notes will be issued to you in exchange for your old
notes only after timely receipt by the exchange agent of:
- your old notes and either:
- a properly completed and executed letter of transmittal and all other
required documentation or
- a book-entry delivery by transmittal of an agent's message through The
Depository Trust Company.
If you want to tender your old notes in exchange for new notes, you should
allow sufficient time to ensure timely delivery. No one is under any duty to
give you notification of defects or irregularities with respect to tenders of
old notes for exchange. For additional information, please refer to "The
Exchange Offer" and "Plan of Distribution" sections of this prospectus.
OUR SIGNIFICANT INDEBTEDNESS COULD IMPAIR OUR ABILITY TO OPERATE AND EXPOSE US
TO CERTAIN RISKS.
As a result of the transactions, we incurred a substantial amount of debt.
Assuming that the transactions had taken place on March 29, 1999, we would have
had as of such date total debt (excluding unused commitments) of $602.9 million
and total stockholder's equity of $215.5 million, giving us a total debt to
equity ratio of 2.8 to 1.0. In addition, subject to restrictions in the new
credit facility and in the indenture, we may borrow more money for working
capital, capital expenditures, acquisitions or for other purposes.
Our high level of debt could have important consequences for you, including
the following:
- we may have difficulty borrowing money in the future for working capital,
capital expenditures, acquisitions or other purposes;
- we will need to use a large portion of the money earned by our
subsidiaries to pay principal and interest on the new credit facility,
the notes and other debt, which will reduce the amount of money available
to us to finance our operations and other business activities;
- some of our debt has a variable rate of interest, which exposes us to the
risk of increased interest rates;
- debt under the new credit facility will be secured and will mature prior
to the notes;
- we may have a much higher level of debt than certain of our competitors,
which may put us at a competitive disadvantage;
14
<PAGE> 20
- our debt level makes us more vulnerable to economic downturns and adverse
developments in our business;
- our debt level reduces our flexibility in responding to changing business
and economic conditions, including increased competition in the
publishing industry; and
- our debt level limits our ability to pursue other business opportunities,
borrow more money for operations or capital in the future and implement
our business strategy.
After giving pro forma effect to the transactions and the sale of the soap
opera assets, our interest expense for the fiscal year ended March 29, 1999
would have been $58.7 million. For the fiscal year ended March 29, 1999, after
giving pro forma effect to the transactions and the sale of the soap opera
assets, our earnings would have been insufficient to cover fixed charges by $9.4
million.
We expect to obtain the money to pay our expenses and to pay the principal
and interest on the notes, the new credit facility and other debt from the
operations of our subsidiaries. Our ability to meet our expenses and debt
service obligations thus depends on the future performance of our subsidiaries,
which will be affected by financial, business, economic and other factors. We
will not be able to control many of these factors, such as economic conditions
and pressure from competitors. We cannot be certain that the money earned by our
subsidiaries will be sufficient to allow us to pay principal and interest on our
debt (including the notes) and meet our other obligations. If we do not have
enough money, we may be required to refinance all or part of our existing debt,
including the notes, sell assets, borrow more money or raise equity. We cannot
guarantee that we will be able to refinance our debt, sell assets, borrow more
money or raise equity on terms acceptable to us. In addition, the terms of
existing or future debt agreements, including the new credit facility and the
indenture, may restrict us from adopting any of these alternatives.
Under the new credit facility, we also must comply with certain specified
financial ratios and tests. If we do not comply with these or other covenants
and restrictions contained in the new credit facility, we could default under
the new credit facility. Such debt, together with accrued interest, could then
be declared immediately due and payable. Our ability to comply with such
provisions may be affected by events beyond our control. See "Description of
Other Indebtedness."
OUR PUBLICATIONS HAVE EXPERIENCED DECLINES IN SINGLE COPY CIRCULATION.
Single copy circulation of each of National Enquirer and Star has
experienced declines. For example, in fiscal 1994, National Enquirer and Star
had average weekly single copy circulation of approximately 2.8 million copies
and 2.5 million copies, respectively, which declined in fiscal 1999 to
approximately 1.8 million and 1.4 million copies, respectively. Our other
publications also have experienced declines in single copy circulation. See
"Business -- Circulation."
We believe that a significant portion of the decline in circulation since
fiscal 1994 is primarily due to two factors. First, the death of Princess Diana
in August 1997 resulted in a significant amount of adverse publicity against
celebrity news-based magazines. While single copy circulation of National
Enquirer and Star have improved from the low levels experienced in the months
immediately after Princess Diana's death, they have not returned to their prior
levels. We believe the second principal factor contributing to lower circulation
since fiscal 1994 has been a significant reduction in advertising expenditures
by us to promote our publications. Total advertising expenditures for National
Enquirer and Star decreased from $16.1 million in fiscal 1994 to $0.6 million in
fiscal 1999. We believe that this reduction in advertising was a significant
factor in the decrease in average weekly single copy circulation of National
Enquirer and Star from approximately 2.8 million copies and 2.5 million copies,
respectively, in fiscal 1994 to approximately 1.8 million copies and 1.4 million
copies, respectively, in fiscal 1999. In addition, single copy circulation
declines of our publications can be attributed to (a) increased competition from
other publications and forms of media, such as certain newspapers, television
and radio programs concentrating on celebrity news and (b) a general
industry-wide decline in single copy circulation of individual publications due
to an
15
<PAGE> 21
increasing number of publications in the industry. See "-- We operate in a very
competitive business environment" and "Business -- Circulation."
Historically, we have offset declines in single copy circulation, in part,
through increases in cover prices. There can be no assurance we will be able to
continue to increase cover prices without decreasing circulation, or be able to
take other measures, such as increasing advertising and promotion of our titles
to offset such circulation declines or that the single copy circulation declines
described above will be reversed. Continued declines in circulation could have a
material adverse effect on our business or financial performance. See "-- There
are risks associated with the implementation of our business strategy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THERE ARE RISKS ASSOCIATED WITH THE IMPLEMENTATION OF OUR BUSINESS STRATEGY.
Our future financial performance and success are dependent in large part
upon our ability to successfully implement our business strategy. There can be
no assurance that implementation of the business strategy we have described in
this prospectus will be successful or will improve operating results. In
particular, there can be no assurance that we will be able to increase
circulation of our publications, obtain new sources of advertising revenues,
generate additional revenues by building on the brand names of our publications,
attract new clients for DSI or raise the cover prices of our publications
without causing a decline in circulation. Furthermore, any growth through
acquisitions and investments will be dependent upon identifying suitable
acquisition or investment candidates and successfully consummating such
transactions at reasonable costs. Such acquisitions and investments may require
additional funding which may be provided in the form of additional debt, equity
financing or a combination thereof. There can be no assurance that any such
additional financing will be available to us on acceptable terms or that we will
be permitted under the terms of the new credit facility (or any replacement
credit facility) or under the terms of the indenture to obtain such financing
for such purpose. See "-- We operate in a very competitive business
environment," "-- Our publications have experienced declines in single copy
circulation," "Business -- Business Strategy," "Description of Other
Indebtedness" and "Description of the Notes -- Certain Covenants."
Implementation of our business strategy could be affected by a number of
factors beyond our control, such as increased competition, legal developments,
general economic conditions or increased operating costs or expenses. In
particular, there has been a recent trend of increased consolidation among both
retailers and wholesalers of magazines. This consolidation has caused an
increase in margin pressure on publishers. Because National Enquirer and Star
have been consistently among the highest revenue-producing magazines to both
retailers and wholesalers, we do not believe the increased consolidation among
retailers and wholesalers will have a material adverse effect on us.
Nevertheless, there can be no assurance that such consolidation will not have a
material adverse effect on us in the future.
Any failure to successfully implement our business strategy may adversely
affect our ability to service our indebtedness, including our ability to make
principal and interest payments on the notes. We may, in addition, decide to
alter or discontinue certain aspects of our business strategy at any time.
THE EXCHANGE NOTES AND THE NOTE GUARANTEES ARE EFFECTIVELY SUBORDINATED TO ALL
SENIOR DEBT OF OUR SUBSIDIARIES.
The exchange notes will be contractually subordinated in right of payment
to all of our senior indebtedness, and the note guarantees will be contractually
subordinated in right of payment to all senior indebtedness of the note
guarantors. Assuming the transactions had occurred on March 29, 1999, we would
have had approximately $352.0 million of senior indebtedness (excluding unused
commitments) as of such date, all of which would have been secured, and the note
guarantors would have had no senior indebtedness (excluding their guarantees of
the new credit facility). The indenture will permit us and our note guarantors
to borrow certain additional debt, which may be senior indebtedness.
We may not pay principal, premium (if any), interest or other amounts on
account of the exchange notes or the note guarantees in the event of a payment
default or certain other defaults in respect of
16
<PAGE> 22
certain senior indebtedness (including debt under the new credit facility)
unless such indebtedness has been paid in full or the default has been cured or
waived. In addition, in the event of certain other defaults with respect to such
senior indebtedness, we may not be permitted to pay any amount on account of the
exchange notes or the note guarantees for a designated period of time. If we or
the note guarantors are declared bankrupt or insolvent, or if there is a payment
default under, or an acceleration of, any senior indebtedness, we are required
to pay the lenders under the new credit facility and any other creditors who are
holders of senior indebtedness in full before we apply any of our assets to pay
you. Accordingly, we may not have enough assets remaining after payments to
holders of such senior indebtedness to pay you.
Further, the new credit facility does, and our future senior indebtedness
may, prohibit us from repurchasing any exchange notes prior to maturity, even
though the indenture requires us to offer to repurchase exchange notes in
certain circumstances. If we or the note guarantors make certain asset sales or
if a change of control occurs when we are prohibited from repurchasing exchange
notes we could ask our lenders under the new credit facility (or such future
senior indebtedness) for permission to repurchase the exchange notes or we could
attempt to refinance the borrowings that contain such prohibitions. If we do not
obtain such a consent to repay such borrowings or are unable to refinance such
borrowings, we would be unable to repurchase the exchange notes. Our failure to
repurchase tendered exchange notes at a time when such repurchase is required by
the indenture would constitute an event of default under the indenture, which,
in turn, would constitute a default under the new credit facility and may
constitute an event of default under such future senior indebtedness. In such
circumstances, the subordination provisions in the indenture would restrict
payments to you. See "Description of Other Indebtedness," "Description of the
Notes -- Ranking," "Description of the Notes -- Change of Control" and
"Description of the Notes -- Certain Covenants."
OUR SUBSIDIARIES MAY BE PROHIBITED FROM PAYING DIVIDENDS OR MAKING OTHER
PAYMENTS TO US, WHICH PAYMENTS ARE OUR SOLE SOURCE OF OPERATING FUNDS TO PAY
AMOUNTS DUE UNDER THE NOTES.
We are a holding company and as such we conduct substantially all our
operations through our subsidiaries. As a holding company, we are dependent upon
dividends or other intercompany transfers of funds from our subsidiaries to meet
our debt service and other obligations. Generally, creditors of a subsidiary
will have a superior claim to the assets and earnings of such subsidiary than
the claims of creditors of its parent company, except to the extent the claims
of the parent's creditors are guaranteed by the subsidiary.
Assuming that the transactions had taken place on March 29, 1999, the note
guarantors would have had total liabilities of $45.3 million (excluding their
$352.0 million of guarantees under the new credit facility). Although the
indenture will limit the ability of the note guarantors and Frontline to incur
indebtedness and issue preferred stock, there are certain significant
qualifications and exceptions. The indenture will not limit such subsidiaries
from incurring liabilities that are excluded from the definitions of
indebtedness, disqualified stock or preferred stock under the indenture. See
"Description of the Notes -- Certain Covenants -- Limitations on Indebtedness."
In addition, our ability and the ability of our note guarantors'
subsidiaries to pay dividends and make other payments to us may be restricted
by, among other things, applicable corporate and other laws and regulations and
agreements of the subsidiaries. Although the indenture will limit the ability of
such subsidiaries to enter into consensual restrictions on their ability to pay
dividends and make other payments, such limitations are subject to a number of
significant qualifications and exceptions. See "Description of the
Notes -- Certain Covenants -- Limitations on Restrictions on Distributions from
Restricted Subsidiaries."
COVENANTS IN OUR DEBT AGREEMENTS RESTRICT OUR BUSINESS IN MANY WAYS.
The indenture governing the old notes and the exchange notes will contain
covenants with respect to us that will restrict, among other things,
- the incurrence of additional indebtedness and the issuance of
disqualified stock and preferred stock,
17
<PAGE> 23
- the payment of dividends on and redemptions of, capital stock and the
redemption of indebtedness that is subordinated in right of payment to
the notes,
- certain other restricted payments including, without limitation,
investments,
- certain sales of assets,
- certain transactions with affiliates, and
- consolidations, mergers and transfers of all or substantially all of our
assets.
In addition, the new credit facility contains other and more restrictive
covenants and prohibit us from prepaying our other indebtedness (including the
notes) while indebtedness under the new credit facility is outstanding. The new
credit facility also requires us to maintain specified financial ratios and
satisfy financial condition tests. Our ability to meet those financial ratios
and tests can be affected by events beyond our control and there can be no
assurance that we will meet those ratios and tests. A breach of any of these
covenants, ratios, tests or restrictions could result in an event of default
under the new credit facility and/or the indenture. Upon the occurrence of an
event of default under the new credit facility, the lenders could elect to
declare all amounts outstanding under the new credit facility, together with
accrued interest, to be immediately due and payable. If we were unable to repay
those amounts, the lenders could proceed against the collateral granted to them
to secure such indebtedness. If the lenders under the new credit facility
accelerate the payment of the indebtedness, there can be no assurance that our
assets would be sufficient to repay in full such indebtedness and our other
indebtedness, including the notes. See "Description of Other Indebtedness,"
"-- The exchange notes and the note guarantees are effectively subordinated to
all senior debt of our subsidiaries," "-- If our debt obligations are
accelerated as a result of a failure to comply with our new credit facility, we
may not be able to repay the exchange notes" and "Description of the
Notes -- Certain Covenants."
IF OUR DEBT OBLIGATIONS ARE ACCELERATED AS A RESULT OF A FAILURE TO COMPLY WITH
OUR NEW CREDIT FACILITY, WE MAY NOT BE ABLE TO REPAY THE EXCHANGE NOTES.
In addition to being contractually subordinated to all existing and future
senior indebtedness, our obligations under the exchange notes will be unsecured
while our obligations under the new credit facility will be secured by a
security interest in substantially all the assets of our parent company, us and
each of our existing and subsequently acquired or organized U.S. and, subject to
certain limitations, non-U.S. subsidiaries, including a pledge of all of the
issued and outstanding shares of, or other equity interests in, our existing or
subsequently acquired or organized U.S. subsidiaries and 65% of the capital
stock of, or other equity interests in, each of our subsequently acquired or
organized non-U.S. subsidiaries. If we or one of our restricted subsidiaries are
declared bankrupt or insolvent or if we default under the new credit facility,
the lenders could declare all of the funds borrowed thereunder, together with
accrued interest, immediately due and payable. If we were unable to repay such
indebtedness, the lenders could foreclose on the pledged stock of our
subsidiaries and on the assets in which they have been granted a security
interest, in each case to your exclusion, even if an event of default exists
under the indenture at such time. Furthermore, under the note guarantees, if all
shares of any note guarantor are sold to persons pursuant to an enforcement of
the pledge of shares in such note guarantor for the benefit of the senior
lenders, then the applicable note guarantor will be released from its note
guarantee automatically and immediately upon such sale. See "Description of
Other Indebtedness."
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THE PRICE OF PAPER INCREASES.
Our operating income may be significantly affected by the price of paper
used in our publications. For example, the price of paper rose dramatically in
1995 and significantly affected operating income. In mid-1996 paper prices began
to fall, then increased moderately in 1997 and 1998. If paper prices increase in
the future and we cannot pass these costs on to our customers, such increases
may have a material adverse effect on us. Currently, we do not hedge against
increases in paper costs.
18
<PAGE> 24
WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT.
National Enquirer, Star, Weekly World News and Country Weekly compete in
varying degrees with other publications sold at retailers' checkout counters, as
well as with other forms of media concentrating on celebrity news, such as
certain newspapers, magazines and television and radio programs. We believe that
historical declines in single copy circulation of National Enquirer and Star
have resulted in part from increased competition from these publications and
forms of media. Competition for circulation is largely based upon the content of
the publication, its placement in retail outlets and, to a lesser extent, its
price. Competition for advertising revenues is largely based upon circulation
levels, readership, demographics, price and advertising results. Many of our
competitors have substantially larger operating staffs, greater capital
resources and greater revenues from their publications. In this respect, we may
be at a competitive disadvantage with such entities. We believe that currently
our most significant direct competitors in the print media are Time Warner Inc.
(which publishes People, In Style and Entertainment Weekly), Wenner Media, Inc.
(which publishes US Magazine), TV Guide, Inc. (which publishes TV Guide) and
Globe Communications Corp. (which publishes Globe, Sun and National Examiner).
As use of the Internet and new on-line ventures focusing on celebrity news
increase, we may face new sources of competition.
DSI competes with many other companies providing marketing and distribution
services, such as full-service national distributors, wholesalers and publishers
with their own marketing organizations. Certain of DSI's competitors have
substantially larger operating staffs and greater capital resources. In this
respect, DSI may be at a competitive disadvantage with such entities.
OUR PERFORMANCE COULD BE ADVERSELY AFFECTED IF WE LOSE OUR KEY PERSONNEL.
We believe that our success is largely dependent on the abilities and
experience of David J. Pecker and our senior management team. The loss of the
services of Mr. Pecker or one or more of these senior executives could adversely
affect our ability to effectively manage our overall operations or successfully
execute current or future business strategies. We have entered into a five-year
employment contract with Mr. Pecker. See "Management -- Compensation of
Executive Officers." In addition, we believe that our success will depend upon
our ongoing ability to attract and retain qualified management and other
employees.
YOUR INVESTMENT MAY BE ADVERSELY AFFECTED DUE TO POTENTIAL CONFLICTS OF INTEREST
BETWEEN NOTEHOLDERS AND OUR CONTROLLING SHAREHOLDER.
Evercore has effective control of EMP Group L.L.C., our ultimate parent
company and us by virtue of its rights under a LLC agreement which governs EMP
Group L.L.C. Pursuant to the LLC agreement, Evercore has the right to appoint a
majority of the Board of Managers of EMP Group and a majority of the Board of
Directors of our parent company. As a result, Evercore will control our policies
and operations and will have the power to appoint new management and approve any
action requiring stockholder approval (including adopting amendments to our
certificate of incorporation and approving mergers or sales of substantially all
of our assets). There can be no assurance that the interests of Evercore will
not conflict with your interests. See "Management," "Outstanding Voting
Securities" and "Certain Relationships and Related Transactions."
PENDING AND FUTURE LITIGATION COULD MATERIALLY AFFECT OUR OPERATIONS.
We are involved in a number of litigation matters which have arisen in the
ordinary course of business. Because the focus of our publications often
involves controversial celebrities or subjects, the risk of defamation or
invasion of privacy litigation arises in the ordinary course of our business.
Our experience suggests that the claims for damages made in such lawsuits are
heavily inflated and, in any event, any reasonably foreseeable liability or
settlement would be covered by insurance. During the five fiscal years ended
March 29, 1999, we paid approximately $20 million in the aggregate for legal
fees (including prepublication review and litigation), litigation related
insurance premiums and, to a lesser extent, litigation settlements, including
amounts covered by insurance payments. We have not experienced any difficulty
19
<PAGE> 25
obtaining such insurance and do not expect to experience any material difficulty
in the future. There are currently no claims pending that we believe would have
a material adverse effect on our operations.
IF A CHANGE OF CONTROL OCCURS, THERE MAY NOT BE SUFFICIENT ASSETS TO PURCHASE
THE EXCHANGE NOTES OF ALL NOTEHOLDERS WISHING TO HAVE THEIR EXCHANGE NOTES
PURCHASED.
Upon a change of control under the indenture, we will be required to offer
to purchase all of the exchange notes then outstanding at 101% of their
principal amount, plus accrued and unpaid interest and liquidated damages, if
any, to the date of repurchase. If a change of control were to occur, we can
provide no assurance that we would have sufficient funds to pay the purchase
price for the exchange notes, and we expect that we would require third-party
financing; however, we can provide no assurance that we would be able to obtain
such financing on favorable terms, if at all. In addition, the new credit
facility restricts our ability to repurchase the exchange notes, including
pursuant to an offer in connection with a change of control. A change of control
under the indenture may result in an event of default under the new credit
facility and may cause the acceleration of other senior indebtedness, if any, in
which case the subordination provisions of the exchange notes would require
payment in full of the new credit facility and any other senior indebtedness
before repurchase of the exchange notes. Our future indebtedness may also
contain restrictions on repayment requirements with respect to certain events or
transactions that could constitute a change of control under the indenture. See
"Description of Other Indebtedness" and "Description of the Notes -- Change of
Control." The inability to repay senior indebtedness, if accelerated, and to
purchase all of the tendered exchange notes, would each constitute an event of
default under the indenture.
THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES.
While the old notes are presently eligible for trading in the PORTAL market
of the National Association of Securities Dealers, Inc. by qualified
institutional buyers, there is no existing market for the exchange notes.
Although the initial purchaser of the old notes has informed us that it
currently intends to make a market in the exchange notes following the exchange
offer, it is not obligated to do so and any such market making may be
discontinued at any time without notice. We do not intend to apply for listing
of the exchange notes on any securities exchange or on any automated dealer
quotation system.
The liquidity of, and trading market for, the exchange notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of our prospects or financial performance.
FAILURE OF OUR YEAR 2000 EFFORTS COULD ADVERSELY AFFECT US.
The year 2000 issue is the result of computer programs that were written
using only two digits, rather than four, to represent a year. Date-sensitive
software or hardware may not be able to distinguish between the years 1900 and
2000 and programs that perform arithmetic operations, comparisons or sorting of
date fields may begin yielding incorrect results. This could potentially cause a
system failure or miscalculations that could disrupt operations. To address the
impact of the year 2000 issue on our computer programs, embedded chips and
significant third-party suppliers of goods and services we have formed a task
force led by our information services department. This task force has taken an
inventory of the potential year 2000 issues that may exist and is in the process
of completing its assessment of their impact. Certain of our key systems, such
as financial applications, have already been identified as year 2000 compliant;
in addition, because of the recent replacement of a majority of our computer
hardware, we believe there is little likelihood that this equipment is not year
2000 compliant. We believe the largest areas of internal risk for year 2000
noncompliance are internally developed software applications and the handheld
communications devices used in merchandising by DSI. We have purchased
specialized software that will allow us to identify and correct year 2000
problems within our software applications and expect to have key applications
modified and tested by July 1999. Our information services department, working
with the handheld communication devices, has determined that remediation of the
existing handhelds is the appropriate course of action. We expect to complete
this remediation work by August 1999.
20
<PAGE> 26
At the present time, the year 2000 project is estimated to cost
approximately $500,000 and will be funded through cash flows from operations.
Approximately $290,000 of the estimated year 2000 costs will relate to hardware
and software purchases and will be capitalized with the remainder being expensed
as incurred.
At present, we believe our technology systems will be year 2000 compliant
and that the year 2000 issue will not present a materially adverse risk to our
future results of operations, financial position or cash flow. However, there
can be no assurance that our systems will be year 2000 compliant prior to
December 31, 1999 or that the costs incurred will not materially exceed the
amounts budgeted. If there are incidences of noncompliance, we plan to allocate
internal resources and retain dedicated consultants to address such incidences.
In the event that our computers are not year 2000 compliant by December 31,
1999, and as a result of that noncompliance business interruptions occur, we
could incur significant losses in revenues due to such business interruptions,
which could have a material adverse effect on our future results of operations,
financial position or cash flow.
In addition, there is a risk that a significant supplier of goods or
services may not be year 2000 compliant. We are communicating with our
significant suppliers of goods and services to obtain reasonable assurance that
their products and business systems will be year 2000 compliant. We rely on
certain suppliers to deliver a broad range of goods and services, including
prepress operations, printing services, paper, wholesale distribution, mailings
and banking services. Although we have taken, and will continue to take,
reasonable efforts to gather information to determine and verify the readiness
of products and dependencies, there can be no assurance that reliable
information will be offered or otherwise available. In order to mitigate the
effects of a significant supplier's potential failure to remediate the year 2000
issue in a timely manner, we would take appropriate actions including arranging
for alternate suppliers, re-running processes if errors occur and using manual
intervention to ensure the continuation of operations where necessary. Should
this happen, it may result in significant delays in business operations
including, but not limited to, delays in delivery of products resulting in loss
of revenues, increased operating costs, loss of customers or suppliers, or other
significant disruptions to our business which could have a material adverse
effect on our future results of operations, financial position or cash flow.
21
<PAGE> 27
THE TRANSACTIONS
THE MERGER. On May 7, 1999, EMP Acquisition Corp., a company formed by
Evercore Capital Partners L.P., a private equity firm, entered into a merger
agreement with our parent company, American Media, Inc., pursuant to which (a)
EMP Acquisition Corp. merged into American Media, Inc., (b) the existing
stockholders of American Media, Inc. received aggregate cash consideration of
$299.4 million and (c) Evercore and certain other investors, including David
Pecker, our chairman, acquired 100% of the common stock of American Media, Inc.
FINANCING FOR THE TRANSACTIONS. The investors made an equity investment of
$235.0 million in EMP Acquisition Corp. to fund a portion of the total cost of
the transactions. In addition, we
- entered into, and made initial borrowings under, a new senior secured
bank credit facility with The Chase Manhattan Bank, as agent, and a
syndicate of other financial institutions, providing for a credit
facility of up to $400.0 million consisting of a $60.0 million revolving
credit facility, a $100.0 million tranche A term loan facility and a
$240.0 million tranche B term loan facility,
- issued the notes,
- repaid all outstanding borrowings under, and terminated, our old senior
secured bank credit facility, and
- consummated a debt tender offer for our 11 5/8% Senior Subordinated Notes
due 2004.
The following table sets forth sources and uses of funds in connection with
the foregoing transactions, giving effect to the sale of our soap opera
publications (as discussed below):
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
SOURCES:
New credit facility(1)...................................... $352.0
Notes....................................................... 250.0
Equity investment........................................... 235.0
------
Total sources.......................................... $837.0
======
USES:
Cash consideration.......................................... $299.4
Repayment of old credit facility............................ 267.0
Purchase of our 11 5/8% senior subordinated notes........... 199.3
Payment of accrued interest on old credit facility and
11 5/8% senior subordinated notes......................... 12.7
Transaction fees and expenses(2)............................ 58.6
------
Total uses............................................. $837.0
======
</TABLE>
- ---------------
(1) Represents borrowings under the new credit facility made on the closing date
of the merger, consisting of $100.0 million under the tranche A term loan
facility, $240.0 million under the tranche B term loan facility and $12.0
million under the revolving credit facility.
(2) Transaction fees and expenses include, among other things, the debt tender
offer premium and consent fee, the initial purchaser's discount and other
expenses incurred in the offering of the old notes and fees and expenses
associated with the merger, the existing credit facility and the debt tender
offer.
SALE OF SOAP OPERA PUBLICATIONS. On February 3, 1999, we ceased
publication of Soap Opera News and Soap Opera Magazine and sold certain of the
trademarks and other soap opera publishing assets relating to these magazines to
Primedia, Inc. for $10.0 million in cash. We used the entire cash proceeds to
repay borrowings under our old credit facility. In addition, we may receive
future consideration based upon increased financial performance above certain
levels of Primedia Inc.'s Soap Opera Digest and Soap Opera Weekly publications.
There can be no assurance, however, that we will receive any such future
consideration.
22
<PAGE> 28
USE OF PROCEEDS
We will receive no proceeds from the exchange of old notes pursuant to this
exchange offer.
The net proceeds from the issuance and sale of the old notes were
approximately $241.2 million after deduction of the initial purchaser's discount
and other expenses related to that offering. The net proceeds from that offering
were applied, together with the equity investment and proceeds from borrowings
under the new credit facility, to fund the merger, the debt tender offer, the
repayment of indebtedness under the old credit facility and the payment of fees
and expenses in connection with the transactions. For a further discussion of
the estimated sources and uses of funds relating to the transactions, see "The
Transactions."
23
<PAGE> 29
CAPITALIZATION
The following table sets forth our capitalization as of March 29, 1999 on
an actual basis and on a pro forma basis after giving effect to the transactions
as if they had been consummated on such date. The table should be read in
conjunction with "The Transactions," "Use of Proceeds," "Unaudited Pro Forma
Consolidated Financial Statements," "Selected Historical Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 29, 1999
-----------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt (including current maturities):
11 5/8% senior subordinated notes......................... $200,000 $ 740
Old credit facility....................................... 271,000 --
Notes..................................................... -- 250,000
New credit facility....................................... -- 352,000
Other debt................................................ 134 134
-------- --------
Total debt................................................ 471,134 602,874
Total stockholder's equity.................................. 60,198 215,539
-------- --------
Total capitalization........................................ $531,332 $818,413
======== ========
</TABLE>
24
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements have
been prepared by applying pro forma adjustments to our historical consolidated
financial statements included elsewhere in this prospectus. The pro forma
adjustments give effect to the transactions and the sale of the soap opera
assets. The unaudited pro forma consolidated statement of income for the fiscal
year ended March 29, 1999 gives effect to the transactions and the sale of the
soap opera assets as if they had occurred at the beginning of such period. The
unaudited pro forma consolidated balance sheet as of March 29, 1999 gives effect
to the transactions as if they had occurred on such date. The unaudited pro
forma consolidated financial statements are for informational purposes only and
do not purport to be indicative of our financial position or the results of our
operations that would have actually been obtained had the transactions and the
sale of the soap opera assets in fact occurred as of the assumed date or for the
period presented, nor are they indicative of, or projections for, our results of
operations or financial position for any future period or date. The pro forma
adjustments, as described in the accompanying notes, are based on available
information and upon certain assumptions which we believe are reasonable.
The merger will be accounted for using the purchase method of accounting.
The purchase price will be allocated to the assets acquired and liabilities
assumed, based on their respective fair values. The allocation of the purchase
price reflected in the unaudited pro forma consolidated financial statements is
preliminary. The adjustments that have been included in the unaudited pro forma
consolidated financial statements will change based upon the final allocation of
the purchase price when additional information concerning asset and liability
valuation is obtained. The actual allocation of the purchase price and the
resulting effect on operating income may differ significantly from the unaudited
pro forma amounts included herein.
The following unaudited pro forma consolidated financial statements should
be read in conjunction with "Selected Historical Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the notes
thereto included elsewhere in this prospectus.
25
<PAGE> 31
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 29, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR TRANSACTIONS
HISTORICAL (NOTE 1) PRO FORMA
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents............. $ 3,823 $ (260)(a) $ 3,563
Receivables, net........... 7,977 -- 7,977
Inventories................ 9,830 -- 9,830
Prepaid expenses and
other................... 2,650 -- 2,650
-------- -------- --------
Total current assets.... 24,280 (260) 24,020
Property and equipment,
net........................ 26,860 (2,685)(b) 24,175
Deferred debt costs, net..... 5,728 15,599(c) 21,327
Goodwill and other
intangibles, net........... 559,970 259,391(d) 819,361
-------- -------- --------
$616,838 $272,045 $888,883
======== ======== ========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities
Current portion of old
credit facility......... $ 25,000 $(25,000)(e) $ --
Accrued expenses........... 46,419 (11,632)(f) 34,787
Deferred revenues.......... 27,987 -- 27,987
-------- -------- --------
Total current
liabilities........... 99,406 (36,632) 62,774
Payable to American Media,
Inc........................ 3,404 (3,404)(g) --
Long-term debt............... 446,134 156,740(h) 602,874
Deferred income taxes........ 7,696 7,696
Total stockholder's equity... 60,198 155,341(i) 215,539
-------- -------- --------
$616,838 $272,045 $888,883
======== ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated balance sheet.
26
<PAGE> 32
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 29, 1999
(DOLLARS IN THOUSANDS)
NOTE 1: The following unaudited pro forma adjustments relate to the
transactions as if they had occurred as of March 29, 1999:
(a) Represents net change in cash and cash equivalents, calculated as
follows:
<TABLE>
<S> <C>
Issuance of new debt:
New credit facility....................................... $ 352,000
Notes..................................................... 250,000
---------
Total new debt issued.................................. 602,000
Repayment of existing debt:
Old credit facility....................................... (271,000)
11 5/8% senior subordinated notes......................... (199,260)
Debt tender offer premium and consent fee................. (14,962)
Accrued interest on existing debt......................... (11,067)
---------
Total existing debt repaid............................. (496,289)
---------
Net change in total debt.................................... 105,711
Cash payment to American Media, Inc. to fund a portion of
the cash consideration in connection with the merger...... (64,398)
Estimated fees and expenses associated with the transactions
other than accrued expense................................ (41,573)
---------
Net change in cash and cash equivalents..................... $ (260)
=========
</TABLE>
(b) Represents reduction in valuation of certain fixed assets.
(c) Represents the net change in deferred debt issuance costs for the new
credit facility and the notes of $15,599, which are recorded as an
adjustment net of the write-off of the existing debt issuance costs.
(d) Represents the following adjustments to goodwill and other intangibles,
net:
<TABLE>
<S> <C>
Elimination of historical goodwill and other intangible
assets.................................................... $(559,970)
New goodwill and other intangible assets.................... 826,962
Recording of the income tax benefit related to the debt
tender offer premium and consent fee for our 11 5/8%
senior subordinated notes and the write-off of the
existing debt issuance costs.............................. (7,601)
---------
$ 259,391
=========
</TABLE>
(e) Represents the repayment of the current portion of the old credit
facility.
(f) Represents primarily the payment of accrued interest on the old credit
facility and our 11 5/8% senior subordinated notes of $11,067.
(g) Represents the elimination of the payable to American Media, Inc. as a
result of our cash payment to American Media, Inc. described in Note
1(a) above.
27
<PAGE> 33
(h) Represents net long-term indebtedness incurred in connection with the
transactions. This amount has been calculated as follows:
<TABLE>
<S> <C>
Issuance of new debt:
New credit facility....................................... $ 352,000
Notes..................................................... 250,000
---------
Total new debt issued.................................. 602,000
Repayment of existing long-term debt:
Old credit facility....................................... (246,000)
11 5/8% senior subordinated notes......................... (199,260)
---------
Total existing long-term debt repaid................... (445,260)
---------
Net......................................................... $ 156,740
=========
</TABLE>
(i) Represents the elimination of the historical equity balances and
recording of the equity investment less estimated fees and expenses in
connection with the transactions.
