AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-------------------
K-III COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
-------------------
<TABLE>
<S> <C> <C>
DELAWARE 2721 13-3647573
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
-------------------
745 FIFTH AVENUE
NEW YORK, NEW YORK 10151
(212) 745-0100
(Address, including ZIP Code, and telephone number, including area code,
of Registrant's principal executive office)
-------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
-------------------
ANN M. RIPOSANU, ESQ.
K-III COMMUNICATIONS CORPORATION
745 FIFTH AVENUE
NEW YORK, NEW YORK 10151
(212) 745-0100
(Name, address, including ZIP Code, and telephone number, including area code,
of agent for service)
-------------------
COPY TO:
GARY I. HOROWITZ, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES 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. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED BE REGISTERED PER UNIT/SHARE(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
8 1/2% Senior Notes due
2006......................... $300,000,000 100% $300,000,000 $103,449
Guarantees of the 8 1/2%
Senior
Notes due 2006............. $300,000,000 None(2) None(2) None(2)
$10.00 Series D Exchangeable
Preferred Stock Redeemable
2008......................... 2,000,000 Shares $100 $200,000,000 $68,966
10% Class D Subordinated
Exchange Debentures due
2008......................... $200,000,000 None(3) None(3) None(3)
Totals....................... $500,000,000 $172,415
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) No separate consideration will be received for the guarantees of the 8 1/2%
Senior Notes due 2006 by subsidiaries of K-III Communications Corporation.
(3) No separate consideration will be received for the 10% Class D Subordinated
Exchange Debentures due 2008 issuable upon exchange of the $10.00 Series D
Exchangeable Preferred Stock.
-------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD I.R.S.
EXACT NAME OF JURISDICTION OF INDUSTRIAL EMPLOYER
REGISTRANT AS SPECIFIED INCORPORATION OR CLASSIFICATION IDENTIFICATION
IN ITS CHARTER ORGANIZATION CODE NUMBER NUMBER
- --------------------------------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Argus Publishers Corporation ...................... California 2721 95-2219151
Bacon's Information, Inc. ......................... Delaware 7389 36-4011543
Channel One Communications Corporation............. Delaware 4833 13-3783276
Daily Racing Form, Inc. ........................... Delaware 2721 13-3616342
DRF Finance, Inc. ................................. Delaware 2721 13-3616341
The Electronics Source Book, Inc. ................. Delaware 2741 36-0645610
Funk & Wagnalls Yearbook Corp. .................... Delaware 2731 13-3603787
Haas Publishing Companies, Inc. ................... Delaware 2741 58-1858150
Intermodal Publishing Company, Ltd. ............... New York 2721 13-2633752
Intertec Market Reports, Inc....................... Delaware 2721 36-1534790
Intertec Presentations, Inc. ...................... Colorado 2721 84-0840004
Intertec Publishing Corporation.................... Delaware 2721 48-1071277
Krames Communications Incorporated................. Delaware 2731 94-3151780
K-III Directory Corporation........................ Delaware 2721 13-3555670
K-III Holdings Corporation III..................... Delaware 6719 13-3617238
K-III HPC, Inc..................................... Delaware 6719 58-2105885
K-III KG Corporation--Massachusetts................ Massachusetts 8222 04-3218659
K-III KG Corporation--New York I................... New York 8222 11-3193464
K-III KG Corporation--New York II.................. New York 8222 13-3751139
K-III Magazine Corporation......................... Delaware 2721 13-3616344
K-III Magazine Finance Corporation................. Delaware 2721 13-3616343
K-III Prime Corporation............................ Delaware 6719 13-3631019
K-III Reference Corporation........................ Delaware 2731 13-3603781
The Katharine Gibbs Schools, Inc. ................. Delaware 6719 13-3755180
The Katharine Gibbs Schools of Montclair, Inc. .... New Jersey 8222 22-3275485
The Katharine Gibbs Schools of Norwalk, Inc. ...... Connecticut 8222 06-1388463
The Katharine Gibbs Schools of Piscataway, Inc. ... New Jersey 8222 22-3275484
The Katharine Gibbs Schools of Providence, Inc. ... Rhode Island 8222 05-0475713
Lifetime Learning Systems, Inc. ................... Delaware 2741 13-3763276
McMullen Argus Publishing, Inc. ................... California 2721 95-2663753
MH West, Inc. ..................................... California 2721 95-4190756
Musical America Publishing, Inc. .................. Delaware 2721 13-2782528
Nelson Publications, Inc. ......................... Delaware 2741 13-3740812
Newbridge Communications, Inc...................... Delaware 2735 13-1932571
Paramount Publishing Inc. ......................... California 2741 33-0087025
PJS Publications, Inc. ............................ Delaware 2721 52-1654079
R.E.R. Publishing Corporation...................... New York 2721 13-3090623
Stagebill, Inc. ................................... Delaware 2721 36-2693071
Symbol of Excellence Publishers, Inc. ............. Alabama 2721 63-0845698
Weekly Reader Corporation.......................... Delaware 2721 13-3603780
</TABLE>
The address, including zip code, and telephone number, including area code,
of each additional registrant's principal executive office is 745 Fifth Avenue,
New York, New York 10151 (212-745-0100).
The financial statements of the guarantor subsidiaries are omitted because
K-III believes the separate financial statements would not be material to the
shareholders and potential investors. The total assets, revenues, income or
equity of non-guarantor subsidiaries, both individually and on a combined basis
are inconsequential in relation to the total assets, revenues, income or equity
of K-III. All of the equity securities of each of the additional registrants set
forth in the table above are owned, either directly or indirectly, by K-III, and
there has been no default during the preceding 36 calendar months with respect
to any indebtedness or material long-term leases of K-III or any of the
additional registrants.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION PROSPECTUS
------------------------------------------------- -----------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page; Cross Reference Sheet;
Outside Front Cover Page of
Prospectus.
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... "Available Information";
"Incorporation of Certain
Documents by Reference."
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ "Summary"; "Risk Factors";
"Selected Financial Data."
4. Terms of the Transaction......................... "Summary"; "Risk Factors"; "The
Exchange Offers"; "Description of
the Notes"; "Description of
Preferred Stock and 10%
Subordinated Debentures";
"Certain Federal Income Tax
Considerations."
5. Pro Forma Financial Information.................. "Summary"; "Capitalization."
6. Material Contacts with the Company Being
Acquired......................................... *
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... *
8. Interests of Named Experts and Counsel........... "Legal Matters"; "Experts."
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... *
10. Information with Respect to S-3 Registrants...... "Available Information";
"Incorporation of Certain
Documents by Reference";
"Summary"; "Use of Proceeds";
"Capitalization"; "Selected
Financial Data."
11. Incorporation of Certain Information by
Reference........................................ "Incorporation of Certain Documents
by Reference."
12. Information with Respect to S-2 or S-3
Registrants...................................... *
13. Incorporation of Certain Information by
Reference........................................ *
14. Information with Respect to Registrants Other
Than S-2 of S-3 Registrants.................... *
15. Information with Respect to S-3 Companies........ *
16. Information with Respect to S-2 or S-3
Companies........................................ *
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies............................. *
18. Information if Proxies, Consents or
Authorizations are to be Solicited............. *
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer................................... "Summary"; "Risk Factors";
"Description of Notes";
"Description of Preferred Stock
and 10% Subordinated Debentures."
</TABLE>
- ------------
* Item is omitted because answer is negative or Item is inapplicable.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 14, 1996
PROSPECTUS
, 1996
[LOGO]
K-III COMMUNICATIONS CORPORATION
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF ITS 8 1/2% SENIOR NOTES DUE 2006 FOR EACH $1,000
IN PRINCIPAL AMOUNT OF ITS OUTSTANDING 8 1/2% SENIOR NOTES DUE 2006
OFFER TO EXCHANGE
ITS $10.00 SERIES D EXCHANGEABLE PREFERRED STOCK REDEEMABLE 2008 (LIQUIDATION
PREFERENCE $100.00 PER SHARE) (EXCHANGEABLE AT THE OPTION OF K-III) FOR ANY AND
ALL OUTSTANDING SHARES OF ITS $10.00 SERIES C EXCHANGEABLE PREFERRED STOCK
REDEEMABLE 2008 (LIQUIDATION PREFERENCE $100.00 PER SHARE) (EXCHANGEABLE AT THE
OPTION OF K-III)
-------------------
K-III Communications Corporation, a Delaware corporation ("K-III"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (this "Prospectus") and the accompanying Letters of Transmittal (the
"Letters of Transmittal") (i) to exchange (the "Notes Exchange Offer") up to
$300,000,000 in aggregate principal amount of a new series of its 8 1/2% Senior
Notes due 2006 (the "New Notes") for $300,000,000 in aggregate principal amount
of its outstanding 8 1/2% Senior Notes due 2006 (the "Old Notes") and (ii) to
exchange (the "Preferred Stock Exchange Offer" and, together with the Notes
Exchange Offer, the "Exchange Offers") one share of its $10.00 Series D
Exchangeable Preferred Stock Redeemable 2008, par value $.01 per share,
liquidation preference $100.00 per share (the "New Preferred Stock"), for each
outstanding share of its $10.00 Series C Exchangeable Preferred Stock Redeemable
2008, par value $.01 per share, liquidation preference $100.00 per share (the
"Old Preferred Stock"), of which 2,000,000 shares are outstanding. There will be
no cash proceeds to K-III from these Exchange Offers.
The form and terms of the New Notes and the New Preferred Stock are the same
as the form and terms of the Old Notes and the Old Preferred Stock except that
(i) the New Notes and the shares of New Preferred Stock will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and thus will not bear restrictive legends restricting their transfer pursuant
to the Securities Act and (ii) holders of New Notes and/or New Preferred Stock
will not be entitled to certain rights of holders of the Old Notes and the Old
Preferred Stock, respectively, under the Registration Rights Agreement (as
defined) which will terminate upon the consummation of the Exchange Offers. See
"The Exchange Offers--Consequences of Failure to Exchange." The Old Notes and
the New Notes are sometimes referred to herein collectively as the "Notes." The
Old Preferred Stock and the New Preferred Stock are sometimes referred to herein
collectively as the "Preferred Stock." The New Preferred Stock is exchangeable
into 10% Class D Subordinated Exchange Debentures due 2008 (the "New
Subordinated Debentures"), in whole but not in part, at the option of K-III,
provided that no shares of Senior Preferred Stock (as defined) are outstanding
on the date of the exchange. The form and terms of the New Subordinated
Debentures will be the same as the form and terms of the 10% Class C
Subordinated Exchange Debentures due 2008 (the "Old Subordinated Debentures"),
except that the New Subordinated Debentures will have been registered under the
Securities Act pursuant to the Registration Statement of which this Prospectus
is a part. The New Subordinated Debentures are exchangeable for the New
Preferred Stock on the same basis as the Old Subordinated Debentures are
exchangeable for the Old Preferred Stock. The New Subordinated Debentures and
the Old Subordinated Debentures are sometimes referred to herein collectively as
the "10% Subordinated Debentures," and the New Notes, the New Preferred Stock
and the New Subordinated Debentures are sometimes referred to herein
collectively as the "Securities."
Interest on the New Notes shall accrue from the last interest payment date on
which interest was paid on the Old Notes surrendered in exchange therefor or, if
no interest has been paid, from the original date of issuance of the Old Notes.
Dividends on the New Preferred Stock will accrue and will be cumulative from the
last dividend payment date on which dividends were paid on the shares of Old
Preferred Stock surrendered in exchange therefor or, if no dividends have been
paid, from the original date of issuance of the Old Preferred Stock.
The Old Notes and Old Preferred Stock were originally issued and sold on
January 24, 1996 in transactions not registered under the Securities Act, in
reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Old Notes and Old Preferred Stock may not be reoffered, resold
or otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. BASED ON INTERPRETATIONS BY THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION, NEW NOTES AND NEW PREFERRED STOCK ISSUED
PURSUANT TO THE EXCHANGE OFFERS IN EXCHANGE FOR OLD NOTES AND OLD PREFERRED
STOCK MAY BE OFFERED FOR RESALE, RESOLD AND OTHERWISE TRANSFERRED BY HOLDERS
THEREOF (OTHER THAN ANY SUCH HOLDER WHICH IS AN "AFFILIATE" OF K-III 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 SUCH NEW NOTES AND NEW PREFERRED STOCK ARE ACQUIRED IN THE ORDINARY COURSE
OF SUCH HOLDER'S BUSINESS AND SUCH HOLDERS HAVE NO ARRANGEMENT WITH ANY PERSON
TO PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW NOTES AND NEW PREFERRED STOCK.
The Notes and the Preferred Stock constitute new issues of securities with no
established trading market. Any Old Notes or shares of Old Preferred Stock not
tendered and accepted in the Exchange Offers will remain outstanding. To the
extent that Old Notes or shares of Old Preferred Stock are tendered and accepted
in the Exchange Offers, a holder's ability to sell untendered Old Notes or
shares of Old Preferred Stock could be adversely affected. No assurance can be
given as to the liquidity of the trading market for either the Notes or the
Preferred Stock. See "Risk Factors--Lack of Public Market."
K-III will accept for exchange any and all Old Notes or shares of Old
Preferred Stock validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on , 1996, unless extended by K-III in its sole discretion
(such date as it may be so extended, the "Expiration Date"). Tenders of Old
Notes or shares of Old Preferred Stock may be withdrawn at any time prior to the
Expiration Date. The Exchange Offers are subject to certain customary
conditions. See "The Exchange Offers."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
K-III has filed with the Securities and Exchange Commission (the
"Commission" or "SEC") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act for the registration of the Securities
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to K-III and the Securities
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto, and financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. In addition, K-III has agreed to furnish to holders of the Old
Notes and Old Preferred Stock, and prospective purchasers thereof, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act until the consummation of the Exchange Offers.
K-III is subject to the informational requirements of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy or information statements and other information
with the Commission. The Registration Statement and the exhibits and schedules
thereto, as well as such reports and other information filed by K-III with the
Commission may be inspected and copied, at prescribed rates, at the public
reference facilities of the Commission, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Commission's regional offices at Seven World
Trade Center, 13th floor, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Reports
and other information concerning K-III are also available for inspection and
copying at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
K-III hereby incorporates by reference in this Prospectus its Annual Report
on Form 10-K, File No. 1-11106, for the year ended December 31, 1995 (the "Form
10-K"), as filed with the Commission. K-III also hereby incorporates by
reference in this Prospectus its Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1996 and its Current Reports on Form 8-K dated January 2, 1996
as amended by Form 8-K/A dated March 15, 1996 and dated April 24, 1996, each as
filed with the Commission.
All documents filed by K-III pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the Exchange Offers shall be deemed to be incorporated by
reference in the Prospectus and made a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other document subsequently filed with the Commission which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON WRITTEN OR ORAL
REQUEST FROM: CORPORATE SECRETARY, K-III COMMUNICATIONS CORPORATION, 745 FIFTH
AVENUE, NEW YORK, NEW YORK 10151, (212) 745-0100. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1996.
-------------------
In this Prospectus, references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." means the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
Available Information.............................................. 2
Incorporation of Certain Documents by Reference.................... 2
Summary............................................................ 4
Glossary of Certain Defined Terms.................................. 15
Risk Factors....................................................... 17
Use of Proceeds.................................................... 20
Capitalization..................................................... 21
Selected Financial Data............................................ 22
Business........................................................... 26
The Exchange Offers................................................ 37
Description of Notes............................................... 45
Description of Preferred Stock and 10% Subordinated Debentures..... 67
Description of Capital Stock of K-III.............................. 84
Description of Certain Indebtedness................................ 88
Certain Federal Income Tax Considerations.......................... 94
Legal Matters...................................................... 104
Experts............................................................ 104
Unaudited Pro Forma Consolidated Financial Data.................... P-1
-------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFERS COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY K-III. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE NOTES OR THE PREFERRED STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF K-III SINCE THE DATE HEREOF.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless the context indicates
otherwise, all references herein to the "Company" include K-III and its
subsidiaries. Pro forma amounts include adjustments for acquisitions,
divestitures, the redemption of preferred stock, the initial public offering of
common stock and the offerings of the Old Notes and Old Preferred Stock (the
"Offerings") described herein. Please refer to "Glossary of Certain Defined
Terms" for definitions of certain capitalized terms used in this Prospectus.
THE COMPANY
Through its wholly owned subsidiaries, K-III is a leading content provider
to the education, business and special interest consumer markets; its best-known
brands include Channel One News, The World Almanac, Nelson's, Weekly Reader,
Daily Racing Form, Seventeen, Modern Bride and Soap Opera Digest. Most of the
Company's products serve niche markets and are recognized within those markets
as premier franchises, and many hold dominant positions. The Company focuses on
ownership and development of content, because content can be tailored to
specific information needs across print, electronic and multimedia formats.
Furthermore, proprietary branded content exists independent of any specific
delivery technology. The Company organized its businesses into three segments,
education, information and media, which accounted, respectively, for
approximately 32%, 25%, and 43% of K-III's 1995 consolidated net sales of $1,046
million.
The principal executive office of the Company is located at 745 Fifth
Avenue, New York, New York 10151, telephone number (212) 745-0100.
4
<PAGE>
THE EXCHANGE OFFERS
<TABLE>
<S> <C>
Registration Rights Agreement;
Effect on Holders.............. The Old Notes and Old Preferred Stock were sold by K-III on
January 24, 1996 to Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Brothers Inc, as the initial purchasers (the
"Initial Purchasers") pursuant to a Purchase Agreement
dated January 19, 1996 between K-III and the Initial
Purchasers (the "Purchase Agreement"). The Initial
Purchasers subsequently sold the Old Notes and Old
Preferred Stock to qualified institutional buyers and
accredited investors in reliance on Rule 144A and
Regulation S under the Securities Act. Pursuant to the
Purchase Agreement, K-III and the Initial Purchasers
entered into a Registration Rights Agreement dated as of
January 24, 1996 (the "Registration Rights Agreement")
which grants the holders of the Old Notes and Old Preferred
Stock certain exchange and registration rights. These
Exchange Offers are intended to satisfy such rights.
Therefore, the holders of the Securities are not entitled
to any exchange or registration rights with respect
thereto. All untendered Old Notes and shares of Old
Preferred Stock will continue to be subject to the
restrictions on transfer described under "The Exchange
Offers--Consequences of Failure to Exchange." To the extent
that Old Notes or shares of Old Preferred Stock are
tendered and accepted in the Exchange Offers, the trading
market for untendered Old Notes or shares of Old Preferred
Stock (as the case may be) could be adversely affected. See
"The Exchange Offers--Purpose and Effect of the Exchange
Offers" and "--Consequences of Failure to Exchange" and
"Risk Factors--Lack of Public Market."
The Notes Exchange Offer........ Up to $300,000,000 in principal amount of New Notes will be
exchanged for 300,000,000 in aggregate principal amount of
Old Notes. K-III will issue the New Notes to holders on the
earliest possible date following the Expiration Date.
The Preferred Stock Exchange
Offer........................... One share of New Preferred Stock will be exchanged for each
share of Old Preferred Stock. As of the date hereof,
2,000,000 shares of Old Preferred Stock are outstanding.
K-III will issue the New Preferred Stock to holders on the
earliest practicable date following the Expiration Date.
Expiration Date................. 5:00 p.m., New York City time, on 1996, unless the
Exchange Offers are extended by K-III in its sole
discretion, in which case the term "Expiration Date" means
the latest date and time to which the Exchange Offers are
extended.
Conditions to the Exchange
Offers.......................... The Exchange Offers are not conditioned upon any minimum
aggregate principal amount of Old Notes or number of shares
of Old Preferred Stock being tendered for exchange.
However, the Exchange Offers are subject to certain
customary conditions, which may be waived by K-III. See
"The Exchange Offers-- Conditions of the Exchange Offers".
K-III reserves the right to
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
terminate the Exchange Offers if any of such conditions
have not been satisfied and to amend the Exchange Offers at
any time prior to the Expiration Date.
Procedures for Tendering the Old
Notes and the Old Preferred
Stock........................... See "The Exchange Offers--Procedures for Tendering" and
"--Guaranteed Delivery Procedures."
Withdrawal Rights............... Tenders may be withdrawn at any time prior to the Expiration
Date. See "The Exchange Offers--Withdrawal of Tenders."
Acceptance of the Old Notes or
the Old Preferred Stock and
Delivery of the New Notes or
the New Preferred Stock........ K-III will accept for exchange any and all Old Notes or
shares of Old Preferred Stock which are properly tendered in
the Exchange Offers prior to the Expiration Date. The New
Notes or shares of New Preferred Stock issued pursuant to
the Exchange Offers will be delivered on the earliest
practicable date following the Expiration Date. See "The
Exchange Offers--Terms of the Exchange Offers."
Certain Tax Considerations...... For a discussion of certain federal income tax consequences
of the exchange of the Old Notes and the Old Preferred
Stock, see "Certain Federal Income Tax Considerations--Tax
Consequences of the Exchange Offers."
Exchange Agent.................. The Bank of New York is serving as the exchange agent (the
"Exchange Agent") in connection with the Exchange Offers.
</TABLE>
6
<PAGE>
TERMS OF THE NOTES, THE PREFERRED STOCK
AND THE 10% SUBORDINATED DEBENTURES
The Exchange Offers apply to $300,000,000 aggregate principal amount of the
Old Notes and 2,000,000 shares of the Old Preferred Stock. The form and terms of
the New Notes and the New Preferred Stock are the same as the form and terms of
the Old Notes and the Old Preferred Stock except that the New Notes and the
shares of New Preferred Stock will have been registered under the Securities Act
and thus will not bear restrictive legends restricting their transfer pursuant
to the Securities Act. The form and terms of the New Subordinated Debentures
will be the same as the Old Subordinated Debentures. See "Description of Notes,
Preferred Stock and 10% Subordinated Debentures."
<TABLE>
<S> <C>
THE NOTES
Maturity Date.............. February 1, 2006.
Interest Payment Dates..... February 1 and August 1 of each year, commencing August 1,
1996. Interest on the Old Notes has accrued from the original
date of issuance thereof will cease to accrue on the date
the New Notes are exchanged for the Old Notes and shall be
paid on the first interest payment date after the date the
New Notes are exchanged for the Old Notes. Interest on the
New Notes will accrue from the date the New Notes are
exchanged for the Old Notes.
Optional Redemption........ The Notes are redeemable at the option of K-III in whole or in
part, on or after February 1, 2001, or prior thereto upon a
Change of Control (as defined) at the redemption prices set
forth herein, plus accrued and unpaid interest to the
redemption date. See "Description of Notes."
Change of Control.......... In the event of a Change of Control (i) each holder of the
Notes will have the right to require K-III to repurchase such
holder's Notes at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to
the repurchase date and (ii) K-III will have the option to
redeem the Notes, in whole or in part, at the redemption
prices set forth herein, plus accrued and unpaid interest to
the redemption date. The redemption prices for optional
redemptions in the event of a Change of Control will in all
cases be equal to or greater than this repurchase price.
Because of the highly leveraged nature of the Company, there
can be no assurance that K-III will have sufficient funds to
repurchase the Notes in the event of a Change of Control.
See "Description of Notes."
"Change of Control" means such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act), other than Kohlberg Kravis Roberts &
Co., L.P. ("KKR") and its Affiliates (as defined), becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than (A) 35% of the total voting power
of the then outstanding voting stock of K-III and (B) the
total voting power of the then outstanding voting stock of
K-III beneficially owned by KKR and
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
its Affiliates or (ii) during any period of two consecutive
calendar years, individuals who at the beginning of such
period constituted K-III's Board of Directors (together with
any new directors whose election by K-III's Board of
Directors or whose nomination for election by K-III's
shareholders was approved by a vote of at least two-thirds
of the Directors then still in office who either were
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 directors
then in office.
Indebtedness under the Credit Agreements (as defined) will
automatically accelerate upon the earlier of 30 days from
the Change of Control and the date payment is required to be
made in respect of any tendered Notes. See "Description of
Certain Indebtedness." If the Company has insufficient funds
with which to repay the indebtedness under the Credit
Agreements and to repurchase the Notes, the holders of the
Notes will have a claim on the funds of the Company equal to
that of the lenders under the Credit Agreements.
Guarantees................. The Notes are guaranteed on a senior basis by each of the
domestic Restricted Subsidiaries (as defined), which
guarantees rank pari passu with such subsidiaries'
guarantees of K-III's obligations under the Credit
Agreements and the Outstanding Notes (as defined). Each such
guarantee is limited to 95% of the Adjusted Net Worth (as
defined) of the relevant guarantor.
Ranking.................... The Notes rank pari passu with the obligations of K-III under
the Credit Agreements and the Outstanding Notes. At March 31,
1996, the aggregate principal amount of outstanding
indebtedness was $469.9 million under the Credit Agreements
and $350.0 million under the Outstanding Notes. None of such
indebtedness was secured. The Notes will rank senior in
right of payment to all future subordinated indebtedness of
the Company. Such subordinated indebtedness will be limited
to the Exchange Debentures, the Class B Subordinated
Debentures and the 10% Subordinated Debentures, if and when
the same are issued at the option of K-III in exchange for
the Senior Preferred Stock, the Series B Preferred Stock,
and the Preferred Stock, respectively, and additional
subordinated indebtedness that is permitted to be incurred
by the terms of the Credit Agreements, the Senior Note
Indentures and such other indebtedness as K-III may have
outstanding from time to time. As of the date of this
Prospectus, the Company has no subordinated indebtedness
outstanding, and the Company has no current intention to
issue subordinated indebtedness. As used herein, the
statement that certain indebtedness ranks pari passu with
other indebtedness means only that in the event of the
bankruptcy or insolvency of the debtor such certain
indebtedness and such other indebtedness will have an equal
claim on money or other property of the debtor available for
distribution.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Certain Covenants.......... The Note Indenture pursuant to which the Old Notes have been
and the New Notes will be issued contains certain covenants
which, among other things, limit the ability of the Company
to (i) incur indebtedness, (ii) create liens, (iii) sell
assets, (iv) engage in mergers, consolidations or
transactions with affiliates, (v) make investments in
certain subsidiaries, (vi) pay dividends on or repurchase or
retire capital stock and (vii) make certain other Restricted
Payments (as defined).
Sinking Fund............... There are no sinking fund payments for the Notes.
THE PREFERRED STOCK
Dividends.................. Cumulative at $10.00 per annum. All dividends are payable in
cash on February 1, May 1, August 1, and November 1 of each
year, commencing May 1, 1996. Dividends on the Old Preferred
Stock have accrued and are cumulative from the original date
of issuance thereof to the date on which shares of Old
Preferred Stock are surrendered and shall be paid on the
first dividend payment date after the date the New Preferred
Stock is exchanged for the Old Preferred Stock. Dividends on
the New Preferred Stock will accrue and will be cumulative
from the date the New Preferred Stock is exchanged for the
Old Preferred Stock. For federal income tax purposes,
distributions with respect to the Preferred Stock will not
qualify as dividends and will be treated as a return of
capital until the Company has earnings and profits as
determined under applicable federal income tax principles.
See "Certain Federal Income Tax Considerations."
Liquidation Preference..... $100.00 per share, plus accrued and unpaid dividends.
Voting..................... Holders of the Preferred Stock have no general voting rights
except as provided by law and as provided in the Certificates
of Designations therefor. Upon the failure of the Company to
pay dividends in cash for more than six consecutive
quarters, holders of a majority of the outstanding shares of
Preferred Stock, voting together as a class, will be
entitled to elect two members to the Board of Directors of
K-III. Subject to certain exceptions, holders of a majority
of the outstanding Preferred Stock together with any parity
securities issued in the future ("Future Parity Securities")
will have the right, voting together as a class, to approve
certain mergers, consolidations and sales of assets by the
Company.
Mandatory Redemption....... K-III is required to redeem the Preferred Stock on February 1,
2008 at a redemption price equal to the liquidation preference
plus accrued and unpaid dividends to the redemption date.
Optional Redemption........ On and after February 1, 2001, the Preferred Stock is
redeemable, at the option of K-III, in whole or in part, at
the redemption prices set forth herein, plus accrued and
unpaid dividends to the redemption date.
Optional Redemption Upon
Public Equity Offering....... At any time on or prior to February 1, 1999, K-III may, at its
option, redeem up to $100 million of the aggregate liquidation
preference
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
of the Preferred Stock at a price per share of $110.00, plus
accrued and unpaid dividends to the redemption date, with
the net proceeds of one or more Public Equity Offerings (as
defined), provided such redemption occurs within 180 days of
such Public Equity Offering. See "Description of Preferred
Stock and 10% Subordinated Debentures--The Preferred Stock."
Ranking.................... The Preferred Stock ranks junior to the Senior Preferred Stock
and pari passu with the Series B Preferred Stock. As of March
31, 1996, 4,000,000 shares of the Senior Preferred Stock
($100,000,000 aggregate liquidation preference) were issued
and outstanding and 1,405,397 shares of Series B Preferred
Stock ($140,539,700 aggregate liquidation preference), which
include dividends paid in kind from time to time thereon to
such date, were issued and outstanding. See "Description of
Capital Stock of K-III."
Exchange Feature........... The Preferred Stock is exchangeable on any scheduled dividend
payment date into 10% Subordinated Debentures at the option
of K-III, in whole but not in part, provided that no shares
of the Senior Preferred Stock are outstanding on the date of
exchange. See "Description of Preferred Stock and 10%
Subordinated Debentures--The Preferred Stock."
THE 10% SUBORDINATED DEBENTURES
Maturity Date.............. February 1, 2008.
Interest Payment Dates..... February 1, May 1, August 1 and November 1 of each year,
commencing with the first of such dates to occur after the
Exchange Date (as defined).
Optional Redemption........ On and after February 1, 2001 or after a Change of Control,
the 10% Subordinated Debentures are redeemable, at the option
of K-III, in whole or in part, at the redemption prices set
forth herein plus accrued and unpaid interest to the
redemption date.
Optional Redemption Upon
Public Equity Offering....... At any time prior to February 1, 1999, K-III may, at its
option, redeem up to $100 million of the aggregate principal
amount of the 10% Subordinated Debentures at 10% of their
principal amount, plus accrued and unpaid interest to the
redemption date with the net proceeds of one or more Public
Equity Offerings, provided such redemption occurs within 180
days of such Public Equity Offering. See "Description of
Preferred Stock and 10% Subordinated Debentures--The 10%
Subordinated Debentures."
Change of Control.......... In the event of a Change of Control (i) each holder of the 10%
Subordinated Debentures will have the right to require K-III
to repurchase such holder's 10% Subordinated Debentures at a
purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest to the repurchase date and
(ii) K-III will have the option to redeem the 10%
Subordinated Debentures, in whole or in part, at the
redemption prices set forth herein, plus accrued and unpaid
interest to the redemption date. The redemption prices for
optional redemptions in the event of a
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Change of Control will in all cases be equal to or greater
than this repurchase price. Notwithstanding the foregoing,
K-III shall not be required to make any such repurchase
unless K-III shall have either repaid all outstanding Senior
Indebtedness (as defined) or obtained the requisite
consents, if any, under all agreements governing all such
outstanding Senior Indebtedness, to permit the repurchase of
the 10% Subordinated Debentures. Because of the highly
leveraged nature of the Company, there can be no assurance
that K-III will have sufficient funds to repurchase the 10%
Subordinated Debentures in the event of a Change of Control.
See "Description of Preferred Stock and 10% Subordinated
Debentures--The 10% Subordinated Debentures."
Ranking.................... The 10% Subordinated Debentures will rank pari passu with the
Class B Subordinated Debentures and will be subordinate to
all existing and future senior indebtedness of K-III and
structurally subordinate to the creditors, including trade
creditors, of K-III's subsidiaries. The amount of senior
indebtedness (including indebtedness and other current and
non-current liabilities of K-III's subsidiaries) as of March
31, 1996 was approximately $1,565 million. None of such
indebtedness was secured.
Certain Covenants.......... The 10% Subordinated Debenture Indenture contains certain
covenants which, among other things, limit the ability of
the Company to engage in certain mergers, consolidations and
sales of assets and certain transactions with Affiliates and
to pay dividends on or retire or repurchase capital stock.
</TABLE>
USE OF PROCEEDS
There will be no cash proceeds to K-III from the Exchange Offers.
RISK FACTORS
Prospective purchasers of the Securities should take into account the
specific considerations set forth under "Risk Factors" as well as the other
information set forth in this Prospectus. In particular, the Company has
substantial debt service requirements, which reduce funds available for capital
expenditures and future business opportunities, and the Company has historical
operating losses. In addition, prospective investors should take into account
the following risk factors: (i) there is a deficiency in earnings to fixed
charges and a deficiency in earnings to fixed charges and dividends on preferred
stock; (ii) the Company is sensitive to increases in paper and postage costs;
(iii) there has been no public market for the Securities; and (iv) approximately
76% of the shares of Common Stock (on a fully diluted basis) are controlled by
certain investment partnerships of which an affiliate of KKR is the general
partner.
11
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present summary consolidated financial data derived
from the Company's unaudited consolidated financial statements for the three
months ended March 31, 1996 and 1995 and the Company's audited consolidated
financial statements for the years ended December 31, 1995, 1994 and 1993. In
addition, the following tables present summary consolidated financial data
relating to the Company's unaudited pro forma operating results for the three
months ended March 31, 1996 and the year ended December 31, 1995.
The summary unaudited pro forma consolidated operating data for the three
months ended March 31, 1996 and the year ended December 31, 1995 give effect to
the following transactions and events as if they had occurred on January 1,
1995: (i) the acquisitions of certain net assets or capital stock all of which
have been completed as described in Notes 4 and 29 of the notes to the Company's
consolidated financial statements for the years ended December 31, 1995, 1994
and 1993 incorporated by reference into this prospectus (collectively referred
to as the "Acquired Businesses"); (ii) the divestitures of Sales Prospector,
Lakewood Publications, Inc. and Motorcycle Product News, which were acquired in
1995, Newfield Publications, Inc. ("Newfield") and Premiere magazine
(collectively referred to as the "Divested Businesses"); (iii) the August 3,
1995 redemption (the "Redemption") of old preferred stock through borrowings
under the Revolving Credit Agreement; (iv) the Initial Public Offering and (v)
the Offerings. The adjustments to reflect the acquisition of the Acquired
Businesses, the divestiture of the Divested Businesses, the Redemption, the
Initial Public Offering and the Offerings are hereinafter referred to as the
"Pro Forma Adjustments."
The summary unaudited pro forma consolidated financial data do not purport
to represent what the Company's consolidated results of operations would
actually have been if the transactions that give rise to the Pro Forma
Adjustments had in fact occurred on the dates assumed in making such adjustments
and do not purport to project the consolidated results of operations of the
Company for any future date or period. The following information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Company's historical consolidated financial
statements and the notes thereto incorporated by reference into this Prospectus
and the Company's unaudited pro forma consolidated financial data and the notes
thereto included elsewhere in this Prospectus.
12
<PAGE>
K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------------------------- ----------------------------------------------------
1996 1996 1995 1995 1995 1994 1993
PRO FORMA ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL ACTUAL
------------ ------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales, net.................. $ 314,953 $ 314,953 $ 238,664 $ 1,245,173 $ 1,046,329 $ 964,648 $ 844,748
Depreciation and
amortization................ 44,227 44,227 37,240 234,787 192,276 136,866 143,267
Other charges(1)............ -- -- -- 14,667 50,114 15,025 2,644
Operating income
(loss)(2)................... 6,985 6,985 4,663 5,360 (26,275) 10,203 (7,669)
Interest expense............ 27,472 28,051 24,614 109,791 105,384 78,244 74,336
Amortization of deferred
financing and
organizational costs........ 933 900 733 3,773 3,135 3,080 3,520
Income tax benefit(3)....... -- -- -- 59,600 59,600 42,100 --
Net loss(2)................. (20,194) (20,740) (20,701) (48,845) (75,435) (41,403) (86,496)
Preferred stock dividends... 11,844 6,844 6,414 46,287 28,978 25,959 22,290
Loss applicable to common
shareholders................ $ (32,038) $ (27,584) $ (27,115) $ (95,132) $ (104,413) $ (67,362) $ (108,786)
Loss per common and common
equivalent share(4)......... $ (.25) $ (.21) $ (.25) $ (.73) $ (.91) $ (.65) $ (1.18)
------------ ------------ ------------ ----------- ------------ ------------ -----------
------------ ------------ ------------ ----------- ------------ ------------ -----------
Weighted average common and
common equivalent shares
outstanding(4).............. 128,502,847 128,502,847 109,622,179 129,452,500 115,077,498 103,642,668 92,392,189
------------ ------------ ------------ ----------- ------------ ------------ -----------
------------ ------------ ------------ ----------- ------------ ------------ -----------
OTHER DATA:
EBITDA(5)................... $ 51,212 $ 51,212 $ 41,903 $ 254,814 $ 216,115 $ 162,094 $ 138,242
Capital expenditures........ 3,989 3,989 4,681 29,209 25,179 16,118 13,416
Net cash provided by (used
in) operating activities... (183) (729) (3,384) 102,525 64,062 64,890 27,072
Net cash used in investing
activities.................. (213,408) (213,408) (151,362) (514,092) (318,712) (442,126) (95,669)
Net cash provided by
financing activities....... 214,133 219,133 159,560 442,595 263,644 383,924 63,579
Deficiency of earnings to
fixed
charges(6)(7)(8)(9)......... (20,194) (20,740) (20,701) (108,445) (135,035) (83,503) (86,496)
Deficiency of earnings to
fixed charges and preferred
stock
dividends(6)(7)(8)(9)....... (32,038) (27,584) (27,115) (154,732) (164,013) (109,462) (108,786)
Ratio of EBITDA to cash
interest expense(10)....... 2.3x(13) 2.1x(13) 2.5x(13) 2.4x 2.1x 2.2x 2.1x
Ratio of EBITDA to cash
interest expense and cash
dividends on preferred
stock(10)................... 1.8x(13) 1.9x(13) 2.1x(13) 1.8x 1.9x 1.9x 1.8x
Ratio of EBITDA to interest
expense and dividends on
preferred stock............. 1.6x(13) 1.6x(13) 1.8x(13) 1.6x 1.6x 1.6x 1.4x
Leverage Ratio(11)(12)...... 4.6x(13) 4.7x(13) 4.9x(13) 4.5x 4.9x 5.4x 4.7x
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------
<S> <C>
ACTUAL
--------------------
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 32,222
Working capital (deficiency)....................................................... (29,346)
Intangible assets, net............................................................. 1,407,206
Total assets....................................................................... 2,088,966
Long-term debt (excluding current maturities)...................................... 1,169,037
Senior and Series B Preferred Stock................................................ 235,723
Series C Exchangeable Preferred Stock/New Preferred Stock.......................... 193,807
Common stock subject to redemption................................................. 25,340
Shareholders' equity............................................................... 68,797
</TABLE>
- ------------
(1) Represents provision for restructuring and other costs in 1995, net
provision for loss on the sales of businesses in 1995 and 1994 and
provision for write-down of real estate no longer utilized in 1993.
(2) The adoption of a change in method of accounting for advertising costs (the
"Accounting Change") resulted in an increase in operating income or
decrease in operating loss and a decrease in net loss of approximately
$9,600 ($.07 per share) and approximately $16,000 ($.15 per share) for the
(Footnotes continued on following page)
13
<PAGE>
(Footnotes continued from preceding page)
three months ended March 31, 1996 and 1995, respectively, and approximately
$11,800 ($.10 per share) and approximately $9,800 ($.09 per share) for the
years ended December 31, 1995 and 1994, respectively.
(3) At December 31, 1995 and 1994, management of the Company reviewed recent
operating results for the years ended December 31, 1995 and 1994 and
projected future operating results for the years ending December 31, 2001
and determined that a portion of the net deferred income tax assets at
December 31, 1995 and 1994 would likely be realized. Accordingly, the
Company recorded an income tax benefit of $59,600 in 1995 and $42,100 in
1994. At December 31, 1995, the Company had net operating losses ("NOLs")
of approximately $632,000 which will be available to reduce future taxable
income. In addition, including the January 1996 acquisitions, management
estimates that more than $725,000 of unamortized goodwill and other
intangible assets will be available as a deduction from any future taxable
income.
(4) Loss per common and common equivalent share, as well as the weighted
average common and common equivalent shares outstanding, were computed as
described in Note 8 of the notes to the consolidated financial statements
for the three months ended March 31, 1996 and 1995 and Note 3 of the notes
to the consolidated financial statements for the years ended December 31,
1995, 1994 and 1993 incorporated by reference into this Prospectus.
(5) Earnings before interest, taxes, depreciation, amortization and provision
for one-time charges ("EBITDA") is not intended to represent cash flow from
operations and should not be considered as an alternative to net loss as an
indicator of the Company's operating performance or to cash flows as a
measure of liquidity. The Company believes EBITDA is a standard measure
commonly reported and widely used by analysts, investors and other
interested parties in the media industry. Accordingly, this information has
been disclosed herein to permit a more complete comparative analysis of the
Company's operating performance relative to other companies in its
industry.
(6) The deficiency of earnings to fixed charges consists of loss before income
taxes plus fixed charges. Loss before income taxes includes (i)
depreciation and amortization of prepublication costs, deferred financing
costs, property and equipment, intangible assets and excess of purchase
price over net assets acquired, (ii) interest expense, (iii) write-off of
unamortized deferred financing costs, (iv) provision for write-down of real
estate no longer utilized, (v) net provision for loss on sales of
businesses, (vi) restructuring and other costs, and (vii) that portion of
operating rental expense that represents interest. Prepublication costs
include editorial, artwork, composition and printing plate costs incurred
prior to publication date. Fixed charges consist of interest expense
associated with long-term debt and other non-current obligations (including
current maturities of long-term debt), amortization of deferred financing
costs and that portion of operating rental expense that represents
interest.
(7) The calculation of loss applicable to common shareholders includes non-cash
charges for depreciation and amortization of property and equipment,
prepublication costs, intangible assets, excess of purchase price over net
assets acquired and deferred financing costs, write-offs of unamortized
deferred financing costs, provision for write-down of real estate no longer
utilized, provision for loss on the sales of businesses, restructuring and
other costs, non-cash interest expense on an acquisition obligation,
distribution advance, original issue discount and other current liability,
and non-cash preferred stock dividend requirements. These non-cash charges
totaled $50,777 and $43,466 for the three months ended March 31, 1996 and
1995, respectively, and $259,014, $187,111 and $168,754 for the years ended
December 31, 1995, 1994 and 1993, respectively. The pro forma non-cash
charges totaled $50,810 for the three months ended March 31, 1996 and
$264,109 for the year ended December 31, 1995.
(8) Adjusted to eliminate the non-cash charges described in Note 7 above, such
earnings would have exceeded fixed charges and fixed charges plus preferred
stock cash dividends by $26,068 and $23,193, respectively, for the three
months ended March 31, 1996, by $19,226 and $16,351, respectively, for the
three months ended March 31, 1995, by $106,501 and $95,001, respectively,
for the year ended December 31, 1995, by $89,149 and $77,649, respectively,
for the year ended December 31, 1994 and by $71,468 and $59,968,
respectively, for the year ended December 31, 1993.
(9) Adjusted to eliminate the pro forma non-cash charges described in Note 7
above, such pro forma earnings would have exceeded pro forma fixed charges
and pro forma fixed charges plus preferred stock cash dividends by $26,647
and $18,772, respectively, for the three months ended March 31, 1996 and by
$140,877 and $109,377, respectively, for the year ended December 31, 1995.
(10) For purpose of this computation, cash interest represents interest expense
less the non-cash portion of interest expense on an acquisition obligation,
distribution advance, original issue discount and other current liability.
(11) The leverage ratio represents the ratio of consolidated debt (which
includes total indebtedness, deferred purchase price liabilities,
outstanding letters of credit, capitalized lease obligations and the
principal amount outstanding under the acquisition obligation) to EBITDA,
as defined in the Company's credit agreements.
(12) The pro forma leverage ratio reflects the ratio of the Company's
consolidated debt as described in Note 11 above to the Company's
consolidated EBITDA both adjusted to give effect to the Pro Forma
Adjustments.
(13) The ratios have been calculated for the twelve months ended March 31, 1996
and 1995 because management believes that a twelve-month basis is more
meaningful.
14
<PAGE>
GLOSSARY OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
10 1/4% Senior Notes.................. The $100,000,000 principal amount of 10 1/4% Senior
Notes due 2004 issued by K-III.