28
<PAGE> 34
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED MARCH 29, 1999
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
SALE OF PRO FORMA ADJUSTMENTS
SOAP OPERA BEFORE FOR
HISTORICAL ASSETS TRANSACTIONS TRANSACTIONS PRO FORMA
---------- --------------- ------------ ------------ ---------
(NOTE 1) (NOTE 2)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating revenues
Circulation................. $248,631 $(20,387)(a) $288,244 $ -- $228,244
Advertising................. 23,459 (877)(a) 22,582 -- 22,582
Other....................... 21,369 (11)(a) 21,358 -- 21,358
-------- -------- -------- -------- --------
293,459 (21,275)(a) 272,184 272,184
Operating expenses
Editorial................... 28,906 (3,762)(a) 25,144 -- 25,144
Production.................. 79,691 (14,203)(a) 65,488 -- 65,488
Distribution, circulation
and other cost of
sales.................... 67,640 (8,452)(a) 59,188 -- 59,188
Selling, general and
administrative
expenses................. 26,212 (401)(a) 25,811 750(a) 26,561
Gain on sale of soap opera
assets................... (6,499) 6,499(a) -- -- --
Depreciation and
amortization............. 32,110 (1,439)(a) 30,671 19,893(b) 50,564
-------- -------- -------- -------- --------
228,060 (21,758) 206,302 20,643 226,945
Operating income............ 65,399 483 65,882 (20,643) 45,239
Interest expense.............. (46,897) 780(b) (46,117) (12,632)(c) (58,749)
Other income (expense), net
(Note 3).................... 2,943 -- 2,943 1,162(a) 4,105
-------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes.................... 21,445 1,263 22,708 (32,113) (9,405)
Provision for income
taxes.................... 13,559 467(c) 14,026 (4,521)(d) 9,505
-------- -------- -------- -------- --------
Net income (loss) (Note
4)....................... $ 7,886 $ 796 $ 8,682 $(27,592) $(18,910)
======== ======== ======== ======== ========
</TABLE>
See the accompanying notes to the unaudited pro forma consolidated statement of
income.
29
<PAGE> 35
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
NOTE 1: The following unaudited pro forma adjustments relate to the sale of the
soap opera assets and the application of the proceeds therefrom and are included
as of the beginning of the period:
(a) Represents the elimination of the results of operations of the soap
opera assets.
(b) Represents the reduction of interest expense resulting from the
application of the cash proceeds of $10,000 from the sale of the soap
opera assets to repay borrowings under the old credit facility.
(c) Represents an increase in the provision for income taxes as a result of
the pro forma increase in income before taxes, computed at an effective
tax rate of 37%.
NOTE 2: The following unaudited pro forma adjustments relate to the
transactions and are included as of the beginning of the period:
(a) Represents the recording of the new annual monitoring fee as a selling,
general and administrative expense and the elimination of the
historical annual management fee from other income (expense), net.
(b) Represents the amortization of goodwill and other intangible assets
totaling $40,968 recorded in connection with the transactions on a
straight line basis over 20 years, net of the elimination of historical
amortization of goodwill and other intangible assets totaling $21,075,
which had amortizable lives of 25-40 years.
(c) Represents adjustments necessary to reflect pro forma interest expense
and amortization of deferred debt issuance costs based on pro forma
debt levels and applicable interest rates, net of the elimination of
historical interest expense.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 29, 1999
-----------------
<S> <C>
Interest on the new credit facility (assumes a weighted
average interest rate of 8.3%)............................ $ 29,600
Interest on the notes....................................... 25,625
Amortization of deferred debt issuance costs................ 2,926
Elimination of historical interest expense.................. (45,519)
--------
$ 12,632
========
</TABLE>
Represents interest expense on $352,000 principal amount of the new
credit facility and $250,000 principal amount of the notes that were
outstanding after the consummation of the transactions. The average
annual effect on income before income taxes of a 1/8 percent variance
in the weighted average interest rate is approximately $440. Debt
issuance costs related to the new credit facility are amortized over
the life of the loans using the effective interest method while debt
issuance costs related to the notes are amortized on a straight-line
basis over 10 years.
(d) Represents a reduction in the provision for income taxes as a result of
the pro forma decrease in income before income taxes, computed at an
effective tax rate of 37%. No pro forma tax benefit has been recorded
as a result of the increase in intangibles amortization as it is not
deductible for income tax reporting purposes.
NOTE 3: Other income, net for the financial information presented, is comprised
of the management fee accrued during such period and miscellaneous nonrecurring
items and includes for the fiscal year ended March 29, 1999, a net gain of
$4,400 from the favorable settlement of certain litigation.
NOTE 4: Represents net income (loss) before an extraordinary charge of $3,430
($2,161 net of income taxes of $1,269).
30
<PAGE> 36
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth our selected historical consolidated
financial information and the notes thereto. The selected historical
consolidated financial information as of and for the fiscal year ended March 27,
1995 and March 25, 1996 has been derived from our consolidated financial
statements and the notes thereto, which have been audited by Arthur Andersen
LLP, independent certified public accountants, but which are not included in
this prospectus. The historical financial information as of and for the fiscal
year ended March 31, 1997, March 30, 1998 and March 29, 1999 has been derived
from our audited historical consolidated financial statements and the related
notes thereto, which have been audited by Arthur Andersen LLP, and which are
included elsewhere in this prospectus. In our opinion, all adjustments (which
consist only of normal recurring entries) considered necessary for a fair
presentation have been included in our unaudited consolidated financial
statements. The following selected historical consolidated financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------
MARCH 27, MARCH 25, MARCH 31, MARCH 30, MARCH 29,
1995 1996 1997(1) 1998 1999
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME INFORMATION:
Operating revenues
Circulation................................. $273,056 $257,405 $273,567 $262,249 $248,630
Advertising................................. 27,033 23,305 24,280 23,643 23,460
Other....................................... 15,210 14,340 18,141 21,792 21,369
-------- -------- -------- -------- --------
315,299 295,050 315,988 307,684 293,459
Operating expenses
Editorial................................... 30,128 27,851 28,369 30,497 28,906
Production.................................. 74,947 84,830 80,286 82,296 79,691
Distribution, circulation and other cost of
sales.................................... 56,438 53,601 60,514 66,883 67,640
Selling, general and administrative......... 33,838 32,054 30,428 27,101 26,212
Gain on sale of soap opera assets........... -- -- -- -- (6,499)
Depreciation and amortization............... 35,050 30,378 29,220 30,327 32,110
-------- -------- -------- -------- --------
230,401 228,714 228,817 237,104 228,060
Operating income............................ 84,898 66,336 87,171 70,580 65,399
Interest expense.............................. (35,885) (56,715) (56,284) (50,486) (46,897)
Other income (expense), net(2)................ (1,409) (1,195) (1,705) (1,641) 2,943
-------- -------- -------- -------- --------
Income before income taxes and extraordinary
charge................................... 47,604 8,426 29,182 18,453 21,445
Income taxes.................................. 23,755 8,985 16,716 12,437 13,559
-------- -------- -------- -------- --------
Income (loss) before extraordinary charge... 23,849 (559) 12,466 6,016 7,886
Extraordinary charge(3)....................... (11,635) -- -- -- (2,161)
-------- -------- -------- -------- --------
Net income (loss)........................... $ 12,214 $ (559) $ 12,466 $ 6,016 $ 5,725
======== ======== ======== ======== ========
</TABLE>
31
<PAGE> 37
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------
MARCH 27, MARCH 25, MARCH 31, MARCH 30, MARCH 29,
1995 1996 1997(1) 1998 1999
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL INFORMATION:
EBITDA(4)..................................... $117,972 $ 95,315 $114,593 $ 99,226 $ 96,347
Capital expenditures.......................... 8,307 9,072 8,526 11,018 15,019
Ratio of earnings to fixed charges(5)......... 2.3x 1.1x 1.5x 1.4x 1.4x
Cash provided from operating activities....... 80,907 29,024 46,688 41,810 29,802
Cash used in investing activities............. (7,888) (7,580) (10,762) (11,018) (5,019)
Cash used in financing activities............. (74,318) (23,098) (32,339) (31,617) (28,365)
BALANCE SHEET INFORMATION (END OF PERIOD):
Total debt.................................... $579,844 $558,906 $528,662 $497,535 $471,134
Total stockholder's equity.................... 36,801 36,242 48,457 54,473 60,198
</TABLE>
- ---------------
(1) Fiscal 1997 includes 53 weeks as compared to 52 weeks for all other fiscal
years presented.
(2) Other income, net for any period is comprised of the management fee incurred
during such period and miscellaneous nonrecurring items and includes for the
fiscal year ended March 29, 1999, a net gain of $4,400 from the favorable
settlement of certain litigation.
(3) Consists primarily of the write-off of deferred debt issuance costs and
charges relating to refinancing of indebtedness.
(4) EBITDA is defined as net income (loss) before extraordinary charges,
interest expense, income taxes, depreciation and amortization and other
income (expense) (other than management fees). The management fees included
in other income (expense) were $1,976, $1,399, $1,798, $1,681 and $1,162,
respectively, for fiscal 1995, 1996, 1997, 1998 and 1999. The pro forma
financial information presented elsewhere herein includes a new monitoring
fee of $750 per annum as a selling, general and administrative operating
expense. EBITDA is not a measure of performance defined by GAAP. EBITDA
should not be considered in isolation or as a substitute for net income or a
statement of cash flows which have been prepared in accordance with GAAP or
as a measure of our operating performance, profitability or liquidity. We
believe EBITDA provides useful information regarding our ability to service
our debt, and we understand that such information is considered by certain
investors to be an additional basis for evaluating a company's ability to
pay interest and repay debt. EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies due to
differences in methods of calculation.
(5) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income (loss) before income taxes and
extraordinary items plus fixed charges) by fixed charges (interest expense
plus that portion of rental expense deemed to represent interest and
amortization of deferred debt issuance costs).
32
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our financial condition and results of
operations for the three fiscal years ended March 29, 1999. This discussion
should be read in conjunction with our consolidated financial statements and the
related notes thereto included elsewhere in this prospectus. The following
discussion and analysis of our financial condition and results of operations
cover periods prior to the consummation of the transactions and the sale of the
soap opera assets on February 3, 1999. Accordingly, management's discussion and
analysis of historical periods does not reflect the impact on us of these events
or of the business strategy to be implemented after consummation of the
transactions. See "Risk Factors," "Unaudited Pro Forma Consolidated Financial
Statements," "-- Liquidity and Capital Resources" and "Business -- Business
Strategy."
OVERVIEW
We are a leading publisher in the field of general interest magazines,
publishing National Enquirer, Star, Weekly World News and Country Weekly. We
generate revenues from circulation, predominantly single copy sales in
supermarkets and other retail outlets, and from advertising and other sources.
In fiscal 1998 and 1999, approximately 85% of our total operating revenues
were from circulation. Single copy sales accounted for approximately 84% of such
circulation revenues in such periods and the remainder were from subscription
sales. Over the past five years, circulation revenues have been generally stable
as circulation declines have been offset in part by increases in the cover
prices of our publications.
We believe that circulation has been affected by a number of factors over
the last several years. Most recently, we believe the adverse publicity against
celebrity news-based magazines after the death of Princess Diana in August 1997
was the principal factor for National Enquirer and Star average weekly single
copy circulation declines by 8.6% and 10.7%, respectively, from the prior fiscal
year. While single copy circulation has improved for these two publications from
the low levels experienced in the months immediately after Princess Diana's
death, they have not returned to their prior levels. See "Business --
Circulation."
We also believe that a significant portion of the declines in single copy
circulation of National Enquirer and Star since fiscal 1994 is attributable to a
significant reduction in advertising expenditures for these publications. Total
advertising expenditures for National Enquirer and Star decreased from $16.1
million in fiscal 1994 to $0.6 million in fiscal 1999. We believe that this
reduction in advertising was a significant factor in the decrease in average
weekly single copy circulation of National Enquirer and Star from approximately
2.8 million copies and 2.5 million copies, respectively, in fiscal 1994 to
approximately 1.9 million copies and 1.6 million copies, respectively, in fiscal
1998, and to approximately 1.8 million and 1.4 million copies, respectively in
fiscal 1999. In addition, single copy circulation declines of all our
publications can be attributed to (a) increased competition from other
publications and forms of media, such as certain newspapers, television and
radio programs concentrating on celebrity news and (b) a general industry-wide
decline in single copy circulation of individual publications due to an
increasing number of publications in the industry. See "Risk Factors -- Our
publications have experienced declines in single copy circulation."
Historically, we have offset declines in single copy circulation, in part,
through increases in cover prices. We believe that we will be able to continue
to implement prudent increases in our cover prices over time without causing a
decline in circulation. Since May 1993, we have instituted ten cover price
increases in the United States for National Enquirer and Star, consisting of
five cover price increases for each publication, ranging from $0.04 to $0.26 per
copy. The average weekly single copy circulation of National Enquirer and Star
for the three-month periods following seven of the eight cover price increases
for which circulation data are available was approximately equal to or greater
than the average weekly single copy circulation for the applicable three-month
periods prior to such increases. After the July 7, 1998 cover price increase of
$0.10 for each of National Enquirer and Star (i.e., the most recent cover price
increase for which circulation data are available), average weekly single copy
circulation increased approximately
33
<PAGE> 39
12% and 8%, respectively, for the three-month period following such increases
over the average weekly single copy circulation for each publication for the
three-month period prior to such increases. Effective July 27, 1999, the cover
price for each of National Enquirer and Star was increased $0.10 to $1.59. See
"Business -- Circulation."
In addition to circulation, approximately 8% and 7%, respectively, of our
total operating revenues in fiscal 1998 and fiscal 1999 were from advertising
and other revenues (consisting primarily of DSI and Frontline revenues),
respectively.
Our primary operating costs and expenses are comprised of editorial,
production, distribution, circulation and other costs of sales and selling,
general and administrative expenses. The largest components of our costs are
related to production, which includes printing and paper expenses, and to
distribution, circulation and other costs of sales. Distribution, circulation
and other costs of sales primarily include the costs associated with operating
DSI, rack display payments made to retailers for our publications and
subscription postage.
In connection with the transactions and the merger, which will be accounted
for under the purchase method of accounting, as of May 7, 1999 we will reflect a
new basis of accounting that will result in a substantial increase in the amount
of intangible assets. We are currently in the process of appraising the value of
our assets and liabilities, therefore the allocation of the actual purchase
price may differ significantly from this estimate.
On February 3, 1999, we ceased publication of Soap Opera News and Soap
Opera Magazine and sold certain of the trademarks and other soap opera
publishing assets relating to these magazines to Primedia, Inc. for $10.0
million in cash. In addition, we may receive future consideration based upon
increased financial performance above certain levels of Primedia Inc.'s Soap
Opera Digest and Soap Opera Weekly publications. There can be no assurance,
however, that we will receive any such consideration.
RESULTS OF OPERATIONS
Comparison of Fiscal Year Ended March 29, 1999 to Fiscal Year Ended March 30,
1998
Total operating revenues were $293,459,000 for fiscal 1999, a decrease of
$14,225,000, or 4.6%, from total operating revenues of $307,684,000 for the
prior fiscal year. This decline in total operating revenues was primarily a
result of a decline in circulation revenues from single copy sales of our
publications and, to a lesser extent, the decrease in total revenues due to the
sale of the soap opera assets.
Circulation revenues (which include all single copy and subscription sales)
of $248,630,000 decreased $13,619,000, or 5.2%, for fiscal 1999 compared to the
prior fiscal year. Substantially all of the decrease in circulation revenues for
fiscal 1999 was related to declines in single copy circulation of National
Enquirer and Star, which was partially offset by a $0.10 increase in the cover
prices of these publications on July 7, 1998 in the United States and a
corresponding increase in Canada. For fiscal 1999 average weekly single copy
circulation for both National Enquirer and Star decreased by 8.6% and 10.7%,
respectively, as compared to the prior fiscal year. We believe that the
principal factor causing such declines was the adverse publicity against
celebrity news-based magazines after the death of Princess Diana in August 1997.
While single copy circulation for these two publications have improved from the
low levels experienced in the months immediately after Princess Diana's death,
they have not returned to their prior levels.
Country Weekly's average weekly circulation decreased 12.3% for fiscal 1999
as compared to the prior fiscal year, reflecting an overall weakness in its
category which has resulted in the recent folding of a competitive publication.
The decline in circulation revenues caused by such decreases in circulation was
partially offset by $0.10 and $.20 increases in the cover price of Country
Weekly on April 7, 1998 and March 2, 1999, respectively.
Subscription revenues of $41,802,000 decreased $638,000, or 1.5%, for
fiscal 1999 compared to the prior fiscal year. One method of increasing the
subscription bases of our publications has been to offer discounted
subscriptions through an agent. We believe that subscription revenues for the
fiscal year
34
<PAGE> 40
remained relatively flat, at least in part, because of recent adverse publicity
from litigation initiated by several states against certain agents, which we
believe has resulted in weaker responses than we typically expect from
discounted subscription offers. However, because discounted subscriptions are
not profitable until they are renewed at full price, a lower response rate
should have no immediate adverse effect on our results of operations. It is
unknown what the potential long-term impact will be on subscription levels and
profitability should response rates remain weak.
For the fiscal year 1999, advertising revenues of $23,460,000 remained
relatively flat as compared to the advertising revenues of $23,643,000 for the
prior fiscal year. Declines in mail order and classified advertising were
primarily offset by an increase in national advertising in National Enquirer and
Star.
Other revenues of $21,369,000 for fiscal 1999 decreased by $423,000, or
1.9%, as compared to the prior fiscal year primarily due to declines in
ancillary sales (primarily licensing and syndication sales) and DSI revenues,
which were not completely offset by increases in Frontline revenues.
Total operating expenses (excluding the gain on the sale of the soap opera
assets) for fiscal 1999 decreased by $2,545,000 when compared to the prior
fiscal year. Editorial costs for fiscal 1999 decreased by $1,591,000 when
compared to the prior fiscal year, reflecting cost control efforts of the
editorial department at National Enquirer and Star. Production costs decreased
by $2,605,000 for fiscal 1999 as compared to fiscal 1998 resulting primarily
from reduced press runs of Soap Opera News and the impact of five fewer issues
of both Soap Opera Magazine and Soap Opera News in the current fiscal year. This
decrease partially offset an increase in distribution, circulation and other
cost of sales of $757,000 related to higher in-store display expenses, of which
Soap Opera News represented a majority of the increase. Depreciation and
amortization expense increased for fiscal 1999 by $1,783,000 compared to the
prior fiscal year, reflecting depreciation related to additional Soap Opera News
display pockets and replacement and upgrades of our information systems.
Interest expense decreased for fiscal 1999 by $3,569,000 compared to the
prior fiscal year. This decrease was the result of reduced average balances of
outstanding indebtedness and lower amounts of amortization of deferred debt
issuance costs as a result of refinancing of indebtedness.
Other income was $2,943,000 for fiscal 1999 compared to expenses of
$1,641,000 for the prior fiscal year because of a net gain of $4.4 million from
the favorable settlement of certain litigation which was recorded in the first
fiscal quarter.
Our effective income tax rates were 63.2% and 67.4% for fiscal years 1999
and 1998, respectively, as compared to the federal statutory income tax rate of
35%. The higher effective tax rates when compared to the federal statutory
income tax rate result primarily from goodwill amortization which is not
deductible for income tax reporting purposes. The lower effective income tax
rate in fiscal 1999 over fiscal 1998 resulted primarily from changes in the
ratio of nondeductible goodwill as a percentage of income before income taxes.
During the fiscal quarter ended June 29, 1998, we recorded an extraordinary
charge totaling approximately $3.4 million ($2.2 million net of income taxes)
for the write-off of deferred debt issuance costs and other charges relating to
the refinancing of indebtedness.
Comparison of Fiscal Year Ended March 30, 1998 to Fiscal Year Ended March 31,
1997
Total operating revenues were $307,684,000 for fiscal 1998 (which includes
52 weeks as compared to 53 weeks in fiscal 1997), a decrease of $8,304,000 or
2.6% from total operating revenues of $315,988,000 in the prior fiscal year. On
an equivalent number of weeks basis, fiscal 1998 total operating revenues
decreased by approximately $2,342,000 or 0.8% from the prior fiscal year. This
decline in total operating revenues was primarily a result of a decline in
circulation revenues from single copy sales of our publications other than Soap
Opera News (which published only one issue in fiscal 1997) and, to a lesser
extent, a decline in advertising revenues. These declines in single copy
circulation revenues and advertising revenues were partially offset by increases
in subscription revenues and other revenues.
35
<PAGE> 41
Circulation revenues (which include all single copy and subscription sales)
of $262,249,000 in fiscal 1998 decreased $11,318,000 or 4.1% from the prior
fiscal year. On an equivalent number of weeks basis, fiscal 1998 single copy
circulation revenues fell by approximately $6,156,000 or 2.3% from the prior
fiscal year as revenues generated by Soap Opera News, which published only one
issue in the prior fiscal year, were unable to offset single copy circulation
revenue declines for National Enquirer and Star.
In fiscal 1998, primarily as a result of adverse publicity resulting from
the August 1997 death of Princess Diana, National Enquirer and Star average
weekly single copy circulation declined by 8.2% and 12.9%, respectively, when
compared to the prior fiscal year. We believe that Star, which is more celebrity
focused than National Enquirer, and, to a lesser extent, National Enquirer, also
were impacted by competition from other forms of media covering celebrity news.
Revenues from per copy cover price increases of $0.10 on July 23, 1996 helped to
offset a portion of the circulation declines for these publications. Soap Opera
Magazine's average weekly single copy circulation in fiscal 1998 declined 18.8%,
reflecting the impact of increased competition in the soap opera category. As
compared to fiscal 1997, Country Weekly's average weekly circulation increased
6.9% as higher subscription levels more than offset a decline in average weekly
single copy circulation of 7.5%. A Weekly World News cover price increase of
$0.16 in April 1997 helped to reduce the impact on circulation revenues of a
13.0% decline in average weekly single copy circulation.
Subscription revenues of $42,440,000 in fiscal 1998 increased $2,570,000 or
6.4% over fiscal 1997. Expressed on an equivalent number of weeks basis,
subscription revenues increased by approximately $3,322,000 or 8.5% due largely
to increases in average weekly subscription circulation of 25.8%, 4.7% and 38.9%
for Country Weekly, National Enquirer and Soap Opera Magazine, respectively, as
well as subscriptions generated by the launch of Soap Opera News.
Advertising revenues of $23,643,000 in fiscal 1998 declined $637,000 or
2.6% compared to fiscal 1997; on an equivalent number of weeks basis,
advertising revenues were approximately flat. During fiscal 1998 lower levels of
national advertising in National Enquirer and Star were offset by higher
national advertising revenues generated by Country Weekly. National advertising,
particularly in National Enquirer and Star, has been adversely affected by the
loss of tobacco-related product advertising. We believe that the tobacco
industry, as a whole, has curtailed its print media based advertising because of
a lack of clear legislative guidelines that will address the future of tobacco
products advertising in the United States. Until this issue is resolved, our
tobacco related advertising revenues may continue to be adversely affected.
Advertising revenues in fiscal 1998 were also negatively impacted by reductions
in the average revenues per page generated by direct mail order and classified
advertising.
Other revenues of $21,792,000 in fiscal 1998 increased $3,651,000 or 20.1%
over fiscal 1997 reflecting revenues generated by Frontline, acquired in
September 1996, which sells in-store advertising to various product
manufacturers and service providers and, to a lesser extent, DSI, due to
expansion of its marketing, merchandising and information-gathering services for
various third-party clients.
Operating expenses of $237,104,000 in fiscal 1998 increased $8,287,000 or
3.6% over fiscal 1997; on an equivalent number of weeks basis (excluding
depreciation and amortization) increased by $10,946,000 or 5.6% over fiscal 1997
primarily reflecting the editorial, production and distribution expenses
associated with Soap Opera News and expenses related to Frontline, each of which
were included for only a portion of the prior year. Distribution related
expenses were higher due to increased subscription fulfillment and DSI's
expanded marketing, merchandising and information-gathering services as well as
Soap Opera News. Excluding production costs associated with Soap Opera News, on
an equivalent number of issues basis overall production costs declined
reflecting the benefit of lower paper and ink costs.
Interest expense declined $5,798,000 in fiscal 1998 over fiscal 1997 to
$50,486,000 reflecting one less week of interest and decreases in the average
balance of outstanding indebtedness.
Our effective income tax rates were 67.4% and 57.3% for fiscal years 1998
and 1997, respectively, as compared to the statutory federal income tax rate of
35%. The higher effective tax rates when compared to the federal income tax rate
result primarily from goodwill amortization which is not deductible for income
36
<PAGE> 42
tax reporting purposes. The higher effective tax rate in fiscal 1998 over fiscal
1997 resulted primarily from changes in the ratio of nondeductible goodwill as a
percentage of income before taxes.
Comparison of Fiscal Year Ended March 31, 1997 to Fiscal Year Ended March 25,
1996
Total operating revenues were $315,988,000 for fiscal 1997 (which includes
53 weeks as compared to 52 weeks in fiscal 1996), an increase of $20,938,000 or
7.1% from total operating revenues of $295,050,000 in the prior fiscal year. On
an equivalent number of weeks basis, fiscal 1997 total operating revenues
increased by $14,976,000 or 5.1% from the prior fiscal year.
Circulation revenues (which include all single copy and subscription sales)
of $273,567,000 increased $16,162,000 or 6.3% from the prior fiscal year. On an
equivalent number of weeks basis, fiscal 1997 single copy circulation revenues
increased by approximately $9,307,000 or 4.2% as a result of higher revenues
generated by National Enquirer and Soap Opera Magazine. Increases in revenues
generated by a $0.10 per copy increase in cover price for National Enquirer,
effective with the July 23, 1996 issue, more than offset a decline in National
Enquirer's average weekly single copy circulation from fiscal 1996 of 2.1%; a
similar price increase for Star largely offset an average weekly single copy
circulation decline of 8.2%. We believe the declines in single copy circulation
of National Enquirer and Star were due in part to the increasingly competitive
print and electronic media coverage of celebrity news. In addition, we believe
that such declines in single copy circulation were also attributable to
decreases in advertising spending in recent fiscal years and a lack of
promotional activities. Soap Opera Magazine's single copy circulation revenue in
fiscal 1997 was higher as average weekly single copy circulation increased by
approximately 11.7% when compared to the prior fiscal year. Revenues were also
favorably impacted by cover price increases for Country Weekly and Weekly World
News of $0.20 on September 26, 1995 and $0.10 on November 7, 1995, respectively.
Average weekly single copy circulation for Country Weekly and Weekly World News
increased 1.9% and decreased 6.6%, respectively, when compared to fiscal 1996.
Subscription revenues of $39,870,000 in fiscal 1997 increased $2,445,000 or
6.5% over fiscal 1996. Expressed on an equivalent number of weeks basis,
subscription revenues increased by approximately $1,693,000 or 4.5% due largely
to increases in average weekly subscription circulation of 43.4% and 41.2% for
Country Weekly and Soap Opera Magazine, respectively.
Advertising revenues of $24,280,000 in fiscal 1997 increased $975,000 or
4.2% compared to fiscal 1996. On an equivalent number of issues basis,
advertising revenues increased by approximately $517,000 or 2.2% reflecting
higher levels of national advertising in both National Enquirer and Country
Weekly.
Operating expenses of $228,817,000 for fiscal 1997 were approximately flat
from the prior fiscal year; on an equivalent number of weeks basis (excluding
television advertising and depreciation and amortization) increased by
$2,597,000 or 1.4% from the prior fiscal year. Distribution, circulation and
other cost of sales together with selling, general and administrative expenses
(excluding television advertising) increased by a combined total of $8,673,000
on an equivalent number of weeks basis primarily reflecting costs associated
with the expansion of DSI's in-store marketing, merchandising and information-
gathering services and higher subscription expenses. Production expense was
lower by $6,059,000 on an equivalent number of weeks basis as a result of
reduced average paper costs in fiscal 1997 as compared to the prior fiscal year.
Television advertising expense was lower by $5,079,000 because we did not repeat
the fiscal 1996 national advertising campaigns for National Enquirer and Star.
Depreciation and amortization expense decreased as the amortization of an
intangible asset with a 5-year life was completed in June 1995.
Interest expense decreased $431,000 in fiscal 1997 to $56,284,000 from
$56,715,000 in the prior fiscal year. Decreases in the average outstanding
indebtedness more than offset one additional week's interest in fiscal 1997.
Our effective income tax rates were 57.3% and 106.6% for fiscal years 1997
and 1996, respectively, as compared to the federal statutory income tax rate of
35%. The higher effective tax rates result primarily from goodwill amortization
which is not deductible for income tax reporting purposes. The lower effective
37
<PAGE> 43
tax rate in fiscal 1997 over fiscal 1996 resulted primarily from changes in the
ratio of nondeductible goodwill as a percentage of income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1999, we had cash and cash equivalents of $3.8 million and a
working capital deficit of $75.1 million compared to cash and cash equivalents
of $7.4 million and a working capital deficit of $52.1 million as of March 30,
1998. Our working capital deficit increased in fiscal 1999 because of the
reclassification of $25.0 million in long-term debt under our old credit
facility to current debt. We do not consider our working capital deficit as a
true measure of our liquidity position as our working capital needs typically
are met by cash generated by our business. Our working capital deficits result
principally from:
- our policy of using available cash to reduce borrowings which are
recorded as noncurrent liabilities, thereby reducing current assets
without a corresponding reduction in current liabilities;
- our minimal accounts receivable level relative to revenues, as most of
our sales revenues are received from national distributors as advances
based on estimated single copy circulation; and
- accounting for deferred revenues as a current liability. Deferred
revenues are comprised of deferred subscriptions, advertising and single
copy revenues and represent payments received in advance of the period in
which the related revenues will be recognized.
Historically, our primary sources of liquidity have been cash generated
from operations and amounts available under the old credit facility which have
been used to fund shortfalls in available cash. For the fiscal years ended March
29, 1999 and March 30, 1998, we generated net cash from operating activities
totaling $29.8 million and $41.8 million, respectively, that was used primarily
to fund capital expenditures and to make payments of principal on our
outstanding indebtedness.
We made capital expenditures totaling $15.0 million and $11.0 million in
fiscal 1999 and fiscal 1998, respectively. We plan to invest $14.0 million in
fiscal 2000. Our capital expenditures are made principally to purchase display
pockets for our publications and computer equipment for our businesses. See
"-- Year 2000 Risk" for an estimate of additional potential capital
expenditures.
At March 29, 1999 and March 30, 1998, our outstanding indebtedness totaled
$471.1 million and $497.5 million, respectively, of which $271.0 million and
$297.4 million, respectively, represented borrowings under the old credit
facility. The old credit facility charged variable rates of interest which
averaged 7.7% and 7.8%, respectively, for the fiscal years ended March 29, 1999
and March 30, 1998. In order to reduce our exposure to interest rate risk, we
have entered into a $100.0 million interest rate swap agreement expiring in
November 2000 under which we pay a fixed rate of 5.95%.
The new credit facility provides senior secured financing of up to $400.0
million, consisting of a $340.0 million term loan facility and a $60.0 million
revolving credit facility. The $250.0 million in notes bear interest at 10 1/4%
per annum payable semi-annually and mature in May 2009.
We have substantially increased our indebtedness in connection with the
transactions. If the transactions had been completed on March 29, 1999, our pro
forma outstanding indebtedness would have totaled $602.9 million as compared to
our actual historical outstanding indebtedness at such date of $471.1 million.
As a result of the new credit facility and the notes, our liquidity requirements
will be significantly increased, primarily due to increased interest expense
obligations and principal payment obligations under the new credit facility
which, other than certain excess cash flow payment obligations, will commence in
2002. See "Risk Factors -- Our significant indebtedness could impair our ability
to operate and expose us to certain risks." In addition, the business strategy
to be implemented upon consummation of the transactions will result in increased
operating expenses. We believe that the net cash generated from operating
activities and amounts available under the $60.0 million revolving credit
facility will be sufficient to fund our debt service requirements under the new
credit facility and the notes, to make capital expenditures, to cover working
capital requirements and to fund the implementation of our business strategy to
be implemented upon consummation of the transactions. We believe, however, that
based upon
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<PAGE> 44
our current level of operations and anticipated growth, it will be necessary to
refinance the notes upon their maturity. To the extent we make future
acquisitions, we may require new sources of funding, including additional debt,
or equity financing or some combination thereof. There can be no assurances that
such additional sources of funding will be available to us on acceptable terms.
Our ability to make scheduled payments of principal and interest under the
new credit facility and the notes, as well as our other obligations and
liabilities, is subject to our future operating performance which is dependent
upon general economic, financial, competitive, legislative, regulatory, business
and other factors beyond our control. See "Risk Factors."
We and each of our note guarantors are co-registrants of our registration
statement on Form S-4 (File No. 333-83637), of which this prospectus forms a
part. As a result, we and each of our note guarantors will become subject to the
informational requirements of the Securities Exchange Act of 1934 upon the
effectiveness of the registration statement. We are a holding company with no
material assets or operations other than our investments in our subsidiaries.
The notes are unconditionally guaranteed, on a senior subordinated basis, by
substantially all of our existing subsidiaries. Each subsidiary that will be
organized in the future by us, unless such subsidiary is designated as an
unrestricted subsidiary, will jointly, severally, fully and unconditionally
guarantee the notes on a senior subordinated basis. Note guarantees are joint
and several, full and unconditional and general unsecured obligations of the
note guarantors. The note guarantors are our wholly-owned subsidiaries. At
present, the note guarantors comprise all of our direct and indirect
subsidiaries, other than one inconsequential subsidiary. Note guarantees are
subordinated in right of payment to all existing and future senior debt of the
note guarantors, including the new credit facility, and are also effectively
subordinated to all secured obligations of note guarantors to the extent of the
assets securing such obligations, including the new credit facility.
Furthermore, the indenture permits note guarantors to incur additional
indebtedness, including senior debt, subject to certain limitations. We have not
presented separate financial statements and other disclosures concerning each of
the note guarantors because management has determined that such information is
not material to investors.
So long as the factors set forth in the paragraph immediately above remain
true and correct, under applicable SEC rules and regulations, we believe that
the note guarantors will not need to individually comply with the reporting
requirements of the Exchange Act, nor will we have to include separate financial
statements and other disclosures concerning each of the note guarantors in our
Exchange Act reports. In that regard, we will request a no-action letter from
the SEC concurring with our position on this issue. While there can be no
assurance, we expect to receive a favorable response to our no-action letter
request.
YEAR 2000 RISK
The year 2000 issue is the result of computer programs that were written
using only two digits, rather than four, to represent a year. Date-sensitive
software or hardware may not be able to distinguish between the years 1900 and
2000 and programs that perform arithmetic operations, comparisons or sorting of
date fields may begin yielding incorrect results. This could potentially cause a
system failure or miscalculations that could disrupt operations. To address the
impact of the year 2000 issue on our computer programs, embedded chips and
significant third-party suppliers of goods and services we have formed a task
force led by our information services department. This task force has taken an
inventory of the potential year 2000 issues that may exist and is in the process
of completing its assessment of their impact. Certain of our key systems, such
as financial applications, have already been identified as year 2000 compliant;
in addition, because of the recent replacement of a majority of our computer
hardware, we believe there is little likelihood that this equipment is not Year
2000 compliant. We believe the largest areas of internal risk for year 2000
noncompliance are internally developed software applications and the handheld
communications devices used in merchandising by DSI. We have purchased
specialized software that will allow us to identify and correct year 2000
problems within our software applications and expect to have key applications
modified and tested by July 1999. Our information services department, working
with
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handheld communication devices, has determined that remediation of the existing
handhelds is the appropriate course of action. We expect to complete this
remediation work by August 1999.
At the present time, the year 2000 project is estimated to cost
approximately $500,000 and will be funded through cash flows from operations.
Approximately $290,000 of the estimated year 2000 costs will relate to hardware
and software purchases and will be capitalized with the remainder being expensed
as incurred.
At present, we believe our technology systems will be year 2000 compliant
and that the year 2000 issue will not present a materially adverse risk to our
future results of operations, financial position or cash flow. However, there
can be no assurance that our systems will be year 2000 compliant prior to
December 31, 1999 or that the costs incurred will not materially exceed the
amounts budgeted. If there are incidences of noncompliance, we plan to allocate
internal resources and retain dedicated consultants to address such incidences.
In the event that our computers are not year 2000 compliant by December 31,
1999, and as a result of that noncompliance business interruptions occur, we
could incur significant losses in revenues due to such business interruptions,
which could have a material adverse effect on our future results of operations,
financial position or cash flow.
In addition, there is a risk that a significant supplier of goods or
services may not be year 2000 compliant. We are communicating with our
significant suppliers of goods and services to obtain reasonable assurance that
their products and business systems will be year 2000 compliant. We rely on
certain suppliers to deliver a broad range of goods and services, including
prepress operations, printing services, paper, wholesale distribution, mailings
and banking services. Although we have taken, and will continue to take,
reasonable efforts to gather information to determine and verify the readiness
of products and dependencies, there can be no assurance that reliable
information will be offered or otherwise available. In order to mitigate the
effects of a significant supplier's potential failure to remediate the year 2000
issue in a timely manner, we would take appropriate actions including arranging
for alternate suppliers, re-running processes if errors occur and using manual
intervention to ensure the continuation of operations where necessary. Should
this happen, it may result in significant delays in business operations
including, but not limited to, delays in delivery of products resulting in loss
of revenues, increased operating costs, loss of customers or suppliers, or other
significant disruptions to our business which could have a material adverse
effect on our future results of operations, financial position or cash flow.
NEW ACCOUNTING PRONOUNCEMENTS
We have adopted the Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," effective fiscal 1999. SFAS No. 130
defines comprehensive income as a measure of all changes in equity of an
enterprise during a period that result from transactions and other economic
events during the period other than transactions with owners. For all periods
presented comprehensive income is the same as net income.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and interim
financial stockholders' reports. The statement requires information to be
reported by operating segment on the same basis which we use to evaluate
performance internally. We have determined that we have only one operating
segment.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
standardizes the accounting for derivatives, requiring recognition as either
assets or liabilities on the balance sheet and measurement at fair value. We
plan to adopt SFAS No. 133 in fiscal 2002. We have not yet determined the effect
adoption of SFAS No. 133 will have on our consolidated financial statements.
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BUSINESS
OVERVIEW
We are a leading publisher in the field of general interest magazines,
publishing National Enquirer, Star, Weekly World News and Country Weekly, with a
current aggregate weekly circulation of approximately 4.7 million copies.
National Enquirer and Star, our premier titles, have the second and fourth
highest weekly single copy circulation, respectively, of any weekly periodical
in the United States. We are the leader in total weekly single copy circulation
of magazines in the United States and Canada with approximately 34% of total
U.S. and Canadian circulation for weekly publications. We derive approximately
85% of our revenues from circulation, predominantly single copy sales in retail
outlets, and the remainder from advertising and other sources. National Enquirer
and Star are distributed in approximately 165,000 retail outlets in the United
States and Canada, representing, in the opinion of management, substantially
complete coverage of periodical outlets in these countries. DSI, our subsidiary,
arranges for the placement and merchandising of our publications and third-party
publications at retail outlets throughout the United States and Canada. In
addition, DSI provides marketing, merchandising and information-gathering
services for third parties. For the fiscal year ended March 29, 1999, we had pro
forma revenues and pro forma EBITDA of $272.2 million and $95.8 million,
respectively.
Our publications are among the most well-known and widely distributed
titles in the publishing industry. While our publications have a current
aggregate weekly circulation of approximately 4.7 million copies, they enjoy a
weekly readership of 20 million people due to multiple readers per copy sold. As
a result, we believe our publications enjoy strong consumer brand awareness with
a large and loyal readership base. Our publications include the following
titles:
- National Enquirer is a weekly general interest periodical with an
editorial content devoted to celebrity features, human interest stories
and articles covering lifestyle topics such as health, food and household
affairs. National Enquirer is the second highest selling weekly
periodical in the United States and Canada based on single copy
circulation, selling on average 1,814,000 copies per week. National
Enquirer has a total average weekly circulation of 2,201,000 copies,
including subscriptions, with an average of approximately 7 readers per
copy. National Enquirer has a core demographic profile of women aged
18-49. Issue length is 48 pages, 30 of which are in color. Approximately
70% of the pages are devoted to editorial content with the balance
devoted to advertising. National Enquirer's cover price is $1.59 in the
United States. The per issue price of annual subscriptions is $0.92 in
the United States.
- Star is a weekly celebrity news-based periodical with a strong emphasis
on television and movie performers and the lives of the rich and famous.
Star complements this focus with human interest stories about ordinary
people in unusual circumstances. Every issue also includes a variety of
features on topics such as food, fashion, health, fitness and parenting.
Star is the fourth highest selling weekly periodical in the United States
and Canada based on single copy circulation, selling on average 1,487,000
copies per week. Star has a total average weekly circulation of 1,776,000
copies, including subscriptions, with an average of approximately 4
readers per copy. Star has a core demographic profile of women aged
18-49. Issue length is 48 pages, 30 of which typically are in color.
Approximately 80% of the pages are devoted to editorial content with the
balance devoted to advertising. Star's cover price is $1.59 in the United
States. The per issue price of annual subscriptions is $0.92 in the
United States.
- Weekly World News is a tabloid devoted to the publication of entertaining
and unusual stories. The editorial content of Weekly World News is
derived principally from rewritten stories and photographs purchased from
agencies and periodicals around the world. Weekly World News has an
average weekly single copy circulation of 355,000 copies with a total
average weekly circulation of 379,000 copies, including subscriptions.
Each regular issue consists of 48 black and white pages. Weekly World
News' cover price is $1.39 in the United States. The per issue price of
annual subscriptions is $0.67 in the United States.
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- Country Weekly is a special interest magazine presenting various aspects
of country music, lifestyles, events and personalities, and has the
highest weekly circulation of any such magazine in its category. Country
Weekly has an average weekly single copy circulation of 171,000 copies
with a total average weekly circulation of 363,000 copies, including
subscriptions. Each regular issue consists of 60 pages, all of which are
in color. Country Weekly's cover price is $1.99 in the United States. The
per issue price of annual subscriptions is $0.89 in the United States.
COMPETITIVE STRENGTHS
We believe that the following factors have contributed to the leading
market positions of our publications:
- STRONG, WELL-ESTABLISHED BRAND NAMES. National Enquirer, whose
predecessors date back to 1926, and Star, which commenced publication in
1974, have been two of the leading general interest magazines for over 25
years. These two titles currently have an average weekly circulation of
approximately 2.2 million copies and 1.8 million copies, respectively,
and are read by over 20 million people each week. They have the second
and fourth highest weekly single copy circulation, respectively of all
weekly periodicals in the United States and Canada. We believe their
brand names are among the most familiar magazine titles to consumers and
are synonymous with the celebrity genre. Weekly World News, which
commenced publication in 1979, has established itself as a leader in the
field of entertaining and unusual stories. Country Weekly, which
commenced publication in 1994, is the leader in the category of country
music publications. We believe that the long history and strong brand
identity of our publications have allowed us to establish a large and
loyal readership base.
- EXTENSIVE EDITORIAL SOURCING CAPABILITIES. We have long-established
editorial departments that source the stories, features and news items
that appear in our publications. Because a significant amount of our
editorial content is based on investigative reporting, our publications
are "first source" or "breaking story" magazines for our readers. We also
have an extensive and reliable sourcing network, consisting of many
sources that have a long history with us.
- BROAD DISTRIBUTION BASE. Our publications are sold in all 50 states in
the United States as well as Canada and, to a lesser extent, the United
Kingdom and continental Europe. Our distribution in the United States
includes virtually all of the leading supermarket chains, such as
Safeway, Winn Dixie, Kroger and Albertsons, major convenience store
chains, such as 7-Eleven and Circle-K, leading mass merchandisers, such
as Wal-Mart, Kmart and Target, as well as a broad base of regional and
local newsstand outlets, including outlets at airports, bus terminals and
train stations. In the United States and Canada, National Enquirer and
Star are displayed for sale in approximately 165,000 retail outlets. We
believe that National Enquirer and Star enjoy broad distribution because
they are consistently among the highest revenue-producing magazines to
retailers. Among magazines sold by retailers in the United States and
Canada, National Enquirer and Star are currently ranked third and fourth,
respectively, in terms of total magazine retail dollars generated. In
addition, DSI, our subsidiary that works with retailers to design their
front-end racks and position magazines for increased sales, provides a
highly value-added service to the retailers and helps to further
strengthen our retailer relationships and distribution.
- EXPERIENCED MANAGEMENT TEAM. David J. Pecker, a well-known publishing
executive with over 20 years of industry experience, is our Chairman, CEO
and President. Mr. Pecker most recently served as CEO and President of
Hachette Filipacchi Magazines, Inc., the third largest magazine publisher
in the United States. Mr. Pecker oversaw 29 magazines, including
publications such as Elle, Woman's Day, Car and Driver, Road & Track,
Mirabella, Premiere and George. While serving as Hachette's President
from September 1991 to March 1999, he was credited with overseeing the
significant growth in size and performance of Hachette's business. During
his tenure as President, Hachette launched or acquired nine titles. In
addition to Mr. Pecker, our highly experienced senior management team
has, on average, over 20 years of experience in the publishing industry.
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BUSINESS STRATEGY
The key elements of our business strategy are to:
- ENHANCE EDITORIAL CONTENT TO DRIVE SINGLE COPY CIRCULATION. We believe
that National Enquirer and Star need more clear editorial
differentiation. The current level of duplication, both in covers and
content, often results in an either/or purchase decision by consumers at
checkout counters. As part of our editorial differentiation program, we
intend to enhance each publication's network of sources for exclusive
stories. Our strategy will be supported by focused consumer research to
better understand our core readership as well as potential new consumers.
This will enable us to implement cover strategies to encourage impulse
purchases and content strategies to generate more repeat purchases. In
addition, we intend to increase the use of value-oriented promotions,
such as consumer product coupons and contests.
- AGGRESSIVELY PROMOTE OUR BRANDS. We intend to increase our single copy
circulation by aggressively advertising our brands on television, radio,
outdoor advertising and in print. In addition, we plan to heighten
consumer awareness and build brand equity through an intensive public
relations program, including appearances by our editors and reporters as
guests on television shows, content placement in mainstream media and the
use of celebrities as guest editors. We believe that circulation of our
publications has been adversely affected by years of no consistent
advertising and promotional strategy and spending. For example,
advertising spending on National Enquirer and Star fell from $16.1
million in fiscal 1994 to $0.6 million in fiscal 1999. We plan to appoint
separate advertising agencies for National Enquirer and Star to develop
an integrated national advertising campaign for each publication,
emphasizing each publication's strong journalistic content and
investigative nature.
- INCREASE ADVERTISING REVENUES. We intend to market more effectively the
appeal and competitive advantages of advertising in our publications to
existing and potential advertisers. We believe that historically we have
not effectively positioned our publications to advertisers. Consequently,
our advertising revenues have declined in recent years, a time during
which industry-wide magazine advertising revenues have increased. In
order to increase our revenues, we intend to focus on
- better educating advertisers about the cost effectiveness of
advertising in our publications and on the content of our titles,
which we believe is similar to that of titles which have higher levels
of advertising revenues,
- developing our own customized research to market the demographics of
our newsstand purchasers and subscribers,
- promoting the cost efficiency and reach of a combined National
Enquirer and Star advertising purchase,
- emphasizing other advertising opportunities, such as inserts,
cross-marketing promotions and the services of DSI for in-store
merchandising and
- supporting advertising sales efforts with a trade advertising campaign
and appearances by editors at key industry functions. Mr. Pecker, our
Chairman, CEO and President, has extensive experience in selling
magazine advertising and has key senior level relationships at many
companies whose target consumers fit the demographic profile of our
readers.
- BUILD ON THE STRENGTH OF DSI. DSI is a marketing organization whose
primary function is to coordinate the placement and merchandising of our
publications and other third-party publications at retail outlets
throughout the United States and Canada. In addition, DSI is selected by
retailers to coordinate the rack design, installation and positioning of
magazines for approximately 40% (based on our estimates) of all new
front-end racking programs initiated annually in the United States. As a
result of its broad market presence, we believe DSI is a strong platform
to more favorably display titles we may develop or acquire. DSI also
intends to expand its third-party client base of publishers which require
marketing and merchandising of their publications. DSI's third-
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party clients currently include Hachette, which publishes Woman's Day,
Elle and Mirabella; Gruner & Jahr USA/ Publishing, which publishes Family
Circle, McCall's, Fitness, Parents and YM; Wenner Media, Inc., which
publishes US Magazine, Rolling Stone and Men's Journal; and Newsweek,
Inc., which publishes Newsweek. In addition, because DSI's over 1,500
field representatives are regularly in stores stocking, monitoring and
checking sales, DSI is beginning to expand its client base to include
consumer product companies outside the publishing industry that require
in-store verification of promotions and stock levels.
- UTILIZE PRICE FLEXIBILITY. Historically, single copy circulation of our
publications has not been materially sensitive to moderate, periodic
cover price changes. Since May 1993, we have instituted ten cover price
increases in the United States for National Enquirer and Star, consisting
of five cover price increases for each publication ranging from $0.04 to
$0.26 per copy. The average weekly single copy circulation of National
Enquirer and Star for the three month periods following seven of the
eight cover price increases for which circulation data are available was
approximately equal to or greater than the average weekly single copy
circulation for the applicable three month periods prior to such
increases. After the July 7, 1998 cover price increase of $0.10 for each
of National Enquirer and Star (i.e., the most recent cover price increase
for which circulation data are available), average weekly single copy
circulation increased approximately 12% and 8%, respectively, for the
three-month period following such increases over the average weekly
single copy circulation for each publication for the three-month period
prior to such increases. Therefore, we believe we have the flexibility to
prudently increase cover prices over time.
- LEVERAGE BRAND EQUITY. We intend to utilize the brand equity and content
of our publications to broaden our revenue base. In this regard, we are
investigating several opportunities, including using our archives and
library to create additional special issues, increasing international
distribution, creating Spanish language and teenage versions of certain
titles and sponsoring television programming incorporating the content of
our publications. In addition, we intend to more actively pursue on-line
ventures and use the Internet to drive awareness among new and younger
readers to generate incremental revenue opportunities.
- PURSUE COMPLEMENTARY ACQUISITIONS. During his tenure at Hachette, Mr.
Pecker had a track record of overseeing successful acquisitions of
magazines and increasing their revenue and profitability. We intend to
selectively pursue additional titles whose circulation can be increased
through our strong distribution network. We believe the ability to
cross-sell additional titles to advertisers will also enhance advertising
revenues.
CIRCULATION
Our publications have an aggregate weekly circulation of approximately 4.7
million copies and a weekly readership of over 20 million people due to multiple
readers per copy sold. We derive approximately 85% of our revenues from
circulation and the remainder from advertising and other sources. Approximately
84% of our circulation revenues are generated by single copy circulation at
retail outlets and the remainder by subscriptions. The United States, Canada and
areas outside of North America represented approximately 86%, 10% and 4% of
average weekly single copy circulation, respectively.
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SINGLE COPY CIRCULATION. The following tables set forth average weekly
single copy circulation and U.S. cover prices for our publications for the three
fiscal years 1997, 1998 and 1999.
AVERAGE WEEKLY SINGLE COPY CIRCULATION AND U.S. COVER PRICE
<TABLE>
<CAPTION>
FOR FISCAL YEAR ENDED
-----------------------------------
MARCH 31, MARCH 30, MARCH 29,
1997 1998 1999
--------- --------- ---------
(CIRCULATION DATA IN THOUSANDS)
<S> <C> <C> <C>
National Enquirer
Single Copy Circulation................................ 2,104 1,932(2) 1,766
Cover Price............................................ $ 1.39(1) $ 1.39 $ 1.49(1)
Star
Single Copy Circulation................................ 1,858 1,618(2) 1,445
Cover Price............................................ $ 1.39(1) $ 1.39(1) $ 1.49
Weekly World News
Single Copy Circulation................................ 409 356 350
Cover Price............................................ $ 1.09 $ 1.25(1) $ 1.39(1)
Country Weekly
Single Copy Circulation................................ 219 202 169
Cover Price............................................ $ 1.69 $ 1.69 $ 1.99(1)
</TABLE>
- ---------------
(1) We increased the U.S. cover price on each of National Enquirer and Star on
July 23, 1996 from $1.29 to $1.39 and then to $1.49 on July 7, 1998. We
increased the U.S. cover price on Weekly World News on April 15, 1997 from
$1.09 to $1.25 and to $1.39 on September 1, 1998. We increased the U.S.
cover price on Country Weekly on April 7, 1998 from $1.69 to $1.79 and then
to $1.99 on March 2, 1999.
(2) We believe that the principal factor in the decline in circulation in fiscal
1998 from fiscal 1997 was adverse publicity against celebrity news-based
magazines following the death of Princess Diana in August 1997.
Single copy circulation of each of our publications has experienced
declines. We believe that a significant portion of the decline in circulation
since fiscal 1994 is primarily due to two factors. First, the death of Princess
Diana in August 1997 resulted in a significant amount of adverse publicity
against celebrity news-based magazines. While single copy circulation of
National Enquirer and Star have improved from the low levels experienced in the
months immediately after Princess Diana's death, they have not returned to their
prior levels. We believe the second principal factor contributing to lower
circulation since fiscal 1994 has been a significant reduction in advertising
expenditures by us to promote our publications. Total advertising expenditures
for National Enquirer and Star decreased from $16.1 million in fiscal 1994 to
$0.6 million in fiscal 1999. We believe that this reduction in advertising was a
significant factor in the decrease in average weekly single copy circulation of
National Enquirer and Star from approximately 2.8 million copies and 2.5 million
copies, respectively, in fiscal 1994 to approximately 1.8 million and 1.4
million copies, respectively, in fiscal 1999. In addition, single copy
circulation declines of our publications can be attributed to (a) increased
competition from other publications and forms of media, such as certain
newspapers, television and radio programs concentrating on celebrity news and
(b) a general industry-wide decline in single copy circulation of individual
publications due to an increasing number of publications in the industry.
Historically, we have offset declines in single copy circulation, in part,
through increases in cover prices. We believe that we will be able to continue
to implement prudent increases in our cover prices over time without causing a
decline in circulation. Since May 1993, we have instituted ten cover price
increases in the United States for National Enquirer and Star, consisting of
five cover price increases for each publication, ranging from $0.04 to $0.26 per
copy. The average weekly single copy circulation of National
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Enquirer and Star for the three-month periods following seven of the eight cover
price increases for which circulation data are available was approximately equal
to or greater than the average weekly single copy circulation for the applicable
three-month periods prior to such increases. After the July 7, 1998 cover price
increase of $0.10 for each of National Enquirer and Star (i.e., the most recent
cover price increase for which circulation data are available), average weekly
single copy circulation increased approximately 12% and 8%, respectively, for
the three-month period following such increases over the average weekly single
copy circulation for each publication for the three-month period prior to such
increases. Effective July 27, 1999, the cover price for each of National
Enquirer and Star was increased $0.10 to $1.59.
We intend to increase our single copy circulation by aggressively
advertising our brands on television, radio, outdoor advertising and in print.
We believe that aggressive and consistent advertising support for our brands
will drive consumer awareness and single copy circulation. For example, we plan
to launch a national television advertising campaign, the first such significant
campaign since 1994. In addition, we plan to heighten consumer awareness and
build brand equity through an intensive public relations program, including
appearances by our editors and reporters as guests on television shows, content
placement in mainstream media and the use of celebrities as guest editors. We
believe our new advertising and promotional activities will build brand equity
for National Enquirer and Star by emphasizing their strong journalistic content
and investigative nature, which we believe in turn will enhance their appeal to
a broader general readership. See "-- Business Strategy."
Subscription Sales. Our strategy with respect to subscriptions seeks to
optimize subscription revenues and profitability as opposed to subscription
circulation. We accomplish this strategy by focusing on direct sales of our
titles by us through inserts and direct mailings. From time to time, however, we
utilize agents, such as Publishers Clearing House, to maintain and expand our
subscriber base subscription circulation. In fiscal 1998, approximately 16% (or
$42.4 million) of our total revenues from circulation were from subscription
sales. Average weekly subscription circulation for fiscal 1999 were 452,000
copies for National Enquirer, 347,000 copies for Star, 23,000 copies for Weekly
World News and 196,000 copies for Country Weekly.
Subscription renewal rates for our publications (exclusive of subscriptions
sold by direct mail agents) were 82% for National Enquirer, 80% for Star, 77%
for Weekly World News and 71% for Country Weekly for subscriptions which expired
during the 1998 calendar year. In calendar 1998, approximately two-thirds of our
subscribers purchased their subscriptions directly from us. We believe that our
core subscribers are those who do not purchase through direct mail agents due to
the fact that renewals by people who subscribe through direct mail agents are
low.
ADVERTISING REVENUES
We had approximately $22.6 million in advertising revenues in fiscal 1999,
excluding advertising generated by the soap opera assets. National Enquirer,
Star, Weekly World News and Country Weekly generated approximately $12.3
million, $6.9 million, $1.1 million and $2.3 million, respectively, in
advertising revenues during fiscal 1999.
Our advertising revenues are generated by national advertisers, including
consumer product and broadcasting companies, mail order advertisers and
classified advertisers. Excluding advertising revenues for the soap opera
assets, in fiscal 1999, national advertising, mail order advertising and
classified advertising represented 45%, 47% and 8%, respectively, of total
advertising revenues.
We intend to market more effectively the appeal and competitive advantages
of advertising in our titles to existing and potential advertisers. We believe
that historically we have not effectively positioned publications to
advertisers. Consequently, our advertising revenues have declined in recent
years, a time during which industry-wide magazine advertising revenues have
increased. In order to increase our revenues, we intend to focus on (a) better
educating advertisers about the cost effectiveness of advertising in our
publications and on the content of our titles, which we believe is similar to
that of titles which have higher levels of advertising revenues, (b) developing
our own customized research to market the demographics of our newsstand
purchasers and subscribers, (c) promoting the cost efficiency and reach of
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a combined National Enquirer and Star advertising purchase, (d) emphasizing
other advertising opportunities, such as inserts, cross-marketing promotions and
the services of DSI for in-store merchandising and (e) supporting advertising
sales efforts with a trade advertising campaign and appearances by editors at
key industry functions. Mr. Pecker, our Chairman, CEO and President, has
extensive experience in selling magazine advertising and has key senior level
relationships at many companies whose target consumers fit the demographic
profile of our readers.
We employ 20 advertising sales people and maintain advertising sales
offices in New York City, Chicago, Los Angeles, Nashville and Lantana.
EDITORIAL
The editorial departments of our publications operate independently. The
editorial headquarters for National Enquirer, Weekly World News and Country
Weekly are in Lantana, Florida. National Enquirer also has a Los Angeles,
California bureau and Country Weekly has a bureau in Nashville, Tennessee. Star
has its editorial headquarters in Tarrytown, New York and also has a bureau in
Los Angeles, California.
National Enquirer's editorial operation consists of approximately 80
full-time employees. The editorial news gathering operation of National Enquirer
is directed by the editor-in-chief and executive editor who supervise eight
article editors, including the Los Angeles bureau chief. The article editors are
responsible for developing and gathering news stories and story ideas. The
article editors have 21 staff reporters. The article editors work with four
photo editors, under the direction of a head photo editor. Stories brought in
for publication are processed through a skilled team of writers and a design
layout department. Each story is checked during the process by a research
department before actual publication.
Star's total editorial staff consists of approximately 70 full-time
employees and six part-time employees. Star's editorial news gathering operation
is similar to National Enquirer's. There is an editor-in-chief, an executive
editor, eight story editors and 20 reporters. Their photo department has seven
staff persons under the direction of a chief photo editor. Star has a library
staff that assists in both story researching and fact checking.
In addition to their editorial staffs, National Enquirer and Star pay
outside news sources for story ideas, for information regarding breaking stories
and for exclusive stories regarding celebrities. They also pay freelance
photographers and freelance reporters for their investigative journalism.
National Enquirer and Star have networks of approximately 300 and 150 freelance
reporters, respectively, to whom they can assign stories. Because a significant
amount of our editorial content is based on investigative reporting, our
publications are "first source" or "breaking story" magazines for our readers.
The editorial staffs of Weekly World News and Country Weekly are comprised
of 14 and 25 people, respectively, and are each managed by an editor.
Due to their high level of investigative reporting, both National Enquirer
and Star employ precautionary measures during the editorial process to protect
themselves from lawsuits. Each publication has a long-standing practice of
having outside legal counsel review the articles, photographs and headlines
under consideration for each issue. Such legal counsel identify and evaluate the
risk exposure presented by each article and photograph and make recommendations
so that the publications can make a business judgment concerning publication of
the articles and photographs. The management and editorial teams at National
Enquirer and Star consistently follow the recommendations of legal counsel. We
believe that this pre-publication "vetting" has been important in mitigating the
risk and occurrence of libel-based suits against the publications. There are
currently no claims pending that we believe would have a material adverse effect
on our operations. See "-- Legal Proceedings."
PRODUCTION AND DISTRIBUTION
An unrelated third-party performs most of the pre-press operations for our
publications and is responsible for transmitting them electronically to printing
plants. We have a long-term printing agreement with an unrelated domestic
printer to print National Enquirer and Star through December 2010 for sales
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in the United States, Canada and, to the extent applicable, outside of North
America (except for the United Kingdom). This same printer also prints all of
our other publications. National Enquirer has a special United Kingdom edition
which is printed by another unrelated printer. Once printed, the copies are
distributed primarily by five regional wholesalers in the United States and
Canada who deliver the requisite number of copies to approximately 165,000
retail sales locations. We believe our relationships with our printing companies
are favorable and that there are printing facilities available elsewhere, should
the need arise.
The principal raw materials utilized by our publications are paper and ink.
Paper is purchased directly by us from several suppliers based upon pricing and,
to a lesser extent, availability. Ink utilized by our publications is purchased
by the printers from at least two different ink suppliers. Both paper and ink
are commodity products with pricing affected by demand, capacity and economic
conditions. We believe that adequate sources of supply are, and will continue to
be, available to fulfill our requirements.
Our operating income may be significantly affected by the price of paper
used in our publications. For example, the price of paper rose dramatically in
1995 and significantly affected operating income. In mid-1996 paper prices began
to fall, then increased moderately in 1997 and 1998. If paper prices increase in
the future and we cannot pass these costs on to our customers, such increases
may have a material adverse effect on us. Currently, we do not hedge against
increases in paper costs.
MARKETING AND MERCHANDISING
We have established, through DSI, our own marketing organization whose
primary function is to coordinate the placement and merchandising of our
publications and third-party publications in retail outlets throughout the
United States and Canada. In addition to the services DSI provides for our
publications, DSI acts as a "quarterback" for approximately 40% (based on our
estimates) of new front-end racking programs initiated annually in the United
States and Canada by supermarkets and other retailers. Recently, DSI has begun
to leverage its network of field representatives, which are regularly in retail
outlets performing its services, by expanding its services to provide
merchandising and other information services to consumer product companies
outside the publishing industry. DSI's field representatives visit approximately
16,000 locations weekly, comprising of the highest volume retailers.
Approximately every three years, supermarkets and other retailers typically
redesign their front-end racks, generally as part of store renovations or new
store openings. As a "quarterback," DSI is selected by retailers to coordinate
the design and installation of the front-end racks and the positioning of
magazines for increased sales. Publishers, including the Company, which are
allocated space on a rack enter into contracts directly with the retailer for
the payment of fees (rack display payments) or other charges with respect to
that space. DSI uses its role as quarterback for approximately 40% (based on our
estimates) of new front-end rack programs initiated annually by retailers in the
United States to achieve better placement of our publications and of the
publications of DSI's third-party publishing clients. DSI is not paid by the
retailers for the services it renders as quarterback.
DSI provides marketing services for the Company and third-party publishing
clients to achieve favorable placement of their respective publications at
supermarkets and other retail outlets. DSI also provides merchandising and other
information services such as checking retail stock displays and repositioning
and restocking in-store inventories for the Company and its other clients. DSI's
staff consists of approximately 180 full-time employees and more than 1,500
part-time field representatives, who are equipped with handheld computers in
order to enhance the timeliness and accuracy of its information-gathering
services.
DSI's third-party clients include Hachette, which publishes Woman's Day,
Woman's Day Specials, Elle and Mirabella; Gruner & Jahr USA/Publishing, which
publishes Family Circle, Family Circle Specials, McCall's, Fitness, Parents and
YM; Wenner Media, Inc., which publishes US Magazine, Rolling Stone Magazine and
Men's Journal; Newsweek, Inc., which publishes Newsweek; and Rodale Press, Inc.,
which publishes Prevention and Prevention Guides.
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DSI's third-party contracts to provide marketing and merchandising services
to third-party clients in the publishing industry generated approximately $13.6
million in revenues in fiscal 1999, as compared to $14.5 million and $12.5
million in fiscal 1998 and fiscal 1997, respectively. We believe DSI has
significant potential for further expansion. In addition to potential expansion
in the publishing industry, DSI is beginning to expand its client base for its
merchandising and information-gathering services. For example, DSI is exploring
opportunities for its field representatives to monitor a consumer product
company's promotions or stock levels with their handheld computers.
OTHER BUSINESSES
Through Frontline, we sell in-store advertising space to various product
manufacturers and other national advertisers. Frontline owns signage consisting
of elevated light displays at checkout counters in about 5,100 supermarkets and
considers itself a premier advertising vehicle for new products and front-end
brands. Frontline is responsible for maintaining the signage and pays retailers
commissions on advertising sales. We believe there may be additional benefits
from offering Frontline's in-store advertising in combination with advertising
in our publications. In fiscal 1999, revenues from Frontline were $6.3 million
or approximately 2.1% of total operating revenues.
We also publish pocket-sized books under the name Micro Mags covering such
topics as diets, horoscopes, health and psychic phenomena. Twelve releases are
published annually, each with 4 titles, at a current cover price of $1.49. In
fiscal 1999, revenues from Micro Mags were approximately $3.7 million, which
amount was included in circulation revenues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We also had ancillary sales (primarily licensing and syndication sales) of
$1.4 million in fiscal 1999.
COMPETITION
National Enquirer, Star, Weekly World News and Country Weekly compete in
varying degrees with other publications sold at retailers' checkout counters, as
well as forms of media concentrating on celebrity news, such as certain
newspapers, magazines and television and radio programs. We believe that
historical declines in single copy circulation of National Enquirer and Star
have resulted in part from increased competition from these publications and
forms of media. Competition for circulation is largely based upon the content of
the publication, its placement in retail outlets and, to a lesser extent, its
price. Competition for advertising revenues is largely based upon circulation
levels, readership, demographics, price and advertising results. Many of our
competitors have substantially larger operating staffs and greater capital
resources. In this respect, we may be at a competitive disadvantage with such
entities. We believe that currently our most significant direct competitors in
the print media are Time Warner Inc. (which publishes People, In Style and
Entertainment Weekly), Wenner Media, Inc. (which publishes US Magazine), TV
Guide, Inc. (which publishes TV Guide) and Globe Communications Corp. (which
publishes Globe, Sun and National Examiner). As use of the Internet and new
on-line ventures focusing on celebrity news increase, we may face new sources of
competition.
DSI competes with many other companies providing marketing and distribution
services, such as full-service national distributors, wholesalers and publishers
with their own marketing organizations. Certain of DSI's competitors have
substantially larger operating staffs and greater capital resources. In this
respect, DSI may be at a competitive disadvantage with such entities.
EMPLOYEE RELATIONS
We employ approximately 500 full-time employees and 1,550 part-time
employees. Approximately 1,680 of our employees, including almost all of our
part-time employees, work for DSI. None of our employees are represented by any
union or other labor organization. We have had no strikes or work stoppages
during the last five years. We believe that our relations with our employees are
good.
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PROPERTIES
We own our headquarters buildings which are located in Lantana, Florida.
The premises, which also houses the editorial staffs of National Enquirer,
Weekly World News and Country Weekly, consist of three one-story buildings with
an aggregate of 33,700 square feet located on approximately 7.6 acres.
We also lease 18,800 square feet in Tarrytown, New York for the editorial
staffs of Star, 8,200 square feet in New York, New York for advertising
personnel and 12,500 square feet in West Palm Beach, Florida for DSI. Various
other smaller properties are leased primarily in New York and California for
certain of our other operations. We believe that all of our properties are in
generally good condition and are adequate for current operations.
LEGAL PROCEEDINGS
We are involved in a number of litigation matters which have arisen in the
ordinary course of business. Because the focus of our publications often
involves controversial celebrities or subjects, the risk of defamation or
invasion of privacy litigation arises in the ordinary course of our business.
Our experience suggests that the claims for damages made in such lawsuits are
heavily inflated and, in any event, any reasonably foreseeable liability or
settlement would be covered by insurance. During the five fiscal years ended
March 29, 1999, we paid approximately $20 million in the aggregate for legal
fees (including prepublication review and litigation), litigation related
insurance premiums and, to a lesser extent, litigation settlements, including
amounts covered by insurance payments. We have not experienced any difficulty
obtaining such insurance and do not expect to experience any material difficulty
in the future. There are currently no claims pending that we believe would have
a material adverse effect on our operations.
Multiple sources as well as documentation are sought for all stories that
are potentially controversial or subject to dispute. In addition, because of
their high level of investigative reporting, we retain special libel counsel for
National Enquirer and Star to review, prior to publication, all sensitive
stories and celebrity news and photos. Before publishing book excerpts, we
generally obtain indemnification from the publisher, author and/or agent
concerning publication rights and defamation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Upon consummation of the transactions, the following individuals became the
directors and executive officers of our parent company, American Media, Inc.,
and the Company. All officers serve at the pleasure of the applicable Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
David J. Pecker...................... 47 Chairman, Chief Executive Officer, President and
Director of American Media, Inc. and the Company
Austin M. Beutner.................... 39 Director of American Media, Inc. and the Company
Neeraj Mital......................... 33 Director of American Media, Inc. and the Company
Saul D. Goodman...................... 31 Director of American Media, Inc. and the Company
Robert V. Seminara................... 27 Director of American Media, Inc. and the Company
Paul G. Yovovich..................... 45 Director of American Media, Inc. and the Company
Helene Belanger...................... 44 Director of American Media, Inc. and the Company
Brian J. Richmand.................... 45 Director of American Media, Inc. and the Company
J. William Grimes.................... 58 Director of American Media, Inc. and the Company
Peter A. Nelson...................... 43 Executive Vice President and Chief Financial Officer
of American Media, Inc. and the Company
Michael R. Roscoe.................... 52 Chief Executive Officer and President of DSI
</TABLE>
David J. Pecker became Chairman, Chief Executive Officer, President and a
Director of both American Media, Inc. and the Company upon consummation of the
transactions on May 7, 1999. Prior to that time, Mr. Pecker had been the Chief
Executive Officer since 1992, and President since 1991, of Hachette Filipacchi
Magazines, Inc. Prior to 1991, he was Executive Vice President/Publishing and
Chief Operating and Chief Financial Officer of Hachette. Mr. Pecker has over 20
years of publishing industry experience having worked as the Director of
Financial Reporting at CBS, Inc. Magazine Group and as the Vice President and
Controller of Diamandis Communications Inc.