<S> <C>
10 5/8% Senior Notes.................. The $250,000,000 principal amount of 10 5/8% Senior
Notes due 2002 issued by K-III.
10% Subordinated Debenture
Indenture........................... The Indenture governing the Old Subordinated
Debentures and, upon exchange, the New
Subordinated Debentures.
10% Subordinated Debentures........... The collective reference to the Old Subordinated
Debentures and the New Subordinated Debentures.
BONY Credit Agreement................. The credit agreement dated as of May 23, 1994,
among K-III, The Bank of New York, as agent, and
the various lending institutions from time to
time named therein, governing the BONY Term Loan.
BONY Term Loan........................ The $150,000,000 term loan under the BONY Credit
Agreement.
Chase Credit Agreement................ The credit agreement dated as of March 6, 1995,
among K-III, The Chase Manhattan Bank, N.A., as
agent, and the co-agents and various lending
institutions from time to time named therein,
governing the Chase Term Loan.
Chase Term Loan....................... The $150,000,000 term loan under the Chase Credit
Agreement.
Class B Debenture Indenture........... The Indenture governing the Class B Subordinated
Debentures, if and when issued.
Class B Subordinated Debentures....... The 11 5/8% Subordinated Exchange Debentures due
2005, issuable upon exchange of the Series B
Preferred Stock.
Common Stock.......................... The common stock, par value $.01 per share, of
K-III.
Company............................... K-III and its subsidiaries.
Credit Agreements..................... The collective reference to the Revolving Credit
Agreement, the BONY Credit Agreement and the
Chase Credit Agreement.
Exchange Debenture Indenture.......... The Indenture governing the Exchange Debentures, if
and when issued.
Exchange Debentures................... The 11 1/2% Subordinated Debentures due 2004,
issuable upon exchange of the Senior Preferred
Stock.
Initial Public Offering............... The initial public offering of 17,250,000 shares of
Common Stock.
New Notes............................. The $300,000,000 principal amount of 8 1/2% Senior
Notes due 2006, being exchanged hereby for the
Notes.
New Preferred Stock................... The 2,000,000 shares of $10.00 Series D
Exchangeable Preferred Stock Redeemable 2008, par
value $.01 per share, liquidation preference
$100.00 per share, being exchanged hereby for the
Old Preferred Stock.
New Subordinated Debentures........... The 10% Class D Subordinated Exchange Debentures
due 2008 issuable upon exchange of the New
Preferred Stock.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Note Indenture........................ The Indenture governing the Old Notes and, upon
exchange, the New Notes, between K-III and The
Bank of New York, as trustee.
Notes................................. The collective reference to the Old Notes and the
New Notes.
Notes Exchange Offer.................. The offer by K-III to holders of the Old Notes to
exchange the same for the New Notes.
Old Notes............................. The $300,000,000 principal amount of outstanding 8
1/2% Senior Notes due 2006 issued by K-III.
Old Preferred Stock................... The 2,000,000 shares of outstanding $10.00 Series C
Exchangeable Preferred Stock Redeemable 2008, par
value $.01 per share, liquidation preference
$100.00 per share.
Old Subordinated Debentures........... The 10% Subordinated Exchange Debentures due 2008,
issuable upon exchange of the Old Preferred
Stock.
Outstanding Note Indentures........... The collective reference to the indentures
governing the Outstanding Notes.
Outstanding Notes..................... The collective reference to the 10 5/8% Senior
Notes and the 10 1/4% Senior Notes.
Preferred Stock....................... The collective reference to the Old Preferred Stock
and the New Preferred Stock.
Preferred Stock Exchange Offer........ The offer by K-III to holders of the Old Preferred
Stock to exchange the same for the New Preferred
Stock.
Revolving Credit Agreement............ The amended and restated revolving credit
agreement, dated as of May 23, 1994 and amended and
restated as of November 17, 1994, among K-III,
Canadian Sailings Inc., a subsidiary of K-III,
The Chase Manhattan Bank, N.A., as agent, and the
co-agents and various lending institutions from
time to time named therein, providing for a
$670,000,000 revolving credit facility.
Securities............................ The collective reference to the New Notes, the New
Preferred Stock and the New Subordinated
Debentures, if and when issued.
Senior Note Indentures................ The collective reference to the Outstanding Note
Indentures and the Note Indenture.
Senior Notes.......................... The collective reference to the Outstanding Notes
and the Notes.
Senior Preferred Stock................ The 4,000,000 Shares of $2.875 Senior Exchangeable
Preferred Stock, par value $.01 per share,
liquidation preference $25.00 per share.
Series B Preferred Stock.............. The 1,405,397 Shares of $11.625 Series B Preferred
Stock, par value $.01 per share, liquidation
preference $100.00 per share, plus dividends
which are paid in kind from time to time thereon.
Subordinated Debenture Indentures..... The collective reference to the Exchange Debenture
Indenture, the Class B Debenture Indenture and
the 10% Subordinated Debenture Indenture.
Subordinated Debentures............... The collective reference to the Class B
Subordinated Debentures and the 10% Subordinated
Debentures.
</TABLE>
16
<PAGE>
RISK FACTORS
Prospective investors should take into account the considerations set forth
below as well as the other information set forth in this Prospectus before
purchasing any of the Securities offered hereby.
SUBSTANTIAL LEVERAGE
The Company has substantial indebtedness. At March 31, 1996, the Company had
a ratio of consolidated debt to total equity (including all preferred stock and
Common Stock subject to redemption) of 2.2 to 1. See "Capitalization" and
"Selected Financial Data." The indebtedness of the Company requires the
dedication of a substantial portion of the Company's cash flow to the payment of
principal and interest on indebtedness, thereby reducing funds available for
capital expenditures and future business opportunities.
At March 31, 1996, borrowings under the Credit Agreements were approximately
$469.9 million. Such borrowings bear interest at floating rates. Increases in
interest rates on indebtedness under the Credit Agreements would increase the
Company's interest payment obligations and could have an adverse effect on the
Company.
The agreements governing the outstanding indebtedness of the Company impose
certain operating and financial restrictions on the Company. Such restrictions
prohibit or limit, among other things, the ability of the Company to pay
dividends on or redeem capital stock, incur additional indebtedness, create
liens on its assets, sell assets or engage in mergers or consolidations or make
investments. These restrictions, in combination with the leveraged nature of the
Company, could limit the ability of the Company to effect future acquisitions or
financings or otherwise restrict corporate activities. Failure to comply with
the terms of such restrictions could result in the acceleration of the
indebtedness governed by such agreements. See "Description of Certain
Indebtedness."
DEFICIENCIES OF EARNINGS TO COVER FIXED CHARGES
The Company's pro forma earnings are inadequate to cover pro forma fixed
charges and pro forma fixed charges plus preferred stock dividends by $20.2
million and $32.0 million, respectively, for the three months ended March 31,
1996 and $108.4 million and $154.7 million, respectively, for the year ended
December 31, 1995. Fixed charges consist of interest expense associated with
long-term debt and other non-current obligations (including current maturities
on long-term debt), amortization of deferred financing costs and that portion of
operating rental expense that represents interest. Such earnings have been
reduced by pro forma non-cash charges (including depreciation, amortization and
non-cash dividends) of $50.8 million for the three months ended March 31, 1996
and $264.1 million for the year ended December 31, 1995. Adjusted to eliminate
these pro forma non-cash charges, such pro forma earnings would have exceeded
pro forma fixed charges and pro forma fixed charges plus preferred stock cash
dividends by $26.6 million and $18.8 million, respectively, for the three months
ended March 31, 1996 and $140.9 million and $109.4 million, respectively, for
the year ended December 31, 1995.
ACCELERATION OF CREDIT AGREEMENTS AND SENIOR NOTES
In the event that the Company is unable to generate cash flow sufficient to
meet required payments or does not make required payments of principal and
interest on its indebtedness under the Credit Agreements or is otherwise in
default with respect to the covenants thereunder or under the Senior Note
Indentures or the Subordinated Debenture Indentures, if entered into, the
holders of indebtedness under the Credit Agreements could elect to declare all
of the funds borrowed pursuant thereto to be due and payable together with
accrued and unpaid interest and to terminate their commitments under the Credit
Agreements. The final stated maturity of indebtedness under the Credit
Agreements and the
17
<PAGE>
Outstanding Notes, and the Exchange Debentures and Class B Subordinated
Debentures, if issued, is earlier than the final stated maturity of the Notes.
Any default under the documents governing the indebtedness of the Company could
have a significant adverse effect on the market value of the Securities.
INCOME (LOSSES) AFTER AMORTIZATION OF INTANGIBLES AND EXCESS PURCHASE PRICE
The Company had operating income (losses) for the three months ended March
31, 1996 and for the years ended December 31, 1995, 1994 and 1993 of $7.0
million, $(26.3) million, $10.2 million and $(7.7) million, respectively.
Included in the operating income (losses) for such periods are the amortization
of intangible assets, excess of purchase price over net assets acquired and
other in the amounts of $36.6 million, $166.5 million, $120.7 million and $133.8
million, respectively. The Company expects to continue to incur net operating
losses in the foreseeable future primarily due to its growth strategy.
FUTURE ACQUISITIONS
To expand its markets and diversify its business mix, the Company's business
strategy includes growth through acquisitions and investments. There can be no
assurance that future acquisitions will be consummated on terms favorable to the
Company or that any newly acquired companies will be successfully integrated
into the Company's operations. The Company may use equity or incur additional
long-term indebtedness or a combination thereof for all or a portion of the
consideration to be paid in future acquisitions.
FRAUDULENT CONVEYANCE CONSIDERATIONS
As of March 31, 1996, all of the assets of the Company were held by K-III's
subsidiaries and for the three months ended March 31, 1996 and for the year
ended December 31, 1995, all of the Company's operating revenues were derived
from operations of K-III's subsidiaries. Therefore, K-III's ability to make
payments when due to holders of the Notes is dependent upon the receipt of
sufficient funds from its subsidiaries. K-III's obligations under the Notes will
be guaranteed on a joint and several basis by its domestic Restricted
Subsidiaries.
If a Guarantee (as defined) is set aside or "avoided" under applicable
provisions of the federal bankruptcy law or comparable provisions of state
fraudulent transfer law, an event of default with respect to debt under the
Credit Agreements would occur, which could result in acceleration of such debt.
In addition, holders of the Notes would cease to have any claim in respect of a
Guarantor (as defined) and would be creditors solely of K-III and any Guarantor
whose Guarantee was not avoided or held unenforceable. In such event, a court
might require that any prior payments in respect of such debt (or an equivalent
amount) be returned to or for the benefit of existing or future creditors of
such Guarantor. There can be no assurance that, after providing for all prior
claims, there would be sufficient assets to satisfy the claims of the holders of
the Notes relating to any voided portions of any of the Guarantees.
Under applicable federal bankruptcy law or comparable provisions of state
fraudulent transfer law, a Guarantee could be avoided or claims in respect of
any such Guarantee could be subordinated to all other debts of the relevant
Guarantor if such Guarantor at the time it incurred obligations (whether at the
time such Guarantee was entered into or at the time guaranteed indebtedness is
incurred) under such Guarantee (a)(i) was or is insolvent or rendered insolvent
by reason of such incurrence or (ii) was or is engaged in a business or
transaction for which the assets remaining with such Guarantor constituted
unreasonably small capital or (iii) intended or intends to incur, or believed or
believes that it would incur, debts beyond its ability to pay such debts as they
mature, and (b) any such Guarantor received or receives less than reasonably
equivalent value or fair consideration in connection with the making of such
Guarantee.
18
<PAGE>
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Guarantor would be considered insolvent if the sum of its debts, including
contingent liabilities, were greater than the fair saleable value of all of its
assets at a fair valuation or if the present fair saleable value of its assets
were less than the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they become absolute
and mature.
The Company believes that none of the Guarantors will be, at the time the
Guarantees are given, insolvent under the foregoing standards, that none of the
Guarantors is engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital and that none of the Guarantors
intended or intends or will intend to incur debts beyond its ability to pay such
debts as they mature. There can be no assurance, however, that a court passing
on such questions would agree with the Company.
SUBORDINATION OF PREFERRED STOCK AND 10% SUBORDINATED DEBENTURES; HOLDING
COMPANY STRUCTURE
The Preferred Stock is junior in right of payment to all existing and future
liabilities and obligations (whether or not for borrowed money) of K-III (other
than common stock, Series B Preferred Stock and any preferred stock of K-III
which by its terms is on parity with or junior to the Preferred Stock).
The 10% Subordinated Debentures will rank pari passu with the Class B
Subordinated Debentures, if any, but will be subordinated to all existing and
future senior indebtedness of the Company, including the Senior Notes, the
obligations of the Company under the Credit Agreements and the Exchange
Debentures, if any. In addition, the 10% Subordinated Debentures will be
unsecured obligations of K-III. In the event of bankruptcy, liquidation or
reorganization of the Company, the assets of K-III will be available to pay
obligations on the 10% Subordinated Debentures only after all Senior Notes,
obligations under the Credit Agreements, Exchange Debentures, if any, and other
senior indebtedness of K-III have been paid in full. The 10% Subordinated
Debenture Indenture will not prohibit the incurrence by K-III of additional
indebtedness that is senior to or pari passu with the Class C Subordinated
Debentures.
The operations of K-III are and will be conducted through its subsidiaries,
and, therefore, K-III is dependent on the cash flow of its subsidiaries to meet
its obligations. Because the assets of K-III are and will be held by operating
subsidiaries, the claims of holders of the Preferred Stock and the 10%
Subordinated Debentures (which are not guaranteed by the operating subsidiaries)
will be structurally subordinate to all existing and future liabilities and
obligations (whether or not for borrowed money), including guarantees of
indebtedness under the Credit Agreements and Senior Note Indentures and trade
payables and advances of such subsidiaries. The amount of senior indebtedness
(including indebtedness and other current and non-current liabilities of K-III's
subsidiaries) as of March 31, 1996 was approximately $1,565 million. None of
such indebtedness was secured.
LACK OF PUBLIC MARKET
The Notes and the Preferred Stock constitute new issues of securities with
no established trading market. In addition, because the Exchange Offers are not
conditioned upon any minimum amount of Old Notes or shares of Old Preferred
Stock being tendered for exchange, the amount of New Notes or shares of New
Preferred Stock issued could be quite small, which could have an adverse effect
on the liquidity of the New Notes or the New Preferred Stock, respectively.
Also, to the extent that Old Notes or shares of Old Preferred Stock are tendered
and accepted in the Exchange Offers, a holder's ability to sell untendered Old
Notes or shares of Old Preferred Stock could be adversely affected. Therefore,
no assurance can be given as to the liquidity of the trading market for either
the Notes or the Preferred Stock.
19
<PAGE>
EFFECT OF INCREASES IN PAPER AND POSTAGE COSTS
The price of paper is a significant expense of the Company relating to its
print products and direct mail solicitations and in the last two years has
increased significantly after three years of price decreases. Overall, paper
prices increased approximately 24% in 1995. In 1995, paper costs represented
approximately 9% of the Company's total operating costs and expenses. The
Company believes it will be able to meet its paper requirements in the future.
Due to recent softening in certain segments of the paper market, paper price
increases of the magnitude experienced in 1995 seem unlikely in the forseeable
future. In early 1995, a postal rate increase of approximately 13% went into
effect, the first such increase since 1991. In 1995, postal costs represented
approximately 7% of total operating costs and expenses. In an attempt to contain
postage costs, the Company takes advantage of various postal discounts. The
Company continually addresses postal cost increases by taking advantage of
sortation and classification efficiencies and by passing the cost onto the
customer wherever possible. In the past, the effects of inflation on operating
expenses have substantially been offset by the Company's ability to increase
selling prices; however, no assurance can be given that the Company can recoup
any such increases by passing cost increases through to its customers. In
addition to pricing actions, the Company is continuing to examine all aspects of
the manufacturing and purchasing processes to identify ways to offset some of
these price increases.
CONTROL BY KKR
Approximately 76% of the shares of Common Stock (on a fully diluted basis)
are held by certain investment partnerships, of which KKR Associates, a New York
limited partnership and an affiliate of KKR, is the general partner (the "Common
Stock Partnerships"). KKR Associates has sole voting and investment power with
respect to such shares. Consequently, KKR Associates and its general partners,
four of whom are also directors of K-III, control the Company and have the power
to elect all of its directors and to approve any action requiring stockholder
approval, including adopting amendments to K-III's Certificate of Incorporation
and approving mergers or sales of all or substantially all of the Company's
assets.
USE OF PROCEEDS
There will be no cash proceeds to K-III from the Exchange Offers.
20
<PAGE>
CAPITALIZATION
The following table sets forth, at March 31, 1996 the actual cash and cash
equivalents and the consolidated capitalization of the Company. The information
below should be read in conjunction with the Company's historical consolidated
financial statements and the notes thereto incorporated by reference into this
Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------
ACTUAL
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................................. $ 32,222
-----------
-----------
Long-term debt:
Borrowings under Revolving Credit Agreement............................. $ 169,935
BONY Term Loan.......................................................... 150,000
Chase Term Loan......................................................... 150,000
10 5/8% Senior Notes due 2002........................................... 250,000
10 1/4% Senior Notes due 2004........................................... 100,000
8 1/2% Senior Notes due 2006/New Notes(1)............................... 298,748
Acquisition Obligation Payable(2)....................................... 56,354
-----------
Total Indebtedness.................................................... 1,175,037
Less current maturities........................................... (6,000)
-----------
Total long-term debt.................................................. 1,169,037
$2.875 Senior Exchangeable Preferred Stock................................ 98,060
$11.625 Series B Exchangeable Preferred Stock............................. 137,663
$10.00 Series C Exchangeable Preferred Stock/New Preferred Stock(3)....... 193,807
Common stock subject to redemption(4)..................................... 25,340
Shareholders' equity:
Common stock and additional paid-in capital............................. 753,280
Accumulated deficit(5).................................................. (683,200)
Cumulative foreign currency translation adjustments..................... (1,283)
-----------
Total shareholders' equity............................................ 68,797
-----------
Total capitalization...................................................... $1,692,704
-----------
-----------
</TABLE>
- ------------
(1) Reflects reduction for de minimis original issue discount.
(2) Represents the present value at March 31, 1996 of the principal and interest
obligations under notes payable to News America Publications, Inc. that have
been or will be issued in connection with the acquisition of certain of the
consumer magazines and Daily Racing Form.
(3) Represents net proceeds to the Company after deduction for estimated
issuance costs.
(4) Represents Common Stock that employees have the right to resell to the
Company under certain circumstances including termination of employment in
connection with the sale of the business for which they work, death,
disability or retirement after age 65. The resale feature expires five years
after the effective purchase date of the Common Stock. Since inception of
the Company, none of the employees has exercised such resale feature as a
result of such sale, death, disability or retirement and the likelihood of
significant resales is considered by management to be remote. Common Stock
subject to redemption at March 31, 1996 was computed at $11.625 per share
which approximates the quoted market value of the Common Stock at March 31,
1996.
(5) The accumulated deficit includes non-cash expenses related to the
accumulated amortization of intangible assets, the excess of the purchase
price over the net assets acquired and deferred financing costs, the
provision for the sale of a business, restructuring and other costs and the
write-offs of the unamortized balance of deferred financing costs
(associated with all previous financings) in the aggregate amount of
approximately $851,000 at March 31, 1996 which is net of the non-cash income
tax benefits aggregating $101,700 recognized in 1995 and 1994.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data presented below give effect to the
1992 Restructuring as if it had occurred on January 1, 1992. Such data were
derived from the consolidated financial statements and other data of the Company
which are incorporated by reference into this Prospectus. The data should be
read in conjunction with the Company's consolidated financial statements, the
related notes thereto and other data of the Company incorporated by reference
into this Prospectus.
K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES(1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEARS ENDED DECEMBER 31,
--------------------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales, net.................... $ 314,953 $ 238,664 $ 1,046,329 $ 964,648 $ 844,748 $ 778,224
Depreciation and
amortization................... 44,227 37,240 192,276 136,866 143,267 171,581
Other charges(2).............. -- -- 50,114 15,025 2,644 --
Operating income (loss)(3).... 6,985 4,663 (26,275) 10,203 (7,669) (46,230)
Interest expense.............. 28,051 24,614 105,384 78,244 74,336 76,719
Income tax benefit(4)......... -- -- 59,600 42,100 -- 314
Net loss(3)(5)................ (20,740) (20,701) (75,435) (41,403) (86,496) (145,342)
Preferred stock dividends..... 6,844 6,414 28,978 25,959 22,290 16,530
Loss applicable to common
shareholders................... (27,584) (27,115) (104,413) (67,362) (108,786) (161,872)
Loss per common and common
equivalent share(6)............ $ (.21) $ (.25) $ (.91) $ (.65) $ (1.18) $ (1.77)
------------ ------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ------------ ----------- -----------
Weighted average common and
common equivalent shares
outstanding(6)................. 128,502,847 109,622,179 115,077,498 103,642,668 92,392,189 91,317,610
------------ ------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ------------ ----------- -----------
OTHER DATA:
EBITDA(7)..................... $ 51,212 $ 41,903 $ 216,115 $ 162,094 $ 138,242 $ 125,351
Capital expenditures.......... 3,989 4,681 25,179 16,118 13,416 14,497
Net cash provided by (used in)
operating activities........ (729) (3,384) 64,062 64,890 27,072 16,618
Net cash used in investing
activities..................... (213,408) (151,362) (318,712) (442,126) (95,669) (79,725)
Net cash provided by financing
activities..................... 219,133 159,560 263,644 383,924 63,579 60,877
Deficiency of earnings to
fixed charges(8)............... (20,740) (20,701) (135,035) (83,503) (86,496) (145,656)
Deficiency of earnings to
fixed charges and preferred
stock dividends(8)............. (27,584) (27,115) (164,013) (109,462) (108,786) (162,186)
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 32,222 $ 23,046 $ 27,226 $ 18,232 $ 11,544 $ 16,562
Working capital (deficiency)(9)... (29,346 ) 34,252 (56,560 ) 1,338 3,605 1,189
Intangible assets, gross.......... 2,196,868 1,787,075 1,996,564 1,656,590 1,343,482 1,276,123
Less accumulated amortization... (789,662 ) (631,427 ) 762,393 602,542 504,538 383,784
----------- ----------- ----------- ----------- ----------- -----------
Intangible assets, net............ 1,407,206 1,155,648 1,234,171 1,054,048 838,944 892,339
Total assets...................... 2,088,966 1,728,712 1,881,416 1,589,692 1,166,502 1,197,896
Long-term debt(10)................ 1,169,037 1,125,047 1,134,916 1,034,689 661,297 704,802
$2.875 Senior Exchangeable
Preferred Stock.................... 98,060 97,786 97,992 97,718 97,444 97,171
$11.625 Series B Exchangeable
Preferred Stock................. 137,663 122,130 133,614 118,511 105,009 --
$10.00 Series C Exchangeable
Preferred Stock................. 193,807 --
Common stock subject to
redemption......................... 25,340 11,187 28,022 16,552 25,287 16,746
Shareholders' equity:
Convertible Preferred Stock..... -- -- -- -- -- 78,797
Series C Preferred Stock........ -- 50,000 -- -- -- --
Common stock.................... 1,263 1,090 1,259 1,053 947 853
Additional paid-in capital...... 752,017 604,310 748,194 572,940 488,541 421,926
Accumulated deficit............. (683,200 ) (578,319 ) (655,616 ) (551,203 ) (483,841 ) (375,055 )
Cumulative foreign currency
translation adjustments........ (1,283 ) (1,347 ) (1,275 ) (1,324 ) (1,220 ) (222 )
----------- ----------- ----------- ----------- ----------- -----------
Total shareholders' equity........ $ 68,797 $ 75,734 $ 92,562 $ 21,466 $ 4,427 $ 126,299
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(Footnotes on following page)
22
<PAGE>
(Footnotes for preceding page)
- ------------
(1) In June 1989, K-III Holdings, L.P., a Delaware limited partnership ("LP
I"), was formed for the purpose of acquiring businesses currently owned by
Intertec Publishing Corporation ("Intertec") and Newbridge Communications,
Inc. ("Newbridge"). The aggregate purchase price (including fees) for such
acquisitions was $320,000. Most of the business of K-III Directory
Corporation ("K-III Directory") (collectively, with Intertec and Newbridge,
"K-III Holdings I") was acquired by a subsidiary of LP I in February 1990
for a purchase price (including fees) of $21,000. In March 1991, K-III
Holdings, L.P. II, a Delaware limited partnership ("LP II"), was formed for
the purpose of acquiring certain of the businesses now owned by Weekly
Reader Corporation ("Weekly Reader"), K-III Reference Corporation ("K-III
Reference") (formerly known as Funk & Wagnalls Corporation) and Newfield.
The aggregate purchase price (including fees and subsequent purchase price
adjustments) of such acquisitions was $161,900. In February 1992, LP II
acquired, through a subsidiary, the business of Krames Communications
Incorporated ("Krames") (collectively with Weekly Reader, K-III Reference
and Newfield, "K-III Holdings II") for a purchase price of $44,300. In June
1991, K-III Prime Corporation, a Delaware corporation ("K-III Prime"), was
formed for the purpose of acquiring certain consumer magazines currently
owned by K-III Magazine Corporation ("K-III Magazines") and Daily Racing
Form, Inc. ("Daily Racing Form") ("K-III Holdings III") for a purchase
price (including fees) of $675,000. In May 1992, K-III Holdings I, K-III
Holdings II and K-III Holdings III were consolidated into the Company (the
"1992 Restructuring").
(2) Represents provision for restructuring and other costs in 1995, net
provision for loss on the sales of businesses in 1995 and 1994 and
provision for write-down of real estate no longer utilized in 1993.
(3) The adoption of a change in method of accounting for advertising costs (the
"Accounting Change") resulted in an increase in operating income or
decrease in operating loss and a decrease in net loss of approximately
$9,600 ($.07 per share) and approximately $16,000 ($.l5 per share) for the
three months ended March 31, 1996 and 1995, respectively, and approximately
$11,800 ($.10 per share) and approximately $9,800 ($.09 per share) for the
years ended December 31, 1995 and 1994, respectively.
(4) The income tax benefit in 1992 reflects the reversal of an overprovision
for Canadian income taxes. At December 31, 1995 and 1994, management of the
Company reviewed recent operating results for the years ended December 31,
1995 and 1994 and projected future operating results for the years ending
December 31, 2001 and determined that a portion of the net deferred income
tax assets at December 31, 1995 and 1994 would likely be realized.
Accordingly, the Company recorded an income tax benefit of $59,600 in 1995
and $42,100 in 1994. At December 31, 1995, the Company had NOLs of
approximately $632,000 which will be available to reduce future taxable
income. In addition, including the January 1996 acquisitions, management
estimates that more than $725,000 of unamortized goodwill and other
intangible assets will be available as a deduction from any future taxable
income.
(5) The write-off of unamortized deferred financing costs as a result of the
refinancings in 1994 and 1992 increased net loss by $11,874 and $19,814 for
the years ended December 31, 1994 and 1992, respectively.
(6) Loss per common and common equivalent share, as well as the weighted
average common and common equivalent shares outstanding, were computed as
described in Note 8 of the notes to the consolidated financial statements
for the three months ended March 31, 1996 and 1995 and Note 3 of the notes
to the consolidated financial statements for the years ended December 31,
1995, 1994 and 1993 incorporated by reference into this Prospectus.
(7) Earnings before interest, taxes, depreciation, amortization and provision
for one-time charges ("EBITDA") is not intended to represent cash flow from
operations and should not be considered as an alternative to net loss as an
indicator of the Company's operating performance or to cash flows as a
measure of liquidity. The Company believes EBITDA is a standard measure
commonly reported and widely used by analysts, investors and other
interested parties in the media industry. Accordingly, this information has
been disclosed herein to permit a more complete comparative analysis of the
Company's operating performance relative to other companies in its
industry.
(8) The deficiency of earnings to fixed charges consists of loss before income
taxes plus fixed charges. Loss before income taxes includes (i)
depreciation and amortization of prepublication costs, deferred financing
costs, property and equipment, intangible assets and excess of purchase
price over net assets acquired, (ii) interest expense, (iii) write-off of
unamortized deferred financing costs, (iv) provision for write-down of real
estate no longer utilized, (v) net provision for loss on sales of
businesses, (vi) restructuring and other costs and (vii) that portion of
operating rental expense that represents interest. Prepublication costs
include editorial, artwork, composition and printing plate costs incurred
prior to publication date. Fixed charges consist of interest expense
associated with long-term debt and other non-current obligations (including
current maturities of long-term debt), amortization of deferred financing
costs and that portion of operating rental expense that represents
interest.
(9) Includes current maturities of long-term debt.
(10) Excludes current maturities of long-term debt.
23
<PAGE>
K-III HOLDINGS I, K-III HOLDINGS II AND K-III HOLDINGS III
(DOLLARS IN THOUSANDS)
The selected historical financial data presented below for K-III Holdings I
relate to the year ended December 31, 1991. The selected consolidated financial
data presented below for K-III Holdings II relate to the predecessor companies
with respect to the three-month period ended March 27, 1991, and to the
successor with respect to the nine-month period ended December 31, 1991. The
selected consolidated financial data presented below for K-III Holdings III
relate to the predecessor companies for the period July 1, 1990 to June 16,
1991, and to the successor with respect to the period June 17, 1991 to December
31, 1991.
<TABLE>
<CAPTION>
K-III HOLDINGS II K-III HOLDINGS III
--------------------------- ---------------------------
PREDECESSOR PREDECESSOR
COMPANIES COMPANIES
K-III HOLDINGS I ------------ ------------
---------------- JANUARY 1 MARCH 28 JULY 1,
YEAR ENDED TO TO 1990 TO JUNE 17, TO
DECEMBER 31, MARCH 27, DECEMBER 31, JUNE 16, DECEMBER 31,
1991 1991 1991 1991 1991
---------------- ------------ ------------ ------------ ------------
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Sales, net............................ $237,140 $ 56,967 $ 175,133 $290,386 $ 164,910
Depreciation and amortization......... 56,354 3,461 32,694 18,385 52,941
Operating income (loss)............... (16,578) (7,969) (1,938) 39,319 (18,471)
Net income (loss)..................... (43,531) (10,622) (9,230) 38,781 (42,971)
OTHER DATA:
EBITDA(1)............................. $ 39,776 $ (4,508) $ 30,756 $ 57,704 $ 34,470
Net cash provided by (used in)
operating activities................ 6,611 (8,658) 14,490 64,700 (7,391)
Net cash used in investing
activities............................. (6,481) (345) (157,252) (2,178) (600,679)
Net cash provided by (used in)
financing activities................ (444) 2,351 138,001 (62,522) 623,008
Excess (deficiency) of earnings to
fixed charges(2).................... (43,487) (10,622) (9,230) 39,319 (42,665)
Excess (deficiency) of earnings to
fixed charges and preferred stock
dividends (2).......................... (60,142) (10,622) (9,230) 39,319 (47,157)
<CAPTION>
AT AT AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1991 1991
---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 1,904 $ 1,950 $ 14,938
Working capital (deficiency)(3)....... 24,489 18,365 (58,416)
Intangible assets, net................ 203,678 93,449 648,098
Total assets.......................... 301,740 191,788 740,049
Long-term debt and other non-current
liabilities(4)......................... 229,366 73,000 416,815
Shareholders' equity.................. 16,477 50,771 202,537
</TABLE>
- -------------------
(1) Earnings before interest, taxes, depreciation, amortization and provision
for one-time charges ("EBITDA") is not intended to represent cash flow from
operations and should not be considered as an alternative to net loss as an
indicator of the Company's operating performance or to cash flows as a
measure of liquidity. The Company believes EBITDA is a standard measure
commonly reported and widely used by analysts, investors and other
interested parties in the media industry. Accordingly, this information has
been disclosed herein to permit a more complete comparative analysis of the
Company's operating performance relative to other companies in its industry.
(2) The deficiency of earnings to fixed charges consists of loss before income
taxes plus fixed charges. Loss before income taxes includes (i) depreciation
and amortization of prepublication costs, deferred financing costs, property
and equipment, intangible assets and excess of purchase price over net
assets acquired, (ii) interest expense, (iii) write-off of unamortized
deferred financing costs, (iv) provision for write-down of real estate no
longer utilized and (v) that portion of operating rental
(Footnotes continued on following page)
24
<PAGE>
(Footnotes continued from preceding page)
expense that represents interest. Prepublication costs include editorial,
artwork, composition and printing plate costs incurred prior to publication
date. Fixed charges consist of interest expense associated with long-term
debt and other non-current obligations (including current maturities of
long-term debt), amortization of deferred financing costs and that portion
of operating rental expense that represents interest.
(3) Includes current maturities of long-term debt.
(4) Excludes current maturities of long-term debt.
25
<PAGE>
BUSINESS
Through its wholly owned subsidiaries, K-III is a leading content provider
to the education, business and special interest consumer markets; its best-known
brands include Channel One News, The World Almanac, Nelson's, Weekly Reader,
Daily Racing Form, Seventeen, Modern Bride and Soap Opera Digest. Most of the
Company's products serve niche markets and are recognized within those markets
as premier franchises, and many hold dominant positions. The Company focuses on
ownership and development of content, because content can be tailored to
specific information needs across print, electronic and multimedia formats.
Furthermore, proprietary branded content exists independent of any specific
delivery technology. The Company organized its businesses into three segments,
education, information and media, which accounted, respectively, for
approximately 32%, 25%, and 43% of K-III's 1995 consolidated net sales of $1,046
million.
EDUCATION
The Company is the largest provider of supplementary educational materials
in the United States. The Company targets both the juvenile and the adult
educational markets. Customers of these products include educators, educational
institutions and professionals as well as advertisers reaching specific
audiences by sponsoring educational materials. The best-known brands in the
juvenile education area are Weekly Reader and Channel One News.
The Company's adult supplementary educational and career development
materials target various professional groups including computer users, teachers,
nurses, scientists, architects and other professionals. The Company also
publishes medical information used to educate patients and other healthcare
users.
Educational Programming
The Company operates Channel One News, The Classroom Channel and Films for
the Humanities and Sciences.
Channel One News, established in 1990, pioneered the delivery of world
events and educational programming into American classrooms via satellite. Its
award-winning daily news broadcast reaches approximately eight million middle
and high school students, significantly more than any other electronically
delivered educational product. The installed base of Channel One schools is
approximately 12,000, or 40%, of the middle and high schools in the United
States. Schools sign up for Channel One News under a three-year renewable
contract pursuant to which they agree to show Channel One News, in its entirety,
on at least 90% of school days. The Company provides to schools a turnkey
technology system of video cassette recorders and networked televisions. These
services are provided to schools at no charge; sales are generated by two
minutes of advertising in the 12-minute daily newscast. Virtually all school
contracts have come up for renewal and approximately 99% have been renewed.
Channel One News is produced at the Hacienda, its Los Angeles studio, using
staff anchors and correspondents reporting on location both domestically and
internationally. Channel One has a library of over 1,100 broadcasts including
approximately 160 single subject series.
Channel One News has no direct competition in the schools, but does compete
for advertising dollars with other media aimed at teenagers. The Company's
primary competitive advantage is its total audience of approximately eight
million teenagers. For the school year ended June 1995, approximately 60% of the
revenues of Channel One were pursuant to long-term contracts (which expire on or
after December 31, 1997). For the same school year, the top five advertisers by
dollars were PepsiCo, M&M
26
<PAGE>
Mars, Procter & Gamble, AT&T and Quaker Oats, which accounted for approximately
64% of advertising revenue.
The Classroom Channel offers a range of instructional programming to enhance
each school's curriculum. The Classroom Channel offers an average of 90 minutes
of daily programming at no charge to schools. Programming and operation of The
Classroom Channel was outsourced until July 1995 when it was taken in-house to
widen the programming selection.
Films for the Humanities and Sciences ("Films") is the exclusive distributor
of approximately 6,000 educational videos as well as videodiscs, CD-ROMs and
related products. These materials are sold primarily by direct mail, targeting
teachers and librarians in the K-12 and college market. Films is the largest
distributor of such products and competes on the basis of quality and breadth of
the subject matter it markets. Since January 1, 1993, Films has increased the
number of titles offered by an average of 18% per year.
Periodicals and Supplementary Learning Materials
The Company publishes and markets periodicals and other supplemental
learning materials primarily for the elementary and secondary school markets.
First published in 1928, Weekly Reader is the best-known student newspaper
in the United States and has the highest circulation of any student newspaper
with approximately 6.6 million subscribers in the elementary school market
alone. Weekly Reader is sold in approximately 70% of all elementary schools.
Eight separate editions of Weekly Reader consisting of 26 issues per year are
distributed to elementary school students. Each edition is written and designed
for particular reading and comprehension levels in order to bring current world
news to children at a level commensurate with their comprehension abilities. A
teacher's guide with background information, discussion topics and follow-up
questions is included with each edition. Weekly Reader is sold to schools and
teachers for classroom use. Other titles include Read, Current Events, Current
Science and Current Health.
Editorial materials for Weekly Reader are generated through a combination of
in-house staff written material and work from outside authors on a work-for-hire
basis.
For the 1994-1995 school year, Weekly Reader periodicals had a 56.4% share
of the elementary school market and a 38.4% share of the secondary school
market. The Company's largest competitor in these markets is Scholastic, Inc.
Weekly Reader generally competes on the basis of price, editorial quality and
content.
Professional Book Services
The Company's professional book services have more than 800,000 members in
the United States, more than any competitor. The Company has 20 separate
professional book services. The books, computer software and other materials
offered are technical in nature and of special interest to members of targeted
groups of professionals, including computer users, teachers and scientists.
These products are generally otherwise available only through specialized book
stores and libraries; the Company's professional book services are, therefore, a
key distribution channel for these books.
The best known of these services are targeted to personal and network
computer users such as the Small Computer Book Club. The number of members in
these services has grown from approximately 190,000 at the end of 1992 to
approximately 256,000 in December 1995. Certain of these services offer both
software and books. Approximately two-thirds of the revenues for the year ended
December 31, 1995 from these computer user services related to software bundled
with related books. To expand further the computer user membership, the Company
recently established a World Wide Web site on the Internet for offering its
computer book services.
27
<PAGE>
The Company has exclusive book club rights to distribute most main selection
titles offered by its professional book services. These exclusive rights have
been acquired from more than 500 publishers and generally must be renegotiated
every three years. Most of the professional and scientific book services have
limited competition in their markets.
Historically, direct mail has been the most effective source of new members.
Customers are also obtained through printed advertisements, internal promotions
and telemarketing. Specialized target subscription lists, which are rented from
various sources, are used to solicit new members and customers. In addition,
advertising is placed in special interest magazines.
Supplementary Educational Programs
The Company develops and markets supplementary educational programs for
grades pre-K to 6, which are marketed to teachers for use in schools. Many of
these materials are sold under the "Macmillan" name. Other programs are marketed
to nurses and computer and business professionals. One program is a video series
marketed to behavioral science professionals. The programs are all marketed on a
continuity basis. Continuity programs consist of publications or materials that
are automatically sent and invoiced to a member at regular intervals until the
member requests no further shipments. At December 31, 1995, there were
approximately 180,000 subscribers to these continuity programs.
In 1994, the Company launched an institutional sales program to reach
additional markets for its supplementary educational materials.
An in-house staff performs most of the editorial and design work on the
educational programs. The Company and its predecessors have since 1981 developed
all of its educational continuity programs, sales of which in the year ended
December 31, 1995 were $29.8 million. Extensive market research and testing is
performed in connection with new programs, which have historically averaged two
per year. The Company is the largest provider of continuities sold for use in
schools and competes in this market primarily with Scholastic, Inc.
The principal method of obtaining new members for its continuity program is
through direct marketing.
Medical Publications
Under the brand name Krames, the Company is a leading publisher of patient
information sold to doctors and other healthcare providers to be distributed to
patients and other healthcare users. During 1995, the Company sold 29.1 million
units. Krames' products are used by an estimated 66% of United States hospitals,
34% of HMO's and 36% of private practice physicians in targeted medical
specialties. The product line includes booklets, brochures, posters, videos and
training manuals. Approximately 95% of the units sold are four-color booklets of
eight to 32 pages and brochures of four to eight pages which are used to educate
patients on medical conditions and treatment options ranging from self-care to
surgery. It is the Company's belief that healthcare providers purchase Krames'
products because they reduce the time healthcare professionals must spend
educating their patients. The Company also publishes health promotion materials
to be distributed to employees and safety training products to help companies
comply with government standards.
Since the beginning of 1992, Krames has created 321 new products. The
healthcare information products are created internally by product development
teams composed of editors, designers and members of the production staff. The
Company competes on the basis of editorial quality, content and price.
28
<PAGE>
Professional Training
The Katharine Gibbs Schools is a highly regarded chain of seven business
schools located in the northeastern United States. All seven schools operate as
accredited post-secondary institutions and five schools are authorized as
degree-granting institutions. Programs offered include business administration,
accounting, and hotel and restaurant management, in addition to the secretarial
arts program. The schools market via newspaper and magazine advertisements,
direct mail and, to a lesser extent, via broadcast media for students.
The Katharine Gibbs Schools competes with other private business schools and
two-year colleges. The schools operate in a highly regulated environment, as all
schools are licensed by state agencies and are granted eligibility and
certification to participate in Federal student assistance programs.
INFORMATION
The Company's information segment maintains databases of critical
information which it sells in a variety of formats to decision makers in
business, professional and special interest consumer markets. Many of the
databases, available traditionally only in print form, are now also available
electronically or on CD-ROM, and add value to the original print product. The
best-known brand names used in the information segment include Nelson's, Funk &
Wagnalls, World Almanac and Daily Racing Form.
Directories
The Company publishes 69 specialized database directories, as well as
related products. Products are targeted to specific industries: financial
services, transportation, musical performance, credit and collection,
construction, global trade and public relations. To complement its public
relations directories, the Company operates a periodicals clipping service. The
databases are compiled by an in-house editorial staff, are marketed directly to
subscribers and advertisers by an in-house sales staff and distributed
predominantly on a paid subscription basis.
One of the best-known brand names of the directory group is Nelson's. Seven
reference directories and two periodicals used in the financial services
industry are published under the name Nelson's. The Nelson's electronic database
is incorporated in a marketing management software package, Institutional
MarketPlace for Windows and data are also sold to third party distributors such
as Bloomberg Financial Services. Key titles published under Nelson's name
include Directory of Investment Research and Directory of Investment Managers.
Most of the directories published by the Company have no competition, and in
markets where competition does exist, the Company's publication is dominant.
Competition, where present, is on the basis of price and quality of data and, in
the case of Nelson's, on the basis of electronic availability. Management
believes that the comprehensiveness and quality of its data and the specialized
focus of its publications has prevented others from launching competing
publications.
Trade and Technical Newsletters and Database Products
The Company's trade and technical newsletters provide in-depth information
and data on selected markets. Ward's Automotive Reports is recognized as the
authoritative source for industry-wide statistics on automotive production and
sales. This newsletter competes on the basis of the nature and quality of its
editorial content.
The trade and technical database division publishes, in print and electronic
formats, used vehicle valuation information. Titles include Market Reports,
Marine Blue Book, Waterway Guides and Aircraft Bluebook. Other databases include
The Electronics Sourcebook, Ac-U-Kwik and equipment servicing information and
manuals.
29
<PAGE>
Apartment Guides
The Company is the most extensive publisher of rental apartment guides in
the United States with 51 local versions of its Apartment Guides. The Company's
Apartment Guides are published monthly and provided at no charge to apartment
shoppers. Ninety percent of these revenues are generated from the sale of
advertising space to owners and management companies of apartment communities.
During the year ended December 31, 1995, the Company started new guides in Fort
Myers, Florida and acquired guides covering Washington, D.C., Baltimore and
Detroit.
The Apartment Guides contain information listings which highlight the
features of available apartment communities. Owners and managers of apartment
communities, whose goal is to maximize the occupancy rates at their apartment
properties, purchase advertising space. Apartment rental guides are generally
the most cost-effective way to attract new tenants to rental apartment
communities. The Company's primary competition comes from For Rent Magazine,
single city guides and local newspapers.