Austin M. Beutner is a founding partner of Evercore. From 1994 to 1996, Mr.
Beutner was Chief Executive Officer and President of the U.S. Russia Investment
Fund, and in January 1997, Mr. Beutner was named Vice Chairman of its Board of
Directors. Before his affiliation with the U.S. Russia Investment Fund, he was a
General Partner of The Blackstone Group.
Neeraj Mital is a Managing Director of Evercore. Prior to joining Evercore,
Mr. Mital was at The Blackstone Group from 1992 to 1998, most recently as a
Managing Director. Prior to joining The Blackstone Group, he was at Salomon
Brothers Inc.
Saul D. Goodman is a Vice President of Evercore. Prior to joining Evercore,
Mr. Goodman was an investment banker at Lehman Brothers, Inc. from 1994 to 1998,
most recently as a Vice President. Prior to that, Mr. Goodman was at Ark Asset
Management.
Robert V. Seminara is an Associate of Evercore. Prior to joining Evercore,
Mr. Seminara was a Financial Analyst at Lazard Freres & Co. LLC from 1994 to
1996.
Paul G. Yovovich is a private investor and an Operating Executive at
Evercore. From 1993 to 1996 he was President of Advance Ross Corporation, whose
primary business was international transactions services. Prior to 1993, Mr.
Yovovich held a variety of executive positions at Centel Corporation, most
recently as President of its Central Telephone Company unit. Mr. Yovovich is
currently a Director of 3Com Corporation, Comarco, Inc., APAC TeleServices,
Inc., the Van Kampen open end funds and several other private companies.
Helene Belanger is a Vice-President in the Private Investments Group of
Capital Communications CDPQ ("Capital Communications"). Ms. Belanger has been
affiliated with Capital Communications since
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<PAGE> 57
1990 holding various positions including the position of Director. Prior to her
affiliation with Capital Communications, Ms. Belanger was with the Royal Bank of
Canada, occupying various positions in the commercial loans sector, and at the
Federal Business Development Bank. Ms. Belanger is a corporate director sitting
on the Board of Directors of NetStar Communications, CFCF-12 and Groupe
Coscient.
Brian J. Richmand is a General Partner at Chase Capital Partners ("Chase
Capital"). Prior to joining Chase Capital, Mr. Richmand was a Partner at the law
firm of Kirkland & Ellis from 1985 to 1993 where he primarily represented
leveraged buyout and venture capital funds. Mr. Richmand currently serves on the
boards of Riverwood International Corp., La Petite Academy, Transtar Metals and
Reiman Publishing.
J. William Grimes is a Member of BG Media Investors, LLC. Prior to joining
BG Media Investors, Mr. Grimes served from 1994 to 1997 as a media and
communications consultant to several high-tech new media companies and is a
principal of Incontext, Inc., a Washington, D.C.-based information database
company. From 1994 to September 1996, Mr. Grimes was Chief Executive Officer and
President of Zenith Media, USA. Before 1994, Mr. Grimes served in senior
positions at several media companies, including Chief Executive Officer and
President of Multimedia, Inc., Chief Executive Officer and President of
Univision American Media, Inc. and Chief Executive Officer and President of
ESPN.
Peter A. Nelson joined the Company in 1989 and was promoted to his current
position as Executive Vice President and Chief Financial Officer in January
1999. Prior to his promotion, Mr. Nelson held the position of Vice President,
Controller and Chief Accounting Officer.
Michael R. Roscoe joined the Company in 1984 and was promoted to President
of DSI in 1986. In December 1995, Mr. Roscoe was promoted to his current
position as President and Chief Executive Officer of DSI.
COMPENSATION OF EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------- OTHER ANNUAL SHARES ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) COMPENSATION ($)
- ------------------ ------ ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Callahan(1)................ 1999 350,000(2) -0-(2) -0- -- 690,630(2)(3)
Chairman, President, Chief 1998 350,000(2) 198,500(2) -0- -- 659,271
Executive Officer 1997 350,000(2) 341,000(2) -0- -- 657,967
Michael Boylan(1)................... 1999 300,000(2) -0-(2) -0- -- 279,970(2)(3)
Vice Chairman, Publishing 1998 300,000(2) 99,250(2) -0- -- 283,011
Operations 1997 300,000(2) 170,500(2) -0- -- 282,679
Maynard Rabinowitz(1)............... 1999 300,000(2) -0-(2) -0- -- 312,817(2)(3)
Vice Chairman, Finance, 1998 300,000(2) 99,250(2) -0- -- 283,821
Administration and Legal Affairs, 1997 300,000(2) 170,500(2) -0- -- 290,154
and Secretary
Anthony S. Hoyt(1).................. 1999 500,000 -0- -0- -- 40,444(3)
Senior Vice President and 1998 500,000 -0- -0- -- 29,721
Publisher, National Enquirer and
Star 1997 500,000 -0- -0- 25,000(4) 21,389
Michael R. Roscoe................... 1999 296,193 37,000 -0- 50,000(4) 18,472(3)
Chief Executive Officer and 1998 250,000 -0- -0- 25,000(4) 58,095
President of DSI 1997 230,289 46,000 -0- 25,000(4) 10,413
</TABLE>
- ---------------
(1) Upon consummation of the transactions on May 7, 1999, Messrs, Callahan,
Boylan and Rabinowitz resigned from their respective executive positions
with us and American Media, Inc. Mr. Hoyt resigned from his executive
position as of May 17, 1999.
(2) Includes management fees as a component of compensation for serving as
executive officers of the Company and American Media, Inc. Under the terms
of a former compensation plan, Messrs. Callahan, Boylan and Rabinowitz
received a base salary and the management fee. The base salaries were
$350,000, $300,000 and $300,000, respectively, for Messrs. Callahan, Boylan
and Rabinowitz. The management fees, which were in addition to the base
salary, were divided into two
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<PAGE> 58
components. The first component consisted of cash payments of $650,000 to
Mr. Callahan and $275,000 to each of Messrs. Boylan and Rabinowitz. The
second component was based upon the Company's operating results and was
distributed 50% to Mr. Callahan and 25% to each of Messrs. Boylan and
Rabinowitz.
(3) Includes for fiscal 1999 the following: profit sharing contributions
allocated under our employee profit sharing plan of $3,530 for each of
Messrs. Callahan, Boylan, Rabinowitz, Hoyt and Roscoe; payments for life
insurance of $2,700 for Mr. Callahan, $1,440 for Mr. Boylan, $2,250 for Mr.
Rabinowitz, $4,915 for Mr. Hoyt and $1,246 for Mr. Roscoe; reimbursements of
country club memberships in the amount of $34,400 and $20,000, respectively,
for Messrs. Callahan and Rabinowitz; and proceeds form the exercise of
common stock options totaling $11,937 by Mr. Roscoe.
(4) Upon consummation of the transactions on May 7, 1999, Messrs. Hoyt and
Roscoe received $7 for each underlying share of common stock represented by
their options. After deducting the exercise price of the underlying stock
options, Messrs. Hoyt and Roscoe received net proceeds of $106,250 and
$167,709, respectively.
Compensation for our executive officers after consummation of the
transactions is not materially different from its historical compensation
levels, other than Mr. Pecker's compensation, which is described below.
All of our common stock is owned by American Media, Inc. and all of
American Media, Inc.'s common stock is owned by EMP Group L.L.C. Equity
interests in EMP Group L.L.C. are held by investors, including Mr. Pecker. For a
discussion of the distributions Mr. Pecker may receive as the owners of certain
units in EMP Group L.L.C. as compensation for their employment, see "Certain
Relationships and Related Transactions."
Our executive officers are elected by our Board of Directors and serve at
the discretion of our Board of Directors or pursuant to an employment agreement.
American Media, Inc. is a party to an employment agreement with Mr. Pecker which
has a five-year term expiring May 6, 2004, and, after the initial term, will be
automatically extended each year for successive one-year periods, unless either
party provides 60 days' prior written notice before the next extension date. The
employment agreement also provides that, upon termination of Mr. Pecker's
employment with Hachette, EMP Group L.L.C. is obligated to make payments related
to compensation forfeited upon such termination (the "Make-Whole Payments"). The
Make-Whole Payments, in the aggregate, equal approximately $4.0 million, a
portion of which was paid upon Mr. Pecker's termination of employment with
Hachette on March 31, 1999, and the remaining portion of which shall be payable
on April 15, 2000. During his term of employment, Mr. Pecker shall be entitled
to a base salary equal to $1,500,000 per annum and certain other customary
employee benefits.
Upon termination of employment by American Media, Inc. without cause or by
Mr. Pecker for good reason, Mr. Pecker shall be entitled to the following
subject to certain restrictions: (a) continued payment of base salary and
continued health, life insurance and disability benefits; (b) immediate vesting
of plan benefits; (c) outplacement services for twelve months following such
termination; (d) a golden parachute excise tax gross-up payment, if applicable,
in connection with a "change of control" (as defined in the employment
agreement); (e) any unpaid portion of the Make-Whole Payments; and (f) such
employee benefits as to which Mr. Pecker may be entitled under the employee
benefit plans and arrangements of American Media, Inc.
During fiscal 1999, the Company's outside directors received an annual
retainer of $25,000, plus $2,500 for each Board meeting and committee meeting
(held other than on the date of a Board meeting) attended. In addition, the
Company reimbursed all directors for travel and out-of-pocket expenses incurred
in connection with Board or committee meetings and otherwise with respect to
their duties as directors.
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OUTSTANDING VOTING SECURITIES
All of our common stock is owned by American Media, Inc. and all of
American Media, Inc.'s common stock is owned by EMP Group L.L.C. Equity
interests in EMP are owned by Evercore and certain other investors. Other
members of management are expected to acquire equity interests in American
Media, Inc. Pursuant to a LLC agreement, Evercore has control over EMP, American
Media, Inc. and the Company by virtue of its right to appoint a majority of the
Board of Managers of EMP and a majority of the Board of Directors of American
Media, Inc., irrespective of the amount of Evercore's equity interests in EMP.
See "Certain Relationships and Related Transactions." Certain other investors
each have the right to appoint one member of the Board of Managers of EMP and
the Board of Directors of American Media, Inc. subject to certain conditions
such as ownership of units in EMP.
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<PAGE> 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of their investment in EMP Group L.L.C., Evercore and certain other
investors have entered into a LLC agreement. Interests in EMP are represented by
units of various classes. Evercore and the other investors, including Mr.
Pecker, own Class A units. Class A units are the only units with voting power.
Other classes of units, one class of which has been issued to Mr. Pecker and
other members of management, are eligible to share in the profits of EMP, pro
rata, after all the holders of the Class A units have received the return of
their aggregate investment in the Class A units. Mr. Pecker also has been issued
units which will vest and share in the profits of EMP, pro rata, only in certain
circumstances.
The units of EMP are exchangeable for the common stock of American Media,
Inc. under certain circumstances, including pursuant to demand and piggyback
registration rights granted to Evercore and the other investors under the LLC
agreement. The LLC agreement grants each investor certain demand registration
rights with respect to common stock of American Media, Inc., the exercise of
which, in general, is controlled by Evercore and grants unlimited piggyback
registration rights.
The LLC agreement provides that EMP will be managed by a Board of Managers,
a majority of which will be appointed by Evercore, irrespective of Evercore's
ownership interest. All actions by such Board of Managers are made by majority
vote except for transactions involving the transfer of EMP's assets to Evercore
or its affiliates and certain other specified corporate transactions. In
addition, Evercore has the right to appoint a majority of the Board of Directors
of American Media, Inc.
In general, the investors may not transfer their interests in EMP without
the consent of Evercore. Below a certain ownership percentage, if Evercore
transfers its units, all the other investors are required to transfer a pro rata
number of securities on the same terms as the Evercore transfer.
Pursuant to a Management Agreement, dated as of May 7, 1999, among Evercore
Advisors Inc., an affiliate of Evercore, and American Media, Inc., Evercore
Advisors will be paid an annual monitoring fee of $750,000 if the financial
performance of American Media, Inc. meets certain pre-determined targets. In
addition, pursuant to the Management Agreement, Evercore Advisors received, upon
the consummation of the merger, a financial advisory fee in an amount equal to
1% of the aggregate funds required to consummate the transactions. Pursuant to
the LLC agreement, we have reimbursed Evercore for all costs and expenses
incurred by Evercore and its affiliates in connection with the transactions,
which costs and expenses totaled $413,000.
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<PAGE> 61
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the new credit facility. Capitalized terms
used but not otherwise defined in this "Description of Other Indebtedness" shall
have the meaning to be ascribed to them in the new credit facility.
The new credit facility is provided by a syndicate of banks and other
financial institutions led by Chase, as administrative agent and collateral
agent, and Chase Securities Inc., as arranger. The new credit facility provides
senior secured financing of up to $400.0 million, consisting of a $100.0 million
seven-year tranche A term loan facility, a $240.0 million eight-year tranche B
term loan facility and a $60.0 million revolving credit facility.
The seven-year term loan facility and the eight-year term loan facility
amortize in quarterly amounts commencing July 1, 2001 based upon the annual
amounts shown below:
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B
TERM LOAN TERM LOAN
FACILITY FACILITY
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Fiscal Year 2002............................................ $ 7.5 $ 1.8
Fiscal Year 2003............................................ 13.7 2.4
Fiscal Year 2004............................................ 18.8 2.4
Fiscal Year 2005............................................ 23.7 2.4
Fiscal Year 2006............................................ 28.8 2.4
Fiscal Year 2007............................................ 7.5 171.6
Fiscal Year 2008............................................ -- 57.0
------ ------
Total....................................................... $100.0 $240.0
====== ======
</TABLE>
Principal amounts outstanding under the revolving credit facility will be due
and payable in full at maturity, approximately seven years after the
consummation of the transactions.
Our obligations under the new credit facility are unconditionally and
irrevocably guaranteed by American Media, Inc. and each of our domestic (and, to
the extent no adverse tax consequences would result, foreign) subsidiaries. In
addition, the new credit facility is secured by first priority or equivalent
security interests in substantially all tangible and intangible assets of
American Media, Inc., the Company and each of our existing and subsequently
acquired or organized domestic (and, to the extent no adverse tax consequences
would result, foreign) subsidiaries, including all the capital stock of, or
other equity interests in, the Company, each of our direct or indirect
subsidiaries and each of our subsequently acquired or organized direct or
indirect subsidiaries (which, in the case of a foreign subsidiary, shall in each
case be limited to 65% of such capital stock or equity interests, as the case
may be).
The new credit facility is subject to mandatory prepayment with, in
general, (a) 100% of the proceeds of asset sales, (b) 50% of the Company's
excess cash flow (as defined in the new credit facility), (c) 50% the proceeds
of equity offerings and (d) 100% of the proceeds from the issuance of debt
obligations.
The new credit facility will contain a number of covenants that, among
other things, restrict the ability of American Media, Inc., the Company and our
subsidiaries to dispose of assets, incur additional indebtedness, incur
guarantee obligations, repay other indebtedness, pay certain restricted payments
and dividends, create liens on assets, make investments, loans or advances, make
certain acquisitions, engage in mergers or consolidations, make capital
expenditures, enter into sale and leaseback transactions, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. In addition, under the new credit facility, we are required to
comply with specified financial ratios and tests, including
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<PAGE> 62
minimum fixed charge coverage and interest coverage ratios and maximum leverage
ratios. The new credit facility also contains certain customary events of
default.
11 5/8% SENIOR SUBORDINATED NOTES
In connection with the merger, we commenced on March 1, 1999, a debt tender
offer for our 11 5/8% Senior Subordinated Notes due 2004.
The 11 5/8% senior subordinated notes were issued under an indenture, dated
as of November 21, 1994, between the Company and United States Trust Company of
New York, as trustee. The 11 5/8% senior subordinated notes are unsecured senior
subordinated obligations of the Company, are limited to $200.0 million aggregate
principal amount, will mature on November 15, 2004, and bear interest at the
rate of 11 5/8% per annum, payable semi-annually on May 15 and November 15 of
each year. The 11 5/8% senior subordinated notes are redeemable, in whole or in
part, at our option, at any time on and after November 15, 1999, at redemption
prices (expressed as percentages of the principal amount redeemed), plus accrued
interest to the redemption date, if redeemed during the twelve-month period
commencing on November 15 in the years set forth below:
<TABLE>
<S> <C>
1999....................................................... 104.359%
2000....................................................... 102.906%
2001....................................................... 101.453%
2002 and thereafter........................................ 100.000%
</TABLE>
An aggregate principal amount of $740,000 of our 11 5/8% senior
subordinated notes were not tendered in the debt tender offer and remain
outstanding and are general unsecured obligations of the Company.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into an exchange and registration rights agreement with the
initial purchaser of the old notes in which we agreed, under certain
circumstances, to file a registration statement relating to an offer to exchange
the old notes for exchange notes. We also agreed to use our reasonable best
efforts to cause such offer to be consummated within 195 days following the
original issue of the old notes. The exchange notes will have terms
substantially identical to the old notes except that the exchange notes will not
contain terms with respect to transfer restrictions, registration rights and
liquidated damages for failure to observe certain obligations in the exchange
and registration rights agreement. The old notes were issued on May 7, 1999.
Under the circumstances set forth below, we will use our reasonable best
efforts to cause the SEC to declare effective a shelf registration statement
with respect to the resale of the old notes and keep the statement effective for
up to two years after the effective date of the shelf registration statement.
These circumstances include:
- if pursuant to any changes in law, SEC rules or regulations or applicable
interpretations thereof by the staff of the SEC do not permit us to
effect the exchange offer as contemplated by the exchange and
registration rights agreement;
- if any old notes validly tendered in the exchange offer are not exchanged
for exchange notes within 195 days after the original issue of the old
notes;
- if the initial purchaser of the old notes so requests (but only with
respect to any old notes not eligible to be exchanged for exchange notes
in the exchange offer); or
- if any holder of the old notes notifies the Issuer that it is not
permitted to participate in the exchange offer or would not receive fully
tradable exchange notes pursuant to the exchange offer.
If we fail to comply with certain obligations under the exchange and
registration rights agreement, we will be required to pay liquidated damages to
holders of the old notes.
Each holder of old notes that wishes to exchange such old notes for
transferable exchange notes in the exchange offer will be required to make the
following representations:
- any exchange notes will be acquired in the ordinary course of its
business;
- such holder has no arrangement with any person to participate in the
distribution of the exchange notes; and
- such holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an affiliate, that it will
comply with applicable registration and prospectus delivery requirements
of the Securities Act.
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for old notes may be offered for resale, resold
and otherwise transferred by any exchange note holder without compliance with
the registration and prospectus delivery provisions of the Securities Act, if:
- such holder is not an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act;
- such exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such
exchange notes.
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Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- cannot rely on the position of the staff of the SEC enunciated in "Exxon
Capital Holdings Corporation" or similar interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired the
old notes as a result of market-making activities or other trading activities
may participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Please read the section
captioned "Plan of Distribution" for more details regarding the transfer of
exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, the Company will accept for exchange any old
notes properly tendered and not withdrawn prior to the expiration date. The
Company will issue $1,000 principal amount of exchange notes in exchange for
each $1,000 principal amount of old notes surrendered under the exchange offer.
Old notes may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the old notes except the exchange notes will be registered
under the Securities Act, will not bear legends restricting their transfer and
will not provide for any liquidated damages upon failure of the Company to
fulfill its obligations under the exchange and registration rights agreement to
file, and cause to be effective, a registration statement. The exchange notes
will evidence the same debt as the old notes. The exchange notes will be issued
under and entitled to the benefits of the same indenture that authorized the
issuance of the old notes. Consequently, both series will be treated as a single
class of debt securities under that indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $250.0 million aggregate principal
amount of the old notes are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of old notes. There will be
no fixed record date for determining registered holders of old notes entitled to
participate in the exchange offer.
The Company intends to conduct the exchange offer in accordance with the
provisions of the exchange and registration rights agreement, the applicable
requirements of the Securities Act and the Securities Exchange Act of 1934 and
the rules and regulations of the SEC. Old notes that are not tendered for
exchange in the exchange offer will remain outstanding and continue to accrue
interest and will be entitled to the rights and benefits such holders have under
the indenture relating to the old notes.
The Company will be deemed to have accepted for exchange properly tendered
old notes when it has given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the exchange notes from the Company and delivering
exchange notes to such holders. Subject to the terms of the exchange and
registration rights agreement, the Company expressly reserves the right to amend
or terminate the exchange offer, and not to accept for exchange any old notes
not previously accepted for exchange, upon the occurrence of any of the
conditions specified below under the caption "-- Certain Conditions to the
Exchange Offer."
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Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes. The
Company will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the exchange offer. It is important that you
read the section labeled "-- Fees and Expenses" below for more details regarding
fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
September 2, 1999, unless in its sole discretion, the Company extends it.
In order to extend the exchange offer, the Company will notify the exchange
agent orally or in writing of any extension. The Company will notify the
registered holders of old notes of the extension no later than 9:00 a.m., New
York City time, on the business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion:
- to delay accepting for exchange any old notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept old notes not previously accepted if any of the
conditions set forth below under "-- Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
deal, extension or termination to the exchange agent; or
- subject to the terms of the exchange and registration rights agreement,
to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of old notes. If the Company amends the exchange offer in a
manner that it determines to constitute a material change, it will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of old notes of such amendment.
Without limiting the manner in which it may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, the Company will not be
required to accept for exchange, or exchange any exchange notes for, any old
notes, and it may terminate the exchange offer as provided in this prospectus
before accepting any old notes for exchange if in its reasonable judgment:
- the exchange notes to be received will not be tradable by the holder,
without restriction under the Securities Act, the Securities Exchange Act
of 1934 and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United States;
- the exchange offer, or the making of any exchange by a holder of old
notes, would violate applicable law or any applicable interpretation of
the staff of the SEC; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the exchange offer.
In addition, the Company will not be obligated to accept for exchange the
old notes of any holder that has not made to the Company:
- the representations described under "-- Purpose and Effect of the
Exchange Offer," "-- Procedures for Tendering" and "Plan of
Distribution"; and
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- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
it an appropriate form for registration of the exchange notes under the
Securities Act.
The Company expressly reserves the right, at any time or at various times,
to extend the period of time during which the exchange offer is open.
Consequently, the Company may delay acceptance of any old notes by giving oral
or written notice of such extension to their holders. During any such
extensions, all old notes previously tendered will remain subject to the
exchange offer, and the Company may accept them for exchange. The Company will
return any old notes that it does not accept for exchange for any reason without
expense to their tendering holder as promptly as practicable after the
expiration or termination of the exchange offer.
The Company expressly reserves the right to amend or terminate the exchange
offer, and to reject for exchange any old notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the old notes as
promptly as practicable. In the case of any extension, such notice will be
issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
These conditions are for the sole benefit of the Company and the Company
may assert them regardless of the circumstances that may give rise to them or
waive them in whole or in part at any or at various times in its sole
discretion. If the Company fails at any time to exercise any of the foregoing
rights, this failure will not constitute a waiver of such right. Each such right
will be deemed an ongoing right that the Company may assert at any time or at
various times.
In addition, the Company will not accept for exchange any old notes
tendered, and will not issue exchange notes in exchange for any such old notes,
if at such time any stop order will be threatened or in effect with respect to
the registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of old notes may tender such old notes in the exchange offer.
To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to
the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive old notes along with the letter of
transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such old notes into the exchange
agent's account at DTC according to the procedures for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "-- Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
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The method of delivery of old notes, the letter of transmittal and all
other required documents to the exchange agent is at the holder's election and
risk. Rather than mail these items, the Company recommends that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or old notes to the
Company. Holders may request their respective brokers, dealers, commercial
banks, trust companies or other nominees to effect the above transactions for
them.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owners' behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its old notes either:
- make appropriate arrangements to register ownership of the old notes in
such owner's name; or
- obtain a properly completed bond power from the registered holder of old
notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible institution" within the meaning of Rule 17Ad-15
under the Exchange Act, unless the old note tendered pursuant thereto are
tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed on the old notes, such old notes must
be endorsed or accompanied by a properly completed bond power. The bond power
must be signed by the registered holder as the registered holder's name appears
on the old notes and an eligible institution must guarantee the signature on the
bond power.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by the Company, they
should also submit evidence satisfactory to the Company of their authority to
deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the old notes to the exchange agent in
accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent. The term "agent's message" means a message
transmitted by DTC, received by the exchange agent and forming part of the
book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering old notes that are the
subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of the
letter of transmittal (or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery); and
- the agreement may be enforced against such participant.
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The Company will determine in its sole discretion all questions as to the
validity, form, eligibility (including time of receipt), acceptance of tendered
old notes and withdrawal of tendered old notes. The Company's determination will
be final and binding. The Company reserves the absolute right to reject any old
notes not properly tendered or any old notes the acceptance of which would, in
the opinion of the Company's counsel, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular old notes. The Company's interpretation of the terms and conditions
of the exchange offer (including the instructions in the letter of transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of old notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
holders of defects or irregularities with respect to tenders of old notes,
neither the Company, the exchange agent nor any other person will incur any
liability for failure to give such notification. Tenders of old notes will not
be deemed made until such defects or irregularities have been cured or waived.
Any old notes received by the exchange agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned to the exchange agent without cost to the tendering holder, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In all cases, the Company will issue exchange notes for old notes that it
has accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- old notes or a timely book-entry confirmation of such old notes into the
exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the letter of transmittal, each tendering holder of old notes
will represent to the Company that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
- if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange notes;
- if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for old notes that were acquired as a result of
market-making activities, that it will deliver a prospectus, as required
by law, in connection with any resale of such exchange notes; and
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or, if the holder is an affiliate, it will
comply with any applicable registration and prospectus delivery
requirements of the Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus; and any financial institution participation in DTC's
system may make book-entry delivery of old notes by causing DTC to transfer such
old notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Holders of old notes who are unable to deliver
confirmation of the book-entry tender of their old notes into the exchange
agent's account at DTC or all other documents of transmittal to the exchange
agent on or prior to the expiration date must tender their old notes according
to the guaranteed delivery procedures described below.
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GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their old notes but whose old notes are not
immediately available or who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's Automated Tender Offer Program prior to
the expiration date may tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed notice
of guaranteed delivery (by facsimile transmission, mail or hand delivery)
or a properly transmitted agent's message and notice of guaranteed
delivery:
- setting forth the name and address of the holder, the registered
number(s) of such old notes and the principal amount of old notes
tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or
facsimile thereof) together with the old notes or a book-entry
confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered old notes
in proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three (3) New
York State Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "-- Exchange Agent", or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
- specify the name of the person who tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn (including the principal amount of
such old notes); and
- where certificates for old notes have been transmitted, specify the name
in which such old notes were registered, if different from that of the
withdrawing holder.
If certificates for old notes have been delivered or otherwise identified
to the exchange agent, then, prior to the release of such certificates, the
withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
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If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility. The Company will
determine all questions as to the validity, form and eligibility (including time
of receipt) of such notices, and our determination shall be final and binding on
all parties. The Company will deem any old notes so withdrawn not to have
validity tendered for exchange for purposes of the exchange offer. Any old notes
that have been tendered for exchange but that are not exchanged for any reason
will be returned to their holder without cost to the holder (or, in the case of
old notes tendered by book-entry transfer into the exchange agent's account at
DTC according to the procedures described above, such old notes will be credited
to an account maintained with DTC for old notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn old notes may be retendered by following one of the procedures
described under "-- Procedures for Tendering" above at any time on or prior to
the expiration date.
EXCHANGE AGENT
ChaseMellon Shareholder Services, L.L.C. has been appointed as exchange
agent for the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for the notice of guaranteed delivery to the
exchange agent addressed as follows:
<TABLE>
<S> <C>
For Delivery by Registered or Certified Mail: For Overnight Delivery Only:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Reorganization Department Reorganization Department
P.O. Box 3301 85 Challenger Road
South Hackensack, NJ 07606 Mail Stop -- Reorg
Ridgefield Park, NJ 07660
By Hand: By Facsimile Transmission
(for eligible institutions only):
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department (201) 296-4293
120 Broadway, 13th Floor Confirm facsimile by telephone only:
New York, NY 10271
(201) 296-4860
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, the Company may make additional
solicitations by telegraph, telephone or in person by its officers and regular
employees and those of our affiliates.
The Company has not retained any dealer-manager in connection with the
exchange offer and will not make any payments to broker-dealers or others
soliciting acceptances of the exchange offer. The Company will, however, pay the
exchange agent reasonable and customary fees for its services and reimburse it
for its related reasonable out-of-pocket expenses.
The Company will pay the cash expenses to be incurred in connection with
the exchange offer. The expenses are estimated in the aggregate to be
approximately $200,000. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
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- related fees and expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of old notes under the exchange offer. The tendering holder, however, will be
required to pay any transfer taxes (whether imposed on the registered holder or
any other person) if:
- certificates representing old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of old notes
tendered;
- tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
Holders who tender their old notes for exchange will not be required to pay
any transfer taxes. However, holders who instruct the Company to register
exchange notes in the name of, or request that old notes not tendered or not
accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be required to pay any applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for exchange notes
under the exchange offer will remain subject to the restrictions on transfer of
such old notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the old notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the old notes.
In general, you may not offer or sell the old notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the exchange and registration rights agreement, the
Company does not intend to register resales of the old notes under the
Securities Act. Based on interpretations of the SEC staff, exchange notes issued
pursuant to the exchange offer may be offered for resale, resold or otherwise
transferred by their holders (other than any such holder that is our "affiliate"
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that the holders acquired the exchange notes in the ordinary course of
the holders' business and the holders have no arrangement or understanding with
respect to the distribution of the exchange notes to be acquired in the exchange
offer. Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the exchange notes:
- could not rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
The Company will record the exchange notes in its accounting records at the
same carrying value as the old notes, which is the aggregate principal amount,
as reflected in our accounting records on the date
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of exchange. Accordingly, the Company will not recognize any gain or loss for
accounting purposes in connection with the exchange offer. The Company will
record the expenses of the exchange offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
The Company may in the future seek to acquire untendered old notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any old notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
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DESCRIPTION OF THE NOTES
GENERAL
The Company issued the old notes and will issue the exchange notes under an
indenture dated as of May 7, 1999, among the Company, the Note Guarantors and
The Chase Manhattan Bank, as trustee (the "Trustee"), a copy of which is
available upon request to the Company.
The indenture contains provisions which define your rights under the
exchange notes. In addition, the indenture governs the obligations of the
Company and of each Note Guarantor under the exchange notes. The terms of the
exchange notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended.
On May 7, 1999, the Company issued $250.0 million aggregate principal
amount of old notes under the indenture. The terms of the exchange notes are
identical in all material respects to the old notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
old notes for the exchange notes. The Trustee will authenticate and deliver
exchange notes for original issue only in exchange for a like principal amount
of old notes. Any old notes that remain outstanding after the consummation of
the exchange offer, together with the exchange notes, will be treated as a
single class of securities under the indenture. Accordingly, all references in
this section to specified percentages in aggregate principal amount of the
outstanding exchange notes shall be deemed to mean, at any time after the
exchange offer is consummated, such percentage in aggregate principal amount of
the old notes and exchanges then outstanding.
Certain of the Company's Subsidiaries will guarantee the exchange notes and
therefore will be subject to many of the provisions contained in this
"Description of the Notes." Each Subsidiary which guarantees the exchange notes
is referred to in this section as a "Note Guarantor." Each such guarantee is
termed a "Note Guarantee."
Definitions of certain terms used in this section may be found under the
heading "Certain Definitions." For purposes of this section, the term "Company"
refers only to American Media Operations, Inc. and not any of its Subsidiaries.
The following description is meant to be only a summary of certain provisions of
the indenture. It does not restate the terms of the indenture in their entirety.
We urge that you carefully read the indenture as it, and not this description,
governs your rights as Holders.
OVERVIEW OF THE NOTES AND THE NOTE GUARANTEES
The Notes
These notes:
- are general unsecured obligations of the Company;
- will rank equal in right of payment with all existing and future Senior
Subordinated Indebtedness of the Company;
- are subordinated in right of payment to all future Senior Indebtedness of
the Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company; and
- will be effectively subordinated to any Secured Indebtedness of the
Company and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness.
The Note Guarantees
These notes are guaranteed by each of the following subsidiaries of the
Company:
National Enquirer, Inc.
Star Editorial, Inc.
SOM Publishing Inc.
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Weekly World News, Inc.
Country Weekly, Inc.
Distribution Services, Inc.
Fairview Printing, Inc.
NDSI, Inc.
Biocide, Inc.
Health Xtra, Inc.
Retail Marketing Network, Inc.
American Media Marketing, Inc.
Marketing Services, Inc.
The Note Guarantees:
- are general unsecured obligations of each Note Guarantor;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of each Note Guarantor;
- are senior in right of payment to any future Subordinated Obligations of
each Note Guarantor; and
- will be effectively subordinated to any Secured Indebtedness of each Note
Guarantor to the extent of the value of the assets securing such
Indebtedness.
These notes will not be guaranteed by Frontline Marketing Inc., a Delaware
corporation ("Frontline"), an 80% owned subsidiary of the Company. On a pro
forma basis, as of and for the fiscal year ended March 29, 1999, Frontline would
have had total liabilities, including trade payables, of $1.4 million (excluding
liabilities owed to the Company), would have accounted for 0.5% of the Company's
assets and would have generated 2.3% of the Company's operating revenues and
1.1% of its EBITDA.
PRINCIPAL, MATURITY AND INTEREST
We issued the old notes in an aggregate principal amount of $250.0 million
on May 7, 1999. The notes will mature on May 1, 2009. The notes are in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000.
Each note bears interest at a rate of 10 1/4% beginning on May 7, 1999, or
from the most recent date to which interest has been paid or provided for. We
pay interest semi-annually to Holders at the close of business on the April 15
or October 15 immediately preceding the interest payment date on May 1 and
November 1 of each year.
We also will pay liquidated damages to Holders of the notes if we fail to
file a registration statement relating to the exchange notes or if the
registration statement is not declared effective on a timely basis or if certain
other conditions are not satisfied.
PAYING AGENT AND REGISTRAR
The payment of principal, premium, if any, and interest on the notes is
payable at any office of ours or any agency designated by us. We have initially
designated the corporate trust office of the Trustee to act as our agent in such
matters. The location of the corporate trust office is 1201 Main Street, 18th
Floor, Dallas, Texas 75202. We, however, reserve the right to pay interest to
Holders by check mailed directly to Holders at their registered addresses.
Holders may exchange or transfer their notes at the same location given in
the preceding paragraph. No service charge will be made for any registration of
transfer or exchange of exchange notes. We, however, may require Holders to pay
any transfer tax or other similar governmental charge payable in connection with
any such transfer or exchange.
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OPTIONAL REDEMPTION
Except as set forth in the following paragraph, we may not redeem the notes
prior to May 1, 2004. After this date, we may redeem the notes, in whole or in
part, on not less than 30 nor more than 60 days' prior notice, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest and liquidated damages thereon, if any, to the redemption
date (subject to the right of Holders on the relevant record date to receive
interest due on the relevant interest payment date), if redeemed during the
twelve-month period commencing on May 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2004...................................................... 105.125%
2005...................................................... 103.417%
2006...................................................... 101.708%
2007 and thereafter....................................... 100.000%
</TABLE>
Prior to May 1, 2002, we may, on one or more occasions, also redeem up to a
maximum of 35% of the original aggregate principal amount of the notes with the
Net Cash Proceeds of one or more Equity Offerings (a) by the Company or (b) by
American Media, Inc. to the extent the Net Cash Proceeds thereof are contributed
to the Company or used to purchase Capital Stock (other than Disqualified Stock)
of the Company from the Company, at a redemption price equal to 110.25% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages thereon, if any, to the redemption date (subject to the right of Holders
on the relevant record date to receive interest due on the relevant interest
payment date); provided, however, that after giving effect to any such
redemption:
(a) at least 65% of the original aggregate principal amount of the
notes remains outstanding; and
(b) any such redemption by the Company must be made within 60 days of
such Equity Offering and must be made in accordance with certain procedures
set forth in the indenture.
SELECTION
If we partially redeem notes, the Trustee will select the notes to be
redeemed on a pro rata basis, by lot or by such other method as the Trustee in
its sole discretion shall deem to be fair and appropriate, although no note of
$1,000 in original principal amount or less will be redeemed in part. If we
redeem any note in part only, the notice of redemption relating to such note
shall state the portion of the principal amount thereof to be redeemed. A new
note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancelation of the original note. On and
after the redemption date, interest will cease to accrue on notes or portions
thereof called for redemption so long as we have deposited with the Paying Agent
funds sufficient to pay the principal of, plus accrued and unpaid interest and
liquidated damages thereon, if any, the notes to be redeemed.
RANKING
The notes will be unsecured Senior Subordinated Indebtedness of the
Company, will be subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, will rank equal in right of payment with all
existing and future Senior Subordinated Indebtedness of the Company and will be
senior in right of payment to all existing and future Subordinated Obligations
of the Company. The notes also will be effectively subordinated to any Secured
Indebtedness of the Company and its Subsidiaries to the extent of the value of
the assets securing such Indebtedness and to all liabilities of Frontline, the
Company's existing Subsidiary which will not be a Note Guarantor, as well as to
all liabilities of any future Subsidiaries which will not be Note Guarantors.
However, payment from the money or the proceeds of U.S. Government Obligations
held in any defeasance trust described below under the caption "-- Defeasance"
will not be subordinated to any Senior Indebtedness or subject to the
restrictions described herein.
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We currently conduct all of our operations through our Subsidiaries. The
Note Guarantees will be unsecured Senior Subordinated Indebtedness of the
applicable Note Guarantor, will be subordinated in right of payment to all
existing and future Senior Indebtedness of such Note Guarantor, will rank equal
in right of payment with all existing and future Senior Subordinated
Indebtedness of such Note Guarantor and will be senior in right of payment to
all existing and future Subordinated Obligations of such Note Guarantor. The
Note Guarantees also will be effectively subordinated to any Secured
Indebtedness of the applicable Note Guarantor to the extent of the value of the
assets securing such Secured Indebtedness.
Although the indenture will limit the Incurrence of Indebtedness by and the
issuance of preferred stock of certain of our subsidiaries, such limitation is
subject to a number of significant qualifications.
Assuming that the transactions had taken place on March 29, 1999, as of
such date we would have had outstanding:
(a) $352.0 million of Senior Indebtedness of the Company, all of which
would have been Secured Indebtedness (excluding unused commitments under
the Credit Agreement);
(b) $250.9 million of Senior Subordinated Indebtedness of the Company
(other than the notes) and no indebtedness of the Company that is
subordinate or junior in right of repayment to the notes;
(c) no Senior Indebtedness of the Note Guarantors (excluding their
Guarantees of Indebtedness of the Company under the Credit Agreement); and
(d) no Senior Subordinated Indebtedness of the Note Guarantors (other
than the Note Guarantees) and no Indebtedness of the Note Guarantors that
is subordinate or junior in right of payment to the Note Guarantees.
Although the amount of additional indebtedness we can incur is limited, we
may be able to incur substantial amounts of additional Indebtedness in certain
circumstances. Such Indebtedness may be Senior Indebtedness. See "-- Certain
Covenants -- Limitation on Indebtedness" below.
"Senior Indebtedness" of the Company or any Note Guarantor means the
principal of, premium (if any) and accrued and unpaid interest on (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization of the Company or any Note Guarantor, regardless of whether or
not a claim for post-filing interest is allowed in such proceedings), and fees
and other amounts owing in respect of, Bank Indebtedness and all other
Indebtedness of the Company or any Note Guarantor, whether outstanding on the
Closing Date or thereafter Incurred, unless in the instrument creating or
evidencing the same or pursuant to which the same is outstanding it is provided
that such obligations are not superior, or are subordinated, in right of payment
to the notes or such Note Guarantor's Note Guarantee; provided, however, that
Senior Indebtedness shall not include:
(a) any obligation of the Company to any Subsidiary of the Company or
of such Note Guarantor to the Company or any other Subsidiary of the
Company;
(b) any liability for Federal, state, local or other taxes owed or
owing by the Company or such Note Guarantor;
(c) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities);
(d) any Indebtedness or obligation of the Company or such Note
Guarantor (and any accrued and unpaid interest in respect thereof) that by
its terms is subordinate or junior in any respect to any other Indebtedness
or obligation of the Company or such Note Guarantor, including any Senior
Subordinated Indebtedness and any Subordinated Obligations;
(e) any obligations with respect to any Capital Stock; or
(f) any Indebtedness Incurred in violation of the indenture.
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Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the notes. The notes will rank equal in all respects with all other
Senior Subordinated Indebtedness of the Company. The Company will not Incur,
directly or indirectly, any Indebtedness which is subordinate or junior in
ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.
We may not pay principal of, premium (if any) or interest on the notes, or
make any deposit pursuant to the provisions described under "-- Defeasance"
below, and may not otherwise repurchase, redeem or otherwise retire any notes
(except that Holders may receive and retain (a) Permitted Junior Securities and
(b) payments made from the trust described under "-- Defeasance" below)
(collectively, "pay the notes") if:
(a) any Designated Senior Indebtedness is not paid when due, or
(b) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms
unless, in either case,
(i) the default has been cured or waived and any such acceleration has
been rescinded, or
(ii) such Designated Senior Indebtedness has been paid in full;
provided, however, that we may pay the notes without regard to the foregoing if
the Company and the Trustee receive written notice approving such payment from
the Representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (a) or (b) above has occurred and is
continuing.
During the continuance of any default (other than a default described in
clause (a) or (b) above) with respect to any Designated Senior Indebtedness of
the Company pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, we
may not pay the notes for a period (a "Payment Blockage Period") commencing upon
the receipt by the Trustee (with a copy to us) of written notice (a "Blockage
Notice") of such default from the Representative of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated:
(a) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice,
(b) by repayment in full of such Designated Senior Indebtedness, or
(c) because no defaults are continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the second preceding sentence),
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the notes after the end of such
Payment Blockage Period.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this paragraph, no default or event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the
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Designated Senior Indebtedness initiating such Payment Blockage Period shall be,
or be made, the basis of the commencement of a subsequent Payment Blockage
Period by the Representative of such Designated Senior Indebtedness, whether or
not within a period of 360 consecutive days, unless such default or event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
Upon any payment or distribution of the assets of the Company to creditors
upon a total or partial liquidation or a total or partial dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(a) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full of such Senior Indebtedness before the Holders
are entitled to receive any payment of principal of or interest on the
notes; and
(b) until such Senior Indebtedness is paid in full any payment or
distribution to which Holders would be entitled but for the subordination
provisions of the indenture will be made to holders of such Senior
Indebtedness as their interests may appear (except that Holders may receive
and retain (i) Permitted Junior Securities and (ii) payments made from the
trust as described under "-- Defeasance" so long as, on the date or dates
the respective amounts were paid into the trust, such payments were made
with respect to the notes without violating the subordination provisions
described herein); if a distribution is made to Holders that due to the
subordination provisions of the indenture should not have been made to
them, such Holders will be required to hold it in trust for the holders of
Senior Indebtedness of the Company and pay it over to them as their
interests may appear.
If payment of the notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness of the Company (or their Representative) of the
acceleration. If any Designated Senior Indebtedness of the Company is
outstanding, the Company may not pay the notes until five Business Days after
such holders or the Representative of such Designated Senior Indebtedness
receive notice of such acceleration and, thereafter, may pay the notes only if
the subordination provisions of the indenture otherwise permit payment at that
time.
By reason of the subordination provisions of the indenture, in the event of
insolvency, creditors of the Company who are holders of Senior Indebtedness of
the Company may recover more, ratably, than the Holders, and creditors of the
Company who are not holders of Senior Indebtedness of the Company or of Senior
Subordinated Indebtedness of the Company (including the notes) may recover less,
ratably, than holders of Senior Indebtedness of the Company and Senior
Subordinated Indebtedness of the Company.
NOTE GUARANTEES
All of the Company's existing subsidiaries other than Frontline and certain
future subsidiaries of the Company (as described below), as primary obligors and
not merely as sureties, will jointly and severally irrevocably and
unconditionally Guarantee on an unsecured senior subordinated basis the
performance and full and punctual payment when due, whether at Stated Maturity,
by acceleration, by redemption or otherwise, of all obligations of the Company
under the indenture (including obligations to the Trustee) and the notes,
whether for payment of principal of or interest on or liquidated damages in
respect of the notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Note Guarantors being herein called the
"Guaranteed Obligations"). Such Note Guarantors will agree to pay, in addition
to the amount stated above, any and all costs and expenses (including reasonable
counsel fees and expenses) incurred by the Trustee or the Holders in enforcing
any rights under the Note Guarantees. Each Note Guarantee will be limited in
amount to an amount not to exceed the maximum amount that can be Guaranteed by
the applicable Note Guarantor without rendering the Note Guarantee, as it
relates to such Note Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. After the Closing Date, the Company will cause
each future Restricted Subsidiary organized under the laws of the United States
or any state or territory thereof to execute and deliver to the Trustee a
supplemental indenture pursuant to which such Restricted Subsidiary will
Guarantee payment of the notes. See "-- Certain Covenants -- Future Note
Guarantors" below.
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The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by a
Note Guarantor pursuant to its Note Guarantee will be subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Note Guarantor.
The terms of the subordination provisions described above with respect to the
Company's obligations under the notes apply equally to a Note Guarantor and the
obligations of such Note Guarantor under its Note Guarantee.
Each Note Guarantee is a continuing guarantee and shall (a) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon each Note Guarantor and its successors and (c) inure to the benefit
of, and be enforceable by, the Trustee, the Holders and their successors,
transferees and assigns.
A Note Guarantor shall be released from all obligations under its Note
Guarantee and under the indenture upon (a) the merger or consolidation of such
Note Guarantor with or into any Person other than the Company or a Subsidiary or
Affiliate of the Company where such Note Guarantor is not the surviving entity
of such consolidation or merger or (b) the sale or transfer by the Company or
any Subsidiary of the Company of the Capital Stock of such Note Guarantor (or by
any other Person as a result of a foreclosure of any Lien on such Capital Stock
securing Senior Indebtedness), where, after such sale or transfer, such Note
Guarantor is no longer a Subsidiary of the Company; provided, however, that each
such merger, consolidation, sale or transfer by the Company or such Subsidiary
or Affiliate (i) shall comply with the terms of the indenture, including the
covenant described under "-- Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock" or (ii) in the case of a sale or transfer as a result of a
foreclosure of any Lien securing Senior Indebtedness by the holder of such Lien,
the net proceeds therefrom shall be applied in compliance with the terms of the
indenture that would apply to a sale thereof by the Company.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest and liquidated
damages thereon, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that notwithstanding the
occurrence of a Change of Control, the Company shall not be obligated to
repurchase the notes pursuant to this section in the event that it has exercised
its right to redeem all the notes under the terms of the section titled
"-- Optional Redemption":
(a) prior to the earlier to occur of (i) the first public offering of
common stock of American Media, Inc. or (ii) the first public offering of
common stock of the Company, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of a majority in the aggregate of the total
voting power of the Voting Stock of the Company or American Media, Inc.,
whether as a result of issuance of securities of American Media, Inc. or
the Company, any merger, consolidation, liquidation or dissolution of
American Media, Inc. or the Company, any direct or indirect transfer of
securities by any Permitted Holder or otherwise (for purposes of this
clause (a) and clause (b) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
entity);
(b) (i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (a) above, except that
for purposes of this clause (b) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of
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the total voting power of the Voting Stock of the Company or American
Media, Inc. and (ii) the Permitted Holders "beneficially own" (as defined
in clause (a) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company or
American Media, Inc. than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of the Company or American
Media, Inc., as the case may be (for the purposes of this clause (b), such
other person shall be deemed to beneficially own any Voting Stock of a
specified entity held by a parent entity, if such other person is the
beneficial owner (as defined in this clause (b)), directly or indirectly,
of more than 35% of the voting power of the Voting Stock of such parent
entity and the Permitted Holders "beneficially own" (as defined in clause
(a) above), directly or indirectly, in the aggregate a lesser percentage of
the voting power of the Voting Stock of such parent entity and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
entity);
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the Company
or American Media, Inc., as the case may be (together with any new
directors whose election by such board of directors of the Company or
American Media, Inc., as the case may be, or whose nomination for election
by the shareholders of the Company or American Media, Inc., as the case may
be, was approved by a vote of 66 2/3% of the directors of the Company or
American Media, Inc., as the case may be, then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of the Company or American
Media, Inc., as the case may be, then in office;
(d) the adoption of a plan relating to the liquidation or dissolution
of the Company or American Media, Inc.;
(e) the merger or consolidation of the Company or American Media, Inc.
with or into another Person or the merger of another Person with or into
the Company or American Media, Inc., or the sale of all or substantially
all the assets of the Company or American Media, Inc. to another Person
(other than a Person that is controlled by the Permitted Holders), and, in
the case of any such merger or consolidation, the securities of the Company
or American Media, Inc. that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of the Company or American Media, Inc. are changed into or
exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition
to any other consideration, securities of the surviving Person or
transferee that represent immediately after such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the surviving
Person or transferee; or
(f) Evercore no longer has the direct or indirect power to appoint or
to approve the appointment of a majority of the managers of (or other
individuals comprising) the board of managers or other governing body of
EMP Group L.L.C.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control, the Company shall:
(a) repay in full all Bank Indebtedness or offer to repay in full all
Bank Indebtedness and repay the Bank Indebtedness of each lender who has
accepted such offer, or
(b) obtain the requisite consent under the agreements governing the
Bank Indebtedness to permit the repurchase of the notes as provided for in
the immediately following paragraph.
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Within 30 days following any Change of Control (unless the Company has
exercised its right to redeem the notes as described under "-- Optional
Redemption"), the Company shall mail a notice to each Holder with a copy to the
Trustee (the "Change of Control Offer") stating:
(a) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's notes at a purchase
price in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest and liquidated damages, if any, to the date of
repurchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date);
(b) the circumstances and relevant facts and financial information
regarding such Change of Control;
(c) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(d) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its notes purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Company and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness."
Such restrictions can only be waived with the consent of the Holders of a
majority in principal amount of the notes then outstanding.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the notes could cause a default
under such Senior Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited by
the Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the indenture relative to the Company's
obligation to make an offer to repurchase the notes as a result of a Change of
Control may be waived or modified with the written consent of the Holders of a
majority in principal amount of the notes.
With respect to the disposition of property or assets, the phrase "all or
substantially all" as used in the indenture varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which is the choice of law under the indenture) and is
subject
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to judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the property or assets of
a Person, and therefore it may be unclear as to whether a Change of Control has
occurred and whether the Company is required to make an offer to repurchase the
notes as described above.
CERTAIN COVENANTS
The indenture will contain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Note Guarantor may Incur Indebtedness
if on the date of such Incurrence and after giving effect thereto the Leverage
Ratio would be less than (a) 6.5:1 if Incurred on or prior to June 30, 2001 and
(b) 6.25:1 if Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Bank Indebtedness Incurred in an aggregate principal amount not to
exceed $400.0 million at any one time outstanding less the aggregate amount
of all mandatory prepayments, repayments, redemptions or purchases of
principal of such Indebtedness pursuant to the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock";
(ii) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary; provided, however, that (1) any
subsequent issuance or transfer of any Capital Stock or any other event
that results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or a Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof, (2)
if the Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the notes, (3) if a Restricted Subsidiary is
the obligor, any such Indebtedness is made pursuant to an intercompany
note; and (4) if a Note Guarantor is the obligor, such Indebtedness is
subordinated in right of payment to the Note Guarantee of such Note
Guarantor;
(iii) Indebtedness (1) represented by the notes and the Note
Guarantees, (2) outstanding on the Closing Date (other than the
Indebtedness described in clauses (i) and (ii) above), (3) consisting of
Refinancing Indebtedness Incurred in respect of any Indebtedness described
in this clause (iii) (including Refinancing Indebtedness) or the foregoing
paragraph (a) and (4) consisting of Guarantees by the Company or any Note
Guarantor of any Indebtedness permitted hereunder; provided that if such
Indebtedness is by its express terms subordinated in right of payment to
the notes or a Note Guarantee of a Note Guarantor, as applicable, any such
Guarantee with respect to such Indebtedness shall be subordinated in right
of payment to the notes or such Note Guarantor's Note Guarantee
substantially to the same extent as such Indebtedness is subordinated to
the notes or the Note Guarantee, as applicable;
(iv) (1) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration
in, or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Subsidiary of or was
otherwise acquired by the Company); provided, however, that on the date
that such Restricted Subsidiary is acquired by the Company, the Company
would have been able to Incur $1.00 of additional Indebtedness pursuant to
the foregoing paragraph (a) after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (iv) and
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(2) Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect
of Indebtedness Incurred by such Restricted Subsidiary pursuant to this
clause (iv);
(v) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any Note Guarantor, to finance the purchase, lease or
improvement of property (real or personal) or equipment (whether through
the direct purchase of assets or the Capital Stock of any Person owning
such assets) in an aggregate principal amount which, when aggregated with
the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (v) and including all Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (v) does not exceed 2% of
Total Assets;
(vi) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(vii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary of
the Company in accordance with the terms of the indenture, other than
Guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary of the Company for the
purpose of financing such acquisition; provided, however, that (1) such
Indebtedness is not reflected on the balance sheet of the Company or any
Restricted Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will
not be deemed to be reflected on such balance sheet for purposes of this
clause (1)) and (2) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including the Fair
Market Value of noncash proceeds (such Fair Market Value of such noncash
proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(viii) Hedging Obligations that are incurred in the ordinary course of
business (but in any event excluding Hedging Obligations entered into for
speculative purposes); provided, however, that such Hedging Obligations do
not increase the Indebtedness of the Company outstanding at any time other
than as a result of fluctuations in interest rates or currency exchange
rates or by reason of fees, indemnities and compensation payable
thereunder;
(ix) Obligations in respect of performance and surety bonds and
completion guarantees that are incurred by the Company or any Restricted
Subsidiary in the ordinary course of business;
(x) Indebtedness arising from honoring by a bank or other financial
institution of a check, draft or similar instrument (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is
extinguished within five business days; and
(xi) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of Incurrence
that, when added to all other Indebtedness Incurred pursuant to this clause
(xi) and then outstanding, shall not exceed $25.0 million (it being
understood that any Indebtedness incurred pursuant to this clause (xi)
shall cease to be deemed to be Incurred or outstanding for purposes hereof
but shall be deemed Incurred for purposes of paragraph (a) from and after
the first date on which the Company could have incurred such Indebtedness
under paragraph (a) without reliance on this clause (xi)).
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(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the notes to at least the same extent as such Subordinated
Obligations. The Company may not Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. In
addition, the Company may not Incur any Secured Indebtedness which is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the notes equally and ratably with (or on a senior basis to, in the case
of Indebtedness subordinated in right of payment to the notes) such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A
Note Guarantor may not Incur any Indebtedness if such Indebtedness is by its
terms expressly subordinate or junior in ranking in any respect to any Senior
Indebtedness of such Note Guarantor unless such Indebtedness is Senior
Subordinated Indebtedness of such Note Guarantor or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness of such Note Guarantor. In
addition, a Note Guarantor may not Incur any Secured Indebtedness that is not
Senior Indebtedness of such Note Guarantor unless contemporaneously therewith
effective provision is made to secure the Note Guarantee of such Note Guarantor
equally and ratably with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to such Note Guarantee) such Secured
Indebtedness for as long as such Secured Indebtedness is secured by a Lien.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant, (i) Indebtedness Incurred pursuant to the Credit
Agreement prior to or on the Closing Date shall be treated as Incurred pursuant
to clause (i) of paragraph (b) above, (ii) Indebtedness permitted by this
covenant need not be permitted solely by reference to one provision permitting
such Indebtedness but may be permitted in part by one such provision and in part
by one or more other provisions of this covenant permitting such Indebtedness
and (iii) in the event that Indebtedness meets the criteria of more than one of
the types of Indebtedness described in this covenant, the Company, in its sole
discretion, shall classify such Indebtedness and only be required to include the
amount of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) or similar payment to the
direct or indirect holders of its Capital Stock except dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and except dividends or distributions payable to the Company or
another Restricted Subsidiary (and, if such Restricted Subsidiary has
shareholders other than the Company or other Restricted Subsidiaries, to
its other shareholders on a pro rata basis),
(ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of American Media, Inc., the Company or any Restricted
Subsidiary held by Persons other than the Company or another Restricted
Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations (other than
the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition and other than Indebtedness described in clause
(ii) of paragraph (b) of the covenants described under "-- Limitation on
Indebtedness") or
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(iv) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein
referred to as a "Restricted Payment") if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default will have occurred and be continuing (or would result
therefrom);
(2) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (including, if the amount so expended is other than
in cash, the Fair Market Value of such Restricted Payments) declared or
made subsequent to the Closing Date would exceed the sum of, without
duplication:
(A) (i) 100% of EBITDA accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Closing
Date occurs to the end of the most recent fiscal quarter ending prior
to the date of such Restricted Payment for which financial statements
are available (or, in case such EBITDA during such period is a
deficit minus 100% of such deficit), minus (ii) 150% of Consolidated
Interest Expense accrued during the period (treated as one accounting
period) from the beginning of the fiscal quarter immediately
following the fiscal quarter during which the Closing Date occurs to
the end of the most recent fiscal quarter ending prior to the date of
such Restricted Payment for which financial statements are available;
(B) the aggregate Net Cash Proceeds and the Fair Market Value of
property or assets used or useful in a Permitted Business, in each
case received by the Company from capital contributions or the issue
or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Closing Date (other than an issuance or sale to (i)
a Subsidiary of the Company or (ii) an employee stock ownership plan
or other trust established by the Company or any of its Subsidiaries
to the extent such sale is financed by loans from or from
Indebtedness guaranteed by the Company unless such loans or
Indebtedness have been repaid with cash on or prior to the date of
determination);
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Closing Date of any Indebtedness of the
Company or its Restricted Subsidiaries issued after the Closing Date
which is convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
the Fair Market Value of other property distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange);
(D) 100% of the aggregate amount received in cash from (i) the
sale or other disposition (other than to the Company or a Restricted
Subsidiary) of Investments (other than Permitted Investments)
("Restricted Investments") made by the Company and its Restricted
Subsidiaries after the Closing Date and from repurchases and
redemptions of such Restricted Investments from the Company and its
Restricted Subsidiaries by any Person (other than the Company or any
of its Subsidiaries or Affiliates) and from repayments of loans or
advances which constituted Restricted Investments or (ii) the sale
(other than to the Company or a Subsidiary or an Affiliate) of the
Capital Stock of an Unrestricted Subsidiary, in an amount not to
exceed, in the case of any Unrestricted Subsidiary, the amount of
Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included
in the calculation of the amount of Restricted Payments; provided,
however, that no amount will be included in this clause (D) to the
extent it is already included in Consolidated Net Income; and
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(E) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) payments of dividends,
repayments of the principal of loans or advances or other transfers
of assets to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the calculation
of the amount of Restricted Payments; provided, however, that no
amount will be included in this clause (E) to the extent it is
already included in Consolidated Net Income.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase, repurchase, retirement or other acquisition or
retirement for value of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of the
Company or an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries to the extent such sale is financed
by loans from or from Indebtedness guaranteed by the Company unless such
loans or Indebtedness have been repaid with cash on or prior to the date of
determination); provided, however, that
(1) such Restricted Payment will be excluded in subsequent
calculations of the amount of Restricted Payments and
(2) the Net Cash Proceeds from such sale applied in the manner set
forth in this clause (i) will be excluded from the calculation of
amounts under clause (iv)(3)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company that is permitted to be
Incurred pursuant to the covenant described under "-- Limitation on
Indebtedness"; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value will be
excluded in subsequent calculations of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock"; provided, however,
that such purchase or redemption will be excluded in subsequent
calculations of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend will be included
in subsequent calculations of the amount of Restricted Payments;
(v) the repurchase or other acquisition of shares of, or options to
purchase shares of, Capital Stock of the Company or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to
the terms of agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; provided, however, that the aggregate amount
of such repurchases or acquisitions in any fiscal year of the Company shall
not exceed, together with the aggregate amount of all payments made under
clause (vi)(3) of this paragraph (b) below in such fiscal year, in the
aggregate $5.0 million, up to a maximum aggregate amount, together with the
aggregate amount of all payments made under clause (vi)(3) of this
paragraph (b) below, of $10.0 million during the term of
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the indenture; provided further, however, that such repurchases and other
acquisitions shall be included in subsequent calculations of the amount of
Restricted Payments;
(vi) the payment of dividends, other distributions or other amounts by
the Company for the purposes set forth in clauses (1) through (4) below;
provided, however, that such dividend, distribution or amount set forth in
clauses (1) through (4) shall be included in subsequent calculations of the
amount of Restricted Payments for the purposes of paragraph (a) above:
(1) to American Media, Inc. in amounts equal to the amounts
required for American Media, Inc. to pay franchise taxes and other fees
required to maintain its corporate existence and provide for other
operating costs of up to $2.0 million per fiscal year;
(2) to American Media, Inc. in amounts equal to amounts required
for American Media, Inc. to pay Federal, state and local income taxes to
the extent such income taxes are attributable to the income of the
Company and its Restricted Subsidiaries (and, to the extent of amounts
actually received from its Unrestricted Subsidiaries, in amounts
required to pay such taxes to the extent attributable to the income of
such Unrestricted Subsidiaries);
(3) to American Media, Inc. in amounts equal to amounts expended by
American Media, Inc. to repurchase Capital Stock of American Media, Inc.
owned by former employees of the Company or its Subsidiaries or their
assigns, estates and heirs; provided, however, that the aggregate amount
paid, loaned or advanced to American Media, Inc. pursuant to this clause
(3) in any fiscal year of the Company shall not exceed, together with
the aggregate amount of all payments made under clause (v) of this
paragraph (b) above during such fiscal year, in the aggregate, $5.0
million, up to a maximum aggregate amount, together with the aggregate
amount of all payments made under clause (v) of this paragraph (b)
above, of $10.0 million during the term of the indenture, plus any
amounts contributed by American Media, Inc. to the Company as a result
of resales of such repurchased shares of Capital Stock; and
(4) to American Media, Inc. in amounts required to pay the annual
monitoring fee to Evercore; provided, however, that the aggregate amount
paid, loaned or delivered to American Media, Inc. pursuant to this
clause (4) shall not, in the aggregate, exceed $750,000 per fiscal year;
(vii) the payment of dividends on the Company's common stock (or the
payment of dividends to American Media, Inc. to fund the payment by
American Media, Inc. of dividends on American Media, Inc.'s common stock)
following the first public offering of common stock of the Company or
American Media, Inc., as the case may be, after the Closing Date, of up to
6% per annum of the net proceeds received by the Company or contributed to
the Company by American Media, Inc. from such public offering; provided,
however, that (1) the aggregate amount of all such dividends shall not
exceed the aggregate amount of net proceeds received by the Company or
contributed to the Company by American Media, Inc. from such public
offering, (2) at the time of, and after giving effect to, any payment
permitted under this clause (vii), no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence thereof and
(3) any such payment shall be included in subsequent calculations of the
amount of Restricted Payments;
(viii) the declaration and payment of dividends or distributions to
holders of any class or series of Disqualified Stock of the Company or any
of its Restricted Subsidiaries issued or Incurred in accordance with the
covenant described under "-- Limitation on Indebtedness"; provided,
however, that such payments shall be excluded in subsequent calculations of
the amount of Restricted Payments; or
(ix) other Restricted Payments in an aggregate amount not to exceed
$20.0 million; provided, however, that at the time of, and after giving
effect to, any payment permitted under this clause (ix), no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof; and provided further that any such payment shall be
included in subsequent calculations of the amount of Restricted Payments.
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Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(a) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligations owed to the Company or any of
its Restricted Subsidiaries,
(b) make any loans or advances to the Company or any of the Restricted
Subsidiaries or
(c) transfer any of its property or assets to the Company or any of
its Restricted Subsidiaries, except:
(i) any encumbrance or restriction pursuant to applicable law or an
agreement in effect at or entered into on the Closing Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, in contemplation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
otherwise acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (i) or (ii) of this covenant or this
clause (iii) or contained in any amendment to an agreement referred to
in clause (i) or (ii) of this covenant or this clause (iii); provided,
however, that the encumbrances and restrictions contained in any such
Refinancing agreement or amendment are no less favorable, in the
aggregate, to the Holders than the encumbrances and restrictions
contained in such predecessor agreements;
(iv) in the case of clause (c), any encumbrance or restriction
(1) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or
(2) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security
agreements;
(v) with respect to a Restricted Subsidiary, any restriction
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition; and
(vi) in the case of clause (c), any encumbrance or restriction
pursuant to any agreement relating to Purchase Money Indebtedness that
is Incurred subsequent to the Closing Date in compliance with the
covenant described under "-- Limitation on Indebtedness."
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless:
(i) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the Fair Market Value of the
shares and assets subject to such Asset Disposition,
(ii) at least 80% of the consideration thereof received by the Company
or such Restricted Subsidiary is in the form of cash or Temporary Cash
Investments; provided that the amount of (1) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or
in the notes thereto) of the Company or any Restricted Subsidiary (other
than liabilities that
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are by their terms subordinated to the notes), that are assumed by the
transferee of any such assets (provided that the Company or such Restricted
Subsidiary is released from all liability with respect thereto), (2) any
securities received by the Company or such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received) within 90 days following the
closing of such Asset Disposition and (3) any Designated Noncash
Consideration received by the Company or any of its Restricted Subsidiaries
in such Asset Disposition having an aggregate Fair Market Value, taken
together with all other Designated Noncash Consideration received pursuant
to this clause (3) that is at that time outstanding, not to exceed the
greater of (A) $25.0 million or (B) 3% of Total Assets at time of receipt
of such Designated Noncash Consideration (with the Fair Market Value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall
be deemed to be cash for purposes of this provision and for no other
purpose; and
(iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted Subsidiary,
as the case may be)
(1) first, (A) to the extent the Company elects (or is required by
the terms of any Indebtedness), to prepay, repay, redeem or purchase
Senior Indebtedness of the Company or Indebtedness (other than any
Disqualified Stock) of a Restricted Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company and
other than Preferred Stock) or (B) to the extent the Company or such
Restricted Subsidiary elects, to acquire Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary
with Net Available Cash received by the Company or another Restricted
Subsidiary), in each case within one year from the later of such Asset
Disposition or the receipt of such Net Available Cash;
(2) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (1), to make an Offer (as
defined below) to purchase notes pursuant to and subject to the
conditions set forth in section (b) of this covenant; provided, however,
that if the Company elects (or is required by the terms of any other
Senior Subordinated Indebtedness), such Offer may be made ratably to
purchase the notes and other Senior Subordinated Indebtedness of the
Company; and
(3) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (1) and (2), for any
general corporate purpose permitted pursuant to the terms of the
indenture;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (1)(A) or (2) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $5.0 million.
(b) In the event of an Asset Disposition that requires the purchase of
notes (and other Senior Subordinated Indebtedness) pursuant to clause
(a)(iii)(2) of this covenant, the Company will be required to purchase notes
(and other Senior Subordinated Indebtedness) tendered pursuant to an offer by
the Company for the notes (and other Senior Subordinated Indebtedness) (the
"Offer") at a purchase price of 100% of their principal amount plus accrued and
unpaid interest and liquidated damages, if any, to the date of purchase (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date) in accordance with the
procedures (including prorating in the event of oversubscription), set forth in
the indenture. If the aggregate purchase price of notes (and other
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Senior Subordinated Indebtedness) tendered pursuant to the Offer is less than
the Net Available Cash allotted to the purchase of the notes (and other Senior
Subordinated Indebtedness), the Company may apply the remaining Net Available
Cash for any general corporate purpose permitted pursuant to the terms of the
indenture. The Company will not be required to make an Offer for notes (and
other Senior Subordinated Indebtedness) pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as provided
in clauses (a)(iii)(1)) is less than $10.0 million for any particular Asset
Disposition (which lesser amount will be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
such Affiliate Transaction is on terms:
(i) that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the
time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate,
(ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $2.0 million,
(1) are set forth in writing and
(2) have been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction and
(iii) that, in the event such Affiliate Transaction involves an amount
in excess of $10.0 million, have been determined in writing by a nationally
recognized appraisal or investment banking firm to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries or not
materially less favorable than those that might reasonably have been
obtained in an arm's-length transaction.
(b) The provisions of the foregoing paragraph (a) will not prohibit
(i) any Restricted Payment permitted to be paid pursuant to the
covenant described under "-- Limitation on Restricted Payments,"
(ii) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors,
(iii) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the Board of
Directors,
(iv) loans or advances to employees of the Company or any of its
Restricted Subsidiaries in the ordinary course of business not in excess of
$5.0 million in the aggregate outstanding at any one time,
(v) the payment of reasonable fees to directors of the Company and its
Subsidiaries who are not employees of the Company or its Subsidiaries, or
(vi) any transaction between the Company and a Restricted Subsidiary
or between Restricted Subsidiaries.