The DistribuTech Division of the Company distributes Apartment Guides as
well as third party publications. Apartment Guides are distributed in a wide
variety of locations including grocery, convenience and drug stores, hotels,
apartments, chambers of commerce, universities, military bases, and major
employers. At retail locations, Apartment Guides are typically displayed in free
standing, multi-pocket racks along with other free publications. DistribuTech,
which manages the largest free publication distribution network in the United
States, enjoys exclusive arrangements with most of the retail locations and, as
a result, generates substantial revenues from the leasing of additional pockets
on each rack to other free publications. Revenues from the distribution of other
publications partly offset Apartment Guides' distribution costs. DistribuTech
manages distribution for over 15,500 retail locations in 60 cities nationwide.
Fifty of those cities are also cities where Apartment Guides are published.
DistribuTech competes on the basis of price paid to the retail locations and
service on the rack program.
Daily Racing Form
The Company maintains the most comprehensive database of horse racing
statistics in North America. The principal method of distribution of this
database is Daily Racing Form, a national daily newspaper covering thoroughbred
horse racing. Up to 30 individual editions of Daily Racing Form are published a
day, each covering three to six racetracks, and these editions report on every
thoroughbred and many quarterhorse races in the United States and Canada. The
Daily Racing Form is sold in all 40 states that allow pari-mutuel betting,
Canada, and Mexico. Daily Racing Form's 1995 annual circulation was
approximately 22.8 million copies, of which approximately two-thirds were sold
through newsstands and one-third were sold at racetracks. The Daily Racing Form
database is also delivered via a pay-per-use 900 telephone number and electronic
and facsimile transmission. In addition Daily Racing Form licenses its database
for electronic delivery and handicapping services.
The re-engineering and upgrading of pre-publication and database software
were completed in 1995. The proprietary database contains tens of millions of
statistics about jockeys, trainers and racetracks, as well as past performances
of more than 200,000 thoroughbred horses, including racing conditions such as
weather, track condition, jockey weight, stakes, type of race, distance and post
position.
Although Daily Racing Form is the only newspaper that provides past
performance statistics, Equibase licenses its past performance database to
racetracks for inclusion in their programs. Daily Racing Form competes on the
basis of advance availability, content and quality of data. For the year ended
December 31, 1995, the Company's statistics were available at all North American
tracks and were the exclusive statistics provided at racetracks having more than
50% of all track attendees.
30
<PAGE>
Reference Materials
Funk & Wagnalls' New Encyclopedia licenses its editorial content to
Microsoft Corporation as the textual basis for Microsoft's Encarta CD-ROM
product and to Future Vision for inclusion in the Infopedia CD-ROM. Also,
content of the New Encyclopedia is licensed to three on-line services and a
classroom computer instruction service. Funk & Wagnalls is the third-largest
publisher, ranked by complete-set sales, of general reference encyclopedias in
the United States and Canada and the leading seller of encyclopedias in
supermarkets. In 1995, over 1.5 million volumes of the Funk & Wagnalls' New
Encyclopedia were sold. In addition, the Company publishes a yearbook and a
science supplement to the New Encyclopedia each year, designed to update the New
Encyclopedia. A new edition is introduced every three years and a major
statistical revision incorporating census data is introduced every 10 years.
The Company experiences competition for its New Encyclopedia from print
products sold in the home and in the supermarket as well as CD-ROM versions of
encyclopedias.
The World Almanac is the leading almanac in the English language ranked by
unit sales and data content. Over 1.3 million copies of the 1996 edition,
published in December 1995, have been sold. For 1995, the Company introduced
World Almanac For Kids and added The Kids World Almanac of Basketball. A
baseball version was introduced in 1993 and the football version introduced in
1994. The World Almanac licenses its content for use on four CD-ROM products and
five on-line services. The Company's World Almanac Education Division sells
reference books to the school and library market by catalogue. The World Almanac
and World Almanac Education Division compete in their respective markets on the
basis of quality and name recognition.
Facts on File News Services Division was acquired on March 1, 1996. Facts on
File News Services publishes subscription products which are sold to schools and
libraries. The flagship product, World News Digest, published weekly, is
available in print, CD and on-line formats, and has a subscriber base of
approximately 7,000. Other publications include Editorials on File, Today's
Science on File and Software and CD-ROM Reviews on File.
MEDIA
The media segment consists of consumer magazines, special interest magazines
and trade and technical magazines. The Company's media businesses are a key
source of need-to-know information for specific targeted interest groups.
Fifty-nine of the 104 magazines have the number one market share in their
respective niche markets.
Consumer Magazines
The Consumer Magazine group publishes thirteen well-known magazines. The
principal sources for consumer magazine revenues are advertising and
circulation. In the year ended December 31, 1995, approximately 51% of the
Consumer Magazines' sales were from advertising, 46% were from circulation and
3% from other sources.
31
<PAGE>
The following table sets forth certain information about the Company's
consumer magazines other than Stagebill:
<TABLE>
<CAPTION>
AVERAGE
CIRCULATION FOR THE
TWELVE MONTHS
ENDED DECEMBER 31, FREQUENCY OF
MAGAZINE 1995 PUBLICATION
- ------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Soap Opera Digest...................................... 1,345,300 bi-weekly
Soap Opera Weekly...................................... 480,523 weekly
Seventeen.............................................. 2,117,988 monthly
New York............................................... 426,975 50 times per year
New Woman.............................................. 1,282,879 monthly
Automobile............................................. 613,999 monthly
Chicago................................................ 168,255 monthly
Modern Bride........................................... 364,322 bi-monthly
American Baby.......................................... 1,572,306 monthly
Sail................................................... 175,558 monthly
Power & Motoryacht..................................... 156,861 monthly
Healthy Kids........................................... 1,504,301 bi-monthly
</TABLE>
Soap Opera Digest and Soap Opera Weekly are sister publications--the former
digest-sized and bi-weekly, the latter tabloid-sized and weekly--covering soap
operas aired on network television. Soap Opera Digest is the leading publication
in this market. Soap Opera Weekly was launched to complement and expand the
market that Soap Opera Digest created. Soap Opera Digest focuses on synopses of
episodes and Soap Opera Weekly reports primarily on soap opera news. Soap Opera
Digest and Soap Opera Weekly are distributed mainly at supermarket, convenience
store and drugstore checkout counters. They compete for circulation on the basis
of editorial content and quality against Soap Opera Magazine and Soap Opera
Update, both of which have substantially lower circulation. Soap Opera Digest
On-Line was launched in early 1996.
Seventeen created the young women's magazine market when it was founded in
1944. Seventeen's editorial content covers a wide variety of topics relevant to
girls aged 12 to 19, including fashion, boys, beauty, talent and lifestyle. The
principal competition of Seventeen is YM. Against this competitor, Seventeen
competes for circulation based on the nature and quality of its editorial. It is
the leader by far based on advertising pages and is also the leader in total
circulation. Seventeen On-Line was launched on America Online in September 1995.
New York, the oldest weekly city magazine in the United States, is the only
city magazine published weekly. It contains feature articles and regular columns
on politics, business, the fine arts, entertainment, food, fashion and current
events. New York competes for circulation based on the nature and quality of its
editorial content with The New Yorker, which has a larger circulation. New York
Magazine On-Line was launched on CompuServe in September 1995.
Automobile contains articles and columns on newly introduced domestic and
foreign automobile models, and prominent people and collectors in the auto
industry. Automobile competes for circulation on the basis of the nature and
quality of its editorial content primarily with Car and Driver, Road and Track
and Motor Trend, all of which have larger circulations. Automobile Live, the
on-line version of Automobile, was launched on CompuServe in July 1995.
Modern Bride, launched in 1949, provides valuable information on bridal
fashions, home furnishings and honeymoon travel to engaged and newlywed couples.
Modern Bride competes for circulation and advertising pages with Bride's, Bridal
Guide and Elegant Bride. While the magazine regularly vies with Bride's for the
largest total circulation, Modern Bride is the leader in subscription
circulation.
32
<PAGE>
American Baby, published since 1938 for expectant and new parents, contains
articles on all aspects of pregnancy and baby care. American Baby is the largest
circulation baby care publication and ranks first in baby product related
advertising pages. While the magazine competes with Parents, Parenting and Child
for the larger childcare market, American Baby's principal competitor is Baby
Talk. American Baby also supports several ancillary products including sampling
and couponing programs and a cable television show.
Sail is the largest circulation magazine in its niche and the only
publication with a "how-to" editorial focus. It contains technical articles on
design, technique, new boat features and gear as well as product reviews and
stories from experienced cruisers and racers. Sail's primary competitors are
Cruising World and Sailing World.
Power & Motoryacht covers the high-end of the powerboat market. With its
controlled circulation to owners of large powerboats, the magazine reaches a
more affluent and dedicated audience than its competitors. Power & Motoryacht
competes with a variety of magazines that target a segment of its readership
including Boating, Motorboating and Sailing, Yachting, and Saltwater Sportsman.
The other consumer magazines published by the Company are: New Woman--a
guide for personal relationships and careers; Stagebill--the largest performing
arts magazine in the United States; Chicago--the number one city magazine in
Chicago; and Healthy Kids--a magazine published in exclusive association with
the American Academy of Pediatrics. The Company also publishes a number of
annual publications including First Year of Life, Childbirth, Wedding Gown
Guide, Your Prom and Sailboat Buyers Guide, as well as several custom publishing
projects.
Subscriptions for consumer magazines are obtained using printed
advertisements, direct mail, clearinghouses and subscription cards included in
each magazine. Advertising sales are made principally by in-house advertising
staffs at each magazine. The consumer magazines compete for advertising on the
basis of circulation and the niche market served by the publication.
Special Interest Magazines
The special interest magazine group publishes 34 titles in the sewing and
crafts, truck and automotive and sporting areas, 21 of which rank first or
second in their respective markets based on circulation. The principal sources
for the special interest magazine group revenues are circulation and
advertising. In the year ended December 31, 1995, approximately 37% of the
specialty interest magazines' sales were from advertising, 54% were from
circulation and 9% were from various other sources. The products of the special
interest magazine group include titles well-known in their markets such as
Crafts, Sew News, Truckin' and Dog World.
The special interest magazines target enthusiasts in each of their
respective activities. A majority of the titles are number one or number two in
their market based on circulation. Readers value the special interest magazines
for their editorial content and also rely on them as a catalogue of products in
the relevant topic area. This catalogue aspect makes the special interest
magazines an important media buy for advertisers. The sewing and crafts
magazines are primarily sold by subscription, while circulation sales of the
truck and automotive titles are primarily newsstand driven.
Since the beginning of 1993, the special interest magazine group launched 11
titles, all of which were spin-offs of established titles.
Magazine editorial is provided by in-house writers and freelance authors.
Advertising sales are generated by a combination of in-house staff and outside
advertising representative firms.
Each of the titles faces competition in its subject area from a variety of
publishers. The Company's special interest magazines compete on the basis of
high quality, targeted editorial.
33
<PAGE>
Trade and Technical Magazines
The Company publishes 57 trade and technical magazines that provide vital
information to professionals in the apparel, automotive, telecommunications,
electronics, engineering, transportation, agricultural, printing, packaging,
construction, real estate, retail, architectural lighting, municipal services,
facilities management, health and financial planning industries. Thirty-seven of
these publications are ranked number one, and approximately 85% of these
publications are ranked number one or two, in the fields they serve based on
advertising. These magazines are distributed primarily on a "controlled
circulation" basis to members of a targeted industry group and provide
career-enhancing technical and tutorial editorial content.
Capitalizing on the centralized circulation, fulfillment, production and
other back office services, add-on titles can either be spun-off from existing
titles or acquired and integrated editorially.
During the year ended December 31, 1995, approximately 78% of the revenues
of the trade and technical titles were generated from advertising. Because each
of the trade and technical magazines is distributed almost exclusively to
purchasing decision makers in a targeted industry group, product and service
providers are able to focus their advertising. The advertising rates charged are
based on the size of the circulation within the target group as well as
competitive factors. These magazines compete for advertising on the basis of
circulation, reach, editorial content and readership commitment. Advertising
sales are made by in-house sales forces, supplemented by independent
representatives in selected regions and overseas. Classified advertising is sold
through telemarketing. Magazine editorial is provided by specialized in-house
writers and freelance authors, well-known in their specific industry niches.
These trade and technical magazines compete in their niche markets on the
basis of content, advertising rates and targeted readership.
PRODUCTION AND FULFILLMENT
Virtually all of the Company's print products are printed and bound by
independent printers. The Company believes that outside printing services at
competitive prices are readily available. Many of the books distributed by the
Company's book services are purchased directly from the publishers' print runs.
The principal raw material used in the Company's products is paper. The
Company has paper supply contracts and, in almost all cases, supplies paper used
by its outside printers. The Company believes that even though paper is in
limited supply, the existing arrangements providing for the supply of paper have
been adequate, although at higher prices. The Company was able to meet its paper
requirements during 1995. In 1995, approximately 30% and 25% of the Company's
paper was supplied by Lindenmeyr Central and Bulkley Dunton, respectively. The
Company's relationship with these suppliers is good and is expected to continue
to be good for the foreseeable future.
Many of the Company's products are packaged and delivered to the United
States Postal Service directly by the printer. Other products are sent from
warehouses and other facilities operated by the Company. Postage costs represent
a significant expense for the Company. See "Risk Factors."
EMPLOYEES
As of January 2, 1996, the Company had approximately 6,300 full- and
part-time employees, of whom approximately 30 were union members. Management
considers its relations with its employees to be good.
34
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of K-III:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
William F. Reilly......................... 57 Chairman of the Board and Chief Executive
Officer and Director
Charles G. McCurdy........................ 40 President and Director
Beverly C. Chell.......................... 53 Vice Chairman, General Counsel, Secretary
and Director
Harry A. McQuillen........................ 49 Executive Vice President, President-Media
Group
Jack L. Farnsworth........................ 50 Vice President, President-Information
Group
Pedro F. Mata............................. 51 Vice President, President-Education Group
George Philips............................ 65 Vice President, President-Reference Group
Curtis A. Thompson........................ 44 Vice President and Controller
Michaelanne C. Discepolo.................. 43 Vice President
Douglas B. Smith.......................... 35 Treasurer
</TABLE>
Mr. Reilly is Chairman of the Board, Chief Executive Officer and a Director
of K-III (and served in such capacities with its predecessors). Prior to March
1990 he was President and Chief Operating Officer of Macmillan, Inc.
("Macmillan"). Mr. Reilly is also a director of FMC Corporation.
Mr. McCurdy became President and a Director of K-III in November 1991 and
was Treasurer from 1991 to August 1993 (and served in such capacity with its
predecessors). Prior to February 1989 he was Vice President-Corporate Finance at
Macmillan.
Ms. Chell became Vice Chairman, General Counsel and Secretary of K-III (and
served in such capacity with its predecessors) in November 1991 and a Director
in March 1992. Prior thereto she was Vice President, General Counsel and
Secretary of Macmillan.
Mr. McQuillen has been Executive Vice President of K-III since December
1995, President of K-III Media Group since December of 1992 and President of
K-III Magazines since November 1991. Prior thereto he was Vice President of
K-III from May 1992 through December 1995. He was previously President of
Macmillan Publishing Company and a Vice President at Macmillan.
Mr. Farnsworth has been Vice President of K-III since May 1992, President of
K-III Information Group since May 1992 and President of Daily Racing Form since
April 1992. He was previously President of Simon & Schuster Higher Education
Group from August 1990 to February 1992 and prior to that time he was a Vice
President at Macmillan in charge of educational publications.
Mr. Mata has been Vice President of K-III and President of K-III Education
Group since November 1995. He was previously the Senior Vice President of W.R.
Grace & Co. and President and CEO of Grace Cocoa.
Mr. Philips has been a Vice President of K-III since May 1992 and President
of the Reference Group since March 1992. Prior to that time he was President of
P.F. Collier, Inc. and a Vice President at Macmillan.
Mr. Thompson became Vice President and Controller of K-III in November 1991.
He has also served as Vice President and Controller of each of the subsidiaries
of K-III since August 1989 until other persons assumed the office of Controller
at certain of the subsidiaries. Prior to that time he was Vice President and
Controller and Chief Financial Officer of The Michie Company.
35
<PAGE>
Ms. Discepolo became a Vice President of K-III in January 1993. She joined
the Company in March 1991 as Director of Human Resources. She held the position
of Director of Benefits with Macmillan prior thereto.
Mr. Smith became Treasurer of K-III in August 1993. Prior thereto he was at
The Bank of New York starting in 1982 holding various positions. He held the
position of Senior Vice President prior to joining K-III.
The business address of Messrs. Reilly, McCurdy, Farnsworth, Mata,
McQuillen, Philips, Thompson, Smith and Mses. Chell and Discepolo is the address
of the principal executive offices of K-III.
36
<PAGE>
THE EXCHANGE OFFERS
PURPOSE AND EFFECT OF THE EXCHANGE OFFERS
The Old Notes and the Old Preferred Stock were sold by K-III on January 24,
1996 (the "Closing Date") to the Initial Purchasers, pursuant to the Purchase
Agreement. The Initial Purchasers subsequently sold the Old Notes and the Old
Preferred Stock to qualified institutional buyers and accredited investors in
reliance on Rule 144A and Regulation S under the Securities Act. As a condition
to the Purchase Agreement, K-III and the Initial Purchasers entered into the
Registration Rights Agreement on January 24, 1996. Pursuant to the Registration
Rights Agreement, K-III agreed to file with the SEC a registration statement
under the Securities Act with respect to the Exchange Offers no later than 180
days following the Closing Date, (ii) to use its reasonable best efforts to
cause such registration statement to become effective under the Securities Act
no later than 180 days after the Closing Date, and (iii) upon effectiveness of
the registration statement, to commence the Exchange Offers. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement is
intended to satisfy K-III's obligations under the Registration Rights Agreement
and the Purchase Agreement.
As a result of the effectiveness of the Registration Statement of which this
Prospectus is a part, payment of certain liquidated damages provided for in the
Registration Rights Agreement will not occur. Following the consummation of the
Exchange Offers, holders of Notes and shares of Preferred Stock will not have
any further registration rights and the Old Notes and the Old Preferred Stock
will continue to be subject to certain restrictions on transfer. See
"--Consequences of Failure to Exchange." Accordingly, the liquidity of the
market for the Old Notes and the Old Preferred Stock could be adversely
affected.
TERMS OF THE EXCHANGE OFFERS
Upon the terms and subject to the conditions set forth in this Prospectus
and in the applicable Letter of Transmittal, K-III will accept (i) any Old Notes
in principal amounts of $1,000 validly tendered and not withdrawn prior to the
Expiration Date and (ii) any and all shares of Old Preferred Stock validly
tendered and not withdrawn prior to the Expiration Date. K-III will issue (i)
New Notes in principal amounts of $1,000 for each $1,000 in principal amount
outstanding of the Old Notes, and (ii) one share of New Preferred Stock in
exchange for each share of Old Preferred Stock, accepted in the Exchange Offers.
Holders may tender some or all of their Old Notes or shares of Old Preferred
Stock pursuant to the Exchange Offers.
The form and terms of the New Notes and the New Preferred Stock are the same
as the form and terms of the Old Notes and the Old Preferred Stock except that
the shares of New Notes and New Preferred Stock will have been registered under
the Securities Act and hence will not bear legends restricting their transfer
pursuant to the Securities Act.
As of the date of this Prospectus, $300,000,000 principal amount of Old
Notes and 2,000,000 shares of Old Preferred Stock were outstanding and there
were approximately and beneficial owners, respectively. Solely for reasons
of administration (and for no other purpose), K-III has fixed the close of
business on , 1996 as the record date for the Exchange Offers for
purposes of determining the persons to whom this Prospectus and the Letters of
Transmittal will be mailed initially. Only a registered holder of the Old Notes
or Old Preferred Stock (or such holder's legal representative or
attorney-in-fact) as reflected on the records of the transfer agent and
registrar for the Notes or the Preferred Stock may participate in the Exchange
Offers. There will be no fixed record date for determining registered holders of
the Old Notes or the Old Preferred Stock entitled to participate in the Exchange
Offers.
37
<PAGE>
Holders of the Old Preferred Stock do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Certificate of
Designations for the Old Preferred Stock in connection with the Preferred Stock
Exchange Offer. K-III intends to conduct the Exchange Offers in accordance with
the applicable requirements of the Exchange Act and the rules and regulations of
the Commission thereunder.
K-III shall be deemed to have accepted validly tendered Old Notes or shares
of Old Preferred Stock when, as and if K-III has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of the Old Notes or the Old Preferred Stock, as applicable,
for the purposes of receiving the New Notes or the New Preferred Stock from
K-III.
If any tendered Old Notes or shares of Old Preferred Stock are not accepted
for exchange because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, certificates for any such unaccepted Old
Notes or shares of Old Preferred Stock will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes or shares of Old Preferred Stock in the
Exchange Offers will not be required to pay brokerage commissions or fees or,
subject to the instructions in the applicable Letter of Transmittal, transfer
taxes with respect to the exchange of Old Notes or shares of Old Preferred Stock
pursuant to the Exchange Offers. K-III will pay all charges and expenses, other
than certain applicable taxes, in connection with the Exchange Offers. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1996, unless K-III, in its sole discretion, extends the Exchange Offers,
in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offers are extended.
In order to extend the Exchange Offers, K-III will notify the Exchange Agent
of any extension by oral or written notice and will make a public announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
K-III reserves the right, (i) to delay accepting any Old Notes or shares of
Old Preferred Stock, (ii) to extend the Exchange Offers, (iii) if any of the
conditions set forth below under "--Conditions of the Exchange Offers" shall not
have been satisfied, to terminate the Exchange Offers, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (iv) to
amend the terms of the Exchange Offers in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offers are amended
in a manner determined by K-III to constitute a material change, K-III will
promptly disclose such amendments by means of a prospectus supplement that will
be distributed to the registered holders of the Old Notes and the Old Preferred
Stock, and K-III will extend the Exchange Offers for a period of five to ten
business days, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the Exchange Offers would otherwise
expire during such five to ten business day period.
Without limiting the manner in which K-III may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offers, K-III shall not have an obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a registered holder (which term, for the purposes described herein,
shall include any participant in The Depository Trust Company (also referred to
as a book-entry transfer facility) whose
38
<PAGE>
name appears on a security listing as the owner of the Notes) of Old Notes or
shares of Old Preferred Stock may tender such Old Notes or shares of Old
Preferred Stock in the Exchange Offers. To tender in the Exchange Offers a
holder must complete, sign and date the applicable Letter of Transmittal, or a
facsimile thereof, have the signatures thereon guaranteed if required by the
applicable Letter of Transmittal and mail or otherwise deliver such Letter of
Transmittal or such facsimile, together with the Old Notes or the shares of Old
Preferred Stock and any other required documents, to the Exchange Agent at the
address set forth below under "Exchange Agent" for receipt prior to the
Expiration Date (or comply with the procedure for book-entry transfer described
below).
The tender by a holder will constitute an agreement between such holder and
K-III in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF THE OLD NOTES OR THE SHARES OF OLD PREFERRED STOCK
AND THE APPLICABLE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL, OLD NOTES
OR SHARES OF OLD PREFERRED STOCK SHOULD BE SENT TO K-III. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES
TO EFFECT THE ABOVE TRANSACTION FOR SUCH HOLDERS.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Old Notes and the Old
Preferred Stock at the book-entry transfer facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of Old Notes and/or shares of Old
Preferred Stock by causing such book-entry transfer facility to transfer such
Old Notes and/or shares of Old Preferred Stock into the Exchange Agent's account
with respect to the Old Notes and/or shares of Old Preferred Stock in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of Old Notes and/or shares of Old Preferred Stock may be effected
through book-entry transfer into the Exchange Agent's accounts at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth on the back cover page of this Prospectus on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures.
Any beneficial owner whose Old Notes or shares of Old Preferred Stock are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. See "Instruction to Registered Holder from Beneficial Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Old Notes or the shares of Old Preferred Stock tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal, or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an
39
<PAGE>
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (each an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of Old Notes or any shares of Old Preferred Stock listed therein, such
Old Notes or shares of Old Preferred Stock must be endorsed or accompanied by a
properly completed stock power, signed by such registered holder as such
registered holder's name appears on such Old Notes or shares of Old Preferred
Stock.
If the Letter of Transmittal, Old Notes or any shares of Old Preferred Stock
or stock 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, and
evidence satisfactory to K-III of their authority to so act must be submitted
with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes or shares of Old
Preferred Stock will be determined by K-III in its sole discretion, which
determination will be final and binding. K-III reserves the absolute right to
reject any and all Old Notes or shares of Old Preferred Stock not properly
tendered or any Old Notes or shares of Old Preferred Stock K-III's acceptance of
which would, in the opinion of counsel for K-III, be unlawful. K-III also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes or shares of Old Preferred Stock. K-III's
interpretation of the terms and conditions of the Exchange Offers (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 the Old Notes or the shares of Old Preferred Stock must be cured within such
time as K-III shall determine. Although K-III intends to notify holders of
defects or irregularities with respect to tenders of the Old Notes or the shares
of Old Preferred Stock, neither K-III, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of the
Old Notes or the shares of Old Preferred Stock will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Old
Notes or shares of Old Preferred Stock received by the Exchange Agent that are
not validly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the applicable Letter of Transmittal, as soon as
practicable following the Expiration Date.
By tendering, each registered holder will represent to K-III that, among
other things, (i) the New Notes or the New Preferred Stock to be acquired by the
holder and any beneficial owner(s) of the Old Notes or the Old Preferred Stock
("Beneficial Owner(s)") in connection with the Exchange Offers are being
acquired by the holder and any Beneficial Owner(s) in the ordinary course of
business of the holder and any Beneficial Owner(s), (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the New Notes or the New Preferred Stock, (iii) the holder and
each Beneficial Owner acknowledge and agree that any person participating in the
Exchange Offers for the purpose of distributing the New Notes or the New
Preferred Stock must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the New Notes or the New Preferred Stock acquired by such person
and cannot rely on the position of the Staff of the Commission set forth in the
no-action letters that are discussed herein under "--Resales of the New Notes
and the New Preferred Stock", (iv) the holder and each Beneficial Owner
understands that a secondary resale transaction described in clause (iii) above
should be covered by an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K of the
Commission, and (v) neither the holder nor any Beneficial Owner(s) is an
"affiliate," as defined under Rule 405 of the Securities Act, of K-III except as
otherwise disclosed to K-III in writing.
40
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes or shares of Old Preferred Stock
and (i) whose Old Notes or shares of Old Preferred Stock are not immediately
available, or (ii) who cannot deliver their Old Notes or shares of Old Preferred
Stock, the applicable Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date or complete the procedure for
book-entry transfer on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes or shares of Old Preferred Stock and the principal amount
of Old Notes or the number of shares of Old Preferred Stock being tendered,
stating that the tender is being made thereby and guaranteeing that, within
five business days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Old
Notes or the shares of Old Preferred Stock (or a confirmation of book-entry
transfer of such Old Notes or shares of Old Preferred Stock into the
Exchange Agent's account at the book-entry transfer facility) and any other
documents required by the applicable Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes or shares of Old Preferred Stock in proper form for transfer and
all other documents required by the Letter of Transmittal are received by
the Exchange Agent within five business 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 or shares of Old Preferred
Stock according to the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of the Old Notes or the shares
of Old Preferred Stock may be withdrawn at any time prior to the Expiration Date
or, if tendered notes or shares have not yet been accepted for exchange, after
the expiration of forty business days from the commencement of the Exchange
Offers.
To withdraw a tender of Old Notes or shares of Old Preferred Stock in the
Exchange Offers, a written or facsimile transmission notice of withdrawal must
be received by the Exchange Agent at its address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes or the shares of Old Preferred Stock to be
withdrawn (the "Depositor"), (ii) identify the Old Notes or the shares of Old
Preferred Stock to be withdrawn (including the certificate number or numbers and
number of shares), and (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes or
shares of Old Preferred Stock were tendered (including any required signature
guarantees). If Old Notes or shares of Old Preferred Stock 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 shares of Old Preferred Stock or
otherwise comply with the book-entry transfer facility procedure. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by K-III in its sole discretion, which determination
shall be final and binding on all parties. Any Old Notes or shares of Old
Preferred Stock so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offers and no shares of New Preferred Stock will be
issued with respect thereto unless the
41
<PAGE>
Old Notes or the shares of Old Preferred Stock so withdrawn are validly
retendered. Properly withdrawn Old Notes or shares of Old Preferred Stock may be
retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes or shares of Old Preferred Stock which have been tendered but
which are not accepted for exchange due to rejection of tender or termination of
the Exchange Offers, or which have been validly withdrawn, will be returned as
soon as practicable to the holder thereof without cost to such holder.
CONDITIONS OF THE EXCHANGE OFFERS
Notwithstanding any other term of the Exchange Offers, K-III shall not be
required to accept for exchange, or exchange shares of New Preferred Stock for,
any Old Notes or shares of Old Preferred Stock, and may terminate the Exchange
Offers as provided herein before the acceptance of such Old Notes or shares of
Old Preferred Stock, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offers
which, in the sole judgment of K-III, might materially impair the ability of
K-III to proceed with the Exchange Offers or materially impair the
contemplated benefits of the Exchange Offers to K-III, or any material
adverse development has occurred in any existing action or proceeding with
respect to K-III or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of K-III or any of its subsidiaries has
occurred which, in the sole judgment of K-III, might materially impair the
ability of K-III to proceed with the Exchange Offers or materially impair
the contemplated benefits of the Exchange Offers to K-III; or
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of K-III, might materially impair the
ability of K-III to proceed with the Exchange Offers or materially impair
the contemplated benefits of the Exchange Offers to K-III; or
(d) any governmental approval has not been obtained, which approval
K-III shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offers as contemplated hereby.
If K-III determines in its sole discretion that any of the conditions are
not satisfied, K-III may (i) refuse to accept any Old Notes or shares of Old
Preferred Stock and return all tendered Old Notes or shares of Old Preferred
Stock to the tendering holders, (ii) extend the Exchange Offers and retain all
Old Notes or shares of Old Preferred Stock tendered prior to the Expiration
Date, subject, however, to the rights of holders to withdraw such Old Notes or
shares of Old Preferred Stock (see "--Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offers and accept all
validly tendered Old Notes or shares of Old Preferred Stock which have not been
withdrawn. If such waiver constitutes a material change to the Exchange Offer,
K-III will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to the registered holders, and K-III will extend the
Exchange Offers for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offers would otherwise expire during such five to ten
business day period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offers. Questions and request for assistance, requests for additional copies of
this Prospectus or of the Letter of
42
<PAGE>
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
For the Notes--
<TABLE>
<CAPTION>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
<S> <C> <C>
Reorganization Section (212) 571-3080 Reorganization Section
101 Barclay Street--7 East Confirm by Telephone: 101 Barclay Street--7 East
New York, NY 10286 (212) 815-2742 New York, NY 10286
Attention: Henry Lopez Attention: Henry Lopez
</TABLE>
For the Preferred Stock--
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange (For Eligible Institutions Tender & Exchange
Department Only) Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Confirm Facsimile by Telephone: Receive and Deliver Window
New York, NY 10286-1248 (For Confirmation Only) New York, NY 10286
(800) 507-9357
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by K-III. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telecopy, telephone or in person by officers and regular employees of K-III
and its affiliates.
K-III has not retained any dealer-manager in connection with the Exchange
Offers and will not make any payments to brokers, dealers or others soliciting
acceptance of the Exchange Offers. K-III, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offers will
be paid by K-III and are estimated in the aggregate to be approximately
$300,000. Such expenses include fees and expenses of the Exchange Agent and
transfer agent and registrar, accounting and legal fees and printing costs,
among others.
K-III will pay all transfer taxes, if any, applicable to the exchange of the
Old Notes or the Old Preferred Stock pursuant to the Exchange Offers. If,
however, a transfer tax is imposed for any reason other than the exchange of the
Old Notes or the Old Preferred Stock pursuant to the Exchange Offers, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the applicable Letter of Transmittal, the amount of such transfer taxes will be
billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes or the shares of Old Preferred Stock which are not exchanged
for New Notes or shares of New Preferred Stock pursuant to the Exchange Offers
will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such Old Notes or shares of Old Preferred Stock may
be resold only (i) to K-III or the Initial Purchasers, (ii) inside the United
States to a qualified institutional buyer in compliance with Rule 144A under the
Securities Act, (iii) inside the United States to an institutional accredited
investor that, prior to such transfer, furnishes to K-III a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of this
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security (the form of which letter can be obtained from K-III) and if such
transfer is in respect of an aggregate principal amount or liquidation
preference, as applicable, of securities at the time of transfer of less than
$1,000,000 an opinion of counsel acceptable to K-III that such transfer is in
compliance with the Securities Act, (iv) outside the United States in an
offshore transaction in compliance with Rule 904 under the Securities Act, (v)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (vi) pursuant to an effective registration
statement under the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States and subject to
certain requirements of the transfer agent and registrar being met. The
liquidity of the Old Notes or the Old Preferred Stock could be adversely
affected by the Exchange Offers. Following the consummation of the Exchange
Offers, holders of the Old Notes or the Old Preferred Stock will have no further
registration rights under the Registration Rights Agreement.
ACCOUNTING TREATMENT
The carrying value of the Old Notes or the Old Preferred Stock is not
expected to be materially different from the fair value of New Notes or the New
Preferred Stock, respectively, at the time of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized. The expenses of the Exchange
Offers associated with the New Preferred Stock will be reported as a reduction
in the carrying value of the New Preferred Stock. The expenses of the Exchange
Offers associated with the New Senior Notes will be reported as a non-current
asset and amortized over the term of the New Senior Notes. Such carrying value
of the New Preferred Stock will increase to the amount of the redemption value
of the New Preferred Stock over the term of the New Preferred Stock.
RESALES OF THE NEW NOTES AND THE NEW PREFERRED STOCK
With respect to resales of the New Notes or the New Preferred Stock, based
on interpretations by the staff of the SEC set forth in no-action letters issued
to third parties, and in a previous no-action letter issued to K-III for its
exchange offer of the Series B Preferred Stock, K-III believes that a holder
(other than a person that is an "affiliate" of K-III within the meaning of Rule
405 under the Securities Act) who exchanges Old Notes or shares of Old Preferred
Stock for New Notes or shares of New Preferred Stock in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes or the New Preferred Stock, will be allowed to
resell the New Notes or the New Preferred Stock to the public without further
registration under the Securities Act and without delivering to the purchasers
of the New Notes or the New Preferred Stock a prospectus that satisfies the
requirements of Section 10 thereof. However, if any holder acquires New Notes or
shares of New Preferred Stock in the Exchange Offers for the purpose of
distributing or participating in a distribution of the New Notes or the New
Preferred Stock, such holder cannot rely on the position of the staff of the SEC
in such no-action letter and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each holder accepting one of the Exchange Offers is required to
represent to K-III in the applicable Letter of Transmittal that (i) the New
Notes or the shares of New Preferred Stock are to be acquired by the holder in
the ordinary course of business, (ii) the holder is not engaging and does not
intend to engage, in the distribution of the New Notes or the New Preferred
Stock, and (iii) the holder acknowledges that if such holder participates in
such Exchange Offer for the purpose of distributing the New Notes or the New
Preferred Stock such holder must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale of the New Notes or the New Preferred Stock and cannot rely on the above
no-action letter; however, holders of the New Notes or New Preferred Stock will
have no registration rights under the Registration Rights Agreement.
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DESCRIPTION OF NOTES
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes will have been registered under the
Securities Act and thus will not bear restrictive legends restricting their
transfer pursuant to the Securities Act and (ii) holders of New Notes will not
be entitled to certain rights of holders of the Old Notes under the Registration
Rights Agreement which will terminate upon the consummation of the Notes
Exchange Offer. The summary contained herein of certain provisions of the Notes
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the Note Indenture.
GENERAL
The Old Notes have been and the New Notes will be issued pursuant to the
Note Indenture entered into among K-III, the Guarantors and The Bank of New
York, as trustee (the "Trustee"). The terms of the Notes include those stated in
the Note Indenture and those made part of the Note Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes
are subject to all such terms, and holders of the Notes are referred to the Note
Indenture and the Trust Indenture Act for a statement thereof. A copy of the
Note Indenture is available upon request. The definitions of certain terms used
in the following summary are set forth below under "--Certain Definitions."
Other terms used in this summary but not defined in this Prospectus shall have
the meanings given to them in the Note Indenture.
The Notes rank senior in right of payment to all subordinated Indebtedness
of the Company, and will be guaranteed on a senior basis by each of the domestic
Restricted Subsidiaries of K-III. Such subordinated indebtedness will be limited
to the Exchange Debentures, Class B Subordinated Debentures and 10% Subordinated
Debentures, if and when the same are issued at the option of K-III in exchange
for the Senior Preferred Stock, Series B Preferred Stock and Preferred Stock,
respectively, and additional subordinated indebtedness that is permitted to be
incurred by the terms of the Credit Agreements, the Senior Note Indentures and
such other senior indebtedness as K-III may have outstanding from time to time.
When the New Notes are issued, the Company will have no subordinated
indebtedness outstanding. The Company has no current intention to issue
subordinated indebtedness. The Notes rank pari passu in right of payment with
all senior indebtedness, including the Company's obligations under the Credit
Agreements and Outstanding Notes. As used herein, the statement that certain
indebtedness ranks pari passu with other indebtedness means only that in the
event of the bankruptcy or insolvency of the debtor such certain indebtedness
and such other indebtedness will have an equal claim on money or other property
of the debtor available for distribution. At March 31, 1996, the aggregate
principal amount of outstanding indebtedness was $469.9 million under the Credit
Agreements and $350.0 million under the Outstanding Notes none of which was
secured.
The operations of K-III are conducted through its subsidiaries, and,
therefore, K-III depends upon the cash flow of its subsidiaries to meet its
obligations, including its obligations under the Notes. The Notes are guaranteed
on a senior basis by each of the domestic Restricted Subsidiaries of K-III. As a
result, the claims of holders of the Notes will be at least pari passu with all
existing and future liabilities and obligations (whether or not for borrowed
money), including trade credit, of such subsidiaries. The Note Indenture,
however, permits the Company to organize Unrestricted Subsidiaries and foreign
Restricted Subsidiaries which would not be required to guarantee the Notes or
any other indebtedness of the Company.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $300,000,000 and will
mature on February 1, 2006. Interest on the Old Notes has accrued from the date
of issuance at the rate of 8 1/2% per annum. Interest on Notes is payable
semi-annually on February 1 and August 1, commencing on
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August 1, 1996, to holders of record on the immediately preceding January 15 and
July 15. Interest on the New Notes will accrue from the date the New Notes are
exchanged for the Old Notes. Interest will be computed on the basis of a 360-day
year consisting of twelve 30-day months. The Notes will be payable both as to
principal and interest at the office or agency of K-III maintained for such
purpose within or without the City and State of New York or, at the option of
K-III, payment of interest may be made by check mailed to the holders of the
Notes at their respective addresses set forth in the register of holders of
Notes. Until otherwise designated by K-III, its office or agency in New York
will be the office of the Trustee maintained for such purpose. The New Notes
will be issued in registered form, without coupons, in denominations of $1,000
and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes are not redeemable at K-III's option before February 1, 2001
(other than in connection with a Change of Control, as described below).
Thereafter, the Notes will be subject to redemption at the option of K-III, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of the principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning February 1 of the
years indicated below:
YEAR PERCENTAGE
- ------------------------------------------------------------ ----------
2001........................................................ 104.250%
2002........................................................ 102.125
2003 and thereafter......................................... 100.000
The Credit Agreements restrict the optional redemption or the prepayment of
the Notes, and the Outstanding Note Indentures make such redemption or
prepayment a Restricted Payment (as defined in the Outstanding Note Indentures).
SINKING FUND
There will be no sinking fund payments for the Notes.
CHANGE OF CONTROL
Holders' Right to Require Repurchase Upon Change of Control. Upon the
occurrence of a Change of Control, each holder shall have the right to require
the repurchase of such holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the aggregate
principal amount plus accrued and unpaid interest, if any, to the date of
purchase (the "Change of Control Payment"). The redemption prices for optional
redemptions in the event of a Change of Control would in all cases be equal to
or greater than this repurchase price. Because of the highly leveraged nature of
the Company, there can be no assurance that K-III will have sufficient funds to
repurchase the Notes in the event of a Change of Control. The right of the
holders of the Notes to require K-III to repurchase the Notes in the event of a
Change of Control cannot be waived by the Trustee, K-III or K-III's Board of
Directors. Within 40 days following any Change of Control, K-III shall mail a
notice to each holder stating: (1) that the Change of Control Offer is being
made pursuant to the Change of Control covenant and that all Notes tendered will
be accepted for payment; (2) the purchase price and the purchase date, which
shall be no earlier than 30 days nor later than 40 days from the date such
notice is mailed (the "Change of Control Payment Date"); (3) that any Note not
tendered will continue to accrue interest; (4) that, unless the Company defaults
in the payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date; (5) that holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes, with
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the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the Business Day preceding the Change of Control
Payment Date; (6) that holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
principal amount of the Notes delivered for purchase, and a statement that such
holder is withdrawing his election to have such Notes purchased and (7) that
holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered;
provided that each Holder will tender Notes, and each Note purchased and each
such new Note issued by K-III will be in a principal amount of $1,000 or
integral multiples thereof.
On the Change of Control Payment Date, K-III will, to the extent lawful, (1)
accept for payment Notes or portions thereof tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent (as defined in the Note
Indenture) an amount equal to the Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee, the Notes so accepted together with an officers' certificate
stating the Notes or portions thereof that were tendered to K-III. The Paying
Agent shall promptly mail to each holder of Notes so accepted, payment in an
amount equal to the purchase price for such Notes, and the Trustee shall
promptly authenticate and mail to such holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
such new Note shall be in a principal amount of $1,000 or integral multiples
thereof. K-III will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
Indebtedness under the Credit Agreements will automatically accelerate upon
the earlier of 30 days from the Change of Control and the Change of Control
Payment Date. If the Company has insufficient funds with which to repay the
indebtedness under the Credit Agreements and to repurchase the Notes, the
holders of the Notes will have a claim on the funds of the Company equal to that
of the lenders under the Credit Agreements.
Optional Redemption Upon Change of Control. In addition to the rights set
forth under "Optional Redemption," the Notes will be redeemable, at the option
of K-III, in whole or in part, at any time within 160 days after a Change of
Control upon not less than 30 nor more than 60 days' prior notice to each holder
of Notes to be redeemed, at a redemption price equal to the sum of (i) the then
outstanding principal amount thereof plus (ii) accrued and unpaid interest, if
any, to the redemption date plus (iii) the Applicable Premium. The following
definitions are used to determine the Applicable Premium:
"Applicable Premium" with respect to the Notes shall be calculated with
respect to the date of redemption and shall equal the greater of (i) 1.0% of the
then outstanding principal amount of such Notes and (ii) the excess of (A) the
present value of the required interest and principal payments due on such Notes,
computed using a discount rate equal to the Treasury Rate plus the Applicable
Spread, over (B) the then outstanding principal amount of such Notes.
"Applicable Spread", for purposes of the Note Indenture, is defined as one
half of one percent.
"Treasury Rate", for purposes of the Note Indenture, is defined as the yield
to maturity at the time of computation of United States Treasury securities with
a constant maturity (as compiled by and published in the most recent Federal
Reserve Statistical Release H.15 (519) which has become publicly available at
least two business days prior to the date fixed for prepayment (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining Average Life of
the Notes; provided, that if the Average Life of the Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
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given, except that if the Average Life of the Notes is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
The redemption prices in an optional redemption upon a Change of Control
will in all cases be equal to or higher than the price applicable to a
repurchase upon a Change of Control required by a holder. If K-III were to
effect an optional Change of Control redemption before the Change of Control
Payment Date, holders that had previously tendered Notes to K-III for repurchase
could withdraw such tenders prior to the Change of Control Payment Date so as to
participate in the optional redemption. However, K-III would have no obligation
to announce such an optional Change of Control redemption prior to the closing
of the mandatory Change of Control Offer.