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Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except:
(a) to the Company or a Restricted Subsidiary; or
(b) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would continue to be a Restricted Subsidiary or if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer be a Restricted Subsidiary and the Investment of
the Company in such Person after giving effect to such issuance or sale
would have been permitted to be made under the covenant described under
"-- Limitation on Restricted Payments" as if made on the date of such
issuance or sale (and such Investment shall be deemed to be an Investment
made for the purposes of such covenant). The proceeds of any sale of such
Capital Stock permitted hereby will be treated as Net Available Cash from
an Asset Disposition and must be applied in accordance with the terms of
the covenant described under "-- Limitation of Sales of Assets and
Subsidiary Stock."
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than a Permitted
Business.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the SEC and provide the Trustee and Holders and prospective
Holders (upon request) within 15 days after it files them with the SEC, copies
of its annual report and the information, documents and other reports that are
specified in Sections 13 and 15(d) of the Exchange Act; provided, however, the
Company shall not be so obligated to file such reports with the SEC if the SEC
does not permit such filing, in which event the Company will make available such
information to the Trustee, Holders and prospective Holders (upon request)
within 15 days after the time the Company would be required to file such
information with the SEC if it were subject to Section 13 or 15(d) of the
Exchange Act. Notwithstanding the foregoing, such requirements shall be deemed
satisfied prior to the commencement of the Exchange Offer (as defined) or the
effectiveness of the Shelf Registration Statement (as defined) by the filing
with the SEC of the Exchange Offer Registration Statement (as defined) and/or
Shelf Registration Statement, and any amendments thereto, with such financial
information that satisfies Regulation S-X of the Securities Act. The Company
also will comply with the other provisions of Section 314(a) of the TIA.
Future Note Guarantors. The Company will cause each domestic Restricted
Subsidiary organized or acquired after the date hereof to become a Note
Guarantor, and execute and deliver to the Trustee a supplemental indenture in
the form set forth in the indenture pursuant to which such Restricted Subsidiary
will Guarantee payment of the notes. Each Note Guarantee will be limited to an
amount not to exceed the maximum amount that can be Guaranteed by that
Restricted Subsidiary without rendering the Note Guarantee, as it relates to
such Restricted Subsidiary, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
MERGER AND CONSOLIDATION
(a) The indenture will provide that the Company will not consolidate with
or merge with or into, or convey, transfer or lease all or substantially all its
assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the laws of
the United States, any State thereof or the District of Columbia and the
Successor Company (if not the Company) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
notes and the indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Restricted Subsidiary as a result of such
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transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default shall
have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness under paragraph (a) of the covenant described under
"-- Certain Covenants -- Limitation on Indebtedness"; and
(iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay the
principal of and interest on the notes.
(b) In addition, the Company will not permit any Note Guarantor to
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, any Person unless:
(i) the resulting, surviving or transferee Person will be a
corporation organized and existing under the laws of the United States, any
State thereof or the District of Columbia, and such Person (if not such
Note Guarantor) will expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the obligations of such Note Guarantor under its Note Guarantee;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been Incurred
by such Person at the time of such transaction), no Default shall have
occurred and be continuing; and
(iii) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the indenture;
provided, however, that the foregoing shall not apply to any such consolidation
or merger with or into, or conveyance, transfer or lease to, any Person if the
resulting, surviving or transferee Person will not be a Subsidiary of the
Company and the other terms of the indenture, including the covenant described
under "-- Limitations on Sales of Assets and Subsidiary Stock," are complied
with.
(c) Notwithstanding the foregoing:
(i) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company and
(ii) the Company may merge with an Affiliate incorporated solely for
the purpose of reincorporating the Company in another jurisdiction to
realize tax or other benefits.
DEFAULTS
Each of the following is an Event of Default:
(a) a default in any payment of interest on any Note when due and
payable, whether or not prohibited by the provisions described under
"-- Ranking" above, continued for 30 days,
(b) a default in the payment of principal of any Note when due and
payable at its Stated Maturity, upon required redemption or repurchase,
upon declaration or otherwise, whether or not such payment is prohibited by
the provisions described under "-- Ranking" above,
(c) the failure by the Company to comply with its obligations under
the covenant described under "-- Merger and Consolidation" above,
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(d) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under "-- Change of
Control" or "-- Certain Covenants" above (in each case, other than a
failure to purchase notes),
(e) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the notes or the indenture,
(f) the failure by the Company or any Restricted Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million or its foreign currency equivalent (the "cross
acceleration provision") and such failure continues for 10 days after
receipt of the notice specified in the indenture,
(g) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"),
(h) the rendering of any judgment or decree for the payment of money
in excess of $10.0 million (net of any amounts with respect to which a
reputable and creditworthy insurance company has acknowledged liability in
writing) or its foreign currency equivalent against the Company or a
Restricted Subsidiary if:
(i) an enforcement proceeding thereon is commenced by any creditor,
or
(ii) such judgment or decree remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed
(the "judgment default provision") or
(iii) any Note Guarantee ceases to be in full force and effect
(except as contemplated by the terms thereof) or any Note Guarantor or
Person acting by or on behalf of such Note Guarantor denies or
disaffirms such Note Guarantor's obligations under the indenture or any
Note Guarantee and such Default continues for 10 days after receipt of
the notice specified in the indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (d), (e), (f) or (j) will not constitute
an Event of Default until the Trustee notifies the Company or the Holders of at
least 25% in principal amount of the notes notify the Company of the default and
the Company or the Note Guarantor, as applicable, does not cure such default
within the time specified after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the notes by notice to the Company and the Trustee may declare the principal of
and accrued but unpaid interest on all the notes to be due and payable. Upon
such a declaration, such principal and interest will be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company occurs, the principal of and
interest on all the notes will become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
notes may rescind any such acceleration with respect to the notes and its
consequences.
Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to
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enforce the right to receive payment of principal, premium (if any) or interest
when due, no Holder may pursue any remedy with respect to the indenture or the
notes unless:
(a) such Holder has previously given the Trustee notice that an Event
of Default is continuing,
(b) Holders of at least 25% in principal amount of the notes have
requested the Trustee in writing to pursue the remedy,
(c) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense,
(d) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity,
and
(e) the Holders of a majority in principal amount of the notes have
not given the Trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the notes will be given the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to taking
any action under the indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The indenture will provide that if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each Holder notice of the
Default within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if any)
or interest on any Note (including payments pursuant to the redemption
provisions of such Note), the Trustee may withhold notice if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interests of the Holders. In addition, the Company will be required to
deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company will also be required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which with the giving of notice or the lapse of time would become an
Event of Default, their status and what action the Company is taking or proposes
to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture or the exchange notes may be
amended with the written consent of the Holders of a majority in principal
amount of the exchange notes then outstanding and any past default or compliance
with any provisions may be waived with the consent of the Holders of a majority
in principal amount of the exchange notes then outstanding. However, without the
consent of each Holder of an old note affected, no amendment may, among other
things:
(a) reduce the amount of exchange notes whose Holders must consent to
an amendment,
(b) reduce the rate of or extend the time for payment of interest or
any liquidated damages on any Note,
(c) reduce the principal of or extend the Stated Maturity of any Note,
(d) reduce the premium payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described under
"-- Optional Redemption" above,
(e) make any Note payable in money other than that stated in the Note,
(f) make any change to the subordination provisions of the indenture
that adversely affects the rights of any Holder,
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(g) impair the right of any Holder to receive payment of principal of,
and interest or any liquidated damages on, such Holder's exchange notes on
or after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such Holder's exchange notes,
(h) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions or
(i) modify the Note Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Company and the Trustee may amend
the indenture to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor corporation of the obligations
of the Company under the indenture,
- provide for uncertificated exchange notes in addition to or in place of
certificated exchange notes (provided that the uncertificated exchange
notes are issued in registered form for purposes of Section 163(f) of the
Code, or in a manner such that the uncertificated exchange notes are
described in Section 163(f)(2)(B) of the Code),
- make any change in the subordination provisions of the indenture that
would limit or terminate the benefits available to any holder of Senior
Indebtedness of the Company (or any representative thereof) under such
subordination provisions, or to add additional Note Guarantees with
respect to the exchange notes,
- secure the exchange notes,
- add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company,
- make any change that does not adversely affect the rights of any Holder,
subject to the provisions of the indenture,
- provide for the issuance of the exchange notes or
- comply with any requirement of the SEC in connection with the
qualification of the indenture under the TIA.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company then outstanding unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent to
such change.
The consent of the Holders will not be necessary under the indenture to
approve the particular form of any proposed amendment. It will be sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, the Company will
be required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect therein,
will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange notes in accordance with the
indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes
required by law or permitted by the indenture. The Company will not be required
to transfer or exchange any Note selected for redemption or to transfer or
exchange any Note for a period of 15 days prior to a selection of exchange notes
to be redeemed. The exchange notes will be issued in registered form and the
registered Holder will be treated as the owner of such Note for all purposes.
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DEFEASANCE
The Company may at any time terminate all its obligations under the
exchange notes and the indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the exchange notes, to replace mutilated,
destroyed, lost or stolen exchange notes and to maintain a registrar and paying
agent in respect of the exchange notes. In addition, the indenture will provide
that the Company at any time may terminate:
(a) its obligations under the covenants described under "-- Certain
Covenants," and
(b) the operation of the cross-acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment
default provision described under "-- Defaults" above and the limitations
contained in clause (iii) under paragraph (a) of "-- Merger and
Consolidation" above ("covenant defeasance").
In the event that the Company exercises its legal defeasance option or its
covenant defeasance option, each Note Guarantor will be released from all of its
obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the exchange notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the exchange notes may not be
accelerated because of an Event of Default specified in clause (d), (f) or (g)
(with respect only to Significant Subsidiaries), (h) (with respect only to
Significant Subsidiaries) under "-- Defaults" above or because of the failure of
the Company to comply with clause (iii) under paragraph (a) of "-- Merger and
Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money in an amount
sufficient or U.S. Government Obligations, the principal of, and interest on
which, will be sufficient, or a combination thereof sufficient, to pay the
principal, premium (if any) and interest on the exchange notes when due at
redemption or maturity, as the case may be, including interest thereon to
maturity or such redemption date, and must comply with certain other conditions,
including delivery to the Trustee of an Opinion of Counsel to the effect that
Holders will not recognize income, 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 amounts and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in the
case of legal defeasance only, such Opinion of Counsel must be based on a ruling
of the Internal Revenue Service or other change in applicable Federal income tax
law).
CONCERNING THE TRUSTEE
The Chase Manhattan Bank is to be the Trustee under the indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
exchange notes.
GOVERNING LAW
The indenture will provide that it and the exchange notes will be governed
by, and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means:
(a) any property or assets (other than Indebtedness and Capital Stock)
to be used by the Company or a Restricted Subsidiary in a Permitted
Business;
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(b) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(c) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (b) or (c) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the 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; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates" and "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or American Media,
Inc. or of rights or warrants to purchase such Voting Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(a) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary),
(b) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or
(c) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary;
other than, in the case of (a), (b) and (c) above:
(i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Note Guarantor,
(ii) any sale of Capital Stock in, or Indebtedness or other securities
of, an Unrestricted Subsidiary,
(iii) transactions permitted under paragraph (a) under "-- Certain
Covenants -- Merger and Consolidation,"
(iv) an issuance of Capital Stock by a Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary,
(v) for purposes of the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments,"
(vi) any Permitted Asset Swap and
(vii) any disposition of assets with a Fair Market Value of not more
than $500,000.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the exchange notes, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease
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included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(a) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or scheduled redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment,
by
(b) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors of
the Company.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means the date of the indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its Restricted Subsidiaries in such
period but not included in such interest expense:
(a) interest expense attributable to Capitalized Lease Obligations and
the interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction,
(b) amortization of debt discount and debt issuance costs,
(c) capitalized interest,
(d) noncash interest expense,
(e) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing,
(f) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by the Company or any Restricted
Subsidiary,
(g) net costs associated with Hedging Obligations,
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(h) dividends in respect of all Disqualified Stock of the Company and
all Preferred Stock of any of the Restricted Subsidiaries of the Company,
to the extent held by Persons other than the Company or a Wholly Owned
Subsidiary,
(i) interest Incurred in connection with investments in discontinued
operations and
(j) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
Notwithstanding anything to the contrary contained herein, commissions,
discounts, yield and other fees and charges Incurred in connection with any
transaction pursuant to which the Company or any Subsidiary of the Company may
sell, convey or otherwise transfer or grant a security interest in any accounts
receivable or related assets shall be included in Consolidated Interest Expense.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries for such period; provided, however,
that there shall not be included in such Consolidated Net Income:
(a) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that
(i) subject to the limitations contained in clause (d) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to
the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
made to a Restricted Subsidiary, to the limitations contained in clause
(c) below) and
(ii) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income to
the extent such loss has been funded with cash from the Company or a
Restricted Subsidiary;
(b) any net income (or loss) of any person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(c) any net income (or loss) of any Restricted Subsidiary (other than
any Note Guarantor) if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that
(i) subject to the limitations contained in clause (d) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution made to another Restricted Subsidiary,
to the limitation contained in this clause) and
(ii) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(d) any gain (loss) realized upon the sale or other disposition of any
asset of the Company or its Consolidated Subsidiaries (including pursuant
to any Sale/Leaseback Transaction) that is not sold or otherwise disposed
of in the ordinary course of business and any gain (loss) realized upon the
sale or other disposition of any Capital Stock of any Person;
(e) any extraordinary gain or loss; and
(f) the cumulative effect of a change in accounting principles.
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"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of May 7, 1999, as
amended, restated, supplemented, waived, replaced (whether or not upon
termination), restructured, repaid, refunded, refinanced or otherwise modified
from time to time including any agreement extending the maturity thereof or
otherwise restructuring all or any portion of the Indebtedness under such
agreement or increasing the amount loaned thereunder or altering the maturity
thereof, initially among American Media, Inc., the Company, the lenders
thereunder and The Chase Manhattan Bank, as administrative agent for such
lenders.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the Fair Market Value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of Temporary Cash Investments received in
connection with a subsequent sale of such Designated Noncash Consideration.
"Designated Senior Indebtedness" of the Company means:
(a) the Bank Indebtedness and
(b) any other Senior Indebtedness of the Company that, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to at least $10.0 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the indenture.
"Designated Senior Indebtedness" of a Note Guarantor has a correlative
meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event:
(a) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(b) is convertible or exchangeable for Indebtedness or Disqualified
Stock (excluding Capital Stock convertible or exchangeable solely at the
option of the Company or a Restricted Subsidiary; provided that any such
conversion or exchange shall be deemed an Incurrence of Indebtedness or an
issuance of Disqualified Stock, as applicable) or
(c) is redeemable at the option of the holder thereof, in whole or in
part,
in each case on or prior to 91 days after the Stated Maturity of the exchange
notes, provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to 91 days
after the Stated Maturity of the exchange notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions of the covenants described under "-- Change of
Control" and "-- Certain Covenants -- Limitation on Sale of Assets and
Subsidiary Stock"; provided, however, that only the portion
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of Capital Stock which so matures or is mandatorily redeemable, is so
convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such date shall be deemed to be Disqualified Stock; provided
further, however, that if such Capital Stock is issued to any employee or to any
plan for the benefit of employees of the Company or its Subsidiaries or by any
such plan to such employees, such Capital Stock shall not constitute
Disqualified Stock solely because it may be required to be repurchased by the
Company in order to satisfy applicable statutory or regulatory obligations or as
a result of such employee's termination, death or disability.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus, without duplication, the following to the extent deducted in calculating
such Consolidated Net Income:
(a) Consolidated income tax expense,
(b) Consolidated Interest Expense,
(c) Consolidated depreciation expense,
(d) Consolidated amortization expense (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior period),
(e) any nonrecurring expenses or charges related to any Equity
Offering, Permitted Investment, acquisition or Indebtedness permitted to be
incurred by the indenture (whether or not successful) (including fees,
expenses or charges related to the Transactions, including the Make-Whole
Payments), in each case deducted in such period in computing Consolidated
Net Income,
(f) the amount of any annual monitoring fees paid to Evercore in an
amount not to exceed $750,000 during any fiscal year,
(g) any severance expenses related to the Transactions or make-whole
or similar payments or any corporate relocation expenses arising from the
relocation of the Company or such Restricted Subsidiary from any of the
facilities in which they are located on the Closing Date, in each case
Incurred or made within eighteen months after the Closing Date in an
amount, taken together with all other amounts under this clause (g), not to
exceed $3.0 million in the aggregate, and
(h) any other noncash charges reducing Consolidated Net Income for
such period (excluding any such charge which consists of or requires an
accrual of, or cash reserve for, any anticipated cash charges for any prior
or in any future period).
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of the Company shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income; provided, however, that with respect to any Restricted Subsidiary
other than a Note Guarantor, such amount shall be added to Consolidated Net
Income to compute EBITDA only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Equity Offering" means any public or private sale of common stock or
Preferred Stock of the Company or American Media, Inc. (other than Disqualified
Stock), other than public offerings with respect to the Company's or American
Media Inc.'s common stock registered on Form S-8 or other issuances upon
exercise of options by employees of the Company or any of its Restricted
Subsidiaries.
"Evercore" means Evercore Capital Partners L.P., a Delaware limited
partnership, and its Affiliates.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and
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able buyer, neither of whom is under undue pressure or compulsion to complete
the transaction. For purposes of clause (iv)(3)(B) under paragraph (a) of the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments," the definition of "Permitted Asset Swap" and calculating the Fair
Market Value of Designated Noncash Consideration, the Fair Market Value of
property or assets other than cash which involves (a) an aggregate amount in
excess of $2.0 million, shall be set forth in a resolution approved by at least
a majority of the Board of Directors and (b) an aggregate amount in excess of
$10.0 million, shall have been determined in writing by a nationally recognized
appraisal or investment banking firm. For all other purposes of the indenture,
Fair Market Value will be determined in good faith by the Board of Directors,
whose determination will be conclusive and evidenced by a resolution of the
Board of Directors.
"GAAP" means generally accepted accounting principles in the United States
as in effect as of the Closing Date, including those set forth in:
(a) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(b) statements and pronouncements of the Financial Accounting
Standards Board,
(c) such other statements by such other entities as approved by a
significant segment of the accounting profession and
(d) unless otherwise indicated, all ratios and computations based on
GAAP contained in the indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-
or-pay, or to maintain financial statement conditions or otherwise) or
(b) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(a) the principal of and premium (if any) in respect of indebtedness
of such Person for borrowed money;
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(b) the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, exchange notes or other similar
instruments;
(c) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto);
(d) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion
of such services;
(e) all Capitalized Lease Obligations and all Attributable Debt of
such Person;
(f) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(g) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of
(i) the Fair Market Value of such asset at such date of
determination and
(ii) the amount of such Indebtedness of such other Persons;
(h) to the extent not otherwise included in this definition, Hedging
Obligations of such Person;
(i) to the extent not otherwise included, the amount then outstanding
(i.e., advanced, and received by, and available for use by, such Person)
under any receivables financing (as set forth in the books and records of
such Person and confirmed by the agent, trustee or other representative of
the institution or group providing such receivables financing); and
(j) all obligations of the type referred to in clauses (a) through (i)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at
such date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person; provided that (a) Hedging Obligations
entered into in the ordinary course of business and in compliance with the
indenture, (b) endorsements of negotiable instruments and documents in the
ordinary course of business and (c) an acquisition of assets, Capital Stock or
other securities by the Company for consideration consisting exclusively of
Capital Stock (other than Disqualified Stock) of the Company shall not be deemed
to be an Investment. For purposes of the definition of "Unrestricted Subsidiary"
and the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments":
(a) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a
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redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to
(i) the Company's "Investment" in such Subsidiary at the time of
such redesignation less
(ii) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation; and
(b) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its Fair Market Value at the time of such transfer.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in New York State are not required by law or regulation to be open.
"Leverage Ratio" as of any date of determination means the ratio of:
(a) Total Consolidated Indebtedness as of the date of determination to
(b) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at the end of the most recent
fiscal quarter for which financial statements are available,
provided, however, that
(i) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Leverage Ratio is an Incurrence of Indebtedness, EBITDA and,
for the purpose of calculating EBITDA, Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma basis to
such Indebtedness as if such Indebtedness had been Incurred on the first
day of such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such
period,
(ii) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the Leverage
Ratio, EBITDA and, for the purpose of calculating EBITDA, Consolidated
Interest Expense for such period shall be calculated on a pro forma basis
as if such discharge had occurred on the first day of such period and as if
the Company or such Restricted Subsidiary has not earned the interest
income actually earned during such period in respect of cash or Temporary
Cash Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness,
(iii) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, EBITDA for
such period shall be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to EBITDA (if
negative) directly attributable thereto for such period and, for the
purpose of calculating EBITDA, Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale),
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(iv) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially
all of an operating unit of a business, EBITDA and, for the purpose of
calculating EBITDA, Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence
of any Indebtedness) as if such Investment or acquisition occurred on the
first day of such period, and
(v) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition or any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (iii) or
(iv) above if made by the Company or a Restricted Subsidiary during such
period, EBITDA and, for the purpose of calculating EBITDA, Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition of
assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
Any such pro forma calculations may include operating expense reductions for
such period resulting from the acquisition which is being given pro forma effect
that (a) would be permitted pursuant to Article XI of Regulation S-X under the
Securities Act or (b) have been realized or for which the steps necessary for
realization have been taken or are reasonably expected to be taken within six
months following any such acquisition, including, but not limited to, the
execution or termination of any contracts, the termination of any personnel or
the closing (or approval by the Board of Directors of any closing) of any
facility, as applicable, provided that, in either case, such adjustments are set
forth in an Officers' Certificate signed by the Company's chief financial
officer and another Officer which states (i) the amount of such adjustment or
adjustments, (ii) that such adjustment or adjustments are based on the
reasonable good faith beliefs of the officers executing such Officers'
Certificate at the time of such execution and (iii) that any related Incurrence
of Indebtedness is permitted pursuant to the indenture. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term as at the date
of determination in excess of twelve months).
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Make-Whole Payments" means payments in the aggregate of approximately $4.0
million that David J. Pecker, under his employment agreement with EMP, as in
effect on the Closing Date (which agreement will be assumed by American Media,
Inc. in the merger), is entitled to in connection with the compensation he
forfeited upon termination of his employment with Hachette, a portion of which
became payable upon Mr. Pecker's termination of employment on March 31, 1999 and
the remaining portion of which shall be payable on April 15, 2000.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by
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the acquiring Person of Indebtedness or other obligations relating to the
properties or assets that are the subject of such Asset Disposition or received
in any other noncash form) therefrom, in each case net of:
(a) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition,
(b) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out of
the proceeds from such Asset Disposition,
(c) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and
(d) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Note Guarantee" means each Guarantee of the obligations with respect to
the exchange notes issued by any Person pursuant to the terms of the indenture.
Each such Note Guarantee will have subordination provisions equivalent to those
contained in the indenture and will be substantially in the form prescribed in
the indenture.
"Note Guarantor" means any Person that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company. An "Officer" of a Note Guarantor has a correlative
meeting.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or a Note Guarantor, as applicable, or the Trustee.
"Permitted Asset Swap" means any one or more transactions in which the
Company or any Restricted Subsidiary exchanges assets (other than the trademarks
or other assets related to National Enquirer or Star) for consideration
consisting of (a) assets used or useful in a Permitted Business and (b) any cash
or Temporary Cash Investments (provided that such cash or Temporary Cash
Investments will be considered Net Available Cash from an Asset Disposition);
provided, however, that the Fair Market Value of the assets received by the
Company or such Restricted Subsidiary in such exchange, together with the amount
of any cash or Temporary Cash Investments also received in such exchange, shall
be at least equal to the Fair Market Value of the assets exchanged by the
Company or such Restricted Subsidiary.
"Permitted Business" means any business engaged in by the Company or any
Restricted Subsidiary on the Closing Date and any Related Business.
"Permitted Holders" means EMP Group L.L.C. and any Person acting in the
capacity of an underwriter in connection with a public or private offering of
the Company's or American Media Inc.'s Capital Stock.
"Permitted Investment" means
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(a) an Investment by the Company or any Restricted Subsidiary in the
Company, a Restricted Subsidiary or a Person that will, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Restricted Subsidiary is a Permitted Business;
(b) an Investment by the Company or any Restricted Subsidiary in
another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Permitted
Business;
(c) an Investment by the Company or any Restricted Subsidiary in
Temporary Cash Investments;
(d) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(e) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(f) loans or advances to employees of the Company or such Restricted
Subsidiary made in the ordinary course of business not exceeding $5 million
in the aggregate outstanding at any time;
(g) an Investment by the Company or any Restricted Subsidiary in
stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments;
(h) an Investment by the Company or any Restricted Subsidiary in any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition that was made pursuant to
and in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
(i) any Investment existing on the Closing Date;
(j) guarantees (including Guarantees) of Indebtedness permitted under
the indenture; and
(k) without duplication, any Investment in any Person, the amount of
which, together with all other Investments in other Persons made pursuant
to this clause (k), does not exceed $25.0 million in the aggregate at any
time outstanding.
"Permitted Junior Securities" shall mean debt or equity securities of the
Company or any successor corporation issued pursuant to a plan of reorganization
or readjustment of the Company that are subordinated to the payment of all
then-outstanding Senior Indebtedness of the Company at least to the same extent
that the exchange notes are subordinated to the payment of all Senior
Indebtedness of the Company on the Closing Date, so long as to the extent that
any Senior Indebtedness of the Company outstanding on the date of consummation
of any such plan of reorganization or readjustment is not paid in full in cash
or Cash Equivalents on such date, the holders of any such Senior Indebtedness
not so paid in full in cash have consented to the terms of such plan or
reorganization or readjustment.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
102
<PAGE> 108
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Purchase Money Indebtedness" means Indebtedness:
(a) consisting of the deferred purchase price of an asset, conditional
sale obligations, obligations under any title retention agreement and other
purchase money obligations, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset being
financed, and
(b) incurred to finance the acquisition by the Company or a Restricted
Subsidiary of such asset, including additions and improvements; provided,
however, that such Indebtedness is incurred within 180 days after the
acquisition by the Company or such Restricted Subsidiary of such asset.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) any Indebtedness of the Company or any Restricted
Subsidiary existing on the Closing Date or Incurred in compliance with the
indenture (including Indebtedness of the Company that Refinances Refinancing
Indebtedness); provided, however, that:
(a) the Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced,
(b) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
remaining Average Life of the Indebtedness being refinanced,
(c) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate
issue price), plus costs related to the issuance of such Refinancing
Indebtedness, that is equal to or less than the aggregate principal amount
(or if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being Refinanced and
(d) if the Indebtedness being Refinanced is subordinated in right of
payment to the exchange notes, such Refinancing Indebtedness is
subordinated in right of payment to the exchange notes at least to the same
extent as the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include:
(i) Indebtedness of a Restricted Subsidiary other than a Note
Guarantor that Refinances Indebtedness of the Company or
(ii) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the Closing
Date.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or such Restricted Subsidiary leases it from such
103
<PAGE> 109
Person, other than leases between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of a Note Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of the Company means the exchange notes
and any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank equal with the exchange notes in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness. "Senior Subordinated
Indebtedness" of a Note Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the exchange notes pursuant to a written
agreement. "Subordinated Obligation" of a Note Guarantor has a correlative
meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by:
(a) such Person,
(b) such Person and one or more Subsidiaries of such Person or
(c) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(a) any investment in direct obligations of the United States or any
agency thereof or obligations Guaranteed by the United States or any agency
thereof,
(b) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is organized under the laws
of the United States, any state thereof or any foreign country recognized
by the United States having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act),
(c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) above entered
into with a bank meeting the qualifications described in clause (b) above,
(d) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States or any foreign country recognized by the United States
104
<PAGE> 110
with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc. ("S&P"), and
(e) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
"A" by Moody's Investors Service, Inc.
"TIA" means the Trust indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa -- 77bbbb) as in effect on the Closing Date.
"Total Assets" means the total Consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Total Consolidated Indebtedness" means the aggregate amount of all
Indebtedness of the Company and its Restricted Subsidiaries, outstanding as of
such date of determination, determined on a Consolidated basis, after giving
effect to any Incurrence of Indebtedness and the application of the proceeds
therefrom giving rise to such determination.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means:
(a) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below and
(b) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary of the Company) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any
Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that
either:
(i) the Subsidiary to be so designated has total Consolidated
assets of $1,000 or less or
(ii) if such Subsidiary has Consolidated assets greater than
$1,000, then such designation would be permitted under the covenant
entitled "Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to such
designation:
(1) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and
(2) no Default shall have occurred and be continuing. Any such
designation of a Subsidiary as a Restricted Subsidiary or
Unrestricted Subsidiary by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
(including any agency or instrumentality thereof) for the
105
<PAGE> 111
payment of which the full faith and credit of the United States is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company and/or one or more Wholly Owned Subsidiaries.
106
<PAGE> 112
U.S. FEDERAL TAX CONSIDERATIONS OF THE EXCHANGE OFFER
The exchange of old notes for exchange notes will not constitute a
recognition event for U.S. federal income tax purposes. Consequently, no gain or
loss will be recognized by holders upon receipt of the exchange notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of
exchange notes, a holder's basis in exchange notes will be the same as such
holder's basis in the old notes exchanged therefor. Holders will be considered
to have held the exchange notes from the time of their original acquisition of
the old notes. PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR EXCHANGE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
107
<PAGE> 113
PLAN OF DISTRIBUTION
Until 90 days after the date of this prospectus, all dealers effecting
transactions in the exchange notes, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. We have agreed that we
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale for a period of 180
days from the date on which the exchange offer is consummated, or such shorter
period as will terminate when all old notes acquired by broker-dealers for their
own accounts as a result of market-making activities or other trading activities
have been exchanged for exchange notes and such exchange notes have been resold
by such broker-dealers.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at prevailing market prices at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers or any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer hereby agrees to notify us prior
to using the prospectus in connection with the sale or transfer of exchange
notes, and acknowledges and agrees that, upon receipt of notice from us of the
happening of any event which makes any statement in this prospectus untrue in
any material respect or which requires the making of any changes in this
prospectus in order to make the statements therein not misleading or which may
impose upon us disclosure obligations that may have a material adverse effect on
us (which notice we agree to deliver promptly to such broker-dealer), such
broker-dealer will suspend use of this prospectus until we have notified such
broker-dealer that delivery of this prospectus may resume and has furnished
copies of any amendment or supplement to the to such broker-dealer. We have
agreed to pay all expenses incident to the exchange offer, other than
commissions and concessions of any broker-dealers and the fees of any counsel or
other advisors or experts retained by the holders of old notes, except as
expressly set forth in the exchange and registration rights agreement, and will
indemnify the holders of old notes (including any broker-dealers) against
certain liabilities, including certain liabilities that may arise under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the exchange notes are being passed
upon on behalf of the Company by Simpson Thacher & Bartlett, New York, New York.
108
<PAGE> 114
EXPERTS
The financial statements included in this prospectus for the fiscal years
ended March 31, 1997, March 30, 1998 and March 29, 1999 have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
exchange notes. This prospectus, which is a part of that registration statement,
does not contain all of the information set forth in the registration statement.
For further information about us and the exchange notes, you should refer to the
registration statement. This prospectus summarizes material provisions of
contracts and other documents to which we refer you. Since this prospectus may
not contain all of the information that you may find important, you should
review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement.
We are not currently subject to the information requirements of the
Securities Exchange Act of 1934. As a result of this offering, we will become
subject to the information requirements of the Exchange Act. Accordingly, we
will file reports and other information with the SEC unless and until we obtain
an exemption from the requirement to do so. Our registration statement and other
SEC filings can be inspected and copied at the Public Reference Section of the
SEC located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington
D.C. 20549 and at regional public reference facilities maintained by the SEC
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can be obtained from the Public Reference
Section of the SEC at prescribed rates. Such materials may also be accessed
electronically by means of the SEC's home page on the Internet at
http://www.sec.gov.
For so long as any exchange notes remain outstanding we will furnish to you
the information that would be required to be furnished by us under Section 13 of
the Exchange Act.
109
<PAGE> 115
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets as of March 30, 1998 and March
29, 1999.................................................. F-3
Consolidated Statements of Income for the Three Fiscal Years
Ended March 29, 1999...................................... F-4
Consolidated Statements of Stockholder's Equity for the
Three Fiscal Years Ended March 29, 1999................... F-5
Consolidated Statements of Cash Flows for the Three Fiscal
Years Ended March 29, 1999................................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 116
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholder of
American Media Operations, Inc.:
We have audited the accompanying consolidated balance sheets of American
Media Operations, Inc. (a Delaware corporation) and subsidiaries as of March 30,
1998 and March 29, 1999, and the related consolidated statements of income,
stockholder's equity and cash flows for each of the three fiscal years in the
period ended March 29, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Media Operations,
Inc. and subsidiaries as of March 30, 1998 and March 29, 1999, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended March 29, 1999, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
May 7, 1999.
F-2
<PAGE> 117
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 30, 1998 AND MARCH 29, 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
(IN 000'S, EXCEPT PER SHARE
INFORMATION)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 7,405 $ 3,823
Receivables, net.......................................... 7,852 7,977
Inventories............................................... 10,390 9,830
Prepaid income taxes...................................... 2,612 --
Prepaid expenses and other................................ 3,939 2,650
-------- --------
Total current assets.............................. 32,198 24,280
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings........................................ 4,039 4,039
Machinery, fixtures and equipment......................... 18,447 22,040
Display racks............................................. 21,662 19,543
-------- --------
44,148 45,622
Less -- accumulated depreciation.......................... (18,149) (18,762)
-------- --------
25,999 26,860
-------- --------
DEFERRED DEBT COSTS, net.................................... 8,688 5,728
-------- --------
GOODWILL, net of accumulated amortization of $126,440 and
$141,595.................................................. 478,811 463,656
-------- --------
OTHER INTANGIBLES, net of accumulated amortization of
$45,766 and $51,686....................................... 102,234 96,314
-------- --------
$647,930 $616,838
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of term loan.............................. $ -- $ 25,000
Accounts payable.......................................... 15,587 11,618
Accrued expenses.......................................... 14,915 13,755
Accrued interest.......................................... 12,249 11,251
Accrued and current deferred income taxes................. 9,775 9,795
Deferred revenues......................................... 31,749 27,987
-------- --------
Total current liabilities......................... 84,275 99,406
-------- --------
PAYABLE TO PARENT COMPANY................................... 3,728 3,404
-------- --------
TERM LOAN AND REVOLVING CREDIT COMMITMENT, net of current
portion................................................... 297,401 246,000
-------- --------
SUBORDINATED INDEBTEDNESS:
11.63% Senior Subordinated Notes Due 2004................. 200,000 200,000
10.38% Senior Subordinated Notes Due 2002................. 134 134
-------- --------
200,134 200,134
-------- --------
DEFERRED INCOME TAXES....................................... 7,919 7,696
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)
STOCKHOLDERS' EQUITY:
Common stock, $.20 par value; 10,000 shares authorized,
7,507.6 shares issued and outstanding shares issued and
outstanding............................................ 2 2
Additional paid-in capital................................ 26,039 26,039
Retained earnings......................................... 28,432 34,157
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 54,473 60,198
======== ========
$647,930 $616,838
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-3
<PAGE> 118
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE FISCAL YEARS ENDED MARCH 29, 1999
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
MARCH 31, MARCH 30, MARCH 29,
1997 1998 1999
--------- --------- ---------
(IN 000'S)
<S> <C> <C> <C>
OPERATING REVENUES:
Circulation.............................................. $273,567 $262,249 $248,630
Advertising.............................................. 24,280 23,643 23,460
Other.................................................... 18,141 21,792 21,369
-------- -------- --------
315,988 307,684 293,459
-------- -------- --------
OPERATING EXPENSES:
Editorial................................................ 28,369 30,497 28,906
Production............................................... 80,286 82,296 79,691
Distribution, circulation and other cost of sales........ 60,514 66,883 67,640
Selling, general and administrative expenses............. 30,428 27,101 26,212
Gain on sale of Soap Opera Assets........................ -- -- (6,499)
Depreciation and amortization............................ 29,220 30,327 32,110
-------- -------- --------
228,817 237,104 228,060
-------- -------- --------
Operating income......................................... 87,171 70,580 65,399
INTEREST EXPENSE........................................... (56,284) (50,486) (46,897)
OTHER INCOME (EXPENSE), net................................ (1,705) (1,641) 2,943
-------- -------- --------
Income before provision for income taxes and
extraordinary charge.................................. 29,182 18,453 21,445
PROVISION FOR INCOME TAXES................................. 16,716 12,437 13,559
-------- -------- --------
Income before extraordinary charge....................... 12,466 6,016 7,886
EXTRAORDINARY CHARGE, net of income taxes of $1,269,
related to early extinguishment of debt (Note 8)......... -- -- (2,161)
-------- -------- --------
Net income....................................... $ 12,466 $ 6,016 $ 5,725
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-4
<PAGE> 119
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE FISCAL YEARS ENDED MARCH 29, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------- ------ ---------- --------
(IN 000'S, EXCEPT SHARE INFORMATION)
<S> <C> <C> <C> <C>
Balance, March 25, 1996.............................. 7,507.6 $2 $26,290 $ 9,950
Other................................................ -- -- (251) --
Net income........................................... -- -- -- 12,466
------- -- ------- -------
Balance, March 31, 1997.............................. 7,507.6 2 26,039 22,416
Net income........................................... -- -- -- 6,016
------- -- ------- -------
Balance, March 30, 1998.............................. 7,507.6 2 26,039 28,432
Net income........................................... -- -- -- 5,725
------- -- ------- -------
Balance, March 29, 1999.............................. 7,507.6 $2 $26,039 $34,157
======= == ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-5
<PAGE> 120
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED MARCH 29, 1999
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
MARCH 31, MARCH 30, MARCH 29,
1997 1998 1999
--------- --------- ---------
(IN 000'S)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $12,466 $ 6,016 $ 5,725
------- --------- ---------
Adjustments to reconcile net income to net cash provided
from operating activities --
Gain on sale of Soap Opera Assets......................... -- -- (6,499)
Extraordinary charge, net of income taxes................. -- -- 2,161
Depreciation and amortization............................. 29,220 30,327 32,110
Deferred debt cost amortization........................... 3,144 2,623 1,506
Senior subordinated discount note accretion............... 1,500 190 --
Deferred income tax provision (credit).................... 1,180 186 (3,592)
Decrease (increase) in --
Receivables, net....................................... (2,540) 339 (125)
Due from Parent Company................................ (431) 1,048 --
Inventories............................................ 1,135 3,001 560
Prepaid income taxes................................... 1,184 (2,612) 2,612
Prepaid expenses and other............................. 283 (1,313) 1,289
Increase (decrease) in --
Accounts payable....................................... (3,912) 1,420 (5,203)
Accrued expenses....................................... 2,894 (3,204) (1,486)
Payable to Parent Company.............................. -- 3,728 (324)
Accrued interest....................................... (2,141) 2,212 (1,010)
Accrued and current deferred income taxes.............. 864 (1,552) 4,658
Deferred revenues...................................... 1,842 (599) (2,580)
------- --------- ---------
Total adjustments................................. 34,222 35,794 24,077
------- --------- ---------
Net cash provided from operating activities............ 46,688 41,810 29,802
------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures...................................... (8,526) (11,018) (15,019)
Acquisition of business................................... (2,236) -- --
Cash proceeds from sale of Soap Opera Assets.............. -- -- 10,000
------- --------- ---------
Net cash used in investing activities.................. (10,762) (11,018) (5,019)
------- --------- ---------
Cash Flows from Financing Activities:
Term loan and revolving credit commitment principal
repayments............................................. (85,744) (133,855) (382,401)
Proceeds from term loan and revolving credit commitment... 54,000 118,500 356,000
Repayment of senior subordinated indebtedness............. -- (15,962) --
Payment of deferred debt costs............................ (344) (300) (1,964)
Other..................................................... (251) -- --
------- --------- ---------
Net cash used in financing activities.................. (32,339) (31,617) (28,365)
------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents........ 3,587 (825) (3,582)
Cash and Cash Equivalents at Beginning of Year.............. 4,643 8,230 7,405
------- --------- ---------
Cash and Cash Equivalents at End of Year.................... $ 8,230 $ 7,405 $ 3,823
======= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for --
Income taxes........................................... $13,203 $ 15,422 $ 9,570
Interest............................................... 53,763 45,462 46,389
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
<PAGE> 121
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS IN ALL TABLES)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation --
The consolidated financial statements include the accounts of the Company
("Operations", a wholly-owned subsidiary of American Media, Inc., "Media") and
its subsidiaries (National Enquirer, Inc., Star Editorial, Inc., Weekly World
News, Inc., Country Weekly, Inc., DSI and Frontline, among others). We publish
four weekly publications: National Enquirer, Star, Weekly World News and Country
Weekly. All significant intercompany transactions and balances have been
eliminated in consolidation. Our fiscal year, which ends on the last Monday in
March, includes 52 weeks for the fiscal years 1998 and 1999 compared to 53 weeks
for the fiscal year 1997.
Revenue Recognition --
Substantially all publication sales, except subscriptions, are made through
unrelated distributors. Issues, other than special topic issues, are placed on
sale approximately one week prior to the issue date; however, circulation
revenues and related expenses are recognized for financial statement purposes on
an issue date basis (i.e., off sale date). Special topic issue revenues and
related expenses are recognized at the on sale date. On the date each issue is
placed on sale, we receive a percentage of the issue's estimated sales proceeds
for our publications as an advance from the distributors. All of our
publications are sold with full return privileges.
Revenues from copy sales are net of reserves provided for expected sales
returns which are established in accordance with generally accepted accounting
principles after considering such factors as sales history and available market
information. We continually monitor the adequacy of the reserves and make
adjustments when necessary.
Subscriptions received in advance of the issue date are recognized as
income over the term of the subscription on a straight-line basis. Advertising
revenues are recognized in the period in which the related advertising appears
in the publications.
Deferred revenues were comprised of the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Single Copy................................................. $ 6,887 $ 5,367
Subscriptions............................................... 24,578 22,334
Advertising................................................. 284 286
------- -------
$31,749 $27,987
======= =======
</TABLE>
Other revenues, primarily from marketing services performed for third
parties by DSI and Frontline, are recognized when the service is performed.
Property and Equipment --
We use straight-line and accelerated depreciation methods for financial
reporting and Federal income tax purposes, respectively. The estimated lives
used in computing depreciation for financial reporting purposes are 22 years for
buildings, 3 years for display racks and 5 to 10 years for all other depreciable
fixed assets.
F-7
<PAGE> 122
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS IN ALL TABLES)
Inventories --
Inventories are generally stated at the lower of cost or market. We use the
last-in, first-out (LIFO) cost method of valuing our inventories. If the
first-in, first-out (FIFO) cost method of valuation, which approximates market
value, had been used, inventories would have been approximately $170,000 and
$430,000 higher than the amounts reported in the accompanying consolidated
balance sheets for 1998 and 1999, respectively. Inventories are comprised of the
following:
<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
Raw materials -- paper...................................... $ 6,573 $6,931
Finished product -- paper, production and distribution
costs of future issues.................................... 3,817 2,899
------- ------
$10,390 $9,830
======= ======
</TABLE>
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Consolidated Statements of Cash Flows --
For purposes of the accompanying consolidated statements of cash flows, we
consider cash and cash equivalents to be cash on hand or deposited in demand
deposit accounts with financial institutions and highly liquid investments
purchased with an original maturity of three months or less.
New Accounting Pronouncements --
We have adopted the Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income" effective fiscal 1999. SFAS No. 130
defines comprehensive income as a measure of all changes in equity of an
enterprise during a period that result from transactions and other economic
events during the period other than transactions with owners. For all periods
presented comprehensive income is the same as net income.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and interim
financial stockholders' reports. The statement requires information to be
reported by operating segment on the same basis which we use to evaluate
performance internally. We have determined that we have only one operating
segment.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
standardizes the accounting for derivatives, requiring recognition as either
assets or liabilities on the balance sheet and measurement at fair value. We
plan to adopt SFAS No. 133 in fiscal 2002. We have not yet determined the effect
adoption of SFAS No. 133 will have on our consolidated financial statements.
F-8
<PAGE> 123
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS IN ALL TABLES)
(2) SALE OF ASSETS, CERTAIN TRANSACTIONS AND MERGER:
In February 1999, we ceased publication of Soap Opera News and Soap Opera
Magazine and sold certain of the trademarks and other soap opera publishing
assets relating to these magazines (collectively, the "Soap Opera Assets") to
Primedia, Inc. for $10 million in cash. In addition, we may receive future
consideration based upon increased financial performance above certain levels of
Primedia, Inc.'s Soap Opera Digest and Soap Opera Weekly publications. There can
be no assurance however that we will receive any such future consideration.
On May 7, 1999 all of the common stock of Media was purchased by EMP
Acquisition Corp. ("EMP") a company controlled by Evercore Capital Partners
L.P., a private equity firm ("Evercore"). Proceeds to finance the acquisition
included (a) a cash equity investment of $235 million by Evercore and certain
other investors, (b) borrowings of approximately $350 million under a new $400
million senior bank facility (the "New Credit Agreement") and (c) borrowings of
$250 million in the form of senior subordinated notes (the "New Subordinated
Notes"). These proceeds were used to (d) acquire all of the outstanding common
stock of Media for $299.4 million, (e) repay $267 million then outstanding under
the existing credit agreement (the "Credit Agreement") with our banks, (f)
retire approximately $199 million of our $200 million Senior Subordinated Notes
due 2004 and (g) pay transaction costs, including a financial advisory fee of 1%
of the aggregate funds required to finance the acquisition paid to an affiliate
of Evercore, (all such transactions in (a) through (g) are collectively referred
to as the "Transactions"). Upon consummation of the Transactions, EMP was merged
with and into Media (the "Merger") resulting in a change in ownership control of
both Media and the Company. As a result of this change in control, as of the
Merger date we will reflect a new basis of accounting that will include the
elimination of historical amounts of certain assets and liabilities and the
revaluation of certain of our tangible and intangible assets.
The following pro forma financial information reflects the sale of the Soap
Opera Assets, the Transactions and the Merger as if each had occurred as of the
beginning of fiscal 1999 (unaudited):
<TABLE>
<S> <C>
Operating revenues $272,184
========
Operating expenses $226,688
========
Depreciation and amortization $(50,307)
========
Operating income $ 45,496
========
Interest expense ($58,241)
========
Net loss ($18,332)
========
</TABLE>
The above pro forma financial information excludes certain non-recurring
items including bridge loan commitment and ticking fees related to the New
Credit Agreement and the New Subordinated Notes totaling approximately $4.1
million which will be recorded in fiscal 2000. Additional items excluded from
the above pro forma financial information includes the pretax gain recorded in
connection with the sale of the Soap Opera Assets in the amount of $6.5 million
and an extraordinary charge, net of income taxes, totaling approximately $2.2
million, related to the early extinguishment of debt, which were recorded in
fiscal 1999.
(3) INTANGIBLE ASSETS:
Purchase price allocations for acquisitions have been made in accordance
with Accounting Principles Board Opinion No. 16. The excess of the purchase
price, including liabilities assumed, over tangible net assets acquired has been
allocated to either specifically identified intangibles or goodwill.
F-9
<PAGE> 124
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS IN ALL TABLES)
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS No. 121 also
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. We consider certain events and circumstances including, among others,
the historical and projected operating results of acquired businesses, industry
trends and general economic conditions to assess whether the remaining estimated
useful life of intangible assets may warrant revision or that the remaining
balance of intangible assets may not be recoverable. When such assessment
indicates that an intangible asset should be evaluated for possible impairment,
we use an estimate of undiscounted cash flow over the remaining life of the
intangible asset in measuring the recoverability. No such event has occurred to
our knowledge and we have determined there to be no impairment.
Goodwill is amortized on a straight-line basis over 40 years. For each of
the fiscal years 1997, 1998 and 1999, amortization of goodwill charged to
depreciation and amortization in the accompanying consolidated statements of
income totaled approximately $15.2 million.
An intangible asset recorded in connection with the acquisition of Star is
amortized on a straight-line basis over its estimated useful life of 25 years.
Amortization expense relating to this intangible asset for each of the fiscal
years 1997, 1998 and 1999, totaling approximately $5.9 million, is included in
depreciation and amortization in the accompanying consolidated statements of
income.
In connection with the Transactions and Merger, which will be accounted for
under the purchase method of accounting, as of May 7, 1999 we will reflect a new
basis of accounting that will result in a substantial increase in the amount of
intangible assets. It is estimated that intangible assets will total
approximately $814.2 million with annual amortization expense of $40.7 million
based upon amortizable lives of 20 years. We are currently in the process of
appraising the value of our assets and liabilities, therefore the allocation of
the actual purchase price may differ significantly from this estimate.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of our financial instruments as of year end is as
follows:
<TABLE>
<CAPTION>
1998 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Term loan and revolving credit facility,
including current portion................... $297,401 $297,401 $271,000 $271,000
Subordinated indebtedness..................... 200,134 217,134 200,134 215,152
Interest rate swap agreement liability........ 122 299 147 1,193
</TABLE>
The fair value of our financial instruments is estimated based on the
quoted market prices for the same or similar issues or on the current rate
offered to us for financial instruments of the same remaining maturities. The
carrying amount for cash equivalents approximates fair value because of the
short maturity of those instruments.
On occasion we enter into interest rate swap agreements to reduce the
interest rate exposure associated with a portion of our variable rate
indebtedness. Interest rate swap agreements modify the interest characteristics
of our variable rate indebtedness by synthetically converting a portion of the
indebtedness to fixed rate. Interest earned (payable) under the interest rate
swap is credited (charged) to interest expense using the accrual method. The
related accrued receivable or payable is included in accounts receivable or
accrued interest payable. The fair market value of the interest rate swap
agreement
F-10
<PAGE> 125
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS IN ALL TABLES)
is not reflected in the accompanying consolidated financial statements. We do
not utilize derivative financial instruments for trading or other speculative
purposes.
Derivative financial instruments terminated at a gain (loss) prior to
maturity are credited (charged) to interest expense over the remaining original
life of the derivative financial instrument.
We have entered into a three-year $100 million notional amount interest
rate swap agreement which effectively converts a portion of our variable-rate
debt to fixed-rate debt. The interest rate swap agreement which expires in
November 2000 has a fixed interest rate of 5.95%. The carrying amounts for the
interest rate swap agreement represents net interest payable as of period end.
Net interest expense related to the interest rate swap agreement and another
swap agreement which expired in May 1998, totaled $793,000, $655,000 and
$584,000 for the fiscal years 1997, 1998 and 1999, respectively.
(5) INCOME TAXES:
We file a consolidated Federal income tax return with Media and calculate
our income on a separate return basis. The provision for income taxes consists
of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $13,824 $11,232 $15,693
State............................................... 1,712 1,019 1,458
------- ------- -------
Total current.................................... 15,536 12,251 17,151
------- ------- -------
Deferred:
Federal............................................. 1,050 169 (3,287)
State............................................... 130 17 (305)
------- ------- -------
Total deferred................................... 1,180 186 (3,592)
------- ------- -------
$16,716 $12,437 $13,559
======= ======= =======
</TABLE>
A reconciliation of the expected income tax provision at the statutory
Federal income tax rate of 35% to the reported income tax provision is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Expected income tax provision at statutory rate....... $10,214 $ 6,459 $ 7,506
Nondeductible goodwill................................ 5,304 5,304 5,304
State income taxes, net of Federal benefit............ 1,198 652 749
Other, net............................................ -- 22 --
------- ------- -------
$16,716 $12,437 $13,559
======= ======= =======
</TABLE>
F-11
<PAGE> 126
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS IN ALL TABLES)
Deferred taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The net deferred tax liability
is comprised of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Gross deferred tax assets................................... $ 444 $ 451
-------- --------
Intangibles amortization.................................... (5,674) (5,345)
Expense recognition differences............................. (3,719) (1,425)
Subscription acquisition costs.............................. (1,861) (909)
Accelerated depreciation.................................... (1,806) (1,912)
Book over tax basis of non-depreciable assets............... (439) (439)
Inventory capitalization.................................... (670) (554)
-------- --------
Gross deferred tax liabilities......................... (14,169) (10,584)
-------- --------
Net deferred tax liabilities........................... $(13,725) $(10,133)
======== ========
</TABLE>
Included in accrued and current deferred income taxes in the accompanying
consolidated balance sheets for fiscal years 1998 and 1999 are net current
deferred taxes payable of $5.8 million and $2.4 million, respectively.
(6) CREDIT AGREEMENTS:
On June 5, 1998, we entered into our Credit Agreement with a bank syndicate
whose agent bank is The Chase Manhattan Corporation ( the "Agent Bank" and,
collectively, the "Banks" ) The Credit Agreement is comprised of a $250 million
term loan commitment and a $120 million revolving credit commitment.
(a) Term Loan Commitment -- Amounts borrowed under the Credit
Agreement's term loan commitment bear interest at rates based upon either
the Alternate Base Rate (as defined) plus 0% to .75% or the LIBO Rate (as
defined) plus .75% to 1.75%, predicated upon satisfaction of certain
covenants related to our operating cash flow levels. Amounts due under the
term loan commitment are payable in varying quarterly installments through
March 2004. As of March 29, 1999, $250 million was outstanding under the
term loan commitment.
(b) Revolving Credit Commitment -- The Credit Agreement also provides
for additional borrowings up to a maximum of $120 million, bearing interest
at the term loan commitment rates described above. This commitment, which
expires in March 2004, allows funds to be borrowed and repaid from time to
time with permanent reductions in the revolving credit commitment permitted
at the Company's option. As of March 29, 1999, borrowings of $21 million
were outstanding under the Prior Credit Agreement's revolving credit
commitment.
(c) Commitment Fees -- The Company is required to pay a commitment fee
ranging from .25% to .50% of the unused portion of the Credit Agreement's
revolving credit commitment. Commitment fees under the Prior Credit
Agreement totaled approximately $330,000, $246,000 and $338,000 for fiscal
years 1997, 1998 and 1999, respectively.
(d) Guarantee, Collateral and Financial Covenants -- The Company's
obligations under the Credit Agreement are guaranteed by all of its
subsidiaries and Media. The obligations and such guarantees are secured by
(i) a pledge by the Company of all of the capital stock of its
subsidiaries,
F-12
<PAGE> 127
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS IN ALL TABLES)
(ii) a pledge of all of the capital stock of the Company and (iii) a
security interest in substantially all of the assets of the Company's
subsidiaries.
In addition to the above, the Credit Agreement also contains certain
covenants that, among others, restrict paying cash dividends, incurring
additional indebtedness, entering into certain mergers or consolidations, making
capital expenditures and selling or otherwise disposing of assets. We are also
required to satisfy certain financial tests relating to operating cash flow and
debt coverage ratios. We plan to pay no cash dividends on our common stock in
the foreseeable future, instead using cash generated from operating results
principally to make principal and interest payments on its indebtedness.
As permitted under the covenants of the prior credit agreement, management
fees to affiliates totaling $1.8 million, $1.7 million and $1.2 million are
included in other expense, net in the accompanying consolidated statements of
income for the fiscal years 1997, 1998 and 1999, respectively.
The effective interest rates under the Credit Agreement and prior credit
agreements, including amounts borrowed under the term loan commitments and
revolving credit commitment, as of March 29, 1999, and for the fiscal years
1997, 1998 and 1999 were 6.9%, 7.9%, 7.8% and 7.7%, respectively.
In connection with the Transactions and Merger, on May 7, 1999 we repaid
all amounts outstanding under the Credit Agreement and borrowed approximately
$350 million under the New Credit Agreement. Our New Credit Agreement, which
consists of $340 million in term loan commitments and a $60 million revolving
credit commitment, includes the following:
(a) Term Loan Commitments -- The term loans consist of a $100 million
(original amount) commitment (the "Tranche A" loans) and a $240 million
(original amount) commitment (the "Tranche B" loans). Amounts borrowed
under the Tranche A commitment bear interest at rates based upon either the
Alternate Base Rate plus 3/4% to 2% or the LIBO Rate plus 1 3/4% to 3%,
predicated upon satisfaction of certain Credit Agreement covenants related
to operating results. Tranche B loans bear interest at either the Alternate
Base Rate plus 2 1/2% or the LIBO Rate plus 3 1/2%.
Borrowings under the term loan commitments are payable in varying
quarterly installments from July 2001 through April 2007. Beginning as of
the fiscal year ending March 2001 and for each fiscal year thereafter we
will be required to make Excess Cash Flow payments (as defined) which will
be applied ratably to the then outstanding term loans.
(b) Revolving Credit Commitment -- The New Credit Agreement also
provides for additional borrowings up to a maximum of $60 million, bearing
interest at the Tranche A rates described above. This commitment, which
expires in April 2006, allows funds to be borrowed and repaid from time to
time with permanent reductions in the revolving credit commitment permitted
at our option.
(c) Commitment Fees -- We are required to pay a commitment fee ranging
from 3/8% to 1/2% of the unused portion of the revolving commitment.
(d) Guarantees, Collateral and Financial Covenants -- The New Credit
Agreement contains certain guarantees, collateral pledges and financial
covenant requirements similar to those required under the Credit Agreement
as described above.
As of May 7, 1999 the effective interest rate under the New Credit
Agreement, including amounts borrowed under the term loan commitments and
revolving credit commitment, was 8.5%.
F-13
<PAGE> 128
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS IN ALL TABLES)
(7) SUBORDINATED INDEBTEDNESS:
Our 11.63% Senior Subordinated Notes due 2004 (the "Senior Subordinated
Notes due 2004"), which mature on November 15, 2004, pay interest semi-annually
on May 15 and November 15 and are redeemable at our option after November 14,
1999 at prices ranging from 104.4% to 100.0% of their face amount.
In connection with the Transactions and Merger, on May 7, 1999 we repaid
approximately $199 million in face amount of the Senior Subordinated Notes due
2004; including the tender premium and consent fee the total amount paid was
approximately $214.2 million. Our New Subordinated Notes, which mature on May 1,
2009, bear interest at 10 1/4% per annum payable in semi-annual installments on
May 1st and November 1st of each year. These notes are redeemable at our option
at prices ranging from 105.1% to 100% of their face amount after April 2004. The
indenture under which the notes were issued includes certain restrictive
covenants that limit, among other things, our ability to incur indebtedness,
give guarantees, pay dividends, make investments, sell assets and merge or
consolidate.
Payments of principal due under the New Credit Agreement (excluding any
amounts that may be borrowed under the credit commitment or required to be
prepaid under the excess cash flow provision), the New Subordinated Notes and
other long-term indebtedness follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
2002...................................................... $ 9,300
2003...................................................... 16,284
2004...................................................... 21,150
Thereafter................................................ 544,140
--------
$590,874
========
</TABLE>
(8) DEFERRED DEBT COSTS:
Certain costs incurred in connection with the issuance of our long-term
debt have been deferred and are amortized as part of interest expense over
periods from 8 to 10 years. For fiscal years 1997, 1998 and 1999, amortization
of deferred debt costs which is included in interest expense in the accompanying
consolidated statements of income totaled approximately $3.1 million, $2.6
million, and $1.5 million, respectively. In connection with the amendment and
restatement of our senior bank indebtedness (see Note 6) certain unamortized
deferred debt costs related to the prior credit agreement totaling approximately
$3.4 million were charged to extraordinary loss in fiscal 1999. Costs related to
the Credit Agreement are being amortized to interest expense through March 2004.
In connection with the Transactions and Merger, we repaid all amounts
outstanding under the Credit Agreement and approximately $199 million in face
amount of the Senior Subordinated Notes due 2004. Net unamortized deferred debt
costs related to the Credit Agreement and Senior Subordinated Notes Due 2004
totaling approximately $5.6 million will be written off in connection with the
Transactions and Merger.
(9) COMMITMENTS AND CONTINGENCIES:
Litigation --
Various suits and claims arising in the ordinary course of business have
been instituted against us. We have insurance policies available to recover
potential legal costs. We periodically evaluate and assess the risks and
uncertainties associated with litigation independent from those associated with
our potential claim
F-14
<PAGE> 129
AMERICAN MEDIA OPERATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS IN ALL TABLES)
for recovery from third party insurance carriers. At present, in the opinion of
management, after consultation with legal counsel, the liability resulting from
litigation, if any, will not have a material effect on our consolidated
financial statements.
Printing Agreement --
We have entered into a 15 year printing agreement expiring in fiscal 2011
with an unrelated printer to print National Enquirer and Star. Based on current
pricing and production levels this contract, which requires pricing adjustments
based on changes in the Consumer Price Index, is estimated to cost approximately
$172 million over its remaining life as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
2000...................................................... $ 14,965
2001...................................................... 14,929
2002...................................................... 14,929
2003...................................................... 15,216
2004...................................................... 14,929
Thereafter................................................ 97,024
--------
$171,992
========
</TABLE>
F-15
<PAGE> 130
$250,000,000[AMERICAN MEDIA, INC. LOGO]
AMERICAN MEDIA OPERATIONS, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2009 FOR
10 1/4% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
<PAGE> 131
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
the company's board of directors to indemnify any person against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with any
threatened, pending or completed action (except settlements or judgments in
derivative suits), suit or proceeding in which such person is made a party by
reason of his or her being or having been a director, officer, employee or agent
of the company, in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). The statute provides that indemnification pursuant to its provisions is
not exclusive of other rights of indemnification to which a person may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.
The company's by-laws provide for the mandatory indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the DGCL, and the company has entered into agreements with its officers,
directors and certain key employees implementing such indemnification.
As permitted by sections 102 and 145 of the DGCL the company's certificate
of incorporation eliminates a director's personal liability for monetary damages
to the company and its stockholders arising from a breach or alleged breach of a
director's fiduciary duty except for liability under section 174 of the DGCL,
for liability for any breach of the director's duty of loyalty to the company or
its stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction
which the director derived an improper personal benefit.
The directors and officers of the company are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act which might be incurred by them in such capabilities
and against which they cannot be indemnified by the company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
*1 -- Purchase Agreement, dated as of April 30, 1999, among
American Media Operations, Inc., National Enquirer, Inc.,
Star Editorial, Inc., SOM Publishing, Inc. Weekly World
News, Inc., Country Weekly, Inc., Distribution Services,
Inc., Fairview Printing, Inc., NDSI, Inc., Biocide, Inc.,
American Media Marketing, Inc., Health Xtra, Inc., Retail
Marketing Network and Marketing Services, Inc. and Chase
Securities Inc.
*2.1 -- Agreement and Plan of Merger, dated as of February 16, 1999,
by and between EMP Acquisition Corp., a Delaware
corporation, and American Media, Inc., a Delaware
corporation.
*2.2 -- Certificate of Merger of EMP Acquisition Corp. with and into
American Media, Inc.
*2.3 -- Management Agreement, dated as of May 7, 1999, between
American Media, Inc., a Delaware corporation and Evercore
Advisors, Inc., a Delaware limited liability company.
*3.1 -- Certificate of Incorporation of Enquirer/Star, Inc. and
amendments thereto.(1)
*3.2 -- Amended By-Laws of Enquirer/Star, Inc.(1)
</TABLE>
II-1
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
*3.3 -- Amendment of Certificate of Incorporation of Operations,
dated November 7, 1994, changing its name to American Media
Operations, Inc. from Enquirer/Star, Inc.
*3.4 -- Articles of Incorporation of American Media Marketing, Inc.
*3.5 -- By-laws of American Media Marketing, Inc.
*3.6 -- Certificate of Incorporation of Biocide, Inc.
*3.7 -- By-laws of Biocide, Inc.
*3.8 -- Certificate of Incorporation of Country Weekly, Inc.
*3.9 -- By-laws of Country Weekly, Inc.
*3.10 -- Certificate of Incorporation of Distribution Services, Inc.
*3.11 -- Restated By-laws of Distribution Services, Inc.
*3.12 -- Articles of Incorporation of Fairview Printing, Inc.
*3.13 -- By-laws of Fairview Printing, Inc.
*3.14 -- Articles of Incorporation of Health Xtra, Inc.
*3.15 -- By-laws of Health Xtra, Inc.
*3.16 -- Certificate of Incorporation of Marketing Services, Inc.
*3.17 -- By-laws of Marketing Services, Inc.
*3.18 -- Amendments of Articles of Incorporation of National
Enquirer, Inc.
*3.19 -- Restated By-laws of National Enquirer, Inc.
*3.20 -- Amendment of Certificate of Incorporation of NDSI, Inc.
*3.21 -- By-laws of NDSI, Inc.
*3.22 -- Restated Certificate of Incorporation of Retail Marketing
Network, Inc.
*3.23 -- By-laws of Retail Marketing Network, Inc.
*3.24 -- Amendment of Certificate of Incorporation of Star Editorial,
Inc.
*3.25 -- By-laws of Star Editorial, Inc. (formerly known as "Video
Digest Inc.").
*3.26 -- Amendments of Articles of Incorporation of SOM Publishing,
Inc.
*3.27 -- By-laws of SOM Publishing, Inc. (formerly known as "The
Medium Corporation").
*3.28 -- Articles of Incorporation of Weekly World News, Inc.
*3.29 -- By-laws of Weekly World News, Inc.
*4.1 -- Indenture, dated as of May 7, 1999, among American Media
Operations, Inc., National Enquirer, Inc., Star Editorial,
Inc., SOM Publishing, Inc. Weekly World News, Inc., Country
Weekly, Inc., Distribution Services, Inc., Fairview
Printing, Inc., NDSI, Inc., Biocide, Inc., American Media
Marketing, Inc., Health Xtra, Inc., Retail Marketing Network
and Marketing Services, Inc., and The Chase Manhattan Bank,
a New York banking corporation, as Trustee.
*4.2 -- Exchange and Registration Rights Agreement, dated as of May
7, 1999, among American Media Operations, Inc., National
Enquirer, Inc., Star Editorial, Inc., SOM Publishing, Inc.
Weekly World News, Inc., Country Weekly, Inc., Distribution
Services, Inc., Fairview Printing, Inc., NDSI, Inc.,
Biocide, Inc., American Media Marketing, Inc., Health Xtra,
Inc., Retail Marketing Network, Inc. and Marketing Services,
Inc. and Chase Securities Inc.
</TABLE>
II-2
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
*4.3 -- Credit Agreement, dated as of May 7, 1999, among American
Media Inc., American Media Operations, Inc., the Lenders
party thereto, The Chase Manhattan Bank, as Administrative
Agent, and Chase Securities Inc., as Arranger.
*4.4 -- Guarantee Agreement, dated as of May 7, 1999, among American
Media, Inc., each of the subsidiaries listed on Schedule I
thereto and The Chase Manhattan Bank, as Collateral Agent
for the Secured Parties (as defined in the Security
Agreement).
*4.5 -- Indemnity, Subrogation and Contribution Agreement, dated as
of May 7, 1999, among American Media Operations, Inc., each
subsidiary of American Media, Inc. listed on Schedule I
thereto and The Chase Manhattan Bank, as Collateral Agent
for the Secured Parties (as defined in the Security
Agreement).
*4.6 -- Pledge Agreement, dated as of May 7, 1999, among American
Media Operations, Inc., American Media, Inc., each
subsidiary of Media listed on Schedule I thereto and The
Chase Manhattan Bank, as Collateral Agent for the Secured
Parties (as defined in the Security Agreement).
*4.7 -- Security Agreement, dated as of May 7, 1999, among American
Media Operations, Inc., American Media, Inc., each
subsidiary of Media listed on Schedule I thereto and The
Chase Manhattan Bank, as collateral agent for the Secured
Parties (as defined herein).
**5 -- Opinion of Simpson Thacher & Bartlett.
*10.1 -- David J. Pecker Employment Agreement, dated as of February
16, 1999.
*10.2 -- Side Letter regarding David J. Pecker Employment Agreement
to David Pecker from EMP Group L.L.C., dated as of April 13,
1999.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- Subsidiaries of American Media Operations, Inc.
*23.1 -- Consent of Arthur Anderson LLP.
**23.2 -- Consent of Simpson Thacher & Bartlett (included in Exhibit
5).
*24 -- Powers of Attorney (included on pages II-6 through II-20).
*25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Chase Manhattan Bank, as Trustee.
*27 -- Financial Data Schedule for period ended March 29, 1999.
**99.1 -- Form of Letter of Transmittal.
**99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
(1) Enquirer/Star, Inc. is now named American Media Operations, Inc.
("Operations"); Enquirer/Star Group, Inc. ("Group") is now named American
Media, Inc. ("Media").
* Previously filed.
** Filed herewith.
II-3
<PAGE> 134
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" Table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 135
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
AMERICAN MEDIA OPERATIONS, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson
Title: Executive Vice President
and Chief
Financial Officer (Principal
Financial
and Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, August 3, 1999
- --------------------------------------------------- President, Chief Executive
David J. Pecker Officer and Director
(Principal Executive Officer)
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
</TABLE>
II-5
<PAGE> 136
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director August 3, 1999
- ---------------------------------------------------
Paul G. Yovovich
* Director August 3, 1999
- ---------------------------------------------------
Helene Belanger
* Director August 3, 1999
- ---------------------------------------------------
Brian J. Richmand
* Director August 3, 1999
- ---------------------------------------------------
J. William Grimes
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-6
<PAGE> 137
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
AMERICAN MEDIA MARKETING, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-7
<PAGE> 138
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
BIOCIDE, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, August 3, 1999
- --------------------------------------------------- President, Chief Executive
David J. Pecker Officer and Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-8
<PAGE> 139
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
COUNTRY WEEKLY, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-9
<PAGE> 140
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
DISTRIBUTION SERVICES, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and August 3, 1999
- --------------------------------------------------- Director
David J. Pecker
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-10
<PAGE> 141
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
FAIRVIEW PRINTING, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-11
<PAGE> 142
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
HEALTH XTRA, INC.
By: /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-12
<PAGE> 143
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
MARKETING SERVICES, INC.
By: /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-13
<PAGE> 144
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
NATIONAL ENQUIRER, INC.