K-III will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Notes
triggered by a Change of Control.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
the Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate, provided that no Notes of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates 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 cancellation of the original Note. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
CERTAIN COVENANTS
Limitations on Restricted Payments. K-III will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay
any dividend or make any distribution on account of K-III or any of its
Restricted Subsidiaries' Capital Stock or other Equity Interests (other than (A)
dividends or distributions payable in Equity Interests (other than Redeemable
Stock) of K-III or such Restricted Subsidiary or (B) dividends or distributions
payable to K-III or any of its Restricted Subsidiaries), (ii) (A) voluntarily
purchase, redeem or otherwise acquire or retire for value any preferred stock of
K-III or any of its Restricted Subsidiaries which, by its terms, is exchangeable
for any Indebtedness ("Exchangeable Preferred Stock") that is pari passu with or
subordinated in right of payment to the Notes or (B) purchase, redeem or
otherwise acquire or retire for value any Equity Interests (other than
Exchangeable Preferred Stock) of K - III or any of its Restricted Subsidiaries
(other than any such Equity Interests purchased from K - III or any of its
Restricted Subsidiaries), (iii) voluntarily purchase, repay, redeem, defease
(including, but not limited to, in-substance or legal defeasance) or otherwise
acquire or retire for value any Indebtedness (other than (A) the Notes, (B)
Indebtedness under the Credit Agreements, (C) Indebtedness permitted under
clause (v) or (vi) of the second paragraph of the Incurrence of Indebtedness
covenant and any extension, refinancing, renewal, replacement, substitution or
refunding thereof permitted under clause (vii) of the second paragraph of the
Incurrence of Indebtedness covenant or (D) Indebtedness between and among K-III
and the Restricted Subsidiaries) that is pari passu with or subordinated in
right of payment to the Notes (other than in connection with the refunding or
refinancing of such Indebtedness) or (iv) make
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Investments in Restricted Payment Unrestricted Subsidiaries (the foregoing
actions set forth in clauses (i) through (iv) being referred to as "Restricted
Payments"), if, at the time of such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) K-III could not incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of the Incurrence of Indebtedness covenant
(without giving effect to clauses (i) through (xv) of the second paragraph
thereof), which calculation shall be made on a pro forma basis deducting
from Adjusted Consolidated Net Income the amount of any Investment K-III has
made in an Unrestricted Subsidiary during the relevant period and any
Investment K-III intends to make in an Unrestricted Subsidiary, to the
extent that such Investment is made with amounts included in Adjusted
Consolidated Net Income as a result of Transfers described in clause (c)(x)
below or clause (c)(y) of the Investments in Unrestricted Subsidiaries
covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after May 13, 1992, the date of the indenture
governing the 10 5/8% Senior Notes (the "10 5/8% Senior Note Indenture"),
exceeds the sum of the following: (w) 50% of the amount of the Adjusted
Consolidated Net Income (other than amounts included in the next succeeding
clause (c)(x)) of K-III for the period (taken as one accounting period) from
the beginning of the first quarter commencing immediately after May 13,
1992, through the end of K-III's fiscal quarter ending immediately prior to
the time of such Restricted Payment (or, if Adjusted Consolidated Net Income
for such period is a deficit, 100% of such deficit); plus (x) 100% of the
amount of all Transfers from a Restricted Payment Unrestricted Subsidiary up
to the aggregate amount of the Investment (after taking into account all
prior Transfers from such Restricted Payment Unrestricted Subsidiary) in
such Restricted Payment Unrestricted Subsidiary (valued in each case as
provided in the definition of "Investment"); plus (y) in the event of a
designation of a Restricted Payment Unrestricted Subsidiary as a Restricted
Subsidiary, 100% of an amount equal to the Consolidated Net Cash Flow
generated by such Subsidiary for the period (taken as one accounting period)
from the beginning of its first fiscal quarter commencing immediately after
the date of its designation as a Restricted Payment Unrestricted Subsidiary
through such Subsidiary's fiscal quarter ending immediately prior to its
designation as a Restricted Subsidiary (or if such Consolidated Net Cash
Flow for such period is a deficit, 100% of such deficit); plus (z) 100% of
the aggregate net cash proceeds received by K-III from (i) the issuance or
sale of Equity Interests of K-III (other than such Equity Interests issued
or sold to a Restricted Subsidiary of K-III and other than Redeemable Stock)
or (ii) the sale of the stock of an Unrestricted Subsidiary or the sale of
all or substantially all of the assets of an Unrestricted Subsidiary to the
extent that a liquidating dividend is paid to K-III or any Restricted
Subsidiary from the proceeds of such sale;
provided, however, that for purposes of making Investments in Unrestricted
Subsidiaries, if the amount determined in accordance with clauses (w) or (y)
above is a deficit, such deficit shall be excluded from the computation of
this clause (c); and provided, further, that all such amounts applied
pursuant to this clause (c) shall not be available for application under
clause (c) of the Investments in Unrestricted Subsidiaries covenant.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the Note
Indenture; (ii) (A) the retirement of any shares of K-III's Capital Stock (the
"Retired Capital Stock") either (1) in exchange for or (2) out of the net
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of K-III) of other shares of, K-III's Capital Stock (the "Refunding
Capital Stock") other than any Redeemable Stock, and (B) if immediately prior to
such retirement of such Retired Capital Stock the declaration and payment of
dividends thereon was permitted under either clause (iii) or (vii) of this
paragraph, the declaration and payment of dividends
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on the Refunding Capital Stock in an aggregate amount per year no greater than
the aggregate amount of dividends per year that was declarable and payable on
such Retired Capital Stock immediately prior to such retirement; (iii) the
declaration and payment of dividends to the holders of the Senior Preferred
Stock, Series B Preferred Stock and Preferred Stock; (iv) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of K-III issued to present and former members of management of K-III and its
Subsidiaries pursuant to subscription and option agreements in effect on the
date of the Note Indenture and Equity Interests of K-III issued to future
members of management pursuant to subscription agreements executed subsequent to
the date of the Note Indenture, containing provisions for the repurchase of such
Equity Interests upon death, disability or termination of employment of such
persons which are substantially identical to those contained in the subscription
agreements in effect on the date of the Note Indenture; (v) the declaration and
payment of dividends on the Common Stock of up to 6% per annum of the net
proceeds received at any time by K-III in any public offering of Common Stock;
(vi) the repurchase, redemption or other acquisition or retirement for value of
Indebtedness of K-III which is subordinated in right of payment to the Notes
either (A) in exchange for or (B) with the proceeds of the issuance of, Equity
Interests (other than Redeemable Stock) of K-III; (vii) the declaration and
payment of dividends to holders of any class or series of K-III's preferred
stock issued after the date of the Note Indenture (including, without
limitation, the declaration and payment of dividends on Refunding Capital Stock
in excess of the dividends declarable and payable thereon pursuant to clause
(ii) of this paragraph), provided that at the time of such issuance K-III's
Fixed Charge Coverage Ratio, after giving effect to such issuance, would be
greater than 1.25 to 1; (viii) the redemption, repurchase or other acquisition
or retirement for value of any Indebtedness of K-III which is subordinated in
right of payment to the Notes (A) with the proceeds of, or in exchange for,
Indebtedness incurred pursuant to clause (vii) of the second paragraph of the
Incurrence of Indebtedness covenant or (B) if, after giving effect to such
redemption, repurchase or retirement, K-III could incur at least $1.00 of
Indebtedness under the first paragraph of the Incurrence of Indebtedness
covenant (without giving effect to clauses (i) through (xv) of the second
paragraph thereof); (ix) the retirement of the Senior Preferred Stock, Series B
Preferred Stock and Preferred Stock in exchange for the issuance of the Exchange
Debentures, Class B Subordinated Debentures and 10% Subordinated Debentures,
respectively, pursuant to the respective certificates of designations relating
thereto and (x) the purchase of Exchange Debentures, Class B Subordinated
Debentures and 10% Subordinated Debentures in accordance with the Change of
Control covenants in the Exchange Debenture Indenture, Class B Debenture
Indenture and 10% Subordinated Debenture Indenture, respectively; provided that
in determining the aggregate amount expended for Restricted Payments in
accordance with paragraph (c) above, (1) no amounts expended under clauses
(ii)(A)(1), (vi)(A), (viii) and (ix) of this paragraph will be included, (2)
100% of the amounts expended under clauses (ii)(A)(2), (iv), (v), (vi)(B), (vii)
and (x) of this paragraph will be included, (3) 50% of the amounts expended
under clause (iii) of this paragraph will be included, (4) amounts expended
under clause (ii)(B) of this paragraph will be included to the extent previously
included for the Retired Capital Stock and (5) 100% of the amounts expended
under clause (i) to the extent not included under subclauses (1) through (4) of
this proviso will be included.
Not later than the date of making any Restricted Payment, K-III shall
deliver to the Trustee an Officer's Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the Restricted Payments covenant were computed, which calculations
may be based on the Company's latest available internal financial statements.
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Investments in Unrestricted Subsidiaries. K-III will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, make any Investment
in any Unrestricted Subsidiary, if at the time of such Investment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately before such Investment, K-III would not be permitted to
incur at least $1.00 of Indebtedness pursuant to the first paragraph of the
Incurrence of Indebtedness covenant (without giving effect to clauses (i)
through (xv) of the second paragraph thereof), which calculation shall be
made on a pro forma basis deducting from Adjusted Consolidated Net Income
the amount of any Investment K-III has made in an Unrestricted Subsidiary
during the relevant period and any Investment K-III intends to make in an
Unrestricted Subsidiary, to the extent that such Investment is made with
amounts included in Adjusted Consolidated Net Income as a result of the
Transfers described in clause (c)(x) of the Limitation on Restricted
Payments covenant or clause (c)(y) below; or
(c) such Investment, together with the aggregate of all other
Investments in Unrestricted Subsidiaries made after May 13, 1992, the date
of the 10 5/8% Note Indenture, exceeds (w) the aggregate Consolidated Net
Cash Flow of K-III for the period (taken as one accounting period) from the
beginning of the first quarter immediately after May 13, 1992, to the end of
K-III's most recently ended fiscal quarter at the time of such Investment;
plus (x) 100% of the aggregate net cash proceeds received by K-III from (i)
the issue or sale of Equity Interests of K-III (other than such Equity
Interests issued or sold to a Restricted Subsidiary of K-III and other than
Redeemable Stock) or (ii) the sale of the stock of an Unrestricted
Subsidiary or the sale of all or substantially all of the assets of an
Unrestricted Subsidiary to the extent that a liquidating dividend is paid to
K-III or any Restricted Subsidiary from the proceeds of such sale; plus (y)
100% of the amount of all Transfers from a Net Cash Flow Unrestricted
Subsidiary up to the aggregate Investment (after taking into account all
prior Transfers from such Net Cash Flow Unrestricted Subsidiary) in such Net
Cash Flow Unrestricted Subsidiary resulting from such payments or transfers
of assets (valued in each case as provided in the definition of
"Investment"); plus (z) in the event of a designation of an Unrestricted
Subsidiary as a Restricted Subsidiary, 100% of an amount equal to the
Consolidated Net Cash Flow generated by such Subsidiary for the period
(taken as one accounting period) from the beginning of its first fiscal
quarter commencing immediately after the date of its designation as an
Unrestricted Subsidiary through such Subsidiary's fiscal quarter ending
immediately prior to its designation as a Restricted Subsidiary (or if such
Consolidated Net Cash Flow for such period is a deficit, 100% of such
deficit);
provided that all such amounts applied pursuant to this clause (c) shall not
be available for application under clause (c) of the Restricted Payments
covenant.
The foregoing limitations will not apply to an Investment to the extent that
it is (i) to capitalize a Restricted Payment Unrestricted Subsidiary permitted
pursuant to the Restricted Payments covenant or (ii) funded by the issuance of
Equity Interests of K-III to the extent net proceeds are not used to fund an
optional redemption of Notes.
All Restricted Subsidiaries and all Net Cash Flow Unrestricted Subsidiaries
shall at all times remain wholly-owned, directly or indirectly, by K-III or a
Restricted Subsidiary.
Not later than the date of making any Investment described above, K-III
shall deliver to the Trustee an Officer's Certificate stating that such
Investment is permitted (including, without limitation, whether such Investment
is capitalizing a Net Cash Flow Unrestricted Subsidiary or a Restricted Payment
Unrestricted Subsidiary) and setting forth the basis upon which the calculations
required by the Investments in Unrestricted Subsidiaries covenant were computed,
which calculations may be based on the Company's latest available internal
financial statements.
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Dividends and Payment Restrictions Affecting Restricted Subsidiaries. K-III
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock, or any other
interest or participation in, or measured by, its profits, owned by K-III or any
of its Restricted Subsidiaries, or pay any Indebtedness owed to K-III or any of
its Restricted Subsidiaries, (ii) make loans or advances to K-III or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or assets to
K-III or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of: (A) the terms (as in effect on the
date of the Note Indenture) of the Existing Indebtedness, (B) the terms (as in
effect on the date of the Note Indenture) of the Credit Agreements and the
Outstanding Notes and Outstanding Note Indentures, (C) the terms of Indebtedness
of K-III incurred in accordance with the Incurrence of Indebtedness covenant;
provided that such terms of any such Indebtedness constitute no greater
encumbrance or restriction on the ability of any Restricted Subsidiary to pay
dividends or make distributions, make loans or advances or transfer properties
or assets than is permitted by this covenant, (D) the terms of the Note
Indenture and the Notes, (E) applicable law, (F) customary non-assignment
provisions entered into in the ordinary course of business and consistent with
past practices, (G) the terms of purchase money obligations for property
acquired in the ordinary course of business, but only to the extent that such
purchase money obligations restrict or prohibit the transfer of the property so
acquired, (H) the terms of the Exchange Debentures, Exchange Debenture
Indenture, the Class B Subordinated Debentures, the Class B Debenture Indenture,
the 10% Subordinated Debentures and the 10% Subordinated Debenture Indenture,
(I) any encumbrance or restriction with respect to a Subsidiary of K-III that is
not a Subsidiary of the Company on the date of the Note Indenture, which
encumbrance or restriction is in existence at the time such person becomes a
Subsidiary of K-III or is created on the date it becomes a Subsidiary of K-III,
(J) any encumbrance or restriction with respect to a Subsidiary of K-III imposed
pursuant to an agreement which has been entered into for the sale or disposition
of all or substantially all the Capital Stock or assets of such Subsidiary, or
(K) any encumbrance or restriction existing under any agreement which refinances
or replaces the agreements described in clauses (A), (B), (D) and (H), provided
that the terms and conditions of any such encumbrances or restrictions contained
in any such agreement constitute no greater encumbrance or restriction on the
ability of any Restricted Subsidiary to pay dividends or make distributions,
make loans or advances or transfer properties or assets than those under or
pursuant to the agreement evidencing the Indebtedness or obligations refinanced.
Nothing contained in this covenant shall prevent K-III or a Restricted
Subsidiary from entering into any agreement permitting or providing for the
incurrence of Liens otherwise permitted by the Limitation on Liens covenant.
Incurrence of Indebtedness. K-III will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness unless K-III's Debt to Consolidated Cash Flow Ratio for its
four full fiscal quarters ending immediately prior to the date such additional
Indebtedness is created, incurred, issued, assumed or guaranteed would have been
no greater than 6 to 1, and such Indebtedness is not senior in right of payment
to the Notes; provided that such calculation shall give effect to (A) the
incurrence of any Indebtedness (after giving effect to the application of the
proceeds thereof) in connection with the simultaneous acquisition of any person,
business, property or assets, and (B) the Consolidated Cash Flow generated by
such acquired person, business, property or assets, giving effect in each case
to such incurrence of Indebtedness, application of proceeds and Consolidated
Cash Flow as if such acquisition had occurred at the beginning of such four
quarter period. For purposes of the foregoing provision, cash flow generated by
any acquired person, business, property or asset shall be determined on the same
basis as the definition of Consolidated Cash Flow and shall be based on the
actual earnings before interest, taxes, depreciation and amortization of such
acquired person, business, property or asset during the immediately preceding
four full fiscal quarters plus (y) (i) the savings in cost of goods sold that
would have resulted during that period from the effect of using the Company's
actual costs for comparable goods and services during that period and (ii) other
savings in cost of goods
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sold or eliminations of selling, general and administrative expenses as
determined by K-III in good faith in its consideration of such acquisitions and
consistent with the Company's experiences in acquisitions of similar businesses
minus (z) the incremental expenses that would be included in cost of goods sold
and selling, general and administrative expenses that would have been incurred
by the Company in the operation of such acquired person, business, property or
assets during such period.
The foregoing limitations will not apply to the incurrence of (i)
Indebtedness pursuant to the Credit Agreements (provided that the principal
amount of such Indebtedness shall not exceed $1,250 million, less the amount of
all repayments made in respect of term loans and of all permanent commitment
reductions with respect to revolving loans (except to the extent, and only to
the extent, that any required repayments of principal in connection with such
commitment reduction are not made) made under the Credit Agreements (excluding
such repayments and commitment reductions which occur substantially
contemporaneously with a refinancing or a refunding thereof)), plus any amounts
then available under clause (vi) of this paragraph; (ii) Existing Indebtedness;
(iii) Indebtedness represented by the Outstanding Notes; (iv) Indebtedness
represented by the Exchange Debentures issued in exchange for all outstanding
Senior Preferred Stock, Class B Subordinated Debentures issued in exchange for
all the outstanding Series B Preferred Stock and the 10% Subordinated Debentures
issued in exchange for all the outstanding Preferred Stock; (v) Capital Lease
Obligations at any one time outstanding not in excess of $75 million; (vi)
Indebtedness in an aggregate principal amount equal to the greater of (A) $150
million in the aggregate at any one time outstanding for K-III and its
Restricted Subsidiaries or (B) Indebtedness created, incurred, issued, assumed
or guaranteed (x) by K-III at any one time outstanding not in excess of 7% of
the Consolidated Net Worth of K-III at the time of such creation, incurrence,
issuance, assumption or guarantee or (y) by any Restricted Subsidiary of K-III
at any one time outstanding not in excess of 7% of the Consolidated Net Worth of
such Restricted Subsidiary at the time of such creation, incurrence, issuance,
assumption or guarantee; (vii) Indebtedness created, incurred, issued, assumed
or guaranteed in exchange for or the proceeds of which are used to extend,
refinance, renew, replace, substitute or refund Indebtedness referred to in
clauses (i) through (vi) above (the "Refinancing Indebtedness"); provided, that
(A) the principal amount of such Refinancing Indebtedness shall not exceed the
principal amount of Indebtedness (including unused commitments) so extended,
refinanced, renewed, replaced, substituted or refunded plus any amounts then
available under clause (vi) of this paragraph, (B) in the case of Refinancing
Indebtedness for Indebtedness permitted under clauses (ii) and (iv) of this
paragraph, the Refinancing Indebtedness permitted under clauses (ii) and (iv) of
this paragraph shall have an Average Life equal to or greater than the Average
Life of the Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded and (C) the Refinancing Indebtedness for Indebtedness
permitted under clauses (ii) and (iv) of this paragraph shall rank, in right of
payment, no more senior than such Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded and the Refinancing Indebtedness for
Indebtedness permitted under clauses (i), (iii), (v) and (vi) of this paragraph
shall rank, in right of payment, pari passu with or junior to the Notes; (viii)
intercompany Indebtedness incurred in connection with Investments in
Unrestricted Subsidiaries; provided that such Investments are permitted by the
Restricted Payments covenant or the Investments in Unrestricted Subsidiaries
covenant; (ix) Indebtedness under Currency Agreements and Interest Rate
Agreements, provided that in the case of Currency Agreements which relate to
other Indebtedness, such Currency Agreements do not increase the Indebtedness of
K-III outstanding other than as a result of fluctuations in foreign currency
exchange rates; (x) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of K-III or any Restricted Subsidiary of K-III pursuant to such
agreements, incurred or assumed by the acquired Subsidiary in connection with
the acquisition or disposition of any business, assets or Restricted Subsidiary
of K-III, other than guarantees or similar credit support by K-III of
Indebtedness incurred by any person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; provided that the maximum aggregate liability in respect of all
such Indebtedness in the nature of such guarantees shall
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at no time exceed the gross proceeds actually received from the sale of such
business, assets or Restricted Subsidiary; (xi) Indebtedness arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument inadvertently (except in the case of daylight overdrafts, which will
not be, and will not be deemed to be, inadvertent) drawn against insufficient
funds in the ordinary course of business, provided that such Indebtedness is
extinguished within three business days of its incurrence; (xii) Indebtedness of
an entity at the time it is acquired as a Restricted Subsidiary, provided that
such Indebtedness was not incurred or assumed by such entity in connection with
or in anticipation of such acquisition; (xiii) Indebtedness between K-III and
any Restricted Subsidiary; (xiv) Non-Compete Notes, not to exceed $50 million in
aggregate principal amount less the amount of all principal repayments made in
respect thereof; and (xv) K-III's Obligations arising from the repurchase,
redemption or other acquisitions of Capital Stock from management investors to
the extent permitted by the Limitation on Restricted Payments covenant. For the
purposes of determining the aggregate Indebtedness of any referent person,
Indebtedness shall not include guarantees by any other person of such
Indebtedness.
Limitations on Liens. K-III will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) on any of its assets or
any income or profits therefrom or assign or convey any right to receive income
therefrom unless the Notes are equally and ratably secured.
Limitations on Asset Sales. K-III will not, and will not permit any of its
Subsidiaries to, directly or indirectly, consummate an Asset Sale (including the
sale of any of the stock of any Subsidiary) unless at least 100% of the Net
Proceeds from such Asset Sale are applied first to repay Obligations or reduce
commitments under the Credit Agreements in accordance with the terms thereof and
second to offer to redeem at par the Outstanding Notes and third to offer to
redeem at par the Notes. The foregoing application of Net Proceeds from Asset
Sales is not required in the case of (i) sales or dispositions generating cash
proceeds of less than, with respect to K-III and Restricted Subsidiaries,
$2,500,000 and (ii) sales and dispositions as to which K-III delivers a
reinvestment notice and the proceeds are so reinvested in one or more
communications, publishing, information, education or media assets or businesses
within twelve months of the date the relevant Asset Sale is consummated.
Notwithstanding the foregoing, neither K-III nor its Subsidiaries will be
required to apply the Net Proceeds from any Asset Sale (i) to the extent that
the aggregate Net Proceeds from such Asset Sale, together with the Net Proceeds,
if any, of any other Asset Sale which have not been previously applied, are less
than $25,000,000 or (ii) to the extent that, and for so long as, such Net
Proceeds cannot be so applied as a result of an encumbrance or restriction
permitted pursuant to the Limitations on Liens covenant. The procedure for
offering to redeem the Notes in connection with Asset Sales is substantially the
same as the mechanism for redeeming the Notes in connection with a Change of
Control.
Transactions with Affiliates. Neither K-III nor any of its Restricted
Subsidiaries will make any loan, advance, guarantee or capital contribution to,
or for the benefit of, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, (i) any person (or any Affiliate of
such person) holding 10% or more of any class of Capital Stock of K-III or any
of its Restricted Subsidiaries or (ii) any Affiliate of K-III or any of its
Restricted Subsidiaries (each an "Affiliate Transaction"), except on terms that
are no less favorable to K-III or the relevant Restricted Subsidiary, as the
case may be, than those that could have been obtained in a comparable
transaction on an arm's-length basis from a person that is not such a holder or
Affiliate; provided that a transaction with any such holder (or Affiliate
thereof) or any Affiliate of K-III or any of its Restricted Subsidiaries shall
be deemed to be on terms that are no less favorable to K-III or such Restricted
Subsidiary than those obtainable at the time of the transaction from a person
who is not such a holder or Affiliate if (a) K-III or such Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to K-III or such Restricted
Subsidiary from a financial point of view or (b) a disinterested majority of the
Board of
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Directors of K-III or such Restricted Subsidiary approves the transaction; and
provided, further, that, the foregoing restriction shall not apply to (i) the
payment of an annual fee to KKR for the rendering of management consulting and
financial services to K-III and its Restricted Subsidiaries in an aggregate
amount which is reasonable in relation thereto, (ii) the payment of transaction
fees to KKR in amounts which are in accordance with past practices for the
rendering of financial advice and services in connection with acquisitions,
dispositions and financings by K-III and its Subsidiaries, (iii) the payment of
reasonable and customary regular fees to directors of K-III and its Subsidiaries
who are not employees of K-III or its Restricted Subsidiaries, (iv) loans to
officers, directors and employees of K-III and its Subsidiaries for business or
personal purposes and other loans and advances to such officers, directors and
employees for travel, entertainment, moving and other relocation expenses made
in the ordinary course of business of K-III and its Subsidiaries, (v) any
Restricted Payments not prohibited by the Restricted Payments covenant or any
Investment not prohibited by the Investments in Unrestricted Subsidiaries
covenant, (vi) transactions between or among any of K-III and its Restricted
Subsidiaries or (vii) allocation of corporate overhead to Unrestricted
Subsidiaries on a basis no less favorable to K-III than such allocations to
Restricted Subsidiaries.
Merger, Consolidation, or Sale of Assets. K-III may not consolidate with,
merge with or into, or transfer all or substantially all of its assets (as an
entirety or substantially as an entirety in one transaction or a series of
related transactions), to any person (except a Restricted Subsidiary with a
positive Consolidated Net Worth, provided that in connection with any merger of
K-III with a Restricted Subsidiary of K-III, no consideration (other than common
stock in the surviving corporation or K-III) shall be issued or distributed to
the shareholders of K-III) or permit any person to merge with or into it unless:
(i) K-III shall be the continuing person, or the person (if other than K-III)
formed by such consolidation or into which K-III is merged or to which the
properties and assets of K-III are transferred shall be a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
of the obligations of K-III under the Notes and Note Indenture; (ii) immediately
after giving effect to such transaction, no Default and no Event of Default
under the Note Indenture shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Consolidated Net Worth of the surviving entity is at least equal to the
Consolidated Net Worth of K-III immediately prior to such transaction; (iv)
immediately after giving effect to such transaction on a pro forma basis, the
Fixed Charge Coverage Ratio of the surviving entity is at least 1:1; provided
that if the Fixed Charge Coverage Ratio of K-III before giving effect to such
transaction is within the range set forth in column (A) below, then the pro
forma Fixed Charge Coverage Ratio of the surviving entity shall be at least
equal to the lesser of (x) the ratio determined by multiplying the percentage
set forth in Column B by the Fixed Charge Coverage Ratio of K-III prior to such
transaction, and (y) the ratio set forth in Column C below:
(A) (B) (C)
- ------------------------------------------------------- --- -----
1.11:1 to 1.99:1....................................... 90% 1.5:1
2.00:1 to 2.99:1....................................... 80% 2.1:1
3.00:1 to 3.99:1....................................... 70% 2.4:1
4.00:1 or more......................................... 60% 2.5:1
Payments for Consent. Neither K-III nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Note Indenture or the Notes unless such consideration is offered to be
paid or agreed to be paid to all holders of the Notes which so consent, waive or
agree to amend in the time frame set forth in solicitation documents relating to
such consent, waiver or agreement.
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GUARANTEES
Guarantees. The Notes are guaranteed on a senior basis by each of the
domestic Restricted Subsidiaries (collectively, the "Guarantors"). Each
guarantee is limited to 95% of the relevant Guarantor's Adjusted Net Worth (as
defined in the Note Indenture). The foregoing guarantees (the "Guarantees") rank
pari passu with the guarantees made for the benefit of the lenders under the
Credit Agreements and with guarantees made for the benefit of the holders of the
Outstanding Notes. No Unrestricted Subsidiary shall become a guarantor of any
Indebtedness of K-III or any Restricted Subsidiaries unless such Unrestricted
Subsidiary becomes a guarantor of the Notes.
Releases of Guarantees. Upon the sale or disposition (by merger or
otherwise) of any Guarantor by K-III or any subsidiary of K-III to any entity
that is not an affiliate of K-III or any of its subsidiaries and which sale or
disposition is otherwise in compliance with the terms of the Note Indenture,
each such Guarantor shall automatically be released from all obligations under
its Guarantee, provided, that each such Guarantor is sold or disposed of for at
least fair market value (evidenced by a resolution of the Board of Directors of
K-III set forth in an Officer's Certificate delivered to the Trustee) (the
foregoing proviso shall not apply to the sale or disposition of a Guarantor in a
foreclosure proceeding to the extent that such proviso would be inconsistent
with the requirements of the Uniform Commercial Code).
The Guarantors. The Guarantors on the date of this Prospectus are set forth
below:
Argus Publishers Corporation K-III Directory Corporation
Bacon's Information, Inc. K-III Holdings Corporation III
Channel One Communications K-III HPC, Inc.
Corporation K-III KG Corporation--Massachusetts
Daily Racing Form, Inc. K-III KG Corporation--New York I
DRF Finance, Inc. K-III KG Corporation--New York II
The Electronics Source Book, Inc. K-III Magazine Corporation
Funk & Wagnalls Yearbook Corp. K-III Magazine Finance Corporation
Haas Publishing Companies, Inc. K-III Prime Corporation
Intermodal Publishing Company, K-III Reference Corporation
Ltd. Krames Communications Incorporated
Intertec Market Reports, Inc. Lifetime Learning Systems, Inc.
Intertec Presentations, Inc. McMullen Argus Publishing, Inc.
Intertec Publishing Corporation MH West, Inc.
The Katharine Gibbs Schools, Inc. Musical America Publishing, Inc.
The Katharine Gibbs Schools of Nelson Publications, Inc.
Montclair, Inc. Newbridge Communications, Inc.
The Katharine Gibbs Schools of Paramount Publishing, Inc.
Norwalk, Inc. PJS Publications, Inc.
The Katharine Gibbs Schools of R.E.R. Publishing Corporation
Piscataway, Inc. Stagebill, Inc.
The Katharine Gibbs Schools of Symbol of Excellence Publishers,
Providence, Inc. Inc.
Weekly Reader Corporation
EVENTS OF DEFAULT AND REMEDIES
The Note Indenture will provide that each of the following constitutes an
"Event of Default": (i) the failure to make any payment of interest on the Notes
when the same becomes due and payable and the continuance of such failure for a
period of 30 days; (ii) the failure to make any payment when due of principal or
premium on the Notes, whether at maturity, or upon acceleration, redemption or
otherwise; (iii) failure by K-III to comply with any of its other agreements in
the Note Indenture or the Notes and such Default continues for 30 days after
receipt of a written notice from the Trustee or holders of at least 25% of the
aggregate principal amount of the Notes then outstanding, specifying such
Default and requiring that it be remedied; (iv) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by K-III or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by K-III or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee is now
existing
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or thereafter created in the future, if either (A) such default is the failure
to pay the final scheduled principal installment in an amount of at least $10
million in respect of any such Indebtedness on the stated maturity date thereof
(after giving effect to any extension of such maturity date by the holder of
such Indebtedness and after the expiration of any grace period in respect of
such final scheduled principal installment contained in the instrument under
which such Indebtedness is outstanding) or (B) as a result of such default the
maturity of such Indebtedness has been accelerated prior to its express maturity
and the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness the maturity of which has been
accelerated, aggregates $20 million or more; provided that an Event of Default
shall not be deemed to occur with respect to any accelerated indebtedness which
is repaid or prepaid within 20 days after such declaration; (v) failure by K-III
or any of its Restricted Subsidiaries to pay certain final judgments that exceed
$15 million individually or $25 million in the aggregate, which judgments are
not discharged, satisfied, stayed, annulled or rescinded within 60 days after
their entry; (vi) certain events of bankruptcy or insolvency with respect to
K-III or any of its Restricted Subsidiaries; and (vii) except as permitted by
the Note Indenture and the Notes, the cessation of the effectiveness of the
Guarantees or the finding in any judicial proceeding that the Guarantees are
unenforceable or invalid or the denial or disaffirmation by any Guarantor of its
obligations under its Guarantee. The term "Default" means any event which is, or
after notice or passage of time or both would be, an Event of Default.
If a Default or an Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each holder of the Notes a
notice of the Default or Event of Default within 30 days after it occurs or, if
later, within 10 days after such Default or Event of Default becomes known to
the Trustee, unless such Default or Event of Default has been cured. Except in
the case of a Default or Event of Default in the payment of principal of,
premium, if any, or interest on any Note or that results from a failure to
comply with the Change of Control covenant, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interest of the holders of the
Notes.
If an Event of Default (other than an Event of Default with respect to K-III
resulting from bankruptcy, insolvency or reorganization) occurs and is
continuing, the Trustee by written notice to K-III, or the holders of at least
25% of the principal amount of the Notes then outstanding by written notice to
K-III and the Trustee, may, and such Trustee at the request of such holders
shall, declare all unpaid principal of, premium, if any, and accrued interest on
the Notes to be due and payable, as specified below. Upon a declaration of
acceleration, such principal, premium, if any, and accrued interest shall be due
and payable immediately. If an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization occurs with respect to K-III, all
unpaid principal of, premium, if any, and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without
any declaration, notice or other act on the part of the Trustee or any holder.
The holders of at least a majority in principal amount of the Notes by notice to
the Trustee may rescind an acceleration and its consequences upon conditions
provided in the Note Indenture. Subject to certain restrictions set forth in the
Note Indenture, the holders of at least a majority in principal amount of the
outstanding Notes by notice to the Trustee may waive an existing Default or
Event of Default and its consequences (including waivers obtained in connection
with a tender offer or exchange offer for Notes), except a continuing Default or
Event of Default in the payment of principal of, premium, if any, or interest
on, the Notes (including, without limitation, pursuant to any mandatory or
optional redemption obligation under the Note Indenture) or a continuing Default
or Event of Default resulting from the failure to comply with the Change of
Control or Limitations on Asset Sales covenants. When a Default or Event of
Default is waived, it is cured and ceases. A holder of Notes may not pursue any
remedy with respect to the Note Indenture, the Notes or any Guarantee unless:
(1) the holder gives to the Trustee written notice of a continuing Event of
Default; (2) the holders of at least 25% in principal amount of such Notes
outstanding make a written request to the Trustee to pursue the remedy; (3) such
holder or holders offer to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense (including, without limitation, fees of
counsel); (4) the Trustee does not comply with the request within
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30 days after receipt of the request and the offer of indemnity; and (5) during
such 30-day period the Holders of a majority in principal amount of the
outstanding Notes do not give the Trustee a direction which is inconsistent with
the request.
K-III is required to deliver to the Trustee annually a statement regarding
compliance with the Note Indenture, and K-III is required upon becoming aware of
any Default or Event of Default to deliver a statement to the Trustee specifying
such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Note Indenture or the Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder of
the Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
DEFEASANCE AND DISCHARGE OF THE NOTE INDENTURE AND THE NOTES
If K-III irrevocably deposits, or causes to be deposited, in trust with the
Trustee or the Paying Agent, at any time prior to the stated maturity of the
Notes or the date of redemption of all the outstanding Notes, as trust funds in
trust, money or direct noncallable obligations of or guaranteed by the United
States of America in an amount sufficient (without reinvestment thereof) to pay
timely and discharge the entire principal of the then outstanding Notes and all
interest due thereon to maturity or redemption, the Note Indenture shall cease
to be of further effect as to all outstanding Notes (except, among other things,
as to (i) remaining rights of registration of transfer and substitution and
exchange of the Notes, (ii) rights of holders to receive payment of principal of
and interest on the Notes, and (iii) the rights, obligations and immunities of
the Trustee).
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Note
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and K-III
may require a holder to pay any taxes and fees required by law or permitted by
the Note Indenture. K-III is not required to transfer or exchange any Note
selected for redemption. Also, K-III is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Note Indenture, the
Guarantees or the Notes may be amended or supplemented with the consent of the
holders of at least 51% in principal amount of the Notes then outstanding, and
any existing default or compliance with any provision of the Note Indenture or
the Notes may be waived with the consent of the holders of 51% in principal
amount of the then outstanding Notes.
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder of Notes) (i) reduce
the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption or purchase
price in connection with repurchases of the Notes with proceeds of Asset Sales,
upon a Change of Control or otherwise, (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a
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Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes or that resulted from a failure to comply with the
Change of Control or Limitations on Asset Sales covenants (except a rescission
of acceleration of the Notes by the holders of at least 51% in aggregate
principal amount of the Notes), (v) make any Notes payable in money other than
that stated in the Notes, (vi) make any change in the provisions of the Note
Indenture relating to waivers of past Defaults or the rights of holders of Notes
to receive payments of principal of or interest on the Notes, (vii) waive a
redemption payment with respect to any Note or (viii) make any change in the
foregoing.
Notwithstanding the foregoing, without the consent of any holder of the
Notes, K-III and the Trustee may amend or supplement the Note Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of K-III's obligations to holders of the Notes in the
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Note Indenture of any such holder,
or to comply with requirements of the Commission in order to effect or maintain
the qualification of the Note Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Note Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within ninety days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Note Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of its own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Note
Indenture at the request of any of the holders of the Notes, unless they shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Note Indenture
without charge by writing to: K-III Communications Corporation, 745 Fifth
Avenue, New York, NY 10151, Attention: Beverly C. Chell, Esq.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form, without coupons. The New Notes will be deposited with, or on
behalf of, The Depository Trust Company, New York, New York ("DTC"), and
registered in the name of Cede & Co. ("Cede") as DTC's nominee in the form of
one or more global New Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Note Indenture.
Reference is made to the Note Indenture for a full disclosure of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Adjusted Consolidated Net Income" means, with respect to any person for any
period, (i) the Consolidated Net Income of such person for such period, plus
(ii) in the case of K-III and its Restricted
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Subsidiaries, all cash received during such period by K-III or any Restricted
Subsidiary from its Unrestricted Subsidiaries from the payment of dividends or
distributions (including tax sharing payments and loans or advances which are
junior in right of payment to the Notes and have a longer Average Life than the
Notes), but only to the extent such cash payments are not otherwise included in
"Adjusted Consolidated Net Income." Each item of Adjusted Consolidated Net
Income will be determined in conformity with GAAP, except that, for purposes of
the application of Accounting Principles Board Opinions Nos. 16 and 17, such
person may select any amortization practice allowable by GAAP up to 40 years,
notwithstanding the use of a different amortization in such person's
consolidated financial statements. Any designation of a Subsidiary of K-III as a
Restricted Subsidiary or Unrestricted Subsidiary at or prior to the time of the
calculation of Adjusted Consolidated Net Income of a Subsidiary will be treated
as if it had occurred at the beginning of the applicable period.
"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. A person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another person if the controlling person
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of the controlled person, whether through ownership
of voting securities, by agreement or otherwise.
"Asset Sale" means, with respect to any person, the sale, lease, conveyance,
disposition or other transfer by the referent person of any of its assets
(including by way of a sale-and-leaseback and including the sale or other
transfer of any of the Capital Stock of any Subsidiary of the referent person);
provided, that notwithstanding the foregoing, the term "Asset Sale" shall not
include the sale, lease, conveyance, disposition or other transfer of (i) with
respect to any Unrestricted Subsidiary, (A) any assets not constituting all or
substantially all of the assets of any Net Cash Flow Unrestricted Subsidiary and
(B) any Capital Stock or any assets of any Restricted Payment Unrestricted
Subsidiary, (ii) all or substantially all of the assets of K-III, as permitted
pursuant to the Merger, Consolidation or Sale of Assets covenant, (iii) any
assets between K-III, any Restricted Subsidiary or any Unrestricted Subsidiary,
(iv) any sale, conveyance, disposition or other transfer of (A) cash and cash
equivalents, (B) inventory in the ordinary course of business and (C) any other
tangible or intangible asset, in each case in the ordinary course of business of
K-III or its Restricted Subsidiaries or (v) the sale or discount, in each case
without recourse, of accounts receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof.
"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment (assuming the exercise by the obligor of
such debt security of all unconditional (other than as to the giving of notice)
extension options of each such scheduled payment date) of such debt security
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease which
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock.
"Change of Control" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than KKR and
its Affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than (A) 35 percent (35%) of the total voting power of
the then outstanding voting stock of K-III and (B) the total voting power of the
then outstanding voting stock of K-III beneficially owned by KKR and its
Affiliates or (ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted K-III's Board of
Directors (together with any new directors whose election by K-III's Board
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of Directors or whose nomination for election by K-III's shareholders was
approved by a vote of at least two-thirds of the Directors then still in office
who either were 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 directors then in office.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Adjusted Consolidated Net Income of such person for such period plus (a)
provision for taxes based on income or profits to the extent such provision for
taxes was included in computing Adjusted Consolidated Net Income, plus (b)
consolidated Interest Expense, whether paid or accrued, to the extent such
expense was deducted in computing Adjusted Consolidated Net Income (including
amortization of original issue discount and non-cash interest payments), plus
(c) depreciation, amortization and other non-cash charges to the extent such
depreciation, amortization and other non-cash charges were deducted in computing
Adjusted Consolidated Net Income (including amortization of goodwill and other
intangibles); provided, with respect to the calculation of a person's Debt to
Consolidated Cash Flow Ratio, that if, during such period, (i) such person or
any of its Subsidiaries shall have made any Asset Sales (other than, in the case
of K-III and its Restricted Subsidiaries, sales of the Capital Stock of or any
assets of Unrestricted Subsidiaries which constitute Asset Sales), Consolidated
Cash Flow of such person for such period shall be reduced by an amount equal to
the Consolidated Cash Flow (if positive), to the extent such Consolidated Cash
Flow was included in computing Consolidated Cash Flow, directly attributable to
the assets or Capital Stock which are the subject of such Asset Sales for such
period or increased by an amount equal to the Consolidated Cash Flow (if
negative), to the extent such Consolidated Cash Flow was included in computing
Consolidated Cash Flow, directly attributable thereto for such period and (ii)
such person or any of its Subsidiaries (other than, in the case of K-III and its
Restricted Subsidiaries, Unrestricted Subsidiaries) has made any acquisition of
assets or Capital Stock (occurring by merger or otherwise), including, without
limitation, any acquisition of assets or Capital Stock occurring in connection
with a transaction causing a calculation to be made hereunder, Consolidated Cash
Flow of such person shall be calculated (notwithstanding clause (ii) of the
definition of Consolidated Net Income) as if such acquisition of assets or
Capital Stock (including the incurrence of any Indebtedness in connection with
any such acquisition and the application of the proceeds thereof) took place on
the first day of such period. Consolidated Cash Flow of such person shall be
determined for any period without regard to changes in Working Capital of such
person and its Subsidiaries during such period.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the (a) consolidated Interest Expense, whether paid or accrued, to the
extent such expense was deducted in computing Adjusted Consolidated Net Income
(including amortization of original issue discount and non-cash interest
payments) and (b) the amount of all cash dividend payments on all series of
preferred stock other than cash dividends on preferred stock of Unrestricted
Subsidiaries and cash dividends paid to such person or its Subsidiaries;
provided, that if during such period (i) such person or any of its Subsidiaries
shall have made any Asset Sales (other than, in the case of K-III and its
Restricted Subsidiaries, sales of the Capital Stock of or any assets of
Unrestricted Subsidiaries which constitute Asset Sales), Consolidated Fixed
Charges of such person for such period shall be reduced by an amount equal to
the Consolidated Fixed Charges directly attributable to the assets which are the
subject of such Asset Sales for such period and (ii) such person or any of its
Subsidiaries (other than, in the case of K-III and its Restricted Subsidiaries,
Unrestricted Subsidiaries) has made any acquisition of assets or Capital Stock
(occurring by merger or otherwise), including, without limitation, any
acquisition of assets or Capital Stock occurring in connection with the
transaction causing a calculation to be made hereunder, Consolidated Fixed
Charges of such person shall be calculated as if such acquisition of assets or
Capital Stock (including the incurrence of any Indebtedness in connection with
any such acquisition and the application of the proceeds thereof) took place on
the first day of such period.
"Consolidated Net Cash Flow" means, with respect to any person for any
period, the aggregate Consolidated Cash Flow of such person for such period,
minus (a) capital expenditures of such person
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and its Subsidiaries (other than, in the case of K-III and its Restricted
Subsidiaries, Unrestricted Subsidiaries), minus (b) the aggregate amount of all
cash dividends paid by such person and its Subsidiaries (other than, in the case
of K-III and its Restricted Subsidiaries, Unrestricted Subsidiaries) to holders
of its Capital Stock other than to such person or its Subsidiaries, minus (c)
the aggregate amount of all taxes based on income or profits paid by such person
and its Subsidiaries (other than, in the case of K-III and its Restricted
Subsidiaries, Unrestricted Subsidiaries) other than to such person or its
Subsidiaries minus (d) cash Interest Expense of such person and its Subsidiaries
(other than, in the case of K-III and its Restricted Subsidiaries, Unrestricted
Subsidiaries), minus (e) repayments of principal of Indebtedness by such person
and its Subsidiaries (other than, in the case of K-III and its Restricted
Subsidiaries, Unrestricted Subsidiaries), minus (f) any increases in Working
Capital of such person and its Subsidiaries (other than, in the case of K-III
and its Restricted Subsidiaries, Unrestricted Subsidiaries), and plus (g) any
decreases in Working Capital of such person and its Subsidiaries (other than, in
the case of K-III and its Restricted Subsidiaries, Unrestricted Subsidiaries),
in each case, for such period and determined in accordance with GAAP; provided
that in calculating the amount referred to in clause (f) or (g) above, as the
case may be, for any period during which K-III or any of its Restricted
Subsidiaries has consummated an Asset Sale (other than, in the case of K-III and
its Restricted Subsidiaries, sales of Capital Stock of, cash or any assets of
Unrestricted Subsidiaries which constitute Asset Sales), the portion of the
change in Working Capital for such period attributable to the entity or business
sold or purchased shall be based (x) in the case of such an Asset Sale, on the
change in Working Capital attributable to the entity or business sold from the
first day of such period to the date of the consummation of such sale and (y) in
the case of an acquisition, on the change in Working Capital attributable to the
entity or business acquired from the date of consummation of such acquisition to
the last day of such period.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate net income (or loss) of such person and its Subsidiaries (other
than, in the case of K-III and its Restricted Subsidiaries, Unrestricted
Subsidiaries) for such period, on a consolidated basis, determined in accordance
with GAAP, provided that (i) the net income (or loss) of any person which is not
a Subsidiary or is accounted for by the equity method of accounting shall be
included only to the extent of the amount of cash dividends or distributions
(including tax sharing payments and loans or advances which are junior in right
of payment to the Notes and have a longer Average Life than the Notes) paid to
the referent person or a Subsidiary of the referent person, (ii) except to the
extent includable pursuant to the foregoing clause (i), the income (or loss) of
any person accrued prior to the date it becomes a Subsidiary of such person or
is merged into or consolidated with such person or any of its Subsidiaries or
that person's assets are acquired by such person or any of its Subsidiaries
shall be excluded, and (iii) any gains or losses attributable to Asset Sales net
of related tax costs or tax benefits, as the case may be, shall be excluded.
"Consolidated Net Worth" means, at any date of determination, the sum of the
Capital Stock and additional paid-in capital plus retained earnings (or minus
accumulated deficit) of the referent person and its Subsidiaries on a
consolidated basis, less amounts attributable to Redeemable Stock, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52), except that all effects of the
application of Accounting Principles Board Opinions Nos. 16 and 17 and related
interpretations shall be disregarded.
"Credit Agreements" means, collectively, the Chase Credit Agreement, the
BONY Credit Agreement and the Revolving Credit Agreement, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, in each case as amended, modified, renewed, refunded or
refinanced from time to time, as permitted in clause (i) of the second paragraph
of the Incurrence of Indebtedness covenant.
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"Currency Agreement" means the obligations of any person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such person or any of its subsidiaries against
fluctuations in currency values.
"Debt to Consolidated Cash Flow Ratio" means the ratio of all Indebtedness
of K-III and its Restricted Subsidiaries to Consolidated Cash Flow.
"Equity Interests" means Capital Stock, warrants, options or other rights to
acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of K-III and its Subsidiaries
(other than the Credit Agreements and the Outstanding Notes) in existence on the
date of the Note Indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means the ratio of Consolidated Cash Flow to
Consolidated Fixed Charges.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of the Note Indenture.
"Indebtedness" of any person is defined as any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement obligations with respect thereto) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to financing leases), if and to the extent any of
the foregoing indebtedness would appear as a liability upon a balance sheet of
such person prepared in accordance with GAAP (except that any such balance that
constitutes a trade payable and/or an accrued liability arising in the ordinary
course of business shall not be considered Indebtedness), and shall also
include, to the extent not otherwise included, any Capital Lease Obligations,
the maximum fixed repurchase price of any Redeemable Stock, indebtedness secured
by a Lien to which the property or assets owned or held by such person is
subject, whether or not the obligations secured thereby shall have been assumed,
guarantees of items that would be included within this definition to the extent
of such guarantees (exclusive of whether such items would appear upon such
balance sheet), and net liabilities in respect of Currency Agreements and
Interest Rate Agreements. For purposes of the preceding sentence, the maximum
fixed repurchase price of any Redeemable Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Note
Indenture, provided that if such Redeemable Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Stock. The amount of Indebtedness of any person at any date shall be without
duplication (i) the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any such contingent
obligations at such date and (ii) in the case of Indebtedness of others secured
by a Lien to which the property or assets owned or held by such person is
subject, the lesser of the fair market value at such date of any asset subject
to a Lien securing the Indebtedness of others and the amount of the Indebtedness
secured. For the purpose of determining the aggregate Indebtedness of K-III and
its Restricted Subsidiaries, such Indebtedness shall exclude the Indebtedness of
any Unrestricted Subsidiary of K-III or any Unrestricted Subsidiary of a
Restricted Subsidiary.
"Interest Expense" means, with respect to any person, for any period, the
aggregate amount of interest in respect of Indebtedness (including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and the net cost (benefit)
associated with Interest Rate Agreements, and excluding amortization of deferred
finance fees and
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interest recorded as accretion in the carrying value of liabilities (other than
Indebtedness) recorded at a discounted value) and all but the principal
component of rentals in respect of Capital Lease Obligations, paid, accrued or
scheduled to be paid or accrued by such person during such period.
"Interest Rate Agreements" means the obligations of any person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such person or any of its
subsidiaries against fluctuations in interest rates.
"Investment" means any direct or indirect advance, loan (other than advances
to customers in the ordinary course of business, which are recorded as accounts
receivable on the balance sheet of any person or its Subsidiaries) or other
extension of credit 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,
bonds, notes, debentures or other securities issued by any other person. For the
purposes of the Restricted Payments and Investment in Unrestricted Subsidiaries
covenants described above, (i) "Investment" shall include and be valued at the
fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at fair market value at the time of such
transfer, in each case as determined by the Board of Directors of K-III in good
faith.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give any security interest in and any filing or other agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Net Cash Flow Unrestricted Subsidiary" means an Unrestricted Subsidiary
which is not a Restricted Payment Unrestricted Subsidiary.
"Net Proceeds" shall mean, with respect to any Asset Sale, the aggregate
cash proceeds (including any cash received by way of deferred payment pursuant
to a note receivable issued in connection with such Asset Sale, other than the
portion of such deferred payment constituting interest, and including any
amounts received as disbursement or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by K-III or any of its Subsidiaries
in respect of such Asset Sale, net of (i) the cash expenses of such sale
(including, without limitation, the payment of principal, premium, if any, and
interest on Indebtedness required to be paid as a result of such Asset Sale
(other than the Senior Notes and amounts repaid pursuant to the Credit
Agreements) and legal, accounting and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any portion
of cash proceeds which K-III determines in good faith should be reserved for
post-closing adjustments, it being understood and agreed that on the day that
all such post-closing adjustments have been determined, the amount (if any) by
which the reserved amount in respect of such Asset Sale exceeds the actual
post-closing adjustments payable by K-III or any of its Subsidiaries shall
constitute Net Proceeds on such date and (iv) any relocation expenses and
pension, severance and shutdown costs incurred as a result thereof.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's, or other
like Liens arising in the ordinary
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course of business and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor; (iii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens incurred
or deposits made to secure the performance of tenders, bids, leases, statutory
obligations, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of K-III or any of its
Subsidiaries incurred in the ordinary course of business; (vi) Liens (including
extensions and renewals thereof) upon real or tangible personal property
acquired after the date of the Note Indenture, provided that (a) any such Lien
is created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, the cost (including the cost of
construction) of the item of property subject thereto, (b) the principal amount
of the Indebtedness secured by such Lien does not exceed 100% of such cost, (c)
such Lien does not extend to or cover any other property other than such item of
property and any improvements on such item and (d) the incurrence of such
Indebtedness is permitted by the Incurrence of Indebtedness covenant; (vii)
Liens securing reimbursement obligations with respect to letters of credit which
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof; (viii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (ix) judgment and attachment Liens not
giving rise to an Event of Default; (x) leases or subleases granted to others
not interfering in any material respect with the business of K-III or any of its
Subsidiaries; (xi) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business and which
are within the general parameters customary in the industry, in each case
securing Indebtedness under Interest Rate Agreements and Currency Agreements;
(xii) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of K-III or its
Subsidiaries; (xiii) Liens arising out of consignment or similar arrangements
for the sale of goods entered into by K-III or any of its Subsidiaries in the
ordinary course of business of K-III and its Subsidiaries; (xiv) any interest or
title of a lessor in the property subject to any Capital Lease Obligation or
operating lease; (xv) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xvi) Liens permitted by the Credit
Agreements as in effect on the date of the Note Indenture; (xvii) Liens securing
Indebtedness described in clause (xii) of the second paragraph of the Incurrence
of Indebtedness covenant; (xviii) Liens between K-III and any Restricted
Subsidiary or between Restricted Subsidiaries; (xix) Liens securing letters of
credit in an amount not to exceed $50 million in the aggregate at any one time;
and (xx) Liens in an amount not to exceed $25 million in the aggregate at any
one time.
"Redeemable Stock" means any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable before the stated maturity of the Notes), or upon the happening of
any event, matures or is mandatorily redeemable, in whole or in part, prior to
the stated maturity of the Notes, or is, by its terms or upon the happening of
any event, redeemable at the option of the holder thereof, in whole or in part,
at any time prior to the stated maturity of the Notes except for Equity
Interests of K-III issued to present and former members of management of K-III
and its Subsidiaries pursuant to subscription and option agreements in effect on
the date of the Note Indenture and common stock and options of K-III issued to
future members of management of K-III and its Subsidiaries pursuant to
subscription agreements executed subsequent to the date of the Note Indenture
containing provisions for the repurchase of such common stock and options upon
death, disability or termination of employment of such persons which are
substantially identical to those contained in the subscription agreements in
effect on the date of the Note Indenture; provided that for purposes of the
"Limitation on Restricted Payments" covenant and that for purposes
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of the definition of Indebtedness, Redeemable Stock does not include the Senior
Preferred Stock and the Series B Preferred Stock.
"Restricted Payment Unrestricted Subsidiary" means an Unrestricted
Subsidiary which was capitalized exclusively with a permitted Restricted Payment
or with the proceeds from the issuance of an Equity Interest by K-III or with
the proceeds of the sale of stock or substantially all of the assets of any
other Unrestricted Subsidiary which was capitalized with such funds to the
extent that a liquidating dividend is paid to K-III or any Restricted Subsidiary
from the proceeds of such sale.
"Restricted Subsidiary" means a Subsidiary of K-III which at the time of
determination is not an Unrestricted Subsidiary. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that immediately after giving effect to such designation, K-III could incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph of the
Incurrence of Indebtedness covenant on a pro forma basis taking into account
such designation.
"Subsidiary" of any person means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock 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 such person or one or more of
the other Subsidiaries of that person or a combination thereof.
"Transfers" means (i) any payment of interest on Indebtedness, dividends or
repayments of loans or advances and (ii) any other transfers of assets, in each
case from an Unrestricted Subsidiary to K-III or any of its Restricted
Subsidiaries.
"Unrestricted Subsidiary" means (i) any Subsidiary of K-III which at the
time of determination is an Unrestricted Subsidiary (as designated by the Board
of Directors of K-III, as provided below) and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
K-III (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns, or holds any Lien on, any property of, any other Subsidiary of K-III which
is not a Subsidiary of the Subsidiary to be so designated; provided that (a)
K-III certifies that such designation complies with the Limitation on Restricted
Payments and Investments in Unrestricted Subsidiaries covenants, and (b) the
Subsidiary to be so designated has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable with respect to any Indebtedness pursuant to which the
lender has recourse to any of the assets of K-III or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that immediately after giving effect to
such designation, K-III could incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of the Incurrence of Indebtedness covenant on a
pro forma basis taking into account such designation.
"Working Capital" means, with respect to any person for any period, the
current assets of such person and its Subsidiaries (other than, in the case of
K-III and its Restricted Subsidiaries, Unrestricted Subsidiaries) on a
consolidated basis, after excluding therefrom cash and cash equivalents and
deferred income taxes, less the current liabilities of such person and its
Subsidiaries (other than, in the case of K-III and its Restricted Subsidiaries,
Unrestricted Subsidiaries) on a consolidated basis, after excluding therefrom,
in each case to the extent otherwise included therein, all short-term
Indebtedness for borrowed money, the current portion of any long-term
Indebtedness, liabilities arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts, which will not be, and will not be deemed to be,
inadvertent) drawn against insufficient funds in the ordinary course of
business, provided that such liabilities are extinguished within three business
days of this incurrence, and deferred income taxes of such person and its
Subsidiaries (other than, in the case of K-III and its Restricted Subsidiaries,
Unrestricted Subsidiaries).
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DESCRIPTION OF PREFERRED STOCK AND
10% SUBORDINATED DEBENTURES
The form and terms of the New Preferred Stock are the same as the form and
terms of the Old Preferred Stock except that (i) the New Preferred Stock will
have been registered under the Securities Act and thus will not bear restrictive
legends restricting their transfer pursuant to the Securities Act and (ii)
holders of New Preferred Stock will not be entitled to certain rights of holders
of the Old Preferred Stock under the Registration Rights Agreement which will
terminate upon the consummation of the Preferred Stock Exchange Offer. The form
and terms of the New Subordinated Debentures will be the same as the Old
Subordinated Debentures, except that the New Subordinated Debentures will have
been registered under the Securities Act. The summary contained herein of
certain provisions of the Preferred Stock and the 10% Subordinated Debentures
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the Certificate of Designations for the Old Preferred Stock,
the Certificate of Designations for the New Preferred Stock (together, the
"Certificates of Designations") and the 10% Subordinated Debenture Indenture
(which relates to both the Old Subordinated Debentures and the New Subordinated
Debentures) relating thereto.
THE PREFERRED STOCK
GENERAL
Two million shares of each of the New Preferred Stock and the Old Preferred
Stock with a liquidation preference of $100.00 per share will be or have been,
respectively, authorized pursuant to the respective Certificates of
Designations. The Preferred Stock ranks junior in right of payment to all
liabilities and obligations (whether or not for borrowed money) of K-III (other
than common stock of K-III, the Series B Preferred Stock and any preferred stock
of K-III which by its terms is on parity with or junior to the Series C
Preferred Stock). In addition, creditors and stockholders of K-III's
subsidiaries have priority over the Preferred Stock with respect to claims on
the assets of such subsidiaries. See "Risk Factors--Subordination of Preferred
Stock and 10% Subordinated Debentures; Holding Company Structure." The Preferred
Stock is fully paid and non-assessable and holders thereof have no preemptive
rights in connection therewith.
Neither the stated value nor the liquidation preference of the Preferred
Stock is necessarily indicative of the price at which shares of Preferred Stock
will actually trade, and the Preferred Stock may trade at prices below its
stated value. The market price of the Preferred Stock can be expected to
fluctuate with changes in the market and economic conditions, the financial
condition and prospects of the Company and other factors that generally
influence the market prices of securities.
RANK
The Preferred Stock's dividend rights and rights on liquidation, winding-up
and dissolution, rank (i) senior to all classes of Common Stock, each other
class of capital stock or series of preferred stock established by the board of
directors of K-III which does not expressly provide that it ranks senior to or
on a parity with the Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution (collectively referred to with the
Common Stock as "Junior Securities"); (ii) on a parity with the Series B
Preferred Stock and any Future Parity Securities, which expressly provides that
such series will rank on a parity with the Preferred Stock as to dividend rights
and rights on liquidation, winding-up and dissolution (the Series B Preferred
Stock and the Future Parity Securities collectively referred to as "Parity
Securities"); and (iii) junior to the Senior Preferred Stock and each other
class of capital stock or series of preferred stock issued by K-III established
after the initial issuance of the Preferred Stock by the Board of Directors of
K-III the terms of which specifically provide that such series will rank senior
to the Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution (collectively referred to as "Senior Securities").
The Preferred Stock is subject to the issuance of series of Junior Securities,
Parity Securities and Senior Securities. As of March 31, 1996, 4,000,000 shares
of
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the Senior Preferred Stock ($100,000,000 aggregate liquidation preference) were
issued and outstanding and 1,405,397 shares of the Series B Preferred Stock
($140,539,700 aggregate liquidation preference), which include dividends paid in
kind from time to time thereon to such date, were issued and outstanding. See
"Description of Capital Stock of K-III."
DIVIDENDS
Holders of Preferred Stock are entitled to receive, when, as and if declared
by the board of directors of K-III, out of funds legally available therefor,
dividends in cash on the Preferred Stock, at an annual rate equal to 10%.
Dividends on the Old Preferred Stock have accrued and are cumulative from the
original date of issuance thereof to the date on which shares of Old Preferred
Stock are surrendered and shall be paid on the first dividend payment date after
the date the New Preferred Stock is exchanged for the Old Preferred Stock.
Dividends on the New Preferred Stock will accrue and will be cumulative from the
date the New Preferred Stock is exchanged for the Old Preferred Stock. Dividends
on the Preferred Stock are payable quarterly in arrears on February 1, May 1,
August 1 and November 1 of each year, commencing on May 1, 1996. Dividends,
whether or not declared, will cumulate without interest until declared and paid.
No full dividends may be declared or paid or funds set apart for the payment
of dividends on any Parity Securities for any period unless full cumulative
dividends shall have been paid or set apart for such payment on the Preferred
Stock. If full dividends are not so paid, the Preferred Stock shall share
dividends pro rata with the Parity Securities. No dividends may be paid or set
apart for such payment on Junior Securities (except dividends on Junior
Securities in additional shares of Junior Securities) and no Junior Securities
may be repurchased, redeemed or otherwise retired nor may funds be set apart for
payment with respect thereto, if full dividends have not been paid on the
Preferred Stock. Accumulated unpaid dividends will not bear interest.
OPTIONAL REDEMPTION
The Preferred Stock may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time after February 1, 2001, in whole or in part, at the option
of K-III, at the redemption prices set forth below plus accrued and unpaid
dividends (including an amount equal to a prorated dividend from the last
payment date to the redemption date):
REDEMPTION
YEAR PRICE
- ------------------------------------------------ ----------
2001............................................ $ 105.00
2002............................................ 104.00
2003............................................ 103.00
2004............................................ 102.00
2005............................................ 101.00
2006 and thereafter............................. 100.00
In addition, up to $100 million of the Preferred Stock may be redeemed at
the option of K-III at any time on or prior to February 1, 1999 at a price per
share of $110.00, plus accrued and unpaid dividends, out of the net proceeds of
one or more Public Equity Offerings, provided such redemption occurs within 180
days of such Public Equity Offering.
In the event of partial redemptions of Preferred Stock, the shares to be
redeemed will be determined pro rata, except that K-III may redeem such shares
held by any holders of fewer than 100 shares (or shares held by holders who
would hold less than 100 shares as a result of such redemption), as may be
determined by K-III. The Credit Agreements, and the Senior Note Indentures, the
Exchange Debenture Indenture and the Senior Preferred Stock restrict the ability
of K-III to redeem the
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Preferred Stock. See "Description of Certain Indebtedness" and "Description of
Capital Stock of K-III--The Senior Preferred Stock."
MANDATORY REDEMPTION
On February 1, 2008, K-III will be required to redeem (subject to
contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) all outstanding shares of Preferred Stock at a
price equal to the liquidation preference thereof plus all accumulated dividends
to the date of redemption.
PROCEDURE FOR REDEMPTION
On and after a redemption date, unless K-III defaults in the payment of the
redemption price, dividends will cease to accrue on shares of Preferred Stock
called for redemption and all rights of holders of such shares will terminate
except for the right to receive the redemption price. K-III will send a written
notice of redemption by first class mail to each holder of record of shares of
Preferred Stock, not fewer than 30 days nor more than 60 days prior to the date
fixed for such redemption. Shares of Preferred Stock issued and reacquired will,
upon compliance with the applicable requirements of Delaware law, have the
status of authorized but unissued shares of preferred stock of K-III
undesignated as to series and may with any and all other authorized but unissued
shares of preferred stock of K-III be designated or redesignated and issued or
reissued, as the case may be, as part of any series of preferred stock of K-III,
except that such shares may not be reissued or sold as shares of Preferred
Stock.
EXCHANGE
K-III may, at its option, on any scheduled dividend payment date, exchange
the Preferred Stock, in whole but not in part, for the 10% Subordinated
Debentures; provided that the Senior Preferred Stock is no longer outstanding on
the Exchange Date. See "--The 10% Subordinated Debentures" below for the terms
of the 10% Subordinated Debentures. Holders of Preferred Stock so exchanged will
be entitled to receive the principal amount of 10% Subordinated Debentures equal
to $100.00 for each $100.00 of liquidation preference of Preferred Stock held by
such holders at the time of exchange plus an amount per share in cash equal to
all accrued but unpaid dividends thereon to the date of exchange (including an
amount equal to a pro rated dividend from the last dividend payment date to the
exchange date). The 10% Subordinated Debentures will be issuable only in
denominations of $1,000 and integral multiples thereof. An amount in cash may be
paid to holders for any principal amount otherwise issuable which is less than
$1,000. Following such exchange, all dividends on the Preferred Stock will cease
to accrue, the rights of the holders of Preferred Stock as stockholders of K-III
shall cease and the person or persons entitled to receive the 10% Subordinated
Debentures issuable upon exchange shall be treated as the registered holder or
holders of such 10% Subordinated Debentures. Notice of exchange will be mailed
at least 30 days but not more than 60 days prior to the date of exchange to each
holder of Preferred Stock. See "--The 10% Subordinated Debentures" below.
In addition, under applicable provisions of the federal bankruptcy law or
comparable provisions of state fraudulent transfer law, if at the time of
K-III's payment of dividends on, redemption of or exchange of 10% Subordinated
Debentures for, the Preferred Stock (i) K-III is insolvent or rendered insolvent
by reason thereof, (ii) K-III is engaged in a business or transaction for which
the Company's remaining assets constitute unreasonably small capital or (iii)
K-III intends to incur or believes that it would incur debts beyond its ability
to pay such debts as they mature, then the relevant distribution to holders of
Preferred Stock could be avoided in whole or in part as a fraudulent conveyance
and such holders could be required to return the same or equivalent amounts to
or for the benefit of existing or future creditors of K-III. The measure of
insolvency for purposes of the foregoing will vary depending on the law of the
jurisdiction which is being applied. Generally K-III would be considered
insolvent if the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of its
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assets at a fair valuation or if the present fair saleable value of its assets
were less than the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they become absolute
and mature.
The Credit Agreements, the Senior Note Indentures, the Exchange Debenture
Indenture and the Senior Preferred Stock restrict K-III's ability to exchange
the Preferred Stock for the 10% Subordinated Debentures.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
K-III, holders of Preferred Stock will be entitled to be paid out of the assets
of K-III available for distribution $100.00 per share, plus any accrued and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up (including an amount equal to a prorated dividend from the last
dividend payment date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any Junior Securities,
including, without limitation, Common Stock. If upon any voluntary or
involuntary liquidation, dissolution or winding-up of K-III, the amounts payable
with respect to the Preferred Stock and all other Parity Securities are not paid
in full, the holders of the Preferred Stock and the Parity Securities will share
equally and ratably in any distribution of assets of K-III in proportion to the
full liquidation preference to which each is entitled. After payment of the full
amount of the liquidation preferences to which they are entitled, the holders of
shares of Preferred Stock will not be entitled to any further participation in
any distribution of assets of K-III. However, neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of K-III
nor the consolidation or merger of K-III with one or more corporations shall be
deemed to be a liquidation, dissolution or winding-up of K-III.
The Certificates of Designations for the Preferred Stock do not contain any
provision requiring funds to be set aside to protect the liquidation preference
of the Preferred Stock, although such liquidation preference will be
substantially in excess of the par value of such shares of Preferred Stock. In
addition, K-III is not aware of any provision of Delaware law or any controlling
decision of the courts of the State of Delaware (the state of incorporation of
the Company) that requires a restriction upon the surplus of K-III solely
because the liquidation preference of the Preferred Stock will exceed its par
value. Consequently, there will be no restriction upon the surplus of K-III
solely because the liquidation preference of the Preferred Stock will exceed the
par value and there will be no remedies available to holders of the Preferred
Stock before or after the payment of any dividend, other than in connection with
the liquidation of K-III, solely by reason of the fact that such dividend would
reduce the surplus of K-III to an amount less than the difference between the
liquidation preference and the Preferred Stock and its par value.
VOTING RIGHTS
Holders of the Preferred Stock have no voting rights, except as provided by
law or as set forth in the Certificates of Designations for the Preferred Stock.
The Certificates of Designations provide that in the event that dividends on the
Preferred Stock are in arrears and unpaid for six consecutive quarterly periods,
the Board of Directors of K-III will be increased by two directors and the
holders of the majority of the Preferred Stock, voting together as a class, will
be entitled to elect two directors of the expanded Board of Directors. Such
voting rights will continue until such time as all dividends in arrears on the
Preferred Stock are paid in full.
Under Delaware law, holders of the preferred stock are entitled to vote as a
class upon a proposed amendment to the certificate of incorporation, whether or
not entitled to vote thereon by the certificate of incorporation, if the
amendment would increase or decrease the aggregate number of authorized shares
of such class, increase or decrease the par value of the shares of such class,
or alter or change the powers, preferences, or special rights of the shares of
such class so as to affect them adversely.
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MERGER, CONSOLIDATION AND SALE OF ASSETS
Unless the requisite holders of any Senior Security or any indebtedness of
the Company have consented or granted a waiver with respect to such merger,
consolidation or transfer of all or substantially all of the Company's assets,
K-III may not merge or consolidate with or into or transfer all or substantially
all of its assets (as an entirety in one transaction or a series of related
transactions), to any person without the consent of the holders of a majority of
the issued and outstanding shares of Preferred Stock together with any
outstanding shares of Future Parity Securities entitled to vote thereon, voting
as one class, unless (i) K-III shall be the continuing person, or the person (if
other than the Company) formed by such consolidation or into which K-III is
merged or to which the properties and assets of K-III are transferred shall be a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia and the Preferred Stock shall be
converted into or exchanged for and shall become shares of such successor or
resulting company, having in respect of such successor or resulting company
substantially the same powers, preferences and relative participating, optional
or other special rights, and the qualifications, limitations or restrictions
thereon, that the Preferred Stock had immediately prior to such transaction and
(ii) immediately after giving effect to such transaction on a pro forma basis,
the Consolidated Net Worth of the surviving entity is at least equal to the
lesser of (a) the Consolidated Net Worth of the Company immediately prior to
such transaction and (b) the Consolidated Net Worth of the Company on the first
date any Preferred Stock was issued. "Consolidated Net Worth" means, at any date
of determination, the sum of the capital stock of K-III and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of K-III and its
Subsidiaries on a consolidated basis, less amounts attributable to stock that is
redeemable prior to the scheduled final redemption of the Preferred Stock, each
item to be determined in conformity with GAAP (excluding the effects upon K-III
and the person with which K-III is merging or consolidating or to which K-III is
selling all or substantially all its assets of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52), except that all effects upon K-III and the person
with which K-III is merging or consolidating or to which K-III is selling all or
substantially all its assets of the application of Accounting Principles Board
Opinions Nos. 16 and 17 and related interpretations and all reasonable costs
incurred in connection with or arising out of such merger, consolidation or
transfer of assets shall be disregarded. If any fee is paid to any holder of
Senior Securities or indebtedness in connection with obtaining the foregoing
consent or waiver, K-III shall pay to the holders of the Preferred Stock a fee
equal to the aggregate liquidation preference thereof times a fraction, the
numerator of which shall be the fee paid to such holders of Senior Securities
and indebtedness and the denominator of which shall be the aggregate liquidation
preference and aggregate principal amount of all Senior Securities and
indebtedness, respectively, with respect to which such fee was paid. If the
above-described payment in cash (or any portion thereof) would violate any
agreement to which the Company is a party or any terms of any security of the
Company then outstanding, then such payment or portion thereof may be made in
additional shares of Preferred Stock, and if making such payment in additional
shares of Preferred Stock would constitute such a violation, then such payment
or portion thereof may be postponed until the terms of such agreement or
security would permit such payment in cash or Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Bank of New York is the transfer agent and registrar for the Preferred
Stock.
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THE 10% SUBORDINATED DEBENTURES
GENERAL
The 10% Subordinated Debentures will, if and when issued, be issued under
the 10% Subordinated Debenture Indenture, to be dated as of the date of first
issuance (the "Exchange Date") of the 10% Subordinated Debentures, between K-III
and The Bank of New York (the "Subordinated Debenture Trustee"). The New
Subordinated Debentures and the Old Subordinated Debentures would be issued
under the same Indenture. The terms of the 10% Subordinated Debentures include
those stated in the 10% Subordinated Debenture Indenture and those made part of
the 10% Subordinated Debenture Indenture by reference to the Trust Indenture
Act. The 10% Subordinated Debentures are subject to all such terms, and holders
of the 10% Subordinated Debentures are referred to the 10% Subordinated
Debenture Indenture and the Trust Indenture Act for a statement thereof. A copy
of the proposed form of the 10% Subordinated Debenture Indenture is available
upon request. The following summary of certain provisions of the 10%
Subordinated Debenture Indenture does not purport to be complete and is
qualified in its entirety by reference to the 10% Subordinated Debenture
Indenture, including the definitions therein of certain terms used below.
The 10% Subordinated Debentures will be issued in registered form, without
coupons, only in principal amounts of $1,000 and integral multiples thereof. The
10% Subordinated Debentures will represent general unsecured obligations of
K-III, and holders of the 10% Subordinated Debentures will rank junior in right
of payment to holders of Senior Indebtedness. The 10% Subordinated Debentures
are limited in aggregate principal amount to $200,000,000.
Each 10% Subordinated Debenture will mature on February 1, 2008 and will
bear interest from the date of issuance at the rate of 10% per annum, payable
quarterly on February 1, May 1, August 1, and November 1, commencing with the
first of such dates to occur after the Exchange Date.
Interest on the 10% Subordinated Debentures will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
original date of issuance. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. The 10% Subordinated Debentures will be
payable both as to principal and interest at the office or agency of K-III
maintained for such purpose within or without the City of New York, or, at the
option of K-III, payment of interest may be made by check mailed to the holders
of the 10% Subordinated Debentures at their respective addresses set forth in
the register of holders of the 10% Subordinated Debentures. Until otherwise
designated by K-III, the office maintained by K-III for such purpose shall be
the office of the Trustee.
RANKING
The right to payment of principal and interest on the 10% Subordinated
Debentures will be subordinated to the prior payment in full of all "Senior
Indebtedness." "Senior Indebtedness" is defined as all present or future
Indebtedness, including all Indebtedness incurred under the Credit Agreements,
the Senior Note Indentures and the Exchange Debenture Indenture, created,
assumed, incurred or guaranteed by K-III (and all renewals, extensions and
refundings thereof), unless by its terms such Indebtedness is not senior to the
10% Subordinated Debentures. Senior Indebtedness does not include any
Indebtedness of K-III to any of its subsidiaries or trade indebtedness.
Substantially all of the operations of K-III are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors and creditors holding guarantees issued by such subsidiaries, will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of creditors of K-III, including holders of the 10% Subordinated
Debentures, even though such obligations do not constitute Senior Indebtedness.
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The amount of senior indebtedness (including indebtedness and other current
and non-current liabilities of K-III's subsidiaries) as of March 31, 1996 was
approximately $1,565 million. None of such indebtedness was secured.
The 10% Subordinated Debenture Indenture provides that no payment of
principal of or interest on the 10% Subordinated Debentures, whether pursuant to
the terms of the 10% Subordinated Debentures or otherwise, may be made (i) if a
default in payment of any Senior Indebtedness occurs and has not been cured or
waived, (ii) for a period of 180 days upon the occurrence of a default (other
than a payment default) in respect of Senior Indebtedness and for successive
periods of 180 days if the default is continuing at the end of such 180 day
period or another default (other than a payment default) in respect of Senior
Indebtedness has occurred or (iii) upon the maturity of any Senior Indebtedness,
prior to the payment of all Obligations with respect to Senior Indebtedness that
is then due and payable. In addition, upon the acceleration of the 10%
Subordinated Debentures prior to their stated maturity, holders of the Senior
Indebtedness will receive payment in full before any payment will be made to
holders of the 10% Subordinated Debentures. By reason of such subordination, in
the event of insolvency, holders of the Senior Indebtedness will receive payment
in full prior to any payment being made to holders of 10% Subordinated
Debentures.
OPTIONAL REDEMPTION
On and after February 1, 2001 and on and after a Change of Control of K-III,
the 10% Subordinated Debentures will be subject to redemption at the option of
K-III, in whole or in part, upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of the principal amount) set
forth below plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning February 1
of the years indicated below.
YEAR PERCENTAGE
- ------------------------------------------------ ----------
[S] [C]
2001............................................ 105%
2002............................................ 104
2003............................................ 103
2004............................................ 102
2005............................................ 101
2006 and thereafter............................. 100
In addition, at any time on or prior to February 1, 1999, up to $100 million
of the 10% Subordinated Debentures may be redeemed at a redemption price of 110%
of the principal amount thereof, plus accrued and unpaid interest, out of the
net proceeds of one or more Public Equity Offerings, provided such redemption
occurs within 180 days of such Public Equity Offering.
The Credit Agreements and the Senior Note Indentures restrict the redemption
or prepayment of the 10% Subordinated Debentures.
CHANGE OF CONTROL
Holders' Right to Require Repurchase Upon Change of Control. Upon the
occurrence of a Change of Control, subject to the two last sentences of this
paragraph, each holder shall have the right to require the repurchase of such
holder's 10% Subordinated Debentures pursuant to the offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the aggregate
principal amount of such 10% Subordinated Debentures plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment"). If
there is a Change of Control under the 10% Subordinated Debenture Indenture
there will also be a Change of Control under the Exchange Debenture Indenture,
the Class B Debenture Indenture and the Senior Note Indentures and, upon the
earlier of 30 days from the Change of Control and the date payment is required
for any tendered Senior
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Notes, Exchange Debentures, Class B Subordinated Debentures or 10% Subordinated
Debentures indebtedness under the Credit Agreements will be accelerated. Within
the later of 40 days following any Change of Control and the date that the
foregoing conditions are satisfied, K-III shall mail a notice to each holder
stating: (1) that the Change of Control Offer is being made pursuant to the
"Change of Control" covenant of the 10% Subordinated Debenture Indenture and
that all 10% Subordinated Debentures tendered will be accepted for payment; (2)
the purchase price and the purchase date (which shall be no earlier than 30 days
nor later than 40 days from the date such notice is mailed) (the "Change of
Control Payment Date"); (3) that any 10% Subordinated Debentures not tendered
will continue to accrue interest; (4) that, unless K-III defaults in the payment
of the Change of Control Payment, all 10% Subordinated Debentures accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date; (5) that holders electing to have any
10% Subordinated Debentures purchased pursuant to a Change of Control Offer will
be required to surrender the 10% Subordinated Debentures, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the 10% Subordinated
Debenture completed, to the Paying Agent (as defined in the 10% Subordinated
Debenture Indenture) at the address specified in the notice prior to the close
of business on the Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of the 10% Subordinated Debentures delivered for purchase, and a
statement that such holder is withdrawing his election to have such 10%
Subordinated Debentures purchased; and (7) that holders whose 10% Subordinated
Debentures are being purchased only in part may be issued new 10% Subordinated
Debentures equal in principal amount to the unpurchased portion of the 10%
Subordinated Debentures surrendered; provided that each 10% Subordinated
Debenture purchased and each such new 10% Subordinated Debenture issued by K-III
will be in a principal amount of $1,000 or integral multiples thereof.
Notwithstanding the occurrence of a Change of Control, K-III shall not be
required to repurchase the 10% Subordinated Debentures unless it shall have
either repaid all outstanding Senior Indebtedness or obtained the requisite
consents, if any, under all agreements governing all such outstanding Senior
Indebtedness, to permit the repurchase of the 10% Subordinated Debentures. If
any fee is paid to the holders of Senior Indebtedness in connection with
obtaining their consent to the repurchase of the 10% Subordinated Debentures,
K-III shall pay the holders of the 10% Subordinated Debentures a fee equal to
the principal amount of the 10% Subordinated Debentures times a fraction the
numerator of which shall be the aggregate fee paid to such holders of Senior
Indebtedness and the denominator of which shall be the aggregate of all Senior
Indebtedness with respect to which such fee was paid.
On the Change of Control Payment Date, K-III will, to the extent lawful, (1)
accept for payment 10% Subordinated Debentures or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all 10% Subordinated
Debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Subordinated Debenture Trustee, 10% Subordinated Debentures so
accepted together with an officers' certificate stating the 10% Subordinated
Debentures or portions thereof tendered to K-III. The Paying Agent shall
promptly mail to each holder of 10% Subordinated Debentures so accepted, payment
in an amount equal to the purchase price for such 10% Subordinated Debentures,
and the Subordinated Debenture Trustee shall promptly authenticate and mail to
such holder a new 10% Subordinated Debenture equal in principal amount to any
unpurchased portion of the 10% Subordinated Debentures surrendered; provided
that each such new 10% Subordinated Debenture shall be in a principal amount of
$1,000 or integral multiples thereof. K-III will publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
Optional Redemption Upon Change of Control. In addition to the rights set
forth under "Optional Redemption," the 10% Subordinated Debentures will be
redeemable, at the option of K-III, in whole or
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in part at any time within 160 days after a Change of Control upon not less than
30 nor more than 60 days' prior notice to each holder of 10% Subordinated
Debentures to be redeemed, at a redemption price equal to the sum of (i) the
then outstanding principal amount thereof plus (ii) accrued and unpaid interest,
if any, to the redemption date plus (iii) the Applicable Premium.
"Applicable Premium" with respect to a 10% Subordinated Debenture is defined
as the greater of (i) 1.0% of the then outstanding principal amount of such 10%
Subordinated Debenture and (ii) the excess of (A) the present value of the
required interest and principal payments due on such 10% Subordinated Debenture,
computed using a discount rate equal to the Treasury Rate plus the Applicable
Spread, over (B) the then outstanding principal amount of such 10% Subordinated
Debenture.
"Applicable Spread", for purposes of the 10% Subordinated Debenture
Indenture, is defined as 100 basis points.
"Treasury Rate", for purposes of the 10% Subordinated Debenture Indenture,
is defined as the yield to maturity at the time of computation of United States
Treasury securities with a constant maturity (as compiled by and published in
the most recent Federal Reserve Statistical Release H.15 (519) which has become
publicly available at least two business days prior to the date fixed for
prepayment (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the then
remaining Average Life of the 10% Subordinated Debentures; provided, that if the
Average Life of the 10% Subordinated Debentures is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the Average Life of the 10% Subordinated Debentures is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
SELECTION AND NOTICE
If less than all of the 10% Subordinated Debentures are to be redeemed at
any time, selection of the 10% Subordinated Debentures for redemption will be
made by the Subordinated Debenture Trustee in compliance with the requirements
of the principal national securities exchange, if any, on which the 10%
Subordinated Debentures are listed or, if the 10% Subordinated Debentures are
not listed on a national securities exchange, on a pro rata basis, by lot or by
such method as the Subordinated Debenture Trustee shall deem fair and
appropriate, provided that no 10% Subordinated Debentures of $1,000 or less
shall be redeemed in part. Notice of redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
holder of 10% Subordinated Debentures to be redeemed at its registered address.
If any 10% Subordinated Debenture is to be redeemed in part only, the notice of
redemption that relates to such 10% Subordinated Debenture shall state the
portion of the principal amount thereof to be redeemed. A new 10% Subordinated
Debenture in principal amount equal to the unredeemed portion thereof will be
issued in the name of the holder thereof upon cancellation of the original 10%
Subordinated Debenture. On and after the redemption date, interest ceases to
accrue on 10% Subordinated Debentures or portions of them called for redemption.
CERTAIN COVENANTS
Limitation on Restricted Payments. K-III will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay
any dividend or make any distribution on account of K-III's or any of its
Restricted Subsidiaries' Capital Stock or other Equity Interests (other than (A)
dividends or distributions payable in Equity Interests of K-III or such
Restricted Subsidiary or (B) dividends or distributions payable to K-III or any
of its Restricted Subsidiaries) or (ii) purchase,
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redeem or otherwise acquire or retire for value any Equity Interests of K-III or
any Restricted Subsidiary (other than any such Equity Interests owned by K-III
or any of its Restricted Subsidiaries) (the foregoing actions set forth in
clauses (i) and (ii) being referred to as "Restricted Payments"), if, at the
time of such Restricted Payment, a default or event of default under the 10%
Subordinated Debenture Indenture shall have occurred and be continuing or will
occur as a consequence thereof.
"Restricted Subsidiary" for purposes of the 10% Subordinated Debenture
Indenture, means a Subsidiary of K-III which at the time of determination is not
an Unrestricted Subsidiary. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary.
"Unrestricted Subsidiary" for purposes of the 10% Subordinated Debenture
Indenture, means (i) any Subsidiary of K-III which at the time of determination
is an Unrestricted Subsidiary (as designated by the Board of Directors, as
provided below) and (ii) any subsidiary of an Unrestricted Subsidiary. The Board
of Directors may designate any Subsidiary of K-III (including any newly acquired
or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns, or holds any Lien on, any
property of, any other Subsidiary of K-III which is not a Subsidiary of the
Subsidiary to be so designated; provided that the Subsidiary to be so designated
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness pursuant to which the lender has recourse to any of
the assets of K-III or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary.
Transactions with Affiliates. Neither K-III nor any of its Restricted
Subsidiaries will make any loan, advance, guarantee or capital contribution to,
or for the benefit of, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, (i) any person (or any Affiliate of
such person) holding 10% or more of any class of Capital Stock of K-III or any
of its Restricted Subsidiaries or (ii) any Affiliate of K-III or any of its
Restricted Subsidiaries (each an "Affiliate Transaction"), except on terms that
are no less favorable to K-III or the relevant Restricted Subsidiary, as the
case may be, than those that could have been obtained in a comparable
transaction on an arm's length basis from a person that is not such a holder or
Affiliate; provided that a transaction with any such holder (or Affiliate
thereof) or any Affiliate of K-III or any of its Restricted Subsidiaries shall
be deemed to be on terms that are no less favorable to K-III or such Restricted
Subsidiary than those obtainable at the time of the transaction from a person
who is not such a holder or Affiliate if (a) K-III or such Restricted Subsidiary
delivers to the Subordinated Debenture Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to K-III
or such Restricted Subsidiary from a financial point of view or (b) a
disinterested majority of the Board of Directors of K-III or such Restricted
Subsidiary approves the transaction; and provided, further, that, the foregoing
restriction shall not apply to (i) the payment of an annual fee to KKR for the
rendering of management consulting and financial services to K-III and its
Restricted Subsidiaries in an aggregate amount which is reasonable in relation
thereto, (ii) the payment of transaction fees to KKR in amounts which are in
accordance with past practices for the rendering of financial advice and
services in connection with acquisitions, dispositions and financings by K-III
and its Subsidiaries, (iii) the payment of reasonable and customary regular fees
to directors of K-III and its Subsidiaries who are not employees of K-III or its
Restricted Subsidiaries, (iv) loans to officers, directors and employees of
K-III and its Subsidiaries for business or personal purposes and other loans and
advances to such officers, directors and employees for travel, entertainment,
moving and other relocation expenses made in the ordinary course of business of
K-III and its Subsidiaries, (v) any Restricted Payments not prohibited by the
Restricted Payments covenant in the Senior Note Indentures, the Exchange
Debenture Indenture or Series B Debenture Indenture, or any Investment not
prohibited by the Investments in Unrestricted Subsidiaries covenant in the
Senior Note Indentures, (vi) transactions between or among any of K-III and its
Restricted Subsidiaries or (vii) allocation of
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corporate overhead to Unrestricted Subsidiaries on a basis no less favorable to
K-III than such allocations to Restricted Subsidiaries.
Merger, Consolidation, or Sale of Assets. K-III may not consolidate with,
merge with or into, or transfer all or substantially all of its assets (as an
entirety or substantially as an entirety in one transaction or a series of
related transactions) to any person or permit any person to merge with or into
it unless: (i) K-III shall be the continuing person, or the person (if other
than K-III) formed by such consolidation or into which K-III is merged or to
which the properties and assets of K-III are transferred shall be a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia and shall expressly assume, by a supplemental
indenture, executed and delivered to the Subordinated Debenture Trustee, in form
satisfactory to the Subordinated Debenture Trustee, all of the obligations of
K-III under the 10% Subordinated Debentures and the 10% Subordinated Debenture
Indenture; (ii) immediately after giving effect to such transaction, no Default
and no Event of Default under the 10% Subordinated Debenture Indenture shall
have occurred and be continuing; and (iii) immediately after giving effect to
such transaction on a pro forma basis, the Consolidated Net Worth of the
surviving entity is at least equal to the Consolidated Net Worth of K-III
immediately prior to such transaction. "Consolidated Net Worth" means, for
purposes of the 10% Subordinated Debenture Indenture, at any date of
determination, the sum of the Capital Stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of the referent person and its
Subsidiaries on a consolidated basis, less amounts attributable to Redeemable
Stock, each item to be determined in conformity with GAAP (excluding the effects
of foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52), except that all
effects of the application of Accounting Principles Board Opinions Nos. 16 and
17 and related interpretations shall be disregarded. "Redeemable Stock" means
any Equity Interest issued after the date of the Note Indenture which, by its
terms (or by the terms of any security into which it is convertible or by which
it is exchangeable before the stated maturity of the 10% Subordinated
Debentures), or upon the happening of any event, matures or is mandatorily
redeemable, in whole or in part, prior to the stated maturity of the 10%
Subordinated Debentures, or is, by its terms or upon the happening of any event,
redeemable at the option of the holder thereof, in whole or in part, at any time
prior to the stated maturity of the 10% Subordinated Debentures.
EVENTS OF DEFAULT AND REMEDIES THEREOF
The 10% Subordinated Debenture Indenture will provide that each of the
following will constitute an "Event of Default" with respect to the 10%
Subordinated Debentures: (i) the failure to make any payment of interest on any
of the 10% Subordinated Debentures when the same becomes due and payable and the
continuance of any such failure for 30 days and for five days after written
notice of default is given to K-III by the holders of at least 51% in principal
amount of the 10% Subordinated Debentures following the expiration of such
30-day period, (ii) the failure to make any payment of principal or premium on
any of the 10% Subordinated Debentures when the same shall become due and
payable, whether at maturity, upon acceleration, redemption or otherwise, and
such Default continues for a period of ten days, (iii) the failure by K-III to
comply with any of its other agreements in the 10% Subordinated Debenture
Indenture or the 10% Subordinated Debentures and such Default continues for 60
days after receipt of a written notice from the Subordinated Debenture Trustee
or holders of at least 51% of the principal amount of the 10% Subordinated
Debentures outstanding, specifying such Default and requiring that it be
remedied, (iv) the occurrence of an event of default with respect to any
Indebtedness for borrowed money of K-III or any of its Restricted Subsidiaries
(or the payment of which is guaranteed by K-III or any of its Restricted
Subsidiaries) having an outstanding principal amount of $22.5 million or more
individually or $45 million or more in the aggregate which has caused the
acceleration of such Indebtedness and such Indebtedness has not been discharged
or such acceleration has not been rescinded within 60 days after such
acceleration, and (v) certain events of bankruptcy,
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insolvency or reorganization. The term "Default" means any event, act or
condition that is, or after notice or the passage of time or both would be, an
Event of Default.
If a Default or an Event of Default occurs and is continuing and if it is
known to the Subordinated Debenture Trustee, the Subordinated Debenture Trustee
shall mail to each holder of the 10% Subordinated Debentures notice of the
Default or Event of Default within 90 days after it occurs or, if later, within
10 days after such Default or Event of Default becomes known to the Subordinated
Debenture Trustee, unless such Default or Event of Default has been cured.
Except in the case of a Default or Event of Default in the payment of principal
of, premium, if any, or interest on any 10% Subordinated Debenture or that
results from a failure to comply with the Change of Control covenant, the
Subordinated Debenture Trustee may withhold the notice if and so long as a
committee of its trust officers in good faith determines that withholding the
notice is in the interest of the holders of the 10% Subordinated Debentures.
If an Event of Default (other than an Event of Default with respect to K-III
resulting from bankruptcy, insolvency or reorganization) occurs and is
continuing, the Subordinated Debenture Trustee or the holders of at least 51% in
principal amount of the 10% Subordinated Debentures then outstanding, by written
notice to K-III and to the agents under the Credit Agreements, the trustees
under the Senior Note Indentures and the Exchange Debenture Indenture (and to
the Subordinated Debenture Trustee if such notice is given by the holders of 10%
Subordinated Debentures) may, and the Subordinated Debenture Trustee at the
request of such holders of 10% Subordinated Debentures shall, declare all unpaid
principal of premium, if any, and accrued interest on the 10% Subordinated
Debentures to be due and payable upon the first to occur of an acceleration
under any of the Credit Agreements, any of the Senior Notes or the Exchange
Debentures or 15 business days after the receipt by K-III, such agent and such
trustees of such written notice to the extent that the Event of Default is
continuing. If an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization occurs with respect to K-III, all unpaid principal
of, premium, if any, and accrued interest on the 10% Subordinated Debentures
then outstanding shall ipso facto become and be immediately due and payable
without any declaration, notice or other act on the part of the Subordinated
Debenture Trustee or any holder. The holders of at least 51% in principal amount
of the 10% Subordinated Debentures by notice to the Subordinated Debenture
Trustee may rescind an acceleration and its consequences upon conditions
provided in the 10% Subordinated Debenture Indenture. Subject to certain
restrictions set forth in the 10% Subordinated Debenture Indenture, the holders
of at least 51% in principal amount of the outstanding 10% Subordinated
Debentures by notice to the Subordinated Debenture Trustee may waive an existing
Default or Event of Default and its consequences (including waivers obtained in
connection with a tender offer or exchange offer for 10% Subordinated
Debentures), except a continuing Default or Event of Default in the payment of
principal of, premium, if any, or interest on, such 10% Subordinated Debentures
(including, without limitation, pursuant to any mandatory or optional redemption
obligation under the 10% Subordinated Debenture Indenture) or a continuing
Default or Event of Default that resulted from the failure to comply with the
Change of Control covenant. When a Default or Event of Default is waived, it is
cured and ceases. A holder of 10% Subordinated Debentures may not pursue any
remedy with respect to the 10% Subordinated Debenture Indenture or the 10%
Subordinated Debentures unless: (1) the holder gives to the Subordinated
Debenture Trustee written notice of a continuing Event of Default; (2) the
holders of at least 51% in principal amount of such 10% Subordinated Debentures
outstanding make a written request to the Subordinated Debenture Trustee to
pursue the remedy; (3) such holder or holders offer to the Subordinated
Debenture Trustee indemnity satisfactory to the Subordinated Debenture Trustee
against any loss, liability or expense; (4) the Subordinated Debenture Trustee
does not comply with the request within 30 days after receipt of the request and
the offer of indemnity; and (5) during such 30-day period the holders of at
least 51% in principal amount of the outstanding 10% Subordinated Debentures do
not give the Subordinated Debenture Trustee a direction which is inconsistent
with the request.
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K-III is required to deliver to the Subordinated Debenture Trustee annually
a statement regarding compliance with the 10% Subordinated Debenture Indenture
and K-III is required upon becoming aware of any Default or Event of Default to
deliver a statement to the Subordinated Debenture Trustee specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of K-III, as
such, shall have any liability for any obligations of K-III under the 10%
Subordinated Debentures or the 10% Subordinated Debenture Indenture or for any
claim based on, in respect of, or by reason of, such obligations of their
creations. Each holder of the 10% Subordinated Debentures by accepting a 10%
Subordinated Debenture waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the 10% Subordinated
Debentures. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
DEFEASANCE AND DISCHARGE OF THE 10% SUBORDINATED DEBENTURE INDENTURE AND THE 10%
SUBORDINATED DEBENTURES
If the Company irrevocably deposits, or causes to be deposited, in trust
with the Subordinated Debenture Trustee or the Paying Agent, at any time prior
to the stated maturity of the 10% Subordinated Debentures or the date of
redemption of all the outstanding 10% Subordinated Debentures, as trust funds in
trust, money or direct noncallable obligations of or guaranteed by the United
States of America sufficient (without reinvestment thereof) to pay timely and
discharge the entire principal of the then outstanding 10% Subordinated
Debentures and all interest due thereon to maturity or redemption, and if such
deposit does not violate the subordination provisions of the 10% Subordinated
Debenture Indenture, the 10% Subordinated Debenture Indenture shall cease to be
of further effect as to all outstanding 10% Subordinated Debentures (except,
among other things, as to (i) remaining rights of registration of transfer,
substitution and exchange of 10% Subordinated Debentures, (ii) rights of holders
to receive payment of principal of and interest on the 10% Subordinated
Debentures, and (iii) the rights, obligations and immunities of the Subordinated
Debenture Trustee).
The Credit Agreements and the Senior Note Indentures restrict K-III from
defeasing the Exchange Subordinated Debentures.
TRANSFER AND EXCHANGE
A holder may transfer or exchange 10% Subordinated Debentures in accordance
with the 10% Subordinated Debenture Indenture. The Registrar and the
Subordinated Debenture 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 and fees required by law or permitted by the
10% Subordinated Debenture Indenture. K-III is not required to transfer or
exchange any 10% Subordinated Debenture selected for redemption. Also, K-III is
not required to transfer or exchange any 10% Subordinated Debenture for a period
of 15 days before a selection of 10% Subordinated Debentures to be redeemed.
The registered holder of a 10% Subordinated Debenture will be treated as its
owner for all purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the 10% Subordinated
Debenture Indenture or the 10% Subordinated Debentures may be amended or
supplemented with the written consent of the holders of at least 51% in
principal amount of the 10% Subordinated Debentures then outstanding (including
consents obtained in connection with a tender offer or exchange offer for 10%
Subordinated Debentures), and any existing default under or compliance with any
provision of the 10% Debenture Indenture or the 10% Subordinated Debentures may
be waived with the consent of the holders of 51% in principal amount of the then
outstanding 10% Subordinated Debentures (including waivers obtained in
connection with a tender offer or exchange offer for 10% Subordinated
Debentures).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any 10% Subordinated Debentures held by a non-consenting holder
of 10% Subordinated Debentures) (i) reduce the principal amount of 10%
Subordinated Debentures whose holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any 10%
Subordinated Debenture or alter the provisions with respect to the redemption
price in connection with repurchases of 10% Subordinated Debentures upon a
Change of Control or otherwise, (iii) reduce the rate of or change the time for
payments of interest on any 10% Subordinated Debenture, (iv) waive a Default or
Event of Default in the payment of the principal of, or premium, if any, or
interest on 10% Subordinated Debentures or that resulted from a failure to
comply with the Change of Control covenant (except a rescission of acceleration
of the 10% Subordinated Debentures by the holders of at least 51% in aggregate
principal amount of the 10% Subordinated Debentures), (v) make any 10%
Subordinated Debenture payable in money other than that stated in the 10%
Subordinated Debenture Indenture, (vi) make any change in the subordination
provisions of the 10% Subordinated Debenture Indenture that adversely affects
the rights of any 10% Subordinated Debenture holder, (vii) make any change in
the provisions of the 10% Subordinated Debenture Indenture relating to waivers
of past defaults or the rights of holders of 10% Subordinated Debentures to
receive payments of principal of or interest on the 10% Subordinated Debentures,
(viii) waive a redemption payment with respect to any 10% Subordinated Debenture
or (ix) make any change in the foregoing.
Notwithstanding the foregoing, without the consent of any holder of the 10%
Subordinated Debentures, K-III and the Subordinated Debenture Trustee may amend
or supplement the Debenture Indenture or 10% Subordinated Debentures to cure any
ambiguity, defect or inconsistency, to provide for uncertificated 10%
Subordinated Debentures in addition to or in place of certificated 10%
Subordinated Debentures, to provide for the assumption of K-III's obligations to
holders of the 10% Subordinated Debentures in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of the 10% Subordinated Debentures or that does not
adversely affect the legal rights under the 10% Subordinated Debenture Indenture
of any such holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the 10% Subordinated Debenture Indenture
under the Trust Indenture Act.
CONCERNING THE SUBORDINATED DEBENTURE TRUSTEE
The 10% Subordinated Debenture Indenture contains certain limitations on the
rights of the Subordinated Debenture Trustee, should it become a creditor of
K-III, to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Subordinated Debenture Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within ninety days, apply to the Commission for permission to
continue or resign.
The holders of a majority in principal amount of the then outstanding 10%
Subordinated Debentures will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the
Subordinated Debenture Trustee, subject to certain exceptions.
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The 10% Subordinated Debenture Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Subordinated Debenture
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the Subordinated Debenture Trustee will be under no obligation to
exercise any of its rights or powers under the 10% Subordinated Debenture
Indenture at the request of any of the holders of the 10% Subordinated
Debentures, unless they shall have offered to the Subordinated Debenture Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Preferred Stock will be issued in
fully registered form, without coupons. The New Preferred Stock will be
deposited with, or on behalf of, DTC, and registered in the name of Cede as
DTC's nominee in the form of one or more global New Preferred Stock
certificates.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the 10% Subordinated
Debenture Indenture. Reference is made to the 10% Subordinated Debenture
Indenture for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"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. A person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another person if the controlling person
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of the controlled person, whether through ownership
of voting securities, by agreement or otherwise.
"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment (assuming the exercise by the obligor of
such debt security of all unconditional (other than as to the giving of notice)
extension options of each such scheduled payment date) of such debt security
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease which
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock.
"Change of Control" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than KKR and
its Affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than (A) 35 percent (35%) of the total voting power of
the then outstanding voting stock of K-III and (B) the total voting power of the
then outstanding voting stock of K-III beneficially owned by KKR and its
Affiliates or (ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted K-III's Board of
Directors (together with any new directors whose election by K-III's Board of
Directors or whose nomination for election by K-III's shareholders was approved
by a vote of at least two-thirds of the Directors then still in office who
either were 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 directors then in office.
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"Currency Agreement" means the obligations of any person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such person or any of its subsidiaries against
fluctuations in currency values.
"Equity Interests" means Capital Stock, warrants, options or other rights to
acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Princples Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of the 10% Subordinated
Debenture Indenture.
"Indebtedness" of any person is defined as any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement obligations with respect thereto) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to financing leases), if and to the extent any of
the foregoing indebtedness would appear as a liability upon a balance sheet of
such person prepared in accordance with GAAP (except that any such balance that
constitutes a trade payable and/or an accrued liability arising in the ordinary
course of business shall not be considered Indebtedness), and shall also
include, to the extent not otherwise included, any Capital Lease Obligations,
the maximum fixed repurchase price of any Redeemable Stock, indebtedness secured
by a Lien to which the property or assets owned or held by such person is
subject, whether or not the obligations secured thereby shall have been assumed,
guarantees of items that would be included within this definition to the extent
of such guarantees (exclusive of whether such items would appear upon such
balance sheet), and net liabilities in respect of Currency Agreements and
Interest Rate Agreements. For purposes of the preceding sentence, the maximum
fixed repurchase price of any Redeemable Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the 10%
Subordinated Debenture Indenture, provided that if such Redeemable Stock is not
then permitted to be repurchased, the repurchase price shall be the book value
of such Redeemable Stock. The amount of Indebtedness of any person at any date
shall be without duplication (i) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such contingent obligations at such date and (ii) in the case of Indebtedness of
others secured by a Lien to which the property or assets owned or held by such
person is subject, the lesser of the fair market value at such date of any asset
subject to a Lien securing the Indebtedness of others and the amount of the
Indebtedness secured. For the purpose of determining the aggregate Indebtedness
of K-III and its Restricted Subsidiaries, such Indebtedness shall exclude the
Indebtedness of any Unrestricted Subsidiary of K-III or any Unrestricted
Subsidiary of a Restricted Subsidiary.
"Interest Rate Agreements" means the obligations of any person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such person or any of its
subsidiaries against fluctuations in interest rates.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give any security interest in and any filing or other agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Public Equity Offering" means an underwritten public offering of primary
shares of K-III's Common Stock (or any other class of common stock hereinafter
duly authorized by K-III) pursuant to a
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registration statement (other than a registration statement on form S-8 or S-4
or successor forms) filed with the Commission in accordance with the Securities
Act.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
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 any person or one or more of the other
Subsidiaries of that person or a combination thereof.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the 10%
Subordinated Debenture Indenture without charge by writing to: K-III
Communications Corporation, 745 Fifth Avenue, New York, NY 10151, Attention:
Beverly C. Chell, Esq.
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DESCRIPTION OF CAPITAL STOCK OF K-III
GENERAL
The Certificate of Incorporation of K-III authorizes 250 million shares of
Common Stock, and 50 million shares of preferred stock, par value $0.01 per
share. The Board of Directors of K-III, in its sole discretion, may issue Common
Stock from the authorized and unissued shares of Common Stock and may designate
and issue one or more series of preferred stock from the authorized and unissued
shares of preferred stock. Subject to limitations imposed by law or the
Certificate of Incorporation, the Board of Directors is empowered to determine
the designation of and the number of shares constituting a series of preferred
stock; the dividend rate for the series; the terms and conditions of any voting,
conversion and exchange rights for the series; the amounts payable on the series
upon redemption or K-III's liquidation, dissolution or winding-up; the
provisions of any sinking fund for the redemption or purchase of shares of any
series; and the preferences and relative rights among the series of preferred
stock. Pursuant to the Certificates of Designations for the New Preferred Stock
and the Old Preferred Stock, 2 million shares of Old Preferred Stock have been,
and 2 million shares of New Preferred Stock will be, authorized for issuance.
Pursuant to the Certificate of Designations for the Senior Preferred Stock, four
million shares of Senior Preferred Stock, liquidation preference $25 per share,
have been authorized for issuance. Of these authorized shares, all have been
issued and are outstanding. Pursuant to the Certificate of Designations for the
Series B Preferred Stock, two million shares of Series B Preferred Stock,
liquidation preference $100 per share, have been authorized for issuance. As of
March 31, 1996, 1,405,397 of such shares were issued and outstanding, which
include paid in kind dividends as of such date.
THE COMMON STOCK
As of March 31, 1996, 128,613,032 shares of Common Stock were issued and
outstanding, and 11,930,253 shares were issuable upon exercise of outstanding
Options, 7,413,595 of which were immediately exerciseable.
Each share of Common Stock is entitled to one vote at all meetings of
stockholders of K-III for the election of directors and all other matters
submitted to stockholder vote. The Common Stock does not have cumulative voting
rights. Accordingly, the holders of a majority of the outstanding shares of
Common Stock can elect all the directors if they choose to do so. Dividends may
be paid to the holders of Common Stock when, as and if declared by the Board of
Directors of K-III out of funds legally available therefor. The Common Stock has
no preemptive or similar rights. Holders of Common Stock are not liable to
further call or assessment. Upon the liquidation, dissolution or winding up of
the affairs of K-III, any assets remaining after provision for payment of
creditors and holders of preferred stock would be distributed pro rata among
holders of Common Stock. K-III does not anticipate declaring and paying cash
dividends on the Common Stock at any time in the foreseeable future. The
decision whether to apply legally available funds to the payment of dividends on
the Common Stock will be made by the Board of Directors from time to time in the
exercise of its prudent business judgment, taking into account, among other
things, the Company's results of operations and financial condition, any then
existing or proposed commitments for the use by the Company of available funds,
and K-III's obligations with respect to any then outstanding class or series of
its preferred stock. In addition, K-III is restricted by the terms of the Credit
Agreements and the Outstanding Note Indentures from paying cash dividends on its
capital stock, and may in the future enter into loan or other agreements or
issue debt securities or preferred stock that restrict the payment of cash
dividends on K-III's capital stock. See "Description of Certain Indebtedness."
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THE SENIOR PREFERRED STOCK
The holders of Senior Preferred Stock have no preemptive rights or
cumulative voting rights and are not subject to future assessments by K-III. All
outstanding shares of Senior Preferred Stock are fully paid and nonassessable.
The Senior Preferred Stock has an aggregate liquidation preference of
$100,000,000.
Rank. The Senior Preferred Stock, with respect to dividend rights and rights
on liquidation, winding up and dissolution, ranks senior to the Series B
Preferred Stock, the Preferred Stock and to the Common Stock.
Dividends. The holders of the shares of Senior Preferred Stock are entitled
to receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends at an annual rate equal to 11 1/2%.
Such dividends are payable quarterly in arrears on each February 1, May 1,
August 1 and November 1. Dividends on shares of the Senior Preferred Stock
accrue and are cumulative from the date of issuance of such shares. As of the
date of this Offering Memorandum, all such dividends have been paid.
Optional Redemption. K-III may, at its option, redeem at any time on or
after May 1, 1997, from any source of funds legally available therefor, in whole
or in part, any or all of the shares of Senior Preferred Stock at redemption
prices declining ratably from 105.80% of liquidation value for the twelve months
commencing May 1, 1997 to 100.00% on and after May 1, 2002, plus in each case an
amount in cash equal to all accumulated and unpaid dividends per share
(including an amount equal to a prorated dividend from the last dividend payment
date to the redemption date).
Mandatory Redemption. The Senior Preferred Stock is subject to mandatory
redemption (subject to contractual and other restrictions with respect thereto
and to the legal availability of funds therefor). On each of May 1, 2003 and May
1, 2004, K-III is required to redeem 50% of the shares of Senior Preferred Stock
originally issued at a price equal to the liquidation preference thereof plus
all accumulated dividends to the date of redemption. K-III will be permitted to
credit toward its mandatory redemption obligation in each year shares of Senior
Preferred Stock theretofore acquired by K-III through optional redemption or
otherwise than through mandatory redemption that have not previously been so
applied.
Voting Rights. Holders of the Senior Preferred Stock have no voting rights
with respect to general corporate matters except as provided by law or as set
forth in the Certificate of Designations for the Senior Preferred Stock. Such
Certificate of Designations provides that in the event that dividends on the
Senior Preferred Stock are in arrears and unpaid for six consecutive quarterly
periods, the Board of Directors of K-III will be increased by two directors and
the holders of the majority of the Senior Preferred Stock, voting separately as
a class, will be entitled to elect two directors of the expanded board of
directors. Such voting rights will continue until such time as all dividends in
arrears on the Senior Preferred Stock are paid in full.
In addition, the Certificate of Designations for the Senior Preferred Stock
provides that K-III will not authorize a new class of parity securities without
the affirmative vote or consent of holders of a majority of the shares of Senior
Preferred Stock and each other series of preferred stock of K-III then
outstanding which are entitled to vote thereon, voting or consenting, as the
case may be, as one class, and that K-III will not authorize a new class of
senior securities without the affirmative vote or consent of holders of at least
a majority of the shares of Senior Preferred Stock and each other series of
preferred stock of K-III then outstanding which are entitled to vote thereon,
voting or consenting, as the case may be, as one class.
In addition, K-III may not merge or consolidate with or into or transfer all
or substantially all of its assets (as an entirety in one transaction or a
series of related transactions), to any person without the consent of the
holders of a majority of the issued and outstanding shares of Senior Preferred
Stock,
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voting separately as a class, unless (i) K-III shall be the continuing person,
or the person (if other than K-III) formed by such consolidation or into which
K-III is merged or to which the properties and assets of K-III are transferred
shall be a corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia and the Senior Preferred
Stock shall be converted into or exchanged for and shall become shares of such
successor or resulting company, having in respect of such successor or resulting
company substantially the same powers, preferences and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereon, that the Senior Preferred Stock had immediately prior to
such transaction and (ii) immediately after giving effect to such transaction on
a pro forma basis, the Consolidated Net Worth of the surviving entity is at
least equal to the Consolidated Net Worth of K-III (as defined in its
Certificate of Incorporation) immediately prior to such transaction.
Under Delaware law, holders of preferred stock are entitled to vote as a
class upon a proposed amendment, whether or not entitled to vote thereon by the
certificate of incorporation, if, among other matters, the amendment would
increase or decrease the par value of the shares of such class, or alter or
change the powers, preferences, or special rights of the shares of such class so
as to affect them adversely.
Exchange. K-III may, at its option, out of any source of funds legally
available therefor, on any scheduled dividend payment date, exchange the Senior
Preferred Stock, in whole but not in part, for the Exchange Debentures. Holders
of Senior Preferred Stock so exchanged will be entitled to receive the principal
amount of Exchange Debentures equal to $25.00 for each $25.00 of liquidation
preference of Senior Preferred Stock held by such holders at the time of
exchange plus an amount per share in cash equal to all accrued but unpaid
dividends thereon to the date of exchange (including an amount equal to a pro
rated dividend from the last dividend payment date to the exchange date).
THE SERIES B PREFERRED STOCK
The holders of Series B Preferred Stock have no preemptive rights or
cumulative voting rights and are not subject to future assessments by K-III. All
outstanding shares of Series B Preferred Stock are fully paid and nonassessable.
As of March 31, 1996, 1,405,397 shares of the Series B Preferred Stock
($140,539,700 aggregate liquidation preference), which include dividends paid in
kind from time to time thereon to such date, were issued and outstanding.
Rank. The Series B Preferred Stock, with respect to dividend rights and
rights on liquidation, winding up and dissolution, ranks junior to the Senior
Preferred Stock, pari passu with the Preferred Stock and senior to the Common
Stock.
Dividends. The holders of the shares of Series B Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, cash dividends at an annual rate equal to 11
5/8%. Such dividends are payable quarterly in arrears on each February 1, May 1,
August 1 and November 1. Before May 1, 1998 dividends may, at the option of
K-III, be paid in cash or by issuing fully paid and nonassessable shares of
Series B Preferred Stock with an aggregate liquidation preference equal to the
amount of such dividend. On and after May 1, 1998, dividends may only be paid in
cash. Dividends on shares of the Series B Preferred Stock accrue and are
cumulative from the date of issuance of such shares. As of the date of this
Offering Memorandum, all such dividends have been paid in additional shares of
Series B Preferred Stock.
Optional Redemption. K-III may, at its option, redeem at any time on or
after February 1, 1998, from any source of funds legally available therefor, in
whole or in part, any or all of the shares of Series B Preferred Stock at
redemption prices declining ratably from 105.80% of liquidation value for the
twelve months commencing February 1, 1998 to 100.00% on and after February 1,
2003, plus in each case an amount in cash equal to all accumulated and unpaid
dividends per share (including an amount equal to a prorated dividend from the
last dividend payment date to the redemption date).
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In addition, up to 50% of the Series B Preferred Stock may be redeemed at
any time before February 1, 1996 at a price per share of $108, plus accrued and
unpaid dividends out of the net proceeds of an initial public offering of Common
Stock, provided such redemption occurs within 180 days of such initial public
offering.
Mandatory Redemption. The Series B Preferred Stock is subject to mandatory
redemption (subject to contractual and other restrictions with respect thereto
and to the legal availability of funds therefor) on May 1, 2005 at a price equal
to the liquidation preference thereof plus all accumulated dividends to the date
of redemption.
Voting Rights. Holders of the Series B Preferred Stock have no voting rights
with respect to general corporate matters except as provided by law or as set
forth in the Certificate of Designations for the Series B Preferred Stock. Such
Certificate of Designations provides that in the event that dividends on the
Series B Preferred Stock are in arrears and unpaid for six consecutive quarterly
periods, the Board of Directors of K-III will be increased by two directors and
the holders of the majority of the Series B Preferred Stock, voting separately
as a class, will be entitled to elect two directors of the expanded board of
directors. Such voting rights will continue until such time as all dividends in
arrears on the Series B Preferred Stock are paid in full.
Unless the requisite holders of any senior security or any indebtedness of
K-III have consented to or granted a waiver with respect thereto, K-III may not
merge or consolidate with or into or transfer all or substantially all of its
assets (as an entirety in one transaction or a series of related transactions),
to any person without the consent of the holders of a majority of the issued and
outstanding shares of Series B Preferred Stock, voting separately as a class,
unless (i) K-III shall be the continuing person, or the person (if other than
K-III) formed by such consolidation or into which K-III is merged or to which
the properties and assets of K-III are transferred shall be a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia and the Series B Preferred Stock shall be converted
into or exchanged for and shall become shares of such successor or resulting
company, having in respect of such successor or resulting company substantially
the same powers, preferences and relative participating, optional or other
special rights, and the qualifications, limitations or restrictions thereon,
that the Series B Preferred Stock had immediately prior to such transaction and
(ii) immediately after giving effect to such transaction on a pro forma basis,
the Consolidated Net Worth of the surviving entity is at least equal to the
Consolidated Net Worth of K-III (as defined in its Certificate of Incorporation)
immediately prior to such transaction.
Under Delaware law, holders of preferred stock are entitled to vote as a
class upon a proposed amendment, whether or not entitled to vote thereon by the
certificate of incorporation, if, among other matters, the amendment would
increase or decrease the par value of the shares of such class, or alter or
change the powers, preferences, or special rights of the shares of such class so
as to affect them adversely.
Exchange. K-III may, at its option, out of any source of funds legally
available therefor, on any scheduled dividend payment date, issue Class B
Subordinated Debentures in exchange for the Series B Preferred Stock, in whole
but not in part. Holders of Series B Preferred Stock so exchanged will be
entitled to receive the principal amount of Subordinated Debentures equal to
$100 for each $100 of liquidation preference of Series B Preferred Stock held by
such holders at the time of exchange plus an amount per share in cash equal to
all accrued but unpaid dividends thereon to the date of exchange (including an
amount equal to a pro rated dividend from the last dividend payment date to the
exchange date). No Class B Subordinated Debentures may be issued so long as any
Senior Preferred Stock remains outstanding. The indenture for the 10 5/8% Senior
Notes restricts the ability of K-III to issue Class B Subordinated Debentures in
exchange for Series B Preferred Stock.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
GENERAL
The following is a description of the principal agreements governing the
indebtedness of K-III. All of such indebtedness is unsecured and is guaranteed
by substantially all of K-III's subsidiaries (except that the Exchange
Debentures and Class B Subordinated Debentures described below, if issued, will
not be so guaranteed). Capitalized terms used in this section but not defined in
the Prospectus are defined in the relevant agreement.
REVOLVING CREDIT AGREEMENT
General. The Revolving Credit Agreement provides that K-III may borrow up to
$670,000,000 under a revolving credit commitment, which facility may be utilized
through the incurrence of revolving credit loans, swingline loans, Canadian
dollar loans or the issuance of letters of credit. Revolving credit loans,
Canadian dollar loans and swingline loans may be used by the Company for general
corporate purposes, including acquisitions.
The total revolving credit commitment amount will be reduced and, to the
extent outstanding borrowings would exceed the resulting commitment amount,
principal will be repaid, semi-annually on June 30 and December 31 each year,
commencing June 30, 1997. The commitment reductions will be in the amount of
$135,000,000 per year, except that the commitment will reduce by $265,000,000 to
zero in 2000.
At March 31, 1996, approximately $169,900,000 in principal amount of
borrowings was outstanding under the Revolving Credit Agreement.
Covenants. The Revolving Credit Agreement contains covenants restricting
K-III and its subsidiaries from, among other things: (i) with certain
exceptions, selling or otherwise disposing of any of their businesses; (ii)
changing the nature of its businesses; (iii) with certain exceptions, merging or
consolidating with any party; (iv) with certain exceptions, having indebtedness
other than existing indebtedness and indebtedness under the BONY Credit
Agreement, the Chase Credit Agreement, the Senior Note Indentures, the Exchange
Debenture Indenture and the Subordinated Debenture Indenture; (v) with certain
exceptions, making guarantees or becoming liable with respect to contingent
obligations; (vi) with certain exceptions, making investments or loans; (vii)
incurring any liens, other than certain limited permitted liens on its assets;
(viii) with certain exceptions, entering into transactions with affiliates on
terms less favorable than could be obtained from non-affiliates; (ix) redeeming
or making prepayments on other indebtedness (other than through the issuance of
Refinancing Indebtedness or with the proceeds from an issuance of equity); and
redeeming the Senior Preferred Stock, the Series B Preferred Stock or other
permitted preferred stock (other than through the issuance of other stock or by
the issuance of Exchange Debentures or Subordinated Debentures, as appropriate);
(x) with certain exceptions, paying dividends on preferred and common stock; and
(xi) with certain exceptions, modifying the agreements relating to the Company's
indebtedness and preferred stock or its corporate charter documents.
In addition, the Revolving Credit Agreement requires that K-III and its
Restricted Subsidiaries, on a consolidated basis, satisfy an interest coverage
test and a leverage test. The minimum required interest coverage ratio (which is
defined as the ratio of consolidated adjusted earnings before interest, taxes,
depreciation and amortization to interest expense) for periods ending on or
prior to September 30, 1996 is 1.80, which ratio increases each year until it
reaches 2.50 for periods ending after March 31, 1999. The maximum allowable
leverage ratio for determination dates occurring on or prior to September 30,
1996 is 6.00, which ratio decreases each year until it reaches 4.00 for
determination dates occurring after March 31, 1999.
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The Revolving Credit Agreement also requires that K-III and its Restricted
Subsidiaries, on a consolidated basis, satisfy a fixed charge coverage test at
the end of each fiscal quarter. The minimum required ratio for all test periods
is 1.05. Fixed charges include, among other items, interest expense and cash
common and preferred stock dividends, rental expense, provisions for income
taxes, cash capital expenditures and scheduled principal payments on
indebtedness.
It is an event of default under each of the Credit Agreements if KKR ceases
to own, directly or indirectly, at least 51% (on a fully diluted basis) of the
economic and voting interest in the Common Stock (excluding shares of Common
Stock that have been sold in a widely distributed public offering registered
pursuant to the Securities Act) or at least 35% (on a fully diluted basis) of
the economic and voting interest in the Common Stock (including any such widely
distributed shares).
BONY CREDIT AGREEMENT
General. Pursuant to the BONY Credit Agreement, K-III has borrowed the full
available amount of $150,000,000. As of March 31, 1996, the interest rate
applicable to such borrowings was 7.56%. The principal amount will be repaid
semi-annually on May 1 and November 1 each year, with the first payment on May
1, 2001 and the final payment on May 1, 2003, in installments increasing from
$7,500,000 to $60,000,000.
Covenants. The restrictive covenants contained in the BONY Credit Agreement
are substantially similar to those contained in the Revolving Credit Agreement
(as appropriately modified to reflect the longer term of the BONY Credit
Agreement).
In addition, the BONY Credit Agreement requires that K-III and its
Restricted Subsidiaries, on a consolidated basis, satisfy an interest coverage
test and a leverage test. The minimum required interest coverage ratio (which is
defined as the ratio of consolidated EBITDA to interest expense) for periods
ending on or prior to September 30, 1997 is 1.80, which ratio increases to 2.00
for periods ending after September 30, 1997 and on or prior to March 31, 1999,
and 2.25 for periods ending after March 31, 1999. The maximum allowable leverage
ratio for determination dates occurring on or prior to September 30, 1997 is
6.00, which ratio decreases to 5.50 for determination dates occuring after
September 30, 1997 and prior to March 31, 1999 and to 5.00 for determination
dates occurring after March 31, 1999.
The BONY Credit Agreement also requires that K-III and its Restricted
Subsidiaries, on a consolidated basis, satisfy a fixed charge coverage test at
the end of each fiscal quarter. The minimum required ratio for all test periods
is 1.05. Fixed charges include interest expense and cash preferred stock
dividends, rental expense, provisions for income taxes, cash capital
expenditures and scheduled principal payments on indebtedness. The BONY Credit
Agreement has a change of control provision substantially the same as the one in
the Revolving Credit Agreement.
CHASE CREDIT AGREEMENT
General. Pursuant to the Chase Credit Agreement, K-III has borrowed the full
available amount of $150,000,000. As of March 31, 1996, the interest rate
applicable to such borrowings was 6.94%. The principal amount will be repaid
semi-annually on June 30 and December 31 each year, with the first payment on
June 30, 1998 and the final payment on December 31, 2001, in installments
increasing from an aggregate of $30,000,000 in 1998 to an aggregate of
$45,000,000 in 2001.
Covenants. The restrictive covenants contained in the Chase Credit Agreement
are substantially similar to those contained in the Revolving Credit Agreement.
In addition, the Chase Credit Agreement requires that K-III and its
Restricted Subsidiaries, on a consolidated basis, satisfy an interest coverage
test and a leverage test. The minimum required interest coverage ratio (which is
defined as the ratio of consolidated EBITDA to interest expense) for periods
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ending on or prior to September 30, 1996 is 1.80, which ratio increases to 2.50
for periods ending after March 31, 1999. The maximum allowable leverage ratio
for determination dates occurring on or prior to September 30, 1996 is 6.00,
which ratio decreases each year until it reaches 4.00 for determination dates
occurring after March 31, 1999.
The Chase Credit Agreement also requires that K-III and its Restricted
Subsidiaries, on a consolidated basis, satisfy a fixed charge coverage test at
the end of each fiscal quarter. The minimum required ratio for all test periods
is 1.05. Fixed charges include interest expense and cash common and preferred
stock dividends, rental expense, provisions for income taxes, cash capital
expenditures and scheduled principal payments on indebtedness. The Chase Credit
Agreement has a change of control provision substantially the same as the one in
the Revolving Credit Agreement.
THE 10 5/8% SENIOR NOTES
The following is a description of the 10 5/8% Senior Note Indenture. The
terms of the 10 5/8% Senior Notes include those stated in the 10 5/8% Senior
Note Indenture and those made part of the 10 5/8% Senior Note Indenture by
reference to the Trust Indenture Act.
General. The 10 5/8% Senior Notes rank senior in right of payment to all
subordinated Indebtedness of the Company, and are guaranteed on a senior basis
by each of the domestic Restricted Subsidiaries. The 10 5/8% Senior Notes rank
pari passu in right of payment with all senior borrowings, including borrowings
under the Credit Agreements, the 10 1/4% Senior Notes and the Notes.
Principal, Maturity and Interest. The 10 5/8% Senior Notes are limited in
aggregate principal amount to $250,000,000 and mature on May 1, 2002. The entire
principal amount permitted is currently outstanding. Interest on the 10 5/8%
Senior Notes accrues at the rate of 10 5/8% per annum.
Redemption. The 10 5/8% Senior Notes are not redeemable at K-III's option
before May 1, 1997 (other than in connection with a Change of Control (as
defined under the 10 5/8% Senior Note Indenture)). Thereafter, the 10 5/8%
Senior Notes are subject to redemption at the option of K-III, at redemption
prices declining ratably from 104.00% of principal amount for the twelve months
commencing May 1, 1997 to 100.00% on and after May 1, 2000, plus in each case
accrued and unpaid interest thereon to the applicable redemption date.
The 10 5/8% Senior Note Indenture requires K-III to make a mandatory sinking
fund payment on May 1, 2001, sufficient to retire by redemption on such date
Outstanding Notes in an aggregate principal amount equal to $125,000,000.
Outstanding Notes that K-III has theretofore acquired or that have otherwise
been redeemed may be applied to reduce K-III's obligations to make sinking fund
payments.
Upon a Change of Control, K-III is required to make an offer to purchase all
of the then-outstanding 10 5/8% Senior Notes at a purchase price of 101% of the
aggregate principal amount of such Outstanding Notes plus accrued and unpaid
interest thereon to the redemption date. In addition the 10 5/8% Senior Notes
will be redeemable in whole or in part at the option of K-III, in the event of a
Change of Control.
Covenants. The 10 5/8% Senior Note Indenture contains covenants
substantially similar to those in the Note Indenture.
THE 10 1/4% SENIOR NOTES
The following is a description of the 10 1/4% Senior Note Indenture. The
terms of the 10 1/4% Senior Notes include those stated in the 10 1/4% Senior
Note Indenture and those made part of the 10 1/4% Senior Note Indenture by
reference to the Trust Indenture Act.
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General. The 10 1/4% Senior Notes rank senior in right of payment to all
subordinated Indebtedness of the Company, and are guaranteed on a senior basis
by each of the domestic Restricted Subsidiaries. The 10 1/4% Senior Notes rank
pari passu in right of payment with all senior borrowings, including borrowings
under the Credit Agreements, the 10 5/8% Senior Notes and the Notes.
Principal, Maturity and Interest. The 10 1/4% Senior Notes are limited in
aggregate principal amount to $100,000,000 and mature on June 1, 2004. The
entire principal amount permitted is currently outstanding. Interest on the 10
1/4% Senior Notes accrues at the rate of 10 1/4% per annum.
Redemption. The 10 1/4% Senior Notes are not redeemable at K-III's option
before June 1, 1999 (other than in connection with a Change of Control (as
defined under the 10 1/4% Senior Note Indenture) or certain public offerings of
Common Stock, as described below). Thereafter, the 10 1/4% Senior Notes due 2004
are subject to redemption at the option of K-III, at redemption prices declining
ratably from 104.95% of principal amount for the twelve months commencing June
1, 1999 to 100.00% on and after June 1, 2002, plus in each case accrued and
unpaid interest thereon to the applicable redemption date.
In addition, at any time on or before June 1, 1997, up to 35% of the
aggregate principal amount of the 10 1/4% Senior Notes may be redeemed at a
redemption price of 109 1/4% of the principal amount thereof, plus accrued and
unpaid interest, out of the net proceeds of public offerings of primary shares
of Common Stock, provided such redemption occurs within 160 days of such public
offering.
Upon a Change of Control, K-III is required to make an offer to purchase all
of the then-outstanding 10 1/4% Senior Notes at a purchase price of 101% of the
aggregate principal amount of such Outstanding Notes plus accrued and unpaid
interest, if any, to the redemption date. In addition the 10 1/4% Senior Notes
will be redeemable, in whole or in part, at the option of K-III in the event of
a Change of Control.
"Change of Control" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than KKR and
its affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than (A) 35 percent (35%) of the total voting power of
the then outstanding voting stock of K-III and (B) the total voting power of the
then outstanding voting stock of K-III beneficially owned by KKR and its
affiliates or (ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted K-III's Board of
Directors (together with any new directors whose election by K-III's Board of
Directors or whose nomination for election by K-III's shareholders was approved
by a vote of at least two-thirds of the Directors then still in office who
either were 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 directors then in office.
Covenants. The 10 1/4% Senior Note Indenture contains certain covenants
substantially similar to those in the Note Indenture.
THE EXCHANGE DEBENTURES
The following is a description of the Exchange Debenture Indenture, to be
dated as of the date of first issuance (the "Exchange Debentures Exchange Date")
of the Exchange Debentures between K-III and Chemical Bank (the "Exchange
Debenture Trustee"), pursuant to which the Exchange Debentures may be issued in
exchange for the Senior Preferred Stock. The terms of the Exchange Debentures
include those stated in the Exchange Debenture Indenture and those made part of
the Exchange Debenture Indenture by reference to the Trust Indenture Act.
General. The Exchange Debentures will represent general unsecured
obligations of K-III, and holders of the Exchange Debentures will rank junior in
right of payment to holders of Senior Debt (as defined in the Exchange Debenture
Indenture). The right to payment of principal and interest on the
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Exchange Debentures will be subordinated to the prior payment in full of all
Senior Debt. Senior Debt includes indebtedness under the Credit Agreements and
the Senior Notes but does not include any Indebtedness of K-III to any of its
subsidiaries or trade indebtedness. The Exchange Debentures will rank senior in
right of payment to holders of the Class B Subordinated Debentures and the 10%
Subordinated Debentures.
Principal, Maturity and Interest. The Exchange Debentures will be limited in
aggregate principal amount to $100,000,000 and will mature on May 1, 2004. None
of the principal amount is currently outstanding. Interest on the Exchange
Debentures will accrue from the Exchange Debentures Exchange Date at the rate of
11 1/2% per annum, commencing after the Exchange Debentures Exchange Date.
Redemption. The Exchange Debentures will be subject to redemption at the
option of K-III at any time on or after May 1, 1997 at redemption prices
declining ratably from 105.8% of the principal amount thereof to 100.0% on or
after May 1, 2002, in each case plus accrued and unpaid interest, if any, to the
applicable redemption date.
The Credit Agreements prohibit the redemption or prepayment of the Exchange
Debentures other than with the net proceeds from the issuance of refunding
indebtedness or equity, and the Senior Note Indentures make such redemption or
prepayment a Restricted Payment.
The Exchange Debenture Indenture will require K-III to make a mandatory
sinking fund payment on May 1, 2003, sufficient to retire by redemption on such
date 50% of the aggregate principal amount of the Exchange Debentures originally
issued under the Exchange Debenture Indenture. Exchange Debentures that K-III
has theretofore acquired or that have otherwise been redeemed may be applied to
reduce K-III's obligations to make sinking fund payments.
In addition, upon a Change of Control, K-III is required to make an offer to
purchase the then outstanding Exchange Debentures at a purchase price of 101% of
the aggregate principal amount of the Exchange Debentures plus accrued and
unpaid interest to the redemption date.
Covenants. The Exchange Debenture Indenture will contain certain covenants
which, among other things, limit the ability of the Company to engage in
mergers, consolidations or transactions with affiliates and to pay dividends on
or repurchase or retire capital stock.
THE CLASS B SUBORDINATED DEBENTURES
The following is a description of the Class B Debenture Indenture to be
dated as of the date of first issuance (the "Class B Subordinated Exchange
Date") of Subordinated Debentures between K-III and Marine Midland Bank, N.A.
(the "Class B Debenture Trustee"), pursuant to which the Class B Subordinated
Debentures may be issued in exchange for the Series B Preferred Stock. The terms
of the Class B Subordinated Debentures include those stated in the Class B
Debenture Indenture and those made part of the Class B Debenture Indenture by
reference to the Trust Indenture Act. Capitalized terms used in this section
that are not defined in this Offering Memorandum are defined in the Subordinated
Debenture Indenture.
General. The Class B Debentures will represent general unsecured obligations
of K-III, and holders of the Class B Debentures will rank junior in right of
payment to holders of Senior Debt (as defined in the Class B Debenture
Indenture). The right to payment of principal and interest on the Class B
Debentures will be subordinated to the prior payment in full of all Senior Debt.
Senior Debt includes the indebtedness under the Credit Agreements, the Senior
Notes and the Exchange Debentures but does not include any Indebtedness of K-III
to any of its subsidiaries or trade indebtedness.
Principal, Maturity and Interest. The Class B Debentures will be limited in
aggregate principal amount to $200,000,000 and will mature on May 1, 2005.
Interest on the Class B Debentures will accrue from the Class B Subordinated
Exchange Date at the rate of 11 5/8%, payable quarterly on
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February 1, May 1, August 1, and November 1, commencing with the first of such
dates to occur after the Class B Subordinated Exchange Date.
Redemption. The Class B Debentures will be subject to redemption at the
option of K-III at any time on or after February 1, 1998 at the redemption
prices declining ratably from 105.8% of the principal amount thereof to 100.0%
on and after February 1, 2003, plus in each case, accrued and unpaid interest
thereon to the applicable redemption date.
In addition, at any time before February 1, 1996, up to 50% of the Class B
Debentures may be redeemed at a redemption price of 108% of the principal amount
thereof, plus accrued and unpaid interest, out of the net proceeds of an initial
public offering of the Common Stock, provided such redemption occurs within 180
days of such public offering.
The terms of the Credit Agreements prohibit the redemption or repayment of
the Class B Debentures other than with the net proceeds from the issuance of
refunding indebtedness or equity, and the Senior Note Indentures make such
redemption or prepayment a Restricted Payment.
Upon a Change of Control, K-III is required to make an offer to purchase
100% of the outstanding Class B Debentures at a purchase price of 101% of the
aggregate principal amount of the Class B Debentures plus accrued and unpaid
interest thereon to the redemption date.
Covenants. The Class B Debenture Indenture contains covenants substantially
similar to those in the Exchange Debenture Indenture.
NON-COMPETE NOTES
In connection with the Company's acquisition of certain consumer magazines
operations and Daily Racing Form, K-III Holdings Corporation III, a subsidiary
of K-III, issued to the seller $50 million in notes, payable over ten years in a
principal amount of $5 million per year (collectively, the "Non-Compete Notes").
The Non-Compete Notes provide for scheduled payments of principal and interest
through June 17, 2001, effective on December 17, 1991, provided that no payments
under the Non-Compete Notes need be made at any time when the terms of any debt
relating to the acquisition or any refinancing thereof prohibits such payment
(although all payments due and owing under the Non-Compete Notes must be
promptly paid after the termination or waiver of any such prohibition). If all
payments of interest and principal are paid on the Non-Compete Notes, K-III
Holdings Corporation III will have paid $2,500,000 in year one, $6,000,000 in
each of years two through seven, $22,200,000 in year eight, $20,200,000 in year
nine and $18,100,000 in year ten.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material anticipated federal income tax
consequences of the purchase, ownership and disposition of the Notes, the
Preferred Stock and the 10% Subordinated Debentures. Except where noted, it
deals only with Notes, the Preferred Stock and 10% Subordinated Debentures held
as capital assets by United States Holders and does not deal with special
situations, such as those of dealers in securities or currencies, financial
institutions, life insurance companies, persons holding Notes, Preferred Stock
and 10% Subordinated Debentures as a part of a hedging or conversion transaction
or a straddle or United States Holders whose "functional currency" is not the
U.S. dollar. Furthermore, the discussion below is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations,
including final Treasury regulations addressing debt instruments issued with OID
(the "OID Regulations"), rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed below.
ALL PROSPECTIVE PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES, PREFERRED STOCK OR 10%
SUBORDINATED DEBENTURES.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, a "United States Holder" means a holder that is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is subject to
United States federal income taxation regardless of its source. An individual
may, subject to certain exceptions, be deemed to be a resident (as opposed to a
non-resident alien) of the United States by virtue of being present in the
United States on at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). A "Non-United States Holder"
is a holder that is not a United States Holder.
Dividends on Preferred Stock
Distributions on the Preferred Stock will be treated as dividends to United
States Holders to the extent of the Company's current or accumulated earnings
and profits as determined under federal income tax principles. The amount of the
Company's earnings and profits at any time will depend upon the future actions
and financial performance of the Company. The Company believes that it does not
presently have any current or accumulated earnings and profits. Consequently,
unless the Company generates earnings and profits in the future, distributions
with respect to the Preferred Stock may not qualify as dividends for federal
income tax purposes. To the extent that the amount of a distribution on the
Preferred Stock exceeds the Company's current and accumulated earnings and
profits, such distributions will be treated as a nontaxable return of capital
and will be applied against and reduce the adjusted tax basis of the Preferred
Stock in the hands of each United States Holder (but not below zero), thus
increasing the amount of any gain (or reducing the amount of any loss) which
would otherwise be realized by such United States Holder upon the sale or other
taxable disposition of such Preferred Stock. The amount of any such distribution
which exceeds the adjusted tax basis of the Preferred Stock in the hands of the
United States Holder will be treated as capital gain and will be either
long-term or short-term capital gain depending on the United States Holder's
holding period for the Preferred Stock.
Under Section 243 of the Code, corporate stockholders generally will be able
to deduct 70% of the amount of any distribution qualifying as a dividend. There
are, however, many exceptions and
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restrictions relating to the availability of such dividends-received deduction
and recent legislative proposals, if enacted, would reduce the dividends
received deduction from 70% to 50%. It is unclear whether, and in what form,
such proposals will be enacted.
Section 246A of the Code reduces the dividends-received deduction allowed to
a corporate United States Holder that has incurred indebtedness "directly
attributable" to its investment in portfolio stock. Section 246(c) of the Code
requires that, in order to be eligible for the dividends-received deduction, a
corporate United States Holder must generally hold the shares of Preferred Stock
for a 46-day minimum holding period. A taxpayer's holding period for these
purposes is suspended during any period in which a United States Holder has
certain options or contractual obligations with respect to substantially
identical stock or holds one or more other positions with respect to
substantially identical stock that diminishes the risk of loss from holding the
Preferred Stock. A recent legislative proposal would provide that a corporate
shareholder would not be entitled to a dividends-received deduction on
distributions on the Preferred Stock if such shareholder protects itself from
risk of loss immediately before or immediately after the shareholder becomes
entitled to the dividend. It is unclear whether and in what form such proposal
will be enacted.
Under Section 1059 of the Code a corporate stockholder is required to reduce
its tax basis (but not below zero) in the Preferred Stock by the nontaxed
portion of any "extraordinary dividend" if such stock has not been held for more
than two years before the earliest of the date such dividend is declared,
announced, or agreed to. Generally, the nontaxed portion of an extraordinary
dividend is the amount excluded from income by operation of the
dividends-received deduction provisions of Section 243 of the Code. An
extraordinary dividend on the Preferred Stock generally would be a dividend that
(i) equals or exceeds 5% of the corporate stockholder's adjusted tax basis in
the Preferred Stock, treating all dividends having ex-dividend dates within an
85-day period as one dividend or (ii) exceeds 20% of the corporate stockholder's
adjusted tax basis in such stock, treating all dividends having ex-dividend
dates within a 365-day period as one dividend. In determining whether a dividend
paid on the Preferred Stock is an extraordinary dividend, a corporate
stockholder may elect to substitute the fair market value of the stock for such
United States Holder's tax basis for purposes of applying these tests, provided
such fair market value is established to the satisfaction of the Secretary of
Treasury (the "Secretary") as of the day before the ex-dividend date. An
extraordinary dividend also currently includes any amount treated as a dividend
in the case of a redemption that is either non-pro rata as to all stockholders
or in partial liquidation of the Company, regardless of the stockholder's
holding period and regardless of the size of the dividend. If any part of the
nontaxed portion of an extraordinary dividend is not applied to reduce the
United States Holder's tax basis as a result of the limitation on reducing such
basis below zero, such part will be treated as gain upon sale or exchange of the
stock. However, recently introduced legislation would require gain on the
nontaxed portion of an extraordinary dividend to be recognized at the time when
the extraordinary dividend is paid rather than at the time of the sale or
exchange of the Preferred Stock. It is unclear whether and in what form such
legislation will be enacted. Special rules exist with respect to extraordinary
dividends for "qualified preferred dividends." A qualified preferred dividend is
any fixed dividend payable with respect to any share of stock which (i) provides
for fixed preferred dividends payable not less frequently than annually and (ii)
is not in arrears as to dividends at the time the United States Holder acquired
such stock. A qualified preferred dividend does not include any dividend payable
with respect to any share of stock if the actual rate of return of such stock
exceeds 15%. Section 1059 does not apply to qualified preferred dividends if the
corporate stockholder holds such stock for more than five years. If the
stockholder disposes of such stock before it has been held for more than five
years, the amount subject to extraordinary dividend treatment with respect to
qualified preferred dividends is limited to the excess of the actual rate of
return over the stated rate of return. Actual or stated rates of return are the
actual or stated dividends expressed as a percentage of the lesser of (1) the
stockholder's tax basis in such stock or (2) the liquidation preference of such
stock. CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 TO THEIR OWNERSHIP AND
DISPOSITION OF THE PREFERRED STOCK.
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A corporate stockholder's liability for alternative minimum tax may be
affected by the portion of the dividends received which such corporate
stockholder deducts in computing taxable income. This results from the fact that
corporate stockholders are required to increase alternative minimum taxable
income by 75% of the excess of current earnings and profits (with certain
adjustments) over alternative minimum taxable income (determined without regard
to earnings and profits adjustments or the alternative tax net operating loss
deduction).
Redemption Premium
Under Section 305(c) of the Code and the applicable regulations thereunder,
if the redemption price of Preferred Stock exceeds its issue price the
difference ("redemption premium") may be taxable as a constructive distribution
of additional Preferred Stock to the United States Holder (treated as a dividend
to the extent of the Company's current and accumulated earnings and profits and
otherwise subject to the treatment described above for distributions) over a
certain period. Because Preferred Stock provides for an optional right of
redemption by the Company at a price in excess of the issue price, stockholders
could be required to recognize such redemption premium under a constant interest
rate method similar to that described below for accruing original issue discount
("OID") (see "Consequences of Owning Subordinated Debentures--Original Issue
Discount") if, based on all of the facts and circumstances, the optional
redemption is more likely than not to occur. If stock may be redeemed at more
than one time, the time and price at which such redemption is most likely to
occur must be determined based on all of the facts and circumstances. Applicable
regulations provide a "safe harbor" under which a right to redeem will not be
treated as more likely than not to occur if (i) the issuer and the United States
Holder are not related within the meaning of the regulations; (ii) there are no
plans, arrangements, or agreements that effectively require or are intended to
compel the issuer to redeem the stock (disregarding, for this purpose, a
separate mandatory redemption), and (iii) exercise of the right to redeem would
not reduce the yield of the stock, as determined under the regulations.
Regardless of whether the optional redemption is more than likely not to occur,
constructive dividend treatment will not result if the redemption premium does
not exceed a de minimis amount. The Company intends to take the position that
the existence of the Company's optional redemption right does not result in a
constructive distribution to the United States Holders.
Redemption and Exchange for 10% Subordinated Debentures
A redemption of shares of the Preferred Stock for cash or an exchange of the
Preferred Stock for 10% Subordinated Debentures (or 10% Subordinated Debentures
and cash in the case of dividend arrearages) will be a taxable transaction on
which a United States Holder will generally recognize capital gain or loss
(except to the extent of cash payments received on the exchange that are
attributable to declared dividends which will be treated in the same manner as
distributions described above) provided that a United States Holder owns no
stock of the Company, actually or constructively, following a redemption or
exchange. The gain or loss recognized on such exchange will generally be equal
to the difference between the amount realized by the United States Holder of the
Preferred Stock and such United States Holder's adjusted tax basis in the
Preferred Stock surrendered in the redemption.
In the case of a redemption for cash, the amount realized will be the cash
received on the redemption. In the case of an exchange of Preferred Stock for
10% Subordinated Debentures, the amount realized on receipt of the 10%
Subordinated Debenture would be equal to the "issue price" of the 10%
Subordinated Debenture. Thus, the amount realized on the exchange will be equal
to the issue price of the 10% Subordinated Debentures plus any cash received on
the exchange (other than cash received with respect to declared dividends). The
issue price of a 10% Subordinated Debenture would be equal to (i) its fair
market value as of the exchange date if the 10% Subordinated Debentures are
traded on an established securities market on or at any time during the 60 day
period ending 30 days after the exchange date or (ii) the fair market value at
the exchange date of the Preferred Stock if such
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Preferred Stock is traded on an established securities market during the 60 day
period ending 30 days after the exchange date but the 10% Subordinated
Debentures are not. If neither the Preferred Stock nor the 10% Subordinated
Debentures are so traded, the issue price of the 10% Subordinated Debentures is
determined under Section 1274 of the Code, in which case the issue price would
be the stated principal amount of the Subordinated Debentures provided that the
yield on the 10% Subordinated Debentures is equal to or greater than the
"applicable federal rate" in effect at the time the Preferred Stock is issued.
If the yield on the 10% Subordinated Debentures is less than such applicable
federal rate, its issue price under section 1274 of the Code would be equal to
the present value as of the issue date of all payments to be made on the 10%
Subordinated Debentures, discounted at the applicable federal rate. It cannot be
determined at the present time whether the Preferred Stock or the 10%
Subordinated Debentures will be, at the relevant time, traded on an established
securities market within the meaning of the Proposed Regulations.
Depending upon a United States Holder's particular circumstances, the tax
consequences of holding 10% Subordinated Debentures may be less advantageous
than the tax consequences of holding Preferred Stock because, for example,
payments of interest on the Subordinated Debentures will not be eligible for any
dividends-received deduction that may be available to corporate United States
Holders and because, as discussed below, the 10% Subordinated Debentures may be
issued with OID.
Payments of Interest on Notes and 10% Subordinated Debentures
Except as set forth below, interest on a Note or a 10% Subordinated
Debenture will generally be taxable to a United States Holder as ordinary
income.
Original Issue Discount
10% Subordinated Debentures issued in exchange for Preferred Stock may be
issued with OID, because their issue price is determined at the time of such
exchange, as further discussed below. United States Holders of 10% Subordinated
Debentures issued with OID will be subject to special tax accounting rules, as
described in greater detail below. Holders of such 10% Subordinated Debentures
should be aware that they generally must include OID in gross income in advance
of the receipt of cash attributable to that income. However, United States
Holders of such 10% Subordinated Debentures generally will not be required to
include separately in income cash payments received on 10% Subordinated
Debentures issued with OID, even if denominated as interest, to the extent such
payments do not constitute qualified stated interest (as defined below). 10%
Subordinated Debentures issued with OID will be referred to as "Original Issue
Discount Debentures." If any 10% Subordinated Debentures are issued with OID,
the Company will report to United States Holders on a timely basis the
reportable amount of OID, if any, and interest income based on its understanding
of then applicable law. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE CONSEQUENCES OF OWNING 10% SUBORDINATED DEBENTURES.
A 10% Subordinated Debenture with an "issue price" (determined as explained
above--see "Redemption and Exchange for 10% Subordinated Debentures") that is
less than its stated redemption price at maturity (the sum of all payments to be
made on the 10% Subordinated Debenture other than "qualified stated interest")
will be issued with OID if such difference is at least 0.25 percent of the
stated redemption price at maturity multiplied by the number of complete years
to maturity. The term "qualified stated interest" means stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer) at least annually at a single fixed rate. With respect to the 10%
Subordinated Debentures, (i) all interest payments on any 10% Subordinated
Debenture issued will be qualified stated interest, (ii) the stated redemption
price at maturity of any 10% Subordinated Debenture will be equal to its
principal amount and (iii) any 10% Subordinated Debenture will therefore be
issued with OID only to the extent its principal amount exceeds its issue price
(provided that such excess is not de minimis).
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In the case of a 10% Subordinated Debenture issued with de minimis OID
(i.e., discount that is not OID because it is less than 0.25 percent of the
stated redemption price at maturity multiplied by the number of complete years
to maturity), the United States Holder generally must include such de minimis
OID in income as principal payments on the 10% Subordinated Debentures are made
in proportion to the stated principal amount of the 10% Subordinated Debenture.
Any amount of de minimis OID that has been included in income shall be treated
as capital gain.
The 10% Subordinated Debentures may be redeemed prior to their Stated
Maturity at the option of the Company. Under the OID Regulations, if, based on
all of the facts and circumstances as of the issue date, it is more likely than
not that an Original Issue Discount Debenture's stated payment schedule will not
occur, then the yield and maturity of the Original Issue Discount Debenture will
be computed based on the payment schedule most likely to occur. Moreover, the
Company will be deemed to exercise or not exercise its option to redeem the
Original Issue Discount Debentures in a manner that minimizes the yield on the
Original Issue Discount Debentures.
United States Holders of Original Issue Discount Debentures must, in
general, include OID in income in advance of the receipt of some or all of the
related cash payments. The amount of OID includible in income by the initial
United States Holder of an Original Issue Discount Debenture is the sum of the
"daily portions" of OID with respect to the Original Issue Discount Debenture
for each day during the taxable year or portion of the taxable year in which
such United States Holder held such Debenture ("accrued OID"). The daily portion
is determined by allocating to each day in any "accrual period" a pro rata
portion of the OID allocable to that accrual period. The "accrual period" for an
Original Issue Discount Debenture may be of any length and may vary in length
over the term of the Original Issue Discount Debenture, provided that each
accrual period is no longer than one year and each scheduled payment of
principal or interest occurs on the first day or the final day of an accrual
period. The amount of OID allocable to any accrual period is an amount equal to
the excess, if any, of (a) the product of the Original Issue Discount
Debenture's adjusted issue price at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of any qualified stated interest allocable to the accrual period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity (other than a payment of qualified stated interest) and the
adjusted issue price at the beginning of the final accrual period. Special rules
will apply for calculating OID for an initial short accrual period. The
"adjusted issue price" of an Original Issue Discount Debenture at the beginning
of any accrual period is equal to its issue price increased by the accrued OID
for each prior accrual period (determined without regard to the amortization of
any acquisition or bond premium, as described below) and reduced by any payments
made on such Debenture (other than qualified stated interest) on or before the
first day of the accrual period. Under these rules, a United States Holder will
have to include in income increasingly greater amounts of OID in successive
accrual periods.
United States Holders may elect to treat all interest on any 10%
Subordinated Debenture as OID and calculate the amount includible in gross
income under the constant yield method described above. For the purposes of this
election, interest includes stated interest, acquisition discount, OID, de
minimis OID, market discount, de minimis market discount and unstated interest,
as adjusted by any amortizable bond premium or acquisition premium. The election
is to be made for the taxable year in which the United States Holder acquired
the 10% Subordinated Debenture, and may not be revoked without the consent of
the Internal Revenue Service (the "IRS"). UNITED STATES HOLDERS SHOULD CONSULT
WITH THEIR OWN TAX ADVISORS ABOUT THIS ELECTION.
Market Discount on Resale of Notes or 10% Subordinated Debentures
If a United States Holder purchases a Note or a 10% Subordinated Debenture
(other than an Original Issue Discount Debenture) for an amount that is less
than its stated redemption price at maturity or, in the case of an Original
Issue Discount Debenture, its adjusted issue price, the amount of
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<PAGE>
the difference will be treated as "market discount" for federal income tax
purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules, a United States Holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, a Note or a 10% Subordinated Debenture as ordinary income
to the extent of the market discount which has not previously been included in
income and is treated as having accrued on such Note or 10% Subordinated
Debenture at the time of such payment or disposition. In addition, the United
States Holder may be required to defer, until the maturity of the Note or 10%
Subordinated Debenture or its earlier disposition in a taxable transaction, the
deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry such Note or 10% Subordinated
Debenture.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note or 10%
Subordinated Debenture, unless the United States Holder elects to accrue on a
constant interest method. A United States Holder of a Note or 10% Subordinated
Debenture may elect to include market discount in income currently as it accrues
(on either a ratable or constant interest method), in which case the rule
described above regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS.
Acquisition Premium; Amortizable Bond Premium
A United States Holder that purchases a 10% Subordinated Debenture for an
amount that is greater than its adjusted issue price but equal to or less than
the sum of all amounts payable on the 10% Subordinated Debenture after the
purchase date other than payments of qualified stated interest will be
considered to have purchased such 10% Subordinated Debenture at an "acquisition
premium." Under the acquisition premium rules, the amount of OID, if any, which
such United States Holder must include in its gross income with respect to such
10% Subordinated Debenture for any taxable year will be reduced by the portion
of such acquisition premium properly allocable to such year.
If at the time the Preferred Stock is exchanged for 10% Subordinated
Debentures or at the time a subsequent United States Holder purchases 10%
Subordinated Debentures or Notes, the United States Holder's tax basis in any
such 10% Subordinated Debenture or Note exceeds the sum of all amounts payable
on the 10% Subordinated Debenture or Note after the exchange date or purchase
date other than qualified stated interest, such excess may constitute "premium"
and such United States Holder will not be required to include any OID in income.
A United States Holder generally may elect to amortize the premium over the
remaining term of the 10% Subordinated Debenture or Note on a constant yield
method. The amount amortized in any year will be treated as a reduction of the
United States Holder's interest income from the 10% Subordinated Debenture or
Note. Bond premium on a 10% Subordinated Debenture or Note held by a United
States Holder that does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the 10% Subordinated
Debenture or Note. The election to amortize premium on a constant yield method
once made applies to all debt obligations held or subsequently acquired by the
electing United States Holder on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the IRS.
Redemption, Sale or Exchange of Notes and 10% Subordinated Debentures
The adjusted tax basis of a United States Holder who received 10%
Subordinated Debentures in exchange for Preferred Stock will, in general, be
equal to the issue price of such 10% Subordinated Debentures, increased by OID
and market discount previously included in income by the United States Holder
and reduced by any amortized premium and any cash payments on the 10%
Subordinated Debentures other than qualified stated interest. A United States
Holder's tax basis in a Note will, in general, be the United States Holder's
cost therefor, increased by market discount previously included
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in income by the United States Holder and reduced by any amortized premium and
any cash payments on the Note other than qualified stated interest. Upon the
redemption, sale, exchange or retirement of a Note or 10% Subordinated
Debenture, a United States Holder will recognize gain or loss equal to the
difference between the amount realized upon the redemption, sale, exchange or
retirement (less any accrued qualified stated interest, which will be taxable as
such) and the adjusted tax basis of the Note or 10% Subordinated Debenture. Such
gain or loss will be capital gain or loss and will be long-term capital gain or
loss if at the time of redemption, sale, exchange or retirement the Note or 10%
Subordinated Debenture has been held for more than one year. Under current law,
net capital gains of individuals are, under certain circumstances, taxed at
lower rates than items of ordinary income. The deductibility of capital losses
is subject to limitations.
Applicable High Yield Discount Obligations
If the yield-to-maturity on Original Issue Discount Debentures equals or
exceeds the sum of (x) the "applicable federal rate" (as determined under
Section 1274(d) of the Code) in effect for the month in which the Original Issue
Discount Debentures are issued (the "AFR") and (y) 5% and the OID on such
Original Issue Discount Debentures is "significant", the Original Issue Discount
Debentures will be considered "applicable high yield discount obligations"
("AHYDOs") under Section 163(i) of the Code. Consequently, the Company will not
be allowed to take a deduction for interest (including OID) accrued on the
Original Issue Discount Debentures for U.S. federal income tax purposes until
such time as the Company actually pays such interest (including OID) in cash or
in other property (other than stock or debt of the Company or a person deemed to
be related to the Company under Section 453(f)(1) of the Code). Because the
amount of OID, if any, attributable to the Original Issue Discount Debentures
will be determined at such time such Original Issue Discount Debentures are
issued and the AFR at the time such Original Issue Discount Debentures are
issued in exchange for Preferred Stock is not predictable, it is impossible to
determine at the present time whether an Original Issue Discount Debenture will
be treated as an AHYDO.
Moreover, if the yield-to-maturity on the Original Issue Discount Debenture
exceeds the sum of (x) the AFR and (y) 6% (such excess shall be referred to
hereinafter as the "Disqualified Yield"), the deduction for interest (including
OID) accrued on the Original Issue Discount Debentures will be permanently
disallowed (regardless of whether the Company actually pays such interest or OID
in cash or in other property) for U.S. federal income tax purposes to the extent
such interest or OID is attributable to the Disqualified Yield on the Original
Issue Discount Debentures ("Dividend-Equivalent Interest"). For purposes of the
dividends-received deduction, such Dividend-Equivalent Interest will be treated
as a dividend to the extent it is deemed to have been paid out of the Company's
current or accumulated earnings and profits. Accordingly, a United States Holder
of Original Issue Discount Debentures that is a corporation may be entitled to
take a dividends-received deduction with respect to any Dividend-Equivalent
Interest received by such corporate United States Holder on such Original Issue
Discount Debentures.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments of dividends, principal, interest, OID, if any, and premium and to the
proceeds of sales of Notes, 10% Subordinated Debentures and Preferred Stock made
to United States Holders other than certain exempt recipients (such as
corporations). A 31 percent backup withholding tax will apply to such payments
if the United States Holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such United States Holder's U.S. federal income tax
liability provided the required information is furnished to the IRS.
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TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
Dividends on Preferred Stock
Although as discussed above (see "Tax Consequences to United States
Holders--Dividends on Preferred Stock"), distributions on the Preferred Stock
will only be treated as dividends for United States federal income tax purposes
to the extent of the Company's current or accumulated earnings and profits (as
determined under United States tax principles), distributions paid to a
Non-United States Holder of Preferred Stock generally will be subject to
withholding of United States federal income tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty. However, dividends that
are effectively connected with the conduct of a trade or business by the
Non-United States Holder within the United States or, if a tax treaty applies,
are attributable to a United States permanent establishment of the Non-United
States Holder, are not subject to the withholding tax, but instead are subject
to United States federal income tax on a net income basis at applicable
graduated individual or corporate rates. Any such effectively connected
dividends received by a foreign corporation may, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty.
Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. Under proposed United States
Treasury regulations not currently in effect, however, a Non-United States
Holder of Preferred Stock who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification and other
requirements. Currently, certain certification and disclosure requirements must
be complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above.
If it is subsequently determined that some or all of a distribution on the
Preferred Stock should be treated as a return of capital, a Non-United States
Holder may obtain a refund of some or all of the tax withheld by filing an
appropriate claim for refund with the Internal Revenue Service (the "IRS"). A
Non-United States Holder of Preferred Stock eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.
Interest on Notes or 10% Subordinated Debentures
Under present United States federal income tax law, and subject to the
discussion below concerning backup withholding, no withholding of United States
federal income tax will be required with respect to the payment by the Company
or any paying agent of principal or interest (which for purposes of this
discussion includes OID) on a Note or 10% Subordinated Debenture owned by a
Non-United States Holder, provided (i) that the beneficial owner does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote within the meaning of
section 871(h)(3) of the Code and the regulations thereunder, (ii) the
beneficial owner is not a controlled foreign corporation that is related to the
Company through stock ownership, (iii) the beneficial owner is not a bank whose
receipt of interest on a Note or 10% Subordinated Debenture is described in
section 881(c)(3)(A) of the Code and (iv) the beneficial owner satisfies the
statement requirement (described generally below) set forth in section 871(h)
and section 881(c) of the Code and the regulations thereunder.
To satisfy the requirement referred to in (iv) above, the beneficial owner
of such Note or 10% Subordinated Debenture, or a financial institution holding
the Note or 10% Subordinated Debenture on behalf of such owner, must provide, in
accordance with specified procedures, the Company or its paying agent with a
statement to the effect that the beneficial owner is not a U.S. person. Pursuant
to current temporary Treasury regulations, these requirements will be met if (1)
the beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a U.S. person (which
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<PAGE>
certification may be made on an Internal Revenue Service Form W-8 (or successor
form)) or (2) a financial institution holding the Note or 10% Subordinated
Debenture on behalf of the beneficial owner certifies, under penalties of
perjury, that such statement has been received by it and furnishes a paying
agent with a copy thereof.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described above, payments of premium, if any, and
interest (including OID) made to such Non-United States Holder will be subject
to a 30% withholding tax unless the beneficial owner of the Note or 10%
Subordinated Debenture provides the Company or its paying agent, as the case may
be, with a properly executed (1) Internal Revenue Service Form 1001 (or
successor form) claiming an exemption from withholding under the benefit of a
tax treaty or (2) Internal Revenue Service Form 4224 (or successor form) stating
that interest paid on the Note or 10% Subordinated Debenture is not subject to
withholding tax because it is effectively connected with the beneficial owner's
conduct of a trade or business in the United States.
If a Non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest (including OID) on the Note or
10% Subordinated Debenture is effectively connected with the conduct of such
trade or business, the Non-United States Holder, although exempt from the
withholding tax discussed above, will be subject to United States federal income
tax on such interest and OID on a net income basis in the same manner as if it
were a United States Holder. In addition, if such holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such premium, if any, and interest (including
OID) on a Note or 10% Subordinated Debenture will be included in such foreign
corporation's earnings and profits.
Sale, Exchange, Redemption or other Disposition of Notes, 10% Subordinated
Debentures or Preferred Stock
A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on a sale, exchange,
redemption or other disposition of Notes, 10% Subordinated Debentures or
Preferred Stock, including an exchange of Preferred Stock for 10% Subordinated
Debentures, unless (i) the gain is effectively connected with a trade or
business of the Non-United States Holder in the United States, or, if a tax
treaty applies, is attributable to a United States permanent establishment of
the Non-United States Holder, (ii) in the case of a Non-United States Holder who
is an individual and holds the Notes, 10% Subordinated Debentures or Preferred
Stock as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the sale or other disposition and certain other
conditions are met, or (iii) in the case of Preferred Stock, the Company is or
has been a "U.S. real property holding corporation" for United States federal
income tax purposes. The Company has not been, is not and does not anticipate
becoming a "U.S. real property holding corporation" for United States federal
income tax purposes.
Unless shares of a United States corporation are treated as regularly traded
on an established securities market (as defined in applicable Treasury
regulations), or another exemption applies, upon a sale or other disposition of
such shares by a Non-United States Holder, the transferee of such Shares would
be required to withhold 10% of the proceeds of such sale or disposition if the
United States corporation does not provide certification that it is not (and has
not been during a specified period) a "U.S. real property holding corporation"
for United States federal income tax purposes. Amounts withheld with respect to
stock of a United States corporation that is not "U.S. real property holding
corporation" for United States federal income tax purposes may be refunded to a
Non-United States Holder who files an appropriate claim for refund with the IRS.
It is anticipated that the Preferred Stock will not be treated as publicly
traded for purposes of applicable Treasury regulations but that the New
Preferred Stock, for which the Preferred Stock will be exchanged pursuant to an
effective registration statement (See "Notice to Investors--Registration
Rights"), will be treated as publicly traded for purposes of applicable Treasury
regulations.
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If an individual Non-United States Holder falls under clause (i) above, he
will be taxed on his net gain derived from the sale or other disposition under
regular graduated United States federal income tax rates. If an individual
Non-United States Holder falls under clause (ii) above, he will be subject to a
flat 30% tax on the gain derived from the sale or other disposition, which may
be offset by United States capital losses recognized within the same taxable
year as such sale or other disposition (notwithstanding the fact that he is not
considered a resident of the United States).
If a Non-United States Holder that is a foreign corporation falls under
clause (i) above, it will be taxed on its gain under regular graduated United
States federal income tax rates and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings and profits
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable income tax
treaty.
Federal Estate Tax
Preferred Stock held by an individual Non-United States Holder at the time
of death will be included in such holder's gross estate for United States
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
A Note or 10% Subordinated Debenture beneficially owned by an individual who
at the time of death is a Non-United States Holder will not be subject to United
States federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the company entitled to vote
within the meaning of section 871(h)(3) of the Code and provided that the
interest payments with respect to such Note or 10% Subordinated Debenture would
not have been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
Information Reporting and Backup Withholding
No information reporting or backup withholding will be required with respect
to payments made by the Company or any paying agent to Non-United States Holders
if a statement described in (iv) under "Non-United States Holders--Interest on
Notes or 10% Subordinated Debentures" has been received and the payor does not
have actual knowledge that the beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of dividends, principal, interest, OID or premium on a Note, 10%
Subordinated Debenture, or Preferred Stock are paid or collected by a foreign
office of a custodian, nominee or other foreign agent on behalf of the
beneficial owner of such Note, 10% Subordinated Debenture or Preferred Stock, or
if a foreign office of a broker (as defined in applicable Treasury regulations)
pays the proceeds of the sale of a Note, 10% Subordinated Debenture or Preferred
Stock to the owner thereof. If, however, such nominee, custodian, agent or
broker is, for United States federal income tax purposes, a U.S. person, a
controlled foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, such payments will not be subject to backup withholding but
will be subject to information reporting, unless (1) such custodian, nominee,
agent or broker has documentary evidence in its records that the beneficial
owner is not a U.S. person and certain other conditions are met or (2) the
beneficial owner otherwise establishes an exemption. Temporary Treasury
regulations provide that the Treasury is considering whether backup withholding
will apply with respect to such payments of principal, interest or the proceeds
of a sale that are not subject to backup withholding under the current
regulations.
Payments of dividends, principal, interest, OID and premium on a Note, 10%
Subordinated Debenture or Preferred Stock paid to the beneficial owner of a
Note, 10% Subordinated Debenture or Preferred Stock by a United States office of
a custodian, nominee or agent, or the payment by the United States office of a
broker of the proceeds of sale of a Note, 10% Subordinated Debenture or
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Preferred Stock will be subject to both backup withholding and information
reporting unless the beneficial owner provides the statement referred to in
(a)(iv) above and the payor does not have actual knowledge that the beneficial
owner is a United States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
TAX CONSEQUENCES OF THE EXCHANGE OFFERS
The exchanges of Old Notes for New Notes and Old Preferred Stock for New
Preferred Stock will not constitute recognition events for federal income tax
purposes. Consequently, no gain or loss will be recognized by Holders upon
receipt of the New Notes or New Preferred Stock. For purposes of determining
gain or loss upon the subsequent sale or exchange of New Notes or New Preferred
Stock, a Holder's basis in New Notes or New Preferred Stock will be the same as
such Holder's basis in the Old Notes or Old Preferred Stock exchanged therefor.
Holders will be considered to have held the New Notes or New Preferred Stock
from the time of their original acquisition of the Old Notes or Old Preferred
Stock.
LEGAL MATTERS
The legality under state law of the New Notes, the New Preferred Stock and
the New Subordinated Debentures will be passed upon for the Company by Simpson
Thacher & Bartlett (a partnership which includes professional corporations), New
York, New York.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of K-III Communications Corporation and subsidiaries incorporated in
this Prospectus by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 have been audited by Deloitte & Touche LLP,
independent public accountants, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma statements of consolidated operations for the three
months ended March 31, 1996 and the year ended December 31, 1995 give effect to
the following transactions and events as if they had occurred on January 1,
1995: (i) the acquisitions of certain net assets or capital stock all of which
have been completed as described in Notes 4 and 29 of the notes to the Company's
consolidated financial statements for the years ended December 31, 1995, 1994
and 1993, incorporated by reference into this Prospectus, (collectively referred
to as the "Acquired Businesses"); (ii) the divestitures of Sales Prospector,
Lakewood Publications, Inc. and Motorcycle Product News which were acquired in
1995, Newfield and Premiere magazine (collectively referred to as the "Divested
Businesses"); (iii) the August 3, 1995 redemption (the "Redemption") of old
preferred stock through borrowings under the Revolving Credit Agreement; (iv)
the Initial Public Offering and (v) the Offerings. The adjustments to reflect
the acquisition of the Acquired Businesses, the divestiture of the Divested
Businesses, the Redemption, the Initial Public Offering and the Offerings are
hereinafter referred to as the "Pro Forma Adjustments."
The Company believes the accounting used for the Pro Forma Adjustments
provides a reasonable basis on which to present the pro forma consolidated
financial data. The pro forma consolidated statements of consolidated operations
are unaudited and were derived by adjusting the historical consolidated
financial statements of the Company. THE UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED TO BE INDICATIVE OF THE COMPANY'S CONSOLIDATED RESULTS OF OPERATIONS
HAD THE TRANSACTIONS BEEN CONSUMMATED ON THE DATES ASSUMED AND DO NOT PROJECT
THE COMPANY'S CONSOLIDATED RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD.
The unaudited pro forma consolidated financial statements and accompanying
notes should be read in conjunction with the historical consolidated financial
statements of the Company and the notes thereto incorporated by reference into
this Prospectus.
P-1
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------
PRO FORMA
HISTORICAL OFFERINGS(5) CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Sales, net:
Education............................................ $ 83,052 $ $ 83,052
Information.......................................... 67,854 67,854
Media................................................ 164,047 164,047
---------- ----------- ------------
Total sales, net....................................... 314,953 314,953
Operating costs and expenses:
Cost of goods sold................................... 83,445 83,445
Marketing and selling................................ 60,798 60,798
Distribution, circulation and fulfillment............ 55,481 55,481
Editorial............................................ 22,145 22,145
Other general expenses............................... 36,074 36,074
Corporate administrative expenses.................... 5,798 5,798
Depreciation and amortization of prepublication
costs, property and equipment...................... 7,674 7,674
Amortization of intangible assets, excess of purchase
price over net assets acquired and other............... 36,553 36,553
---------- ----------- ------------
Operating income....................................... 6,985 6,985
Other income (expense):
Interest expense..................................... (28,051) 579 (27,472)
Amortization of deferred financing costs............. (900) (33) (933)
Other, net........................................... 1,226 1,226
---------- ----------- ------------
Net income (loss)...................................... (20,740) 546 (20,194)
Preferred stock dividends:
Non-cash............................................. (3,969) (3,969)
Cash................................................. (2,875) (5,000) (7,875)
---------- ----------- ------------
Loss applicable to common shareholders(7).............. $ (27,584) $ (4,454) $ (32,038)
---------- ----------- ------------
---------- ----------- ------------
Pro forma loss per common and common equivalent
share(9)............................................... $ (.25)
------------
------------
Pro forma common and common equivalent shares
outstanding(9)......................................... 128,502,847
------------
------------
Ratio of earnings to fixed charges(6)(7)(8)............ --
------------
------------
Ratio of earnings to combined fixed charges and
preferred stock dividends(6)(7)(8)................... --
------------
------------
</TABLE>
See notes to unaudited pro forma consolidated financial data.
P-2
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------------------------------------
INITIAL
ACQUIRED DIVESTED PUBLIC
HISTORICAL BUSINESSES(1) BUSINESSES(2) REDEMPTION(3) OFFERING(4) OFFERINGS(5)
---------- ------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales, net:
Education................... $ 330,414 $ $ $ $ $
Information................. 263,542 11,179
Media....................... 452,373 187,665
---------- ------------- ------------- ------ ----- ------------
Total sales, net............. 1,046,329 198,844
Operating costs and expenses:
Cost of goods sold.......... 251,347 65,386
Marketing and selling....... 177,167 28,811
Distribution, circulation
and fulfillment........... 188,147 31,807
Editorial................... 73,703 13,307
Other general expenses...... 122,816 20,834
Corporate administrative
expenses..................... 17,034
Depreciation and
amortization of
prepublication costs,
property and equipment.... 25,761 1,809
Provision for loss on the
sales of businesses,
net.......................... 35,447 (35,447)
Restructuring and other
costs........................ 14,667
Amortization of intangible
assets, excess of purchase
price over net assets
acquired and other........... 166,515 40,702
---------- ------------- ------------- ------ ----- ------------
Operating income (loss)...... (26,275) (3,812) 35,447
Other income (expense):
Interest expense............ (105,384) (23,625) 2,054 (2,231) 9,889 9,506
Amortization of deferred
financing costs........... (3,135) (638)
Other, net.................. (241)
---------- ------------- ------------- ------ ----- ------------
Income (loss) before income
taxes........................ (135,035) (27,437) 37,501 (2,231) 9,889 8,868
Income tax benefit........... 59,600
---------- ------------- ------------- ------ ----- ------------
Net income (loss)............ (75,435) (27,437) 37,501 (2,231) 9,889 8,868
Preferred stock dividends:
Non-cash.................... (17,478) 2,691
Cash........................ (11,500) (20,000)
---------- ------------- ------------- ------ ----- ------------
Income (loss) applicable to
common shareholders(7)...... $ (104,413) $ (27,437) $ 37,501 $ 460 $ 9,889 $ (11,132)
---------- ------------- ------------- ------ ----- ------------
---------- ------------- ------------- ------ ----- ------------
Pro forma loss per common and
common equivalent share(9)...
Pro forma common and common
equivalent shares
outstanding(9)...............
Ratio of earnings to fixed
charges (6)(7)(8)...........
Ratio of earnings to combined
fixed charges and preferred
stock dividends (6)(7)(8)...
<CAPTION>
PRO FORMA
CONSOLIDATED
------------
<S> <C>
Sales, net:
Education................... $ 330,414
Information................. 274,721
Media....................... 640,038
------------
Total sales, net............. 1,245,173
Operating costs and expenses:
Cost of goods sold.......... 316,733
Marketing and selling....... 205,978
Distribution, circulation
and fulfillment........... 219,954
Editorial................... 87,010
Other general expenses...... 143,650
Corporate administrative
expenses..................... 17,034
Depreciation and
amortization of
prepublication costs,
property and equipment.... 27,570
Provision for loss on the
sales of businesses,
net.......................... --
Restructuring and other
costs........................ 14,667
Amortization of intangible
assets, excess of purchase
price over net assets
acquired and other........... 207,217
------------
Operating income (loss)...... 5,360
Other income (expense):
Interest expense............ (109,791)
Amortization of deferred
financing costs........... (3,773)
Other, net.................. (241)
------------
Income (loss) before income
taxes........................ (108,445)
Income tax benefit........... 59,600
------------
Net income (loss)............ (48,845)
Preferred stock dividends:
Non-cash.................... (14,787)
Cash........................ (31,500)
------------
Income (loss) applicable to
common shareholders(7)...... $ (95,132)
------------
------------
Pro forma loss per common and
common equivalent share(9)... $ (.73)
------------
------------
Pro forma common and common
equivalent shares
outstanding(9)............... 129,452,500
------------
------------
Ratio of earnings to fixed
charges (6)(7)(8)........... --
------------
------------
Ratio of earnings to combined
fixed charges and preferred
stock dividends (6)(7)(8)... --
------------
------------
</TABLE>
See notes to unaudited pro forma consolidated financial data.
P-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(1) Reflects the operating results of the Acquired Businesses as if such
businesses were acquired on January 1, 1995. For those acquisitions for
which asset appraisals have not yet been finalized, pro forma amortization
expense approximates the estimated amortization under straight-line and
accelerated methods over the life of the intangible assets. The pro forma
interest expense adjustment reflects the additional borrowings to finance
the acquisitions at an assumed weighted average rate of 7.28% for the year
ended December 31, 1995.
(2) Reflects the elimination of the net provision for the loss on the sales of
the Divested Businesses as if such businesses were divested on January 1,
1995. The pro forma interest expense adjustment assumes the use of proceeds
from such divestitures to pay down borrowings under the Revolving Credit
Agreement, and the related reduction of interest expense at an assumed
weighted average rate of 7.28% for the year ended December 31, 1995.
(3) Reflects the redemption of old preferred stock and elimination of related
dividends as if such redemption occurred on January 1, 1995 through
borrowings under the Revolving Credit Agreement. The pro forma interest
expense adjustment reflects the additional borrowings to fund the redemption
at an assumed weighted average rate of 7.28% for the year ended December 31,
1995.
(4) Reflects the use of proceeds from the Company's Initial Public Offering of
Common Stock to pay down borrowings under the Revolving Credit Agreement.
The pro forma interest expense adjustment reflects the reduction of
borrowing levels at an assumed weighted average rate of 7.28% for the year
ended December 31, 1995.
(5) Reflects the Offerings as if they had occurred on January 1, 1995 and the
use of the proceeds to pay down borrowings under the Revolving Credit
Agreement. The pro forma interest expense adjustment reflects the interest
expense on the Old Senior Notes at 8.50% and the reduction of borrowing
levels at an assumed weighted average rate of 7.17% for the three months
ended March 31, 1996 and 7.28% for the year ended December 31, 1995. The pro
forma amortization of deferred financing costs adjustment reflects the
amortization of the deferred financing costs related to the Old Senior Notes
over the ten-year term. The pro forma preferred stock dividend adjustment
reflects a dividend rate of 10.00% on the Old Preferred Stock.
(6) The pro forma ratio of earnings to fixed charges consists of loss before
income taxes plus fixed charges divided by fixed charges. Loss before income
taxes includes (i) depreciation and amortization of prepublication costs,
deferred financing costs, property and equipment, intangible assets and
excess of purchase price over net assets acquired, (ii) interest expense,
(iii) restructuring and other costs and (iv) that portion of operating
rental expense that represents interest. Prepublication costs include
editorial, artwork, composition and printing plate costs incurred prior to
publication date. Fixed charges consist of interest expense associated with
long-term debt and other non-current obligations (including current
maturities of long-term debt), amortization of deferred financing costs and
that portion of operating rental expense that represents interest.
(7) The calculation of the pro forma income (loss) applicable to common
shareholders includes non-cash charges for depreciation and amortization of
property and equipment, prepublication costs, intangible assets, excess of
purchase price over net assets acquired and deferred financing costs,
restructuring and other costs, non-cash interest expense on an acquisition
obligation, distribution advance, original issue discount and other current
liability, and non-cash preferred stock dividend requirements. These pro
forma non-cash charges totaled $50,810 for the three months ended March 31,
1996 and $264,109 for the year ended December 31, 1995.
(8) The Company's pro forma earnings would have been inadequate to cover pro
forma fixed charges and pro forma fixed charges plus preferred stock
dividends by $20,194 and $32,038, respectively,
P-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA--(CONTINUED)
(DOLLARS IN THOUSANDS)
for the three months ended March 31, 1996 and by $108,445 and $154,732,
respectively, for the year ended December 31, 1995. Adjusted to eliminate
the non-cash charges in Note 7 above, such pro forma earnings would have
exceeded pro forma fixed charges and pro forma fixed charges plus preferred
stock cash dividend requirements by $26,647 and $18,772, respectively, for
the three months ended March 31, 1996 and by $140,877 and $109,377,
respectively, for the year ended December 31, 1995.
(9) Pro forma loss per common and common equivalent share for the year ended
December 31, 1995 was computed using the weighted average number of Common
Stock shares outstanding during the year assuming that the issuance of the
17,250,000 shares of Common Stock in the Initial Public Offering occurred on
January 1, 1995. The weighted average number of Common Stock shares
outstanding during 1995 (for the quarters prior to the initial filing of the
registration statement for the Initial Public Offering) includes incremental
shares for the Common Stock issued and non-qualified options granted to
purchase Common Stock which were issued within one year prior to the initial
filing of the registration statement for an Initial Public Offering in
September 1995, at a purchase price below $10.00 per share (the "Incremental
Shares"). Such Incremental Shares were determined utilizing the treasury
stock method. The effect of the assumed exercise of stock options which were
issued in periods prior to the one-year period previously mentioned is not
included because the effect is antidilutive. Pro forma loss per common share
assuming full dilution is not presented because such calculation is
antidilutive.
P-5
<PAGE>
THE BANK OF NEW YORK
AS EXCHANGE AGENT FOR THE NOTES
<TABLE>
<CAPTION>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
<S> <C> <C>
Reorganization Section (212) 571-3080 Reorganization Section
101 Barclay Street--7 East Confirm by Telephone: 101 Barclay Street--7 East
New York, NY 10286 (212) 815-2742 New York, NY 10286
Attention: Henry Lopez Attention: Henry Lopez
</TABLE>
AS EXCHANGE AGENT FOR THE PREFERRED STOCK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange (For Eligible Institutions Tender & Exchange
Department Only) Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Confirm Facsimile by Telephone: Receive and Deliver Window
New York, NY 10286-1248 (For Confirmation Only) New York, NY 10286
(800) 507-9357
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
K-III is a Delaware Corporation. Reference is made to Section 102(b)(7) of
the Delaware General Corporation Law (the "DGCL"), which enables a corporation
in its original certificate of incorporation or an amendment thereto to
eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference also is made to Section 145 of the DGCL, which provides that a
corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorney's fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer, director, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interest and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred.
Article 8 of the Certificate of Incorporation of K-III provides that except
as provided under the DGCL, directors of K-III shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duties as a director. Article 4 of the By-laws of K-III provides for
indemnification of the officers and directors of K-III to the full extent
permitted by applicable law and provides for the advancement of expenses.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S> <C>
4.1 -- Note Indenture (including form of note and form of guarantee).
4.2 -- Form of 10% Subordinated Debenture Indenture (including form of note).
4.3 -- Form of Certificate of Designations for the New Preferred Stock.
5 -- Opinion of Simpson Thacher & Bartlett regarding the legality of the securities
being registered.
8 -- Opinion of Simpson Thacher & Bartlett regarding the material United States Federal
income tax consequences to holders of the securities being registered.
12 -- Statement regarding computation of ratio of earnings to fixed charges.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Simpson Thacher & Bartlett (included in their opinion filed as Exhibit
5).
24 -- Powers of Attorney (included on signature pages hereto).
25.1 -- Form T-1, Statement of Eligibility and Qualification under the Trust Indenture Act
of 1939, of The Bank of New York, as Trustee for the Notes.
25.2 -- Form T-1, Statement of Eligibility and Qualification under the Trust Indenture Act
of 1939, of The Bank of New York, as Trustee for the 10% Subordinated Debentures.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S> <C>
99.1 -- Forms of Letters of Transmittal and related documents to be used in connection with
the
Exchange Offers.
99.2 -- Forms of Notices of Guaranteed Delivery.
99.3 -- Form of Exchange Agent Agreement between The Bank of New York and K-III.
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales of the
registered securities 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; and
(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.
That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement 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 the the initial bona fide offering
thereof.
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.
To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
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-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on May 14, 1996.
K-III COMMUNICATIONS CORPORATION
By /s/ CHARLES G. MCCURDY
...................................
(Charles G. McCurdy)
President
Argus Publishers Corporation K-III Directory Corporation
Bacon's Information, Inc. K-III Holdings Corporation III
Channel One Communications K-III HPC, Inc.
Corporation K-III KG Corporation--Massachusetts
Daily Racing Form, Inc. K-III KG Corporation--New York I
DRF Finance, Inc. K-III KG Corporation--New York II
The Electronics Source Book, Inc. K-III Magazine Corporation
Funk & Wagnalls Yearbook Corp. K-III Magazine Finance Corporation
Haas Publishing Companies, Inc. K-III Prime Corporation
Intermodal Publishing Company, K-III Reference Corporation
Ltd. Krames Communications Incorporated
Intertec Market Reports, Inc. Lifetime Learning Systems, Inc.
Intertec Presentations, Inc. McMullen Argus Publishing, Inc.
Intertec Publishing Corporation MH West, Inc.
The Katharine Gibbs Schools, Inc. Musical America Publishing, Inc.
The Katharine Gibbs Schools of Nelson Publications, Inc.
Montclair, Inc. Newbridge Communications, Inc.
The Katharine Gibbs Schools of Paramount Publishing, Inc.
Norwalk, Inc. PJS Publications, Inc.
The Katharine Gibbs Schools of R.E.R. Publishing Corporation
Piscataway, Inc. Stagebill, Inc.
The Katharine Gibbs Schools of Symbol of Excellence Publishers,
Providence, Inc. Inc.
Weekly Reader Corporation
By /s/ BEVERLY C. CHELL
...................................
(Beverly C. Chell)
Secretary
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Beverly C. Chell and Charles G. McCurdy, and each
of them, as his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 14, 1996.
SIGNATURES TITLE
- --------------------------------------- -----------------------------
/s/ WILLIAM F. REILLY Principal Executive Officer
....................................... and
(William F. Reilly) Director
/s/ CHARLES G. MCCURDY Principal Financial Officer
....................................... and
(Charles G. McCurdy) Director
/s/ BEVERLY C. CHELL Director
.......................................
(Beverly C. Chell)
/s/ CURTIS A. THOMPSON Principal Accounting Officer
.......................................
(Curtis A. Thompson)
....................................... Director
(Henry R. Kravis)
....................................... Director
(George R. Roberts)
....................................... Director
(Michael T. Tokarz)
/s/ PERRY GOLKIN Director
.......................................
(Perry Golkin)
II-4
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
INDEX DESCRIPTION
------- -----------
<TABLE>
<S> <C>
4.1 -- Note Indenture (including form of note and form of guarantee).
4.2 -- Form of 10% Subordinated Debenture Indenture (including form of note).
4.3 -- Form of Certificate of Designations for the New Preferred Stock.
5 -- Opinion of Simpson Thacher & Bartlett regarding the legality of the securities
being registered.
8 -- Opinion of Simpson Thacher & Bartlett regarding the material United States Federal
income tax consequences to holders of the securities being registered.
12 -- Statement regarding computation of ratio of earnings to fixed charges.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Simpson Thacher & Bartlett (included in their opinion filed as Exhibit
5).
24 -- Powers of Attorney (included on signature pages hereto).
25.1 -- Form T-1, Statement of Eligibility and Qualification under the Trust Indenture Act
of 1939, of The Bank of New York, as Trustee for the Notes.
25.2 -- Form T-1, Statement of Eligibility and Qualification under the Trust Indenture Act
of 1939, of The Bank of New York, as Trustee for the 10% Subordinated Debentures.
99.1 -- Forms of Letters of Transmittal and related documents to be used in connection with
the
Exchange Offers.
99.2 -- Forms of Notices of Guaranteed Delivery.
99.3 -- Form of Exchange Agent Agreement between The Bank of New York and K-III.
</TABLE>
EXHIBIT 4.1
EXECUTION COPY
- ------------------------------------------------------------------------------
K-III COMMUNICATIONS CORPORATION
$300,000,000
8 1/2% Senior Notes due 2006
Series A and Series B
_____________
INDENTURE
Dated as of January 24, 1996
_____________
THE BANK OF NEW YORK
Trustee
- ------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
- ----------- -----------------
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . 7.08; 7.10;
. . . . . . . . . . . . . . . . . . . . . . . 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . 7.06;11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . 4.03;11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . 7.01(2)
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.05;11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . 7.01(1)
(d) . . . . . . . . . . . . . . . . . . . . . . . . 7.01(3)
(e) . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . 9.04
<PAGE>
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Other Definitions . . . . . . . . . . . . . . . . . 14
Section 1.03 Incorporation by Reference of Trust Indenture
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.04 Rules of Construction . . . . . . . . . . . . . . . 15
ARTICLE 2
THE SECURITIES
Section 2.01 Form and Dating . . . . . . . . . . . . . . . . . . 15
Section 2.02 Execution and Authentication . . . . . . . . . . . 16
Section 2.03 Registrar and Paying Agent . . . . . . . . . . . . 16
Section 2.04 Paying Agent to Hold Money in Trust . . . . . . . . 17
Section 2.05 Holder Lists . . . . . . . . . . . . . . . . . . . 17
Section 2.06 Transfer and Exchange . . . . . . . . . . . . . . . 17
Section 2.07 Replacement Securities . . . . . . . . . . . . . . 20
Section 2.08 Outstanding Securities . . . . . . . . . . . . . . 21
Section 2.09 Treasury Securities . . . . . . . . . . . . . . . . 21
Section 2.10 Temporary Securities . . . . . . . . . . . . . . . 21
Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . 22
Section 2.12 Defaulted Interest . . . . . . . . . . . . . . . . 22
ARTICLE 3
OPTIONAL REDEMPTION AND
OPTIONAL REDEMPTION UPON CHANGE OF CONTROL
Section 3.01 Notices to Trustee . . . . . . . . . . . . . . . . 22
Section 3.02 Selection of Securities to Be Redeemed . . . . . . 23
Section 3.03 Notices to Holders . . . . . . . . . . . . . . . . 23
Section 3.04 Effect of Notice of Redemption . . . . . . . . . . 24
Section 3.05 Deposit of Redemption Price or Purchase Price . . . 24
Section 3.06 Securities Redeemed in Part . . . . . . . . . . . . 25
Section 3.07 Optional Redemption . . . . . . . . . . . . . . . . 25
Section 3.08 Optional Redemption Upon Change of Control . . . . 25
Section 3.09 Sinking Fund . . . . . . . . . . . . . . . . . . . 26
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ARTICLE 4
COVENANTS
Section 4.01 Payment of Securities . . . . . . . . . . . . . . . 26
Section 4.02 Maintenance of Office or Agency . . . . . . . . . . 26
Section 4.03 SEC Reports; Financial Statements . . . . . . . . . 27
Section 4.04 Compliance Certificate . . . . . . . . . . . . . . 28
Section 4.05 Compliance With Laws, Taxes . . . . . . . . . . . . 28
Section 4.06 Stay, Extension and Usury Laws . . . . . . . . . . 29
Section 4.07 Limitations on Restricted Payments . . . . . . . . 29
Section 4.08 Dividends and Payment Restrictions Affecting
Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . 32
Section 4.09 Incurrence of Indebtedness . . . . . . . . . . . . 33
Section 4.10 Change of Control . . . . . . . . . . . . . . . . . 35
Section 4.11 Limitations on Asset Sales . . . . . . . . . . . . 36
Section 4.12 Transactions With Affiliates . . . . . . . . . . . 38
Section 4.13 Limitations on Liens . . . . . . . . . . . . . . . 39
Section 4.14 Investments in Unrestricted Subsidiaries . . . . . 39
Section 4.15 Payments for Consent . . . . . . . . . . . . . . . 40
Section 4.16 Corporate Existence. . . . . . . . . . . . . . . . 40
Section 4.17 Subsidiary Ownership. . . . . . . . . . . . . . . . 41
Section 4.18 Rule 144A Information Requirement. . . . . . . . . 41
ARTICLE 5
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of Assets . . . . . 41
Section 5.02 Successor Corporation Substituted . . . . . . . . . 42
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default . . . . . . . . . . . . . . . . . 42
Section 6.02 Acceleration . . . . . . . . . . . . . . . . . . . 44
Section 6.03 Other Remedies . . . . . . . . . . . . . . . . . . 45
Section 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . 45
Section 6.05 Control by Majority . . . . . . . . . . . . . . . . 45
Section 6.06 Limitations on Suits . . . . . . . . . . . . . . . 46
Section 6.07 Rights of Holders to Receive Payment . . . . . . . 46
Section 6.08 Collection Suit by Trustee . . . . . . . . . . . . 46
Section 6.09 Trustee May File Proofs of Claim . . . . . . . . . 47
Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . 47
Section 6.11 Undertaking for Costs . . . . . . . . . . . . . . . 47
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ARTICLE 7
TRUSTEE
Section 7.01 Duties of Trustee . . . . . . . . . . . . . . . . . 48
Section 7.02 Rights of Trustee . . . . . . . . . . . . . . . . . 49
Section 7.03 Individual Rights of Trustee . . . . . . . . . . . 49
Section 7.04 Trustee's Disclaimer . . . . . . . . . . . . . . . 50
Section 7.05 Notice of Defaults . . . . . . . . . . . . . . . . 50
Section 7.06 Reports by Trustee to Holders . . . . . . . . . . . 50
Section 7.07 Compensation and Indemnity . . . . . . . . . . . . 50
Section 7.08 Replacement of Trustee . . . . . . . . . . . . . . 51
Section 7.09 Successor Trustee by Merger, etc . . . . . . . . . 52
Section 7.10 Eligibility; Disqualification . . . . . . . . . . . 52
Section 7.11 Preferential Collection of Claims Against
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01 Termination of Company's and Guarantors'
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.02 Application of Trust Money . . . . . . . . . . . . 54
Section 8.03 Repayment to Company . . . . . . . . . . . . . . . 54
Section 8.04 Reinstatement . . . . . . . . . . . . . . . . . . . 54
ARTICLE 9
AMENDMENTS
Section 9.01 Without Consent of Holders . . . . . . . . . . . . 55
Section 9.02 With Consent of Holders . . . . . . . . . . . . . . 56
Section 9.03 Compliance with Trust Indenture Act . . . . . . . . 57
Section 9.04 Revocation and Effect of Consents . . . . . . . . . 57
Section 9.05 Notation on or Exchange of Securities . . . . . . . 58
Section 9.06 Trustee to Sign Amendments, etc. . . . . . . . . . 58
ARTICLE 10
GUARANTEE
Section 10.01 Subsidiary Guarantee . . . . . . . . . . . . . . . 58
Section 10.02 Execution and Delivery of Guarantee . . . . . . . 60
Section 10.03 Guarantors May Consolidate, etc., on Certain
Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.04 Releases Following Sale of Assets . . . . . . . . 61
Section 10.05 "Trustee" to Include Paying Agent . . . . . . . . 61
Section 10.06 Additional Subsidiary Guarantees . . . . . . . . . 62
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ARTICLE 11
MISCELLANEOUS
Section 11.01 Trust Indenture Act Controls . . . . . . . . . . . 62
Section 11.02 Notices . . . . . . . . . . . . . . . . . . . . . 62
Section 11.03 Communication by Holders with Other Holders . . . 63
Section 11.04 Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.05 Statements Required in Certificate or
Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.06 Rules by Trustee and Agents . . . . . . . . . . . 64
Section 11.07 Legal Holidays . . . . . . . . . . . . . . . . . . 64
Section 11.08 No Recourse Against Others . . . . . . . . . . . . 65
Section 11.09 Governing Law . . . . . . . . . . . . . . . . . . 65
Section 11.10 No Adverse Interpretation of Other
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.11 Successors . . . . . . . . . . . . . . . . . . . . 65
Section 11.12 Severability . . . . . . . . . . . . . . . . . . . 65
Section 11.13 Counterpart Originals . . . . . . . . . . . . . . 65
Section 11.14 Trustee as Paying Agent and Registrar . . . . . . 65
Section 11.15 Table of Contents, Headings, etc. . . . . . . . . 66
Section 11.16 Bank of New York Not Acting in Individual
Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.17 Additional Rights of Holders of Transfer
Restricted Securities . . . . . . . . . . . . . . . . . . . . 66
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67, 68, 69
EXHIBIT A FORM OF SECURITY . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT A-1 FORM OF GUARANTEE . . . . . . . . . . . . . . . . . . . . . A-1-1
EXHIBIT B FROM OF CERTIFICATE TO BE DELIVERED UPON
EXCHANGE OR REGISTRATION OF TRANSFER OF
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . B
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INDENTURE dated as of January 24, 1996, among K-III Communications
Corporation, a Delaware corporation, the corporations listed on Schedule I
hereto (each a "Guarantor" and collectively, the "Guarantors") and The Bank of
New York, a New York banking corporation, as Trustee.
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders (as defined below) of
8 1/2% Senior Notes due 2006 (the "Series A Notes") and the 8 1/2% Senior Notes
due 2006 to be issued in exchange for the Series A Notes (the "Series B Notes"
and, together with the Series A Notes, the "Securities") issued by the Company
(as defined below):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01 DEFINITIONS
"Adjusted Consolidated Net Income" means, with respect to any
Person for any period, (i) the Consolidated Net Income of such Person for such
period, plus (ii) in the case of the Company and its Restricted Subsidiaries,
all cash received during such period by the Company or any Restricted Subsidiary
from its Unrestricted Subsidiaries from the payment of dividends or
distributions (including tax sharing payments and loans or advances which are
junior in right of payment to the Securities and have a longer Average Life than
the Securities), but only to the extent such cash payments are not otherwise
included in "Adjusted Consolidated Net Income." Each item of Adjusted
Consolidated Net Income will be determined in conformity with GAAP, except that,
for purposes of the application of Accounting Principles Board Opinions Nos. 16
and 17, such Person may select any amortization practice allowable by GAAP up to
40 years, notwithstanding the use of a different amortization in such Person's
consolidated financial statements. Any designation of a Subsidiary of the
Company as a Restricted Subsidiary or Unrestricted Subsidiary at or prior to the
time of the calculation of Adjusted Consolidated Net Income of a Subsidiary will
be treated as if it had occurred at the beginning of the applicable period.
"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. A Person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another Person if the controlling Person
possesses, directly or indirectly the power to direct or cause the direction of
the management or policies, of the controlled person, whether through ownership
of voting securities, by agreement or otherwise.
"Agent" means any Registrar or Paying Agent.
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"Applicable Premium" with respect to any Security being redeemed
pursuant to Section 3.08 shall equal the greater of (i) 1.0% of the then
outstanding principal amount of such Security and (ii) the excess of (A) the
present value of the required interest and principal payments due on such
Security, computed using a discount rate equal to the Treasury Rate plus the
Applicable Spread, over (B) the then outstanding principal amount of such
Security.
"Applicable Spread" means one half of one percent.
"Asset Sale" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by the referent Person of any of its
assets (including by way of a sale-and-leaseback and including the sale or other
transfer of any of the Capital Stock of any Subsidiary of the referent Person);
provided, that notwithstanding the foregoing, the term "Asset Sale" shall not
include the sale, lease, conveyance, disposition or other transfer of (i) with
respect to an Unrestricted Subsidiary, (A) any assets not constituting all or
substantially all of the assets of any Net Cash Flow Unrestricted Subsidiary and
(B) any Capital Stock or any assets of any Restricted Payment Unrestricted
Subsidiary, (ii) all or substantially all of the assets of the Company, as
permitted pursuant to Section 5.01 hereof, (iii) any assets between the Company,
any Restricted Subsidiary or any Unrestricted Subsidiary, (iv) any sale,
conveyance, disposition or other transfer of (A) cash and cash equivalents,
(B) inventory in the ordinary course of business and (C) any other tangible or
intangible asset, in each case in the ordinary course of business, of the
Company or its Restricted Subsidiaries, or (v) the sale or discount, in each
case without recourse, of accounts receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof.
"Average Life" means, as of the date of determination, with respect
to any debt security, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment (assuming the exercise by the
obligor of such debt security of all unconditional (other than as to the giving
of notice) extension options of each such scheduled payment date) of such debt
security multiplied by the amount of such principal payment by (ii) the sum of
all such principal payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors of the Company.
"BONY Credit Agreement" means that certain credit agreement entered
into by and among the Company, certain financial institutions parties thereto,
and The Bank of New York, as agent, providing for a $150 million term loan
facility, as amended, modified, renewed, refunded or refinanced from time to
time, as permitted in clause (i) of the second paragraph of Section 4.09.
"Business Day" means any day other than a Legal Holiday.
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"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
which would at such time be so required to be capitalized on the balance sheet
in accordance with GAAP.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other
than KKR and its Affiliates, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than (A) 35 percent (35%) of the total
voting power of the then outstanding voting stock of the Company and (B) the
total voting power of the then outstanding voting stock of the Company
beneficially owned by KKR and its Affiliates or (ii) during any period of two
consecutive calendar years, individuals who at the beginning of such period
constituted the Company's Board of Directors (together with any new directors
whose election by the Company's Board of Directors or whose nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds of the Directors then still in office who either were 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
directors then in office.
"Chase Credit Agreement" means that certain credit agreement
entered into by and among the Company, certain financial institutions parties
thereto, and The Chase Manhattan Bank, N.A., as agent, providing for a $150
million term loan facility, as amended, modified, renewed, refunded or
refinanced from time to time, as permitted in clause (i) of the second paragraph
of Section 4.09.
"Class C Subordinated Debentures" means the 10% Class C
Subordinated Exchange Debentures due 2008 of the Company issuable in exchange
for the Series C Preferred Stock.
"Class D Subordinated Debentures" means the 10% Class D
Subordinated Exchange Debentures due 2008 of the Company issuable in exchange
for the Series D Preferred Stock or, in connection with a Registered Exchange
Offer for the Class C Subordinated Debentures and containing terms identical to
the Class C Subordinated Debentures (except that if issued in connection with a
Registered Exchange Offer, interest thereon shall accrue from the Exchange Offer
Consummation Date and except that such securities shall bear no legend and shall
be free from restrictions on transfer).
"Class C Subordinated Debenture Indenture" means the indenture
between the Company and the Subordinated Debenture Trustee referred to therein
pursuant to which the Class C Subordinated Debentures are issued.
"Class D Subordinated Debenture Indenture" means the indenture
between the Company and the Subordinated Debenture Trustee referred to therein
pursuant to which the Class D Subordinated Debentures are issued.
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"Common Stock" means the common stock, par value $0.01 per share,
of the Company.
"Company" means (i) K-III Communications Corporation, a Delaware
corporation, and (ii) any successor of K-III Communications Corporation pursuant
to Article 5 hereof.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Adjusted Consolidated Net Income of such Person for such period plus
(a) provision for taxes based on income or profits to the extent such provision
for taxes was included in computing Adjusted Consolidated Net Income, plus
(b) consolidated Interest Expense, whether paid or accrued, to the extent such
expense was deducted in computing Adjusted Consolidated Net Income (including
amortization of original issue discount and non-cash interest payments), plus
(c) depreciation, amortization and other non-cash charges to the extent such
depreciation, amortization and other non-cash charges were deducted in computing
Adjusted Consolidated Net Income (including amortization of goodwill and other
intangibles); provided, with respect to the calculation of any Person's Debt to
Consolidated Cash Flow Ratio, that if, during such period, (i) such Person or
any of its Subsidiaries shall have made any Asset Sales (other than, in the case
of the Company and its Restricted Subsidiaries, sales of the Capital Stock of or
any assets of Unrestricted Subsidiaries which constitute Asset Sales),
Consolidated Cash Flow of such Person for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive), to the extent such
Consolidated Cash Flow was included in computing Consolidated Cash Flow,
directly attributable to the assets or Capital Stock which are the subject of
such Asset Sales for such period or increased by an amount equal to the
Consolidated Cash Flow (if negative), to the extent such Consolidated Cash Flow
was included in computing Consolidated Cash Flow, directly attributable thereto
for such period and (ii) such Person or any of its Subsidiaries (other than in
the case of the Company and its Restricted Subsidiaries, Unrestricted
Subsidiaries) has made any acquisition of assets or Capital Stock (occurring by
merger or otherwise), including, without limitation, any acquisition of assets
or Capital Stock occurring in connection with a transaction causing a
calculation to be made hereunder, Consolidated Cash Flow of such Person shall be
calculated (notwithstanding clause (ii) of the definition of Consolidated Net
Income) as if such acquisition of assets or Capital Stock (including the
incurrence of any Indebtedness in connection with any such acquisition and the
application of the proceeds thereof) took place on the first day of such period.
Consolidated Cash Flow of such Person and its Subsidiaries shall be determined
for any period without regard to changes in Working Capital of such Person and
its Subsidiaries during such period.
"Consolidated Fixed Charges" means, with respect to any Person for
any period, the (a) consolidated Interest Expense, whether paid or accrued, to
the extent such expense was deducted in computing Adjusted Consolidated Net
Income (including amortization of original issue discount and non-cash interest
payments) and (b) the amount of all cash dividend payments on all series of
preferred stock other than cash dividends on preferred stock of Unrestricted
Subsidiaries and cash dividends paid to such Person or its Subsidiaries;
provided that if, during such period, (i) such Person or any of its Subsidiaries
shall have made any Asset Sales (other than in the case of the Company and its
Restricted Subsidiaries, sales of the Capital Stock of or any assets of
Unrestricted Subsidiaries which constitute asset sales), Consolidated Fixed
4
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Charges of such Person for such period shall be reduced by an amount equal to
the Consolidated Fixed Charges directly attributable to the assets which are the
subject of such Asset Sales for such period and (ii) such Person or any of its
Subsidiaries (other than in the case of the Company and its Restricted
Subsidiaries, Unrestricted Subsidiaries) has made any acquisition of assets or
Capital Stock (occurring by merger or otherwise), including, without limitation,
any acquisition of assets or Capital Stock occurring in connection with the
transaction causing a calculation to be made hereunder, Consolidated Fixed
Charges of such Person shall be calculated as if such acquisition of assets or
Capital Stock (including the incurrence of any Indebtedness in connection with
any such acquisition and the application of the proceeds thereof) took place on
the first day of such period.
"Consolidated Net Cash Flow" means, with respect to any Person for
any period, the aggregate Consolidated Cash Flow of such Person for such period,
minus (a) capital expenditures of such Person and its Subsidiaries (other than,
in the case of the Company and its Restricted Subsidiaries, Unrestricted
Subsidiaries), minus (b) the aggregate amount of all cash dividends paid by such
Person and its Subsidiaries (other than, in the case of the Company and its
Restricted Subsidiaries, Unrestricted Subsidiaries) to holders of its Capital
Stock other than to such Person or its Subsidiaries, minus (c) the aggregate
amount of all taxes based on income or profits paid by such Person and its
Subsidiaries (other than, in the case of the Company and its Restricted
Subsidiaries, Unrestricted Subsidiaries) other than to such Person or its
Subsidiaries, minus (d) cash Interest Expense of such Person and its
Subsidiaries (other than, in the case of the Company and its Restricted
Subsidiaries, Unrestricted Subsidiaries), minus (e) repayments of principal of
Indebtedness by such Person and its Subsidiaries (other than, in the case of the
Company and its Restricted Subsidiaries, Unrestricted Subsidiaries), minus
(f) any increases in Working Capital of such Person and its Subsidiaries (other
than, in the case of the Company and its Restricted Subsidiaries, Unrestricted
Subsidiaries), and plus (g) any decreases in Working Capital of such Person and
its Subsidiaries (other than, in the case of the Company and its Restricted
Subsidiaries, Unrestricted Subsidiaries), in each case, for such period and
determined in accordance with GAAP; provided that in calculating the amount
referred to in clause (f) or (g) above, as the case may be, for any period
during which the Company or any of its Restricted Subsidiaries has consummated
an Asset Sale (other than, in the case of the Company and its Restricted
Subsidiaries, sales of Capital Stock of, cash or any assets of Unrestricted
Subsidiaries which constitute Asset Sales), the portion of the change in Working
Capital for such period attributable to the entity or business sold or purchased
shall be based (x) in the case of such an Asset Sale, on the change in Working
Capital attributable to the entity or business sold from the first day of such
period to the date of the consummation of such sale and (y) in the case of an
acquisition, on the change in Working Capital attributable to the entity or
business acquired from the date of consummation of such acquisition to the last
day of such period.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate net income (or loss) of such Person and its Subsidiaries
(other than, in the case of the Company and its Restricted Subsidiaries,
Unrestricted Subsidiaries) for such period, on a consolidated basis, determined
in accordance with GAAP, provided that (i) the net income (or loss) of any
Person which is not a Subsidiary or is accounted for by the equity method of
accounting shall be included only to the extent of the amount of cash dividends
or distributions (including tax sharing payments and loans or advances which are
junior in right of payment to
5
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the Securities and have a longer Average Life than the Securities) paid to the
referent Person or a Subsidiary of the referent Person, (ii) except to the
extent includable pursuant to the foregoing clause (i), the income (or loss) of
any Person accrued prior to the date it becomes a Subsidiary of such Person or
is merged into or consolidated with such Person or any of its Subsidiaries or
that Person's assets are acquired by such Person or any of its Subsidiaries
shall be excluded, and (iii) any gains or losses attributable to Asset Sales net
of related tax costs or tax benefits, as the case may be, shall be excluded.
"Consolidated Net Worth" means, for purposes of this Indenture, at
any date of determination, the sum of the Capital Stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of the referent
Person and its Subsidiaries on a consolidated basis, less amounts attributable
to Redeemable Stock, each item to be determined in conformity with GAAP
(excluding the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 52),
except that all effects of the application of Accounting Principles Board
Opinions Nos. 16 and 17 and related interpretations shall be disregarded.
"Corporate Trust Office" means the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is located
at 101 Barclay Street, New York, New York 10286, Attention: Corporate Trust and
Agency Group.
"Credit Agreements" means, collectively, the Chase Credit
Agreement, the BONY Credit Agreement, the Revolving Credit Agreement and the New
Chase Facility, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, in each case as
amended, modified, renewed, refunded or refinanced from time to time, as
permitted in clause (i) of the second paragraph of Section 4.09 hereof.
"Currency Agreement" means the obligations of any Person pursuant
to any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect such Person or any of its
subsidiaries against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Debt to Consolidated Cash Flow Ratio" means the ratio of all
Indebtedness of the Company and its Restricted Subsidiaries to Consolidated Cash
Flow.
"Default" means any event, act or condition that is, or after
notice or the passage of time or both would be, an Event of Default.
"Equity Interests" means Capital Stock, warrants, options or other
rights to acquire Capital Stock (but excluding any debt security which is
convertible into, or exchangeable for, Capital Stock).
6
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Debentures" means the 11 1/2% Subordinated Debentures due
2004 of the Company issuable upon exchange of the Senior Preferred Stock.
"Exchange Offer" means the offer which may be made by the Company
pursuant to the Registration Rights Agreement to exchange Series A Notes for the
Series B Notes and Series C Preferred Stock for Series D Preferred Stock.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than the Credit Agreements and the Outstanding Notes) in
existence on the date of this Indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means the ratio of Consolidated Cash
Flow to Consolidated Fixed Charges.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of this Indenture.
"Guarantee" means, individually and collectively, the guarantees
given by the Guarantors pursuant to Article 10 hereof, including a notation in
the Securities substantially in the form attached hereto as Exhibit A-1.
"Guarantor" means any Subsidiary (or successor of such Subsidiary)
of the Company which executes a Guarantee.
"Holder" means a Person in whose name a Security is registered.
"Indebtedness" of any Person means any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement obligations with respect thereto) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to financing leases), if and to the extent any of
the foregoing indebtedness would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP (except that any such balance that
constitutes a trade payable and/or an accrued liability arising in the ordinary
course of business shall not be considered Indebtedness), and shall also
include, to the extent not otherwise included, any Capital Lease Obligations,
the maximum fixed repurchase price of any Redeemable Stock, indebtedness secured
by a Lien to which the property or assets owned or held by such Person is
subject, whether or not the obligations secured thereby shall have been assumed,
guarantees of items that would be included within this definition to the extent
of such
7
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guarantees (exclusive of whether such items would appear upon such balance
sheet), and net liabilities in respect of Currency Agreements and Interest Rate
Agreements. For purposes of the preceding sentence, the maximum fixed
repurchase price of any Redeemable Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable Stock
as if such Redeemable Stock were repurchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, provided that if
such Redeemable Stock is not then permitted to be repurchased, the repurchase
price shall be the book value of such Redeemable Stock. The amount of
Indebtedness of any Person at any date shall be without duplication (i) the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability of any such contingent obligations at such date
and (ii) in the case of Indebtedness of others secured by a Lien to which the
property or assets owned or held by such Person is subject, the lesser of the
fair market value at such date of any asset subject to a Lien securing the
Indebtedness of others and the amount of the Indebtedness secured. For the
purpose of determining the aggregate Indebtedness of the Company and its
Restricted Subsidiaries, such Indebtedness shall exclude the Indebtedness of any
Unrestricted Subsidiary of the Company or any Unrestricted Subsidiary of a
Restricted Subsidiary.
"Indenture" means this Indenture as amended from time to time.
"Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest in respect of Indebtedness (including
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and the net cost (benefit)
associated with Interest Rate Agreements, and excluding amortization of deferred
finance fees and interest recorded as accretion in the carrying value of
liabilities (other than Indebtedness) recorded at a discounted value) and all
but the principal component of rentals in respect of Capital Lease Obligations,
paid, accrued or scheduled to be paid or accrued by such Person during such
period.
"Interest Payment Date" has the meaning assigned to such term in
the Securities.
"Interest Rate Agreements" means the obligations of any Person
pursuant to any interest rate swap agreement, interest rate collar agreement or
other similar agreement or arrangement designed to protect such Person or any of
its subsidiaries against fluctuations in interest rates.
"Investment" means any direct or indirect advance, loan (other than
advances to customers in the ordinary course of business, which are recorded as
accounts receivable on the balance sheet of any Person or its Subsidiaries) or
other extension of credit 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,
bonds, notes, debentures or other securities issued by any other Person. For
the purposes of Sections 4.07 and 4.14 hereof, (i) "Investment" shall include
and be valued at the fair market value of the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued
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at fair market value at the time of such transfer, in each case as determined by
the Board of Directors of the Company in good faith.
"KKR" means Kohlberg Kravis Roberts & Co., L.P.
"Lien" means any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give any security interest in and any filing or other
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Liquidated Damages" means, with respect to any Securities, all
unpaid liquidated damages owing by the Company pursuant to Section 5 of the
Registration Rights Agreement for such Securities.
"Net Cash Flow Unrestricted Subsidiary" means an Unrestricted
Subsidiary which is not a Restricted Payment Unrestricted Subsidiary.
"Net Proceeds" means, with respect to any Asset Sale, the aggregate
cash proceeds (including any cash received by way of deferred payment pursuant
to a note receivable issued in connection with such Asset Sale, other than the
portion of such deferred payment constituting interest, and including any
amounts received as disbursement or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by the Company or any of its
Subsidiaries in respect of such Asset Sale, net of (i) the cash expenses of such
sale (including, without limitation, the payment of principal, premium, if any,
and interest on Indebtedness required to be paid as a result of such Asset Sale
(other than the Securities and amounts repaid pursuant to the Credit Agreements
and the Outstanding Notes) and legal, accounting and investment banking fees and
sales commissions), (ii) taxes paid or payable as a result thereof, (iii) any
portion of cash proceeds which the Company determines in good faith should be
reserved for post-closing adjustments, it being understood and agreed that on
the day that all such post-closing adjustments have been determined, the amount
(if any) by which the reserved amount in respect of such Asset Sale exceeds the
actual post-closing adjustments payable by the Company or any of its
Subsidiaries shall constitute Net Proceeds on such date and (iv) any relocation
expenses and pension, severance and shutdown costs incurred as a result thereof.
"New Chase Facility" means that certain revolving credit facility
entered into by and among the Company, certain financial institutions parties
thereto, and The Chase Manhattan Bank, N.A., as agent, providing for a $100
million revolving credit facility, as amended, modified, renewed, refunded or
refinanced from time to time, as permitted in clause (i) of the second paragraph
of Section 4.09.
"Non-Compete Notes" means $50 million in principal amount of
promissory notes issuable semi-annually commencing December 17, 1991 in
connection with a Non-Competition Agreement, dated as of June 17, 1991 executed
and delivered by News America Holdings
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Incorporated, as such promissory notes may be amended, supplemented or modified
in accordance with the terms hereof and thereof; provided that no amendment,
supplement or modification thereto shall (i) increase the principal amount
thereof, (ii) increase the rate or advance the time for payment of interest or
(iii) advance the fixed maturity date or the time for payment of any installment
of principal thereunder.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers" means the President, the Treasurer, any Assistant
Treasurer, Controller, Secretary or any Vice President of the Company or any
Guarantor, as applicable.
"Officers' Certificate" means a certificate signed by two Officers,
one of whom must be the Company's chief executive officer, chief financial
officer or controller financial accounting.
"Opinion of Counsel" means a written opinion prepared in accordance
with Section 11.05 hereof and acceptable in form and substance to the Trustee,
from legal counsel who is acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or any Guarantor, if applicable, or the
Trustee.
"Outstanding Notes" means the 10 5/8% Senior Notes due 2002 and the
10 1/4% Senior Notes due 2004, as each may be amended, supplemented or otherwise
modified from time to time.
"Outstanding Note Indentures" means the Indenture, dated as of May
13, 1992, among the Company, the Guarantors and The Bank of New York, as
trustee, relating to the 10 5/8% Senior Notes due 2002, and the Indenture, dated
as of May 31, 1994, among the Company, the Guarantors and Bankers Trust Company,
as trustee, relating to the 10 1/4% Senior Notes due 2004, as each may be
amended, supplemented or otherwise modified from time to time.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (ii) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's,
or other like Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
proceedings, if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return-of-money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material
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respect with the business of the Company or any of its Subsidiaries incurred in
the ordinary course of business; (vi) Liens (including extensions and renewals
thereof) upon real or tangible personal property acquired after the date of this
Indenture, provided that (a) any such Lien is created solely for the purpose of
securing Indebtedness representing, or incurred to finance, refinance or refund,
the cost (including the cost of construction) of the item of property subject
thereto, (b) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost, (c) such Lien does not extend to or cover any
other property other than such item of property and any improvements on such
item and (d) the incurrence of such Indebtedness is permitted by Section 4.09
hereof; (vii) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (ix) judgment and
attachment Liens not giving rise to an Event of Default; (x) leases or subleases
granted to others not interfering in any material respect with the business of
the Company or any of its Subsidiaries; (xi) Liens encumbering customary initial
deposits and margin deposits, and other Liens incurred in the ordinary course of
business and which are within the general parameters customary in the industry,
in each case securing Indebtedness under Interest Rate Agreements and Currency
Agreements; (xii) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the Company
or its Subsidiaries; (xiii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Subsidiaries in the ordinary course of business of the Company and its
Subsidiaries; (xiv) any interest or title of a lessor in the property subject to
any Capital Lease Obligation or operating lease; (xv) Liens arising from filing
Uniform Commercial Code financing statements regarding leases; (xvi) Liens
permitted by the Credit Agreements as in effect on the date of this Indenture;
(xvii) Liens securing Indebtedness described in clause (xii) of the second
paragraph of Section 4.09 hereof; (xviii) Liens between the Company and any
Restricted Subsidiary or between Restricted Subsidiaries; (xix) Liens securing
letters of credit in an amount not to exceed $50 million in the aggregate at any
one time; and (xx) Liens in an amount not to exceed $25 million in the aggregate
at any one time.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Redeemable Stock" means any Equity Interest which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable before the stated maturity of the Securities), or upon the
happening of any event, matures or is mandatorily redeemable, in whole or in
part, prior to the stated maturity of the Securities, or is, by its terms or
upon the happening of any event, redeemable at the option of the holder thereof,
in whole or in part, at any time prior to the stated maturity of the Securities
except for Equity Interests of the Company issued to present and former members
of management of the Company and its Subsidiaries pursuant to subscription and
option agreements in effect on the date hereof and common stock and options of
the Company issued to future members of management of the Company and its
Subsidiaries pursuant to subscription agreements executed subsequent to the date
hereof containing provisions for the repurchase of such common stock and options
upon death, disability or termination of employment of such persons which are
substantially identical to those contained
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in the subscription agreements in effect on the date hereof; provided that for
purposes of Section 4.07 hereof and that for purposes of the definition of
Indebtedness, Redeemable Stock does not include the Senior Preferred Stock and
the Series B Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement dated January 24, 1996, between the Initial Purchasers, the Company
and the subsidiaries of the Company listed on the signature page thereto, as
such agreement may be amended, modified or supplemented from time to time.
"Responsible Officer" means, when used with respect to the Trustee,
any officer within the Corporate Trust and Agency Group (or any successor group
thereto) of the Trustee, including any Vice President, Assistant Vice President,
Secretary, Assistant Secretary or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and, with respect to a particular matter, any other officer to whom
such matter is referred because of such officer's knowledge and familiarity with
the particular subject.
"Restricted Payment Unrestricted Subsidiary" means an Unrestricted
Subsidiary which was capitalized exclusively with a permitted Restricted Payment
or the proceeds from the issuance of an