By: /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-14
<PAGE> 145
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
NDSI, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-15
<PAGE> 146
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
RETAIL MARKETING NETWORK, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-16
<PAGE> 147
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
STAR EDITORIAL, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, August 3, 1999
- --------------------------------------------------- Chief Executive Officer and
David J. Pecker Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-17
<PAGE> 148
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
SOM PUBLISHING, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
* Chairman of the Board, August 3, 1999
- --------------------------------------------------- President, Chief Executive
David J. Pecker Officer and Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-18
<PAGE> 149
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON AUGUST 3, 1999.
WEEKLY WORLD NEWS, INC.
By /s/ PETER A. NELSON
------------------------------------
Name: Peter A. Nelson,
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, August 3, 1999
- --------------------------------------------------- President, Chief Executive
David J. Pecker Officer and Director
* Director August 3, 1999
- ---------------------------------------------------
Austin M. Beutner
* Director August 3, 1999
- ---------------------------------------------------
Neeraj Mital
* Director August 3, 1999
- ---------------------------------------------------
Saul D. Goodman
* Director August 3, 1999
- ---------------------------------------------------
Robert V. Seminara
* By signing his name hereto, Peter A. Nelson
signs this Registration Statement on behalf of
each of the persons indicated above pursuant to
a power of attorney duly executed by such
persons and filed with the Securities and
Exchange Commission.
By: /s/ PETER A. NELSON
(Peter A. Nelson, Attorney-in-fact)
</TABLE>
II-19
<PAGE> 150
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
*1 -- Purchase Agreement, dated as of April 30, 1999, among
American Media Operations, Inc., National Enquirer, Inc.,
Star Editorial, Inc., SOM Publishing, Inc. Weekly World
News, Inc., Country Weekly, Inc., Distribution Services,
Inc., Fairview Printing, Inc., NDSI, Inc., Biocide, Inc.,
American Media Marketing, Inc., Health Xtra, Inc., Retail
Marketing Network and Marketing Services, Inc. and Chase
Securities Inc.
*2.1 -- Agreement and Plan of Merger, dated as of February 16, 1999,
by and between EMP Acquisition Corp., a Delaware
corporation, and American Media, Inc., a Delaware
corporation.
*2.2 -- Certificate of Merger of EMP Acquisition Corp. with and into
American Media, Inc.
*2.3 -- Management Agreement, dated as of May 7, 1999, between
American Media, Inc., a Delaware corporation and Evercore
Advisors, Inc., a Delaware limited liability company.
*3.1 -- Certificate of Incorporation of Enquirer/Star, Inc. and
amendments thereto.(1)
*3.2 -- Amended By-Laws of Enquirer/Star, Inc.(1)
*3.3 -- Amendment of Certificate of Incorporation of Operations,
dated November 7, 1994, changing its name to American Media
Operations, Inc. from Enquirer/Star, Inc.
*3.4 -- Articles of Incorporation of American Media Marketing, Inc.
*3.5 -- By-laws of American Media Marketing, Inc.
*3.6 -- Certificate of Incorporation of Biocide, Inc.
*3.7 -- By-laws of Biocide, Inc.
*3.8 -- Certificate of Incorporation of Country Weekly, Inc.
*3.9 -- By-laws of Country Weekly, Inc.
*3.10 -- Certificate of Incorporation of Distribution Services, Inc.
*3.11 -- Restated By-laws of Distribution Services, Inc.
*3.12 -- Articles of Incorporation of Fairview Printing, Inc.
*3.13 -- By-laws of Fairview Printing, Inc.
*3.14 -- Articles of Incorporation of Health Xtra, Inc.
*3.15 -- By-laws of Health Xtra, Inc.
*3.16 -- Certificate of Incorporation of Marketing Services, Inc.
*3.17 -- By-laws of Marketing Services, Inc.
*3.18 -- Articles of Incorporation of National Enquirer, Inc. and
amendments thereto.
*3.19 -- Restated By-laws of National Enquirer, Inc.
*3.20 -- Certificate of Incorporation of NDSI, Inc. and amendments
thereto.
*3.21 -- By-laws of NDSI, Inc.
*3.22 -- Restated Certificate of Incorporation of Retail Marketing
Network, Inc.
*3.23 -- By-laws of Retail Marketing Network, Inc.
*3.24 -- Certificate of Incorporation of Star Editorial, Inc. and
amendments thereto.
*3.25 -- By-laws of Star Editorial, Inc. (formerly known as "Video
Digest Inc.")
*3.26 -- Articles of Incorporation of SOM Publishing, Inc. and
amendments thereto.
*3.27 -- By-laws of SOM Publishing, Inc. (formerly known as "The
Medium Corporation").
*3.28 -- Articles of Incorporation of Weekly World News, Inc.
*3.29 -- By-laws of Weekly World News, Inc.
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
*4.1 -- Indenture, dated as of May 7, 1999, among American Media
Operations, Inc., National Enquirer, Inc., Star Editorial,
Inc., SOM Publishing, Inc. Weekly World News, Inc., Country
Weekly, Inc., Distribution Services, Inc., Fairview
Printing, Inc., NDSI, Inc., Biocide, Inc., American Media
Marketing, Inc., Health Xtra, Inc., Retail Marketing Network
and Marketing Services, Inc., and The Chase Manhattan Bank,
a New York banking corporation, as Trustee.
*4.2 -- Exchange and Registration Rights Agreement, dated as of May
7, 1999, among American Media Operations, Inc., National
Enquirer, Inc., Star Editorial, Inc., SOM Publishing, Inc.
Weekly World News, Inc., Country Weekly, Inc., Distribution
Services, Inc., Fairview Printing, Inc., NDSI, Inc.,
Biocide, Inc., American Media Marketing, Inc., Health Xtra,
Inc., Retail Marketing Network and Marketing Services, Inc.
and Chase Securities Inc.
*4.3 -- Credit Agreement, dated as of May 7, 1999, among American
Media Inc., American Media Operations, Inc., the Lenders
party thereto, The Chase Manhattan Bank, as Administrative
Agent, and Chase Securities Inc., as Arranger.
*4.4 -- Guarantee Agreement, dated as of May 7, 1999, among American
Media, Inc., each of the subsidiaries listed on Schedule I
thereto and The Chase Manhattan Bank, as Collateral Agent
for the Secured Parties (as defined in the Security
Agreement).
*4.5 -- Indemnity, Subrogation and Contribution Agreement, dated as
of May 7, 1999, among American Media Operations, Inc., each
subsidiary of American Media, Inc. listed on Schedule I
thereto and The Chase Manhattan Bank, as Collateral Agent
for the Secured Parties (as defined in the Security
Agreement).
*4.6 -- Pledge Agreement, dated as of May 7, 1999, among American
Media Operations, Inc., American Media, Inc., each
subsidiary of Media listed on Schedule I thereto and The
Chase Manhattan Bank, as Collateral Agent for the Secured
Parties (as defined in the Security Agreement).
*4.7 -- Security Agreement, dated as of May 7, 1999, among American
Media Operations, Inc., American Media, Inc., each
subsidiary of Media listed on Schedule I thereto and The
Chase Manhattan Bank, as collateral agent for the Secured
Parties (as defined herein).
**5 -- Opinion of Simpson Thacher & Bartlett.
*10.1 -- David J. Pecker Employment Agreement, dated as of February
16, 1999.
*10.2 -- Side Letter regarding David J. Pecker Employment Agreement
to David Pecker from EMP Group L.L.C., dated as of April 13,
1999.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- Subsidiaries of American Media Operations, Inc.
**23.1 -- Consent of Arthur Andersen LLP
**23.2 -- Consent of Simpson Thacher & Bartlett (included in Exhibit
5).
*24 -- Powers of Attorney (included on pages II-6 through II-20).
*25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Chase Manhattan Bank, as Trustee.
*27 -- Financial Data Schedule for period ended March 29, 1999.
**99.1 -- Form of Letter of Transmittal.
**99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
(1) Enquirer/Star, Inc. is now named American Media Operations, Inc.
("Operations"); Enquirer/Star Group, Inc. ("Group") is now named American
Media, Inc. ("Media").
* Previously filed.
** Filed herewith.
<PAGE> 1
August 3, 1999
American Media Operations, Inc.
600 East Coast Avenue
Lantana, Florida 33464-0002
Ladies and Gentlemen:
We have acted as counsel to American Media Operations, Inc., a Delaware
corporation (the "Company"), and for the entities listed on Schedule A hereto
(individually, a "Guarantor" and collectively, the "Guarantors"), in connection
with the Registration Statement on Form S-4 (the "Registration Statement")
filed by the Company and the Guarantors with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended,
relating to the issuance by the Company of $250,000,000 aggregate principal
amount of 10 1/4% Senior Subordinated Notes due 2009 (the "Exchange Securities")
and the issuance by the Guarantors of guarantees (the "Guarantees"), with
respect to the Exchange Securities. The Exchange Securities and the Guarantees
will be issued under an indenture (the "Indenture") dated as of May 7, 1999,
among the Company, the Guarantors and The Chase Manhattan Bank, as Trustee. The
Exchange Securities will be offered by the Company in exchange for $250,000,000
aggregate principal amount of its outstanding 10 1/4% Senior Subordinated Notes
due 2009 (the "Securities").
We have examined the Registration Statement and the Indenture, which has
been filed with the Commission as an exhibit to the Registration Statement. We
also have examined the originals, or duplicates or certified or conformed
copies, of such records, agreements, instruments and other documents and have
made such other and further
<PAGE> 2
-2-
American Media Operations, Inc. August 3, 1999
investigations as we have deemed relevant and necessary in connection with the
opinions expressed herein. As to questions of fact material to this opinion, we
have relied upon certificates of public officials and of officers and
representatives of the Company and the Guarantors.
In rendering the opinions set forth below, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as duplicates or certified
or conformed copies, and the authenticity of the originals of such latter
documents. We also have assumed that the Indenture is the valid and legally
binding obligation of the Trustee.
We have assumed further that (1) American Media Marketing, Inc.,
Fairview Printing, Inc., Health Xtra, Inc., National Enquirer, Inc., SOM
Publishing, Inc. and Weekly World News, Inc. have duly authorized, executed and
delivered the Indenture and (2) execution, delivery and performance by American
Media Marketing, Inc., Fairview Printing, Inc., Health Xtra, Inc., National
Enquirer, Inc., SOM Publishing, Inc. and Weekly World News, Inc. of the
Indenture and the Guarantees do not and will not violate the laws of Florida
or any other applicable laws (excepting the laws of the State of New York and
the Federal laws of the United States).
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. When the Exchange Securities have been duly executed, authenticated,
issued and delivered in accordance with the provisions of the
Indenture upon the exchange, the Exchange Securities will constitute
valid and legally binding obligations of the Company enforceable
against the Company in accordance with their terms.
2. When (a) the Exchange Securities have been duly executed,
authenticated, issued and delivered in accordance with the provisions
of the Indenture upon the exchange and (b) the Guarantees have been
duly issued, the Guarantees will constitute valid and legally binding
obligations of the Guarantors enforceable against the Guarantors in
accordance with their terms.
<PAGE> 3
American Media Operations, Inc. -3- August 3, 1999
Our opinions set forth above are subject to the effects of (1) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, (2) general
equitable principles (whether considered in a proceeding in equity or at law)
and (3) an implied covenant of good faith and fair dealing.
We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the law of the State of New
York, the Federal law of the United States and the Delaware General Corporation
Law.
We hereby consent to the filing of this opinion letter as Exhibit 5 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
SIMPSON THACHER & BARTLETT
<PAGE> 4
SCHEDULE A
Guarantors
American Media Marketing, Inc.
Biocide, Inc.
Country Weekly, Inc.
Distribution Services, Inc.
Fairview Printing, Inc.
Health Xtra, Inc.
Marketing Services, Inc.
National Enquirer, Inc.
NDSI, Inc.
Retail Marketing Network, Inc.
Star Editorial, Inc.
SOM Publishing, Inc.
Weekly World News, Inc.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our Firm) included in or made a part of
this registration statement.
/s/ Arthur Andersen LLP
West Palm Beach, Florida,
August 3, 1999.
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
10 1/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
AMERICAN MEDIA OPERATIONS, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON (THE "EXPIRATION DATE")
UNLESS EXTENDED BY AMERICAN MEDIA OPERATIONS, INC.
The Exchange Agent is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C>
For Delivery by Registered or Certified Mail: For Overnight Delivery Only:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Reorganization Department Reorganization Department
P.O. Box 3301 85 Challenger Road
South Hackensack, NJ 07606 Mail Stop -- Reorg
Ridgefield Park, NJ 07660
By Hand:
By Facsimile Transmission
ChaseMellon Shareholder Services, L.L.C. (for eligible institutions only):
Reorganization Department
120 Broadway, 13th Floor (201) 296-4293
New York, NY 10271
Confirm facsimile by telephone only:
(201) 296-4860
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated August ,
1999 (the "Prospectus") of American Media Operations, Inc. (the "Company"), and
this Letter of Transmittal (the "Letter of Transmittal"), which together
describe the Company's offer (the "Exchange Offer") to exchange its 10 1/4%
Senior Subordinated Notes due 2009, which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") (the "Exchange Notes")
for each of its 10 1/4% Senior Subordinated Notes due 2009 (the "Old Notes" and,
together with the Exchange Notes, the "Notes") from the holders thereof.
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant to the Exchange Offer, except
that the Exchange Notes are freely transferable by holders thereof (except as
provided herein or in the Prospectus).
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
<PAGE> 2
PLEASE READ THE ENTIRE
LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and aggregate
principal amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
- ------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY PRINCIPAL
(PLEASE FILL IN) NUMBER(S)* OLD NOTES* AMOUNT TENDERED**
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount
represented by such Old Notes. See instruction 2.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Holders of Old Notes whose Old Notes are not immediately available or who
cannot deliver all other required documents to the Exchange Agent on or prior to
the Expiration Date or who cannot complete the procedures for book-entry
transfer on a timely basis, must tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus.
Unless the context otherwise requires, the term "holder" for purposes of
this Letter of Transmittal means any person in whose name Old Notes are
registered or any other person who has obtained a properly completed bond power
from the registered holder or any person whose Old Notes are held of record by
The Depository Trust Company ("DTC").
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
Name of Eligible Institution that Guaranteed Delivery
Date of Execution of Notice of Guaranteed Delivery
If Delivered by Book-Entry Transfer:
Name of Tendering Institution
Account Number
Transaction Code Number
[ ] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO PERSON OTHER THAN PERSON
SIGNING THIS LETTER OF TRANSMITTAL:
Name
Address
2
<PAGE> 3
[ ] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO ADDRESS DIFFERENT
FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Name
Address
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. A broker-dealer may not participate in the
Exchange Offer with respect to Old Notes acquired other than as a result of
market-making activities or other trading activities. Any holder who is an
"affiliate" of the Company or who has an arrangement or understanding with
respect to the distribution of the Exchange Notes to be acquired pursuant to the
Exchange Offer, or any broker-dealer who purchased Old Notes from the Company to
resell pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act must comply with the registration and
prospectus delivery requirements under the Securities Act.
3
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Old Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
all or any portion of the Old Notes tendered herewith in accordance with the
terms and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby exchanges, assigns and transfers to, or upon
the order of, the Company all right, title and interest in and to such Old Notes
as are being tendered herewith. The undersigned hereby irrevocably constitutes
and appoints the Exchange Agent as its true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent
also acts as the agent of the Company, in connection with the Exchange Offer) to
cause the Old Notes to be assigned, transferred and exchanged.
The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes and to acquire
Exchange Notes issuable upon the exchange of such tendered Old Notes, and that,
when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
undersigned also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the exchange, assignment and transfer of the tendered
Old Notes or transfer ownership of such Old Notes on the account books
maintained by the book-entry transfer facility. The undersigned further agrees
that acceptance of any and all validly tendered Old Notes by the Company and the
issuance of Exchange Notes in exchange therefor shall constitute performance in
full by the Company of its obligations under the Exchange and Registration
Rights Agreement, dated May 7, 1999 (the "Registration Rights Agreement"), among
the Company, National Enquirer, Inc., Star Editorial, Inc., SOM Publishing,
Inc., Weekly World News, Inc., Country Weekly, Inc., Distribution Services,
Inc., Fairview Printing, Inc., NDSI, Inc., Biocide, Inc., American Media
Marketing, Inc., Health Xtra, Inc., Retail Marketing Network, Inc. and Marketing
Services, Inc. and Chase Securities Inc., and that the Company shall have no
further obligations or liabilities thereunder except as provided in the first
paragraph of Section 2 of such agreement. The undersigned will comply with its
obligations under the Registration Rights Agreement. The undersigned has read
and agrees to all terms of the Exchange Offer.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Company), as more particularly
set forth in the Prospectus, the Company may not be required to exchange any of
the Old Notes tendered hereby and, in such event, the Old Notes not exchanged
will be returned to the undersigned at the address shown above, promptly
following the expiration or termination of the Exchange Offer. In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth under "The Exchange Offer -- Certain Conditions
to the Exchange Offer" occur.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in the Prospectus and in the instructions attached
hereto will, upon the Company's acceptance for exchange of such tendered Old
Notes, constitute a binding agreement between the undersigned and the Company
upon the terms and subject to the conditions of the Exchange Offer. The
undersigned recognizes that, under circumstances set forth in the Prospectus,
the Company may not be required to accept for exchange any of the Old Notes.
By tendering shares of Old Notes and executing this Letter of Transmittal,
the undersigned represents that Exchange Notes acquired in the exchange will be
obtained in the ordinary course of business of the undersigned, that the
undersigned has no arrangement or understanding with any person to participate
in a distribution (within the meaning of the Securities Act) of such Exchange
Notes, that the undersigned is not an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act and that if the undersigned or the
person receiving such Exchange Notes, whether or not such person is the
undersigned, is not a broker-dealer, the undersigned represents that it is not
engaged in, and does not intend to engage in, a distribution of Exchange Notes.
If the undersigned or the person receiving such Exchange Notes, whether or not
such person is the undersigned, is a broker-dealer that will
4
<PAGE> 5
receive Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. If the undersigned is a
person in the United Kingdom, the undersigned represents that its ordinary
activities involve it in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of its business.
Any holder of Old Notes using the Exchange Offer to participate in a
distribution of the Exchange Notes (i) cannot rely on the position of the staff
of the Securities and Exchange Commission enunciated in its interpretive letter
with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or
similar interpretive letters and (ii) must comply with the registration and
prospectus requirements of the Securities Act in connection with a secondary
resale transaction.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Old Notes may be withdrawn at any time
prior to the Expiration Date in accordance with the terms of this Letter of
Transmittal. Except as stated in the Prospectus, this tender is irrevocable.
Certificates for all Exchange Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, and registered in
the name of the undersigned, shall be delivered to the undersigned at the
address shown below the signature of the undersigned.
The undersigned, by completing the box entitled "Description of Old Notes
Tendered Herewith" above and signing this letter, will be deemed to have
tendered the Old Notes as set forth in such box.
5
<PAGE> 6
TENDERING HOLDER(S) SIGN HERE
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON
CERTIFICATE(S) FOR OLD NOTES HEREBY TENDERED OR IN WHOSE NAME OLD NOTES ARE
REGISTERED ON THE BOOKS OF DTC OR ONE OF ITS PARTICIPANTS, OR BY ANY PERSON(S)
AUTHORIZED TO BECOME THE REGISTERED HOLDER(S) BY ENDORSEMENTS AND DOCUMENTS
TRANSMITTED HEREWITH. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR,
GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR OTHER PERSON ACTING IN A
FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH THE FULL TITLE OF SUCH
PERSON. SEE INSTRUCTION 3.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date
- ---------------------------
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Daytime Area Code and Telephone No.
- ----------------------------------------------------------------------------
Taxpayer Identification No.
- --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 3)
Authorized Signature
- --------------------------------------------------------------------------------
Date
- ---------------------------
Name
- --------------------------------------------------------------------------------
Title
- --------------------------------------------------------------------------------
Name of Firm
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone No.
- --------------------------------------------------------------------------------
6
<PAGE> 7
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if Exchange Notes or Old Notes not tendered are to be
issued in the name of someone other than the registered holder of the Old Notes
whose name(s) appear(s) above.
Issue
[ ] Old Notes not tendered to:
[ ] Exchange Notes to:
Name(s)
- ------------------------------------------
Address
- --------------------------------------------
- ------------------------------------------------------
(INCLUDE ZIP CODE)
Daytime Area Code and
Telephone No.
- ----------------
Tax Identification No.
- -----------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if Exchange Notes or Old Notes not tendered are to be
sent to someone other than the registered holder of the Old Notes whose name(s)
appear(s) above, or such registered holder(s) at an address other than that
shown above.
Mail
[ ] Old Notes not tendered to:
[ ] Exchange Notes to:
Name(s)
- ------------------------------------------
Address
- --------------------------------------------
- ------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and
Telephone No.
- ----------------
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES.
A holder of Old Notes may tender the same by (i) properly completing and
signing this Letter of Transmittal or a facsimile hereof (all references in the
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates,
if applicable, representing the Old Notes being tendered and any required
signature guarantees and any other documents required by this Letter of
Transmittal, to the Exchange Agent at its address set forth above on or prior to
the Expiration Date, or (ii) complying with the procedure for book-entry
transfer described below, or (iii) complying with the guaranteed delivery
procedures described below.
Holders of Old Notes may tender Old Notes by book-entry transfer by
crediting the Old Notes to the Exchange Agent's account at DTC in accordance
with DTC's Automated Tender Offer Program ("ATOP") and by complying with
applicable ATOP procedures with respect to the Exchange Offer. DTC participants
that are accepting the Exchange Offer should transmit their acceptance to DTC,
which will edit and verify the acceptance and execute a book-entry delivery to
the Exchange Agent's account at DTC. DTC will then send a computer-generated
message (an "Agent's Message") to the Exchange Agent for its acceptance in which
the holder of the Old Notes acknowledges and agrees to be bound by the terms of,
and makes the representations and warranties contained in, this Letter of
Transmittal, the DTC participant confirms on behalf of itself and the beneficial
owners of such Old Notes all provisions of this Letter of Transmittal (including
any representations and warranties) applicable to it and such beneficial owner
as fully as if it had completed the information required herein and executed and
transmitted this Letter of Transmittal to the Exchange Agent. Delivery of the
Agent's Message by DTC will satisfy the terms of the Exchange Offer as to
execution and delivery of a Letter of Transmittal by the participant identified
in the Agent's Message. DTC participants may also accept the Exchange Offer by
submitting a Notice of Guaranteed Delivery through ATOP.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ANY
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT
AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
BE USED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY
DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to the Exchange Agent on or
prior to the Expiration Date or comply with book-entry transfer procedures on a
timely basis must tender their Old Notes pursuant to the guaranteed delivery
procedure set forth in the Prospectus. Pursuant to such procedure: (i) such
tender must be made by or through an Eligible Institution (as defined below);
(ii) on or prior to the Expiration Date, the Exchange Agent must have received
from such Eligible Institution a letter, telegram or facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) setting forth the name and address of the tendering holder,
the names in which such Old Notes are registered, and, if applicable, the
certificate numbers of the Old Notes to be tendered; and (iii) all tendered Old
Notes (or a confirmation of any book-entry transfer of such Old Notes into the
Exchange Agent's account at a book-entry transfer facility) as well as this
Letter of Transmittal and all other documents required by this Letter of
Transmittal, must be received by the Exchange Agent within three New York Stock
Exchange trading days after the date of execution of such letter, telegram or
facsimile transmission, all as provided in the Prospectus.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
8
<PAGE> 9
2. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Old Notes evidenced by a
submitted certificate is tendered, the tendering holder must fill in the
aggregate principal amount of Old Notes tendered in the box entitled
"Description of Old Notes Tendered Herewith." A newly issued certificate for the
Old Notes submitted but not tendered will be sent to such holder as soon as
practicable after the Expiration Date. All Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise clearly indicated.
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date.
To be effective with respect to the tender of Old Notes, a written notice
of withdrawal must: (i) be received by the Exchange Agent at one of the
addresses for the Exchange Agent set forth above before the Company notifies the
Exchange Agent that it has accepted the tender of Old Notes pursuant to the
Exchange Offer; (ii) specify the name of the person who tendered the Old Notes
to be withdrawn; (iii) identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes, or, if applicable, the certificate numbers
shown on the particular certificates evidencing such Old Notes and the principal
amount of Old Notes represented by such certificates); (iv) include a statement
that such holder is withdrawing its election to have such Old Notes exchanged;
and (v) be signed by the holder in the same manner as the original signature on
this Letter of Transmittal (including any required signature guarantee). The
Exchange Agent will return the properly withdrawn Old Notes promptly following
receipt of notice of withdrawal. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Old Notes or otherwise comply with the book-entry
transfer facility's procedures. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Company, and
such determination will be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such
book-entry transfer facility specified by the holder) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus at any time prior to the Expiration Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
book-entry transfer facility whose name appears on a security listing as the
owner of the Old Notes) of Old Notes listed and tendered hereby, no endorsements
of certificates or separate written instruments of transfer or exchange are
required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to the Company and duly executed by the registered holder,
in either case signed exactly as the name or names of the registered holder or
holders appear(s) on the Old Notes.
9
<PAGE> 10
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution, unless Old Notes are tendered: (i) by a holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter of Transmittal; or (ii) for the account of an
Eligible Institution (as defined below). In the event that the signatures in
this Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by an eligible guarantor
institution which is a member of a firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (an "Eligible
Institution"). If Old Notes are registered in the name of a person other than
the signer of this Letter of Transmittal, the Old Notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company, in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders should indicate, as applicable, the name and address to
which the Exchange Notes or certificates for Old Notes not exchanged are to be
issued or sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the tax
identification number of the person named must also be indicated. Holders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the book-entry transfer
facility as such holder may designate.
5. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Old Notes to it or its order pursuant to the Exchange
Offer. If a transfer tax is imposed for any reason other than the transfer and
exchange of Old Notes to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other person) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith the amount of such transfer taxes will be billed directly to
such tendering holder.
6. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or in part, any
of the conditions to the Exchange Offer set forth in the Prospectus.
7. MUTILATED, LOST, STOLEN OR DESTROYED SECURITIES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed,
should contact the Exchange Agent at the address indicated below for further
instructions.
8. SUBSTITUTE FORM W-9
Each holder of Old Notes whose Old Notes are accepted for exchange (or
other payee) is required to provide a correct taxpayer identification number
("TIN"), generally the holder's Social Security or federal employer
identification number, and certain other information, on Substitute Form W-9,
which is provided under "Important Tax Information" below, and to certify that
the holder (or other payee) is not subject to backup withholding. Failure to
provide the information on the Substitute Form W-9 may subject the holder (or
other payee) to a $50 penalty
10
<PAGE> 11
imposed by the Internal Revenue Service and 31% federal income tax backup
withholding on payments made in connection with the Old Notes. The box in Part 3
of the Substitute Form W-9 may be checked if the holder (or other payee) has not
been issued a TIN and has applied for a TIN or intends to apply for a TIN in the
near future. If the box in Part 3 is checked and a TIN is not provided by the
time any payment is made in connection with the Old Notes, 31% of all such
payments will be withheld until a TIN is provided.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to the Exchange Agent at the address and
telephone number indicated above.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE OR COPY THEREOF
(TOGETHER WITH CERTIFICATES OF OLD NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
11
<PAGE> 12
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a holder of Old Notes whose Old Notes
are accepted for exchange may be subject to backup withholding unless the holder
provides [The Bank of New York], as Paying Agent (the "Paying Agent"), through
the Exchange Agent, with either (i) such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 attached hereto, certifying
that the TIN provided on Substitute Form W-9 is correct (or that such holder of
Old Notes is awaiting a TIN) and that (A) the holder of Old Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or (B)
the Internal Revenue Service has notified the holder of Old Notes that he or she
is no longer subject to backup withholding; or (ii) an adequate basis for
exemption from backup withholding. If such holder of Old Notes is an individual,
the TIN is such holder's social security number. If the Paying Agent is not
provided with the correct TIN, the holder of Old Notes may be subject to certain
penalties imposed by the Internal Revenue Service.
Certain holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. However, exempt holders of Old Notes should indicate
their exempt status on Substitute Form W-9. For example, a corporation must
complete the Substitute Form W-9, providing its TIN and indicating that it is
exempt from backup withholding. In order for a foreign individual to qualify as
an exempt recipient, the holder must submit a Form W-8, signed under penalties
of perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Paying Agent. See the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Paying Agent is required to withhold 31%
of any such payments made to the holder of Old Notes or other payee. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder of Old Notes has not been issued a TIN and has applied for a
TIN or intends to apply for a TIN in the near future. If the box in Part 3 is
checked, the holder of Old Notes or other payee must also complete the
Certificate of Awaiting Taxpayer Identification Number below in order to avoid
backup withholding. Notwithstanding that the box in Part 3 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the Paying
Agent will withhold 31% of all payments made prior to the time a properly
certified TIN is provided to the Paying Agent.
The holder of Old Notes is required to give the Paying Agent the TIN (e.g.,
social security number or employer identification number) of the record owner of
the Old Notes. If the Old Notes are in more than one name or are not in the name
of the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which number to report.
12
<PAGE> 13
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE
(YOU) TO GIVE THE PAYER. -- Social security numbers have nine digits separated
by two hyphens: i.e., 000-00-0000. Employee identification numbers have nine
digits separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ------------------------------------------------------------
<C> <S> <C>
1. Individual The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b. So-called trust account that The actual owner(1)
not a legal or valid trust
under state law
5. Sole proprietorship The owner(3)
6. Sole proprietorship The owner(3)
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ------------------------------------------------------------
<C> <S> <C>
7. A valid trust, estate, or pension The legal entity(4)
trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or other
tax-exempt organization account
10. Partnership The partnership
11. A broker or registered nominee The broker or
nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state or
local government, school district,
or prison) that receives
agricultural program payments
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 14
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, at the local
Social Administration office, or Form SS-4, Application for Employer
Identification Number, by calling 1 (800) TAX-FORM, and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from withholding include:
- An organization exempt from tax under Section 501(a), an individual
retirement account (IRA), or a custodial account under Section 403(b)(7), if
the account satisfies the requirements of Section 401(f)(2).
- The United States or a state thereof, the District of Columbia, a possession
of the United States, or a political subdivision or wholly-owned agency or
instrumentality of any one or more of the foregoing.
- An international organization or any agency or instrumentality thereof.
- A foreign government and any political subdivision, agency or
instrumentality thereof.
- Payees that may be exempt from backup withholding include:
- A corporation.
- A financial institution.
- A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- A real estate investment trust.
- A common trust fund operated by a bank under Section 584(a).
- An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
- A futures commission merchant registered with the Commodity Futures Trading
Commission.
- A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
- Payments to nonresident aliens subject to withholding under Section 1441.
- Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
- Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and you have
not provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- Payments described in Section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under Section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid to you.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see the regulations under sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050A and 6050N.
EXEMPT PAYEES DESCRIBED ABOVE MUST FILE FORM W-9 OR A SUBSTITUTE FORM W-9 TO
AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE
FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
PRIVACY ACT NOTICE. -- Section 6109 requires you to provide your correct
taxpayer identification number to payers, who must report the payments to the
IRS. The IRS uses the number for identification purposes and may also provide
this information to various government agencies for tax enforcement or
litigation purposes. Payers must be given the numbers whether or not recipients
are required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and not
to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 15
PAYER'S NAME:
<TABLE>
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND or
DATING BELOW. Employer Identification Number
------------------------------
-----------------------------------------------------------------------------------------
PART 2 -- Certification -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification and (or I am
DEPARTMENT OF THE TREASURY waiting for a number to be issued to me), and
INTERNAL REVENUE SERVICE (2) I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue (the "IRS")
PAYER'S REQUEST FOR TAXPAYER that I am subject to backup withholding as a result of a failure to report all
IDENTIFICATION NUMBER (TIN) interest or dividends, or (c) the IRS has notified me that I am no longer subject
to backup withholding.
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of under-reporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out such item (2).
- ---------------------------------------------------------------------------------------------------------------------------
SIGN HERE SIGNATURE --------------------------- PART 3 --
[ ] Awaiting TIN
DATE -----------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER, PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable payments made to me will be withheld.
Signature Date , 1998
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<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
NEW 10 1/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
AMERICAN MEDIA OPERATIONS, INC.
Registered holders of outstanding 10 1/4% Senior Subordinated Notes due
2009 (the "Old Notes") who wish to tender their Old Notes in exchange for a like
principal amount of new 10 1/4% Senior Subordinated Notes due 2009 (the
"Exchange Notes") and whose Old Notes are not immediately available or who
cannot deliver their Old Notes and Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to ChaseMellon Shareholder
Services, L.L.C. (the "Exchange Agent") prior to the Expiration Date, may use
this Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier) or mail to the Exchange Agent. See "The Exchange
Offer -- Procedures for Tendering" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
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For Delivery by Registered or Certified Mail: For Overnight Delivery Only:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Reorganization Department Reorganization Department
P.O. Box 3301 85 Challenger Road
South Hackensack, NJ 07606 Mail Stop -- Reorg
By Hand: Ridgefield Park, NJ 07660
ChaseMellon Shareholder Services, L.L.C. By Facsimile Transmission
Reorganization Department (for eligible institutions only):
120 Broadway, 13th Floor (201) 296-4293
New York, NY 10271
Confirm facsimile by telephone only:
(201) 296-4860
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DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an eligible institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the Prospectus
dated August , 1999 of American Media Operations, Inc.(the "Prospectus"),
receipt of which is hereby acknowledged.
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DESCRIPTION OF OLD NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------------------
CERTIFICATE
NAME AND NUMBER(S) OF
ADDRESS OF OLD NOTES
REGISTERED TENDERED (OR
HOLDER AS IT ACCOUNT
APPEARS ON THE NUMBER AT PRINCIPAL
OLD NOTES BOOK-ENTRY AMOUNT OLD
NAME OF TENDERING HOLDER (PLEASE PRINT) FACILITY) NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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SIGN HERE
Name of Registered or Acting Holder:
- ---------------------------------------------------------------------
Signature(s):
- --------------------------------------------------------------------------------
Name(s) (Please Print):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
IF SHARES OF OLD NOTES WILL BE TENDERED BY BOOK-ENTRY TRANSFER, PROVIDE THE
FOLLOWING INFORMATION:
DTC Account Number:
-----------------------------------------------------------------------------
Date:
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2
<PAGE> 3
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of
its addresses set forth on the reverse hereof, the certificates representing the
Old Notes (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the book-entry transfer facility), together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, and any other documents
required by the Letter of Transmittal within three New York Stock Exchange
trading days after the Expiration Date (as defined in the Letter of
Transmittal).
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Name of Firm:
-----------------------------------------
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(AUTHORIZED SIGNATURE)
Address: Title:
- ----------------------------------------------- -----------------------------------------------
Name:
- ----------------------------------------------- -----------------------------------------------
(ZIP CODE) (PLEASE TYPE OR PRINT)
Area Code and Date:
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Telephone No.:
-----------------------------------------
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD NOTES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
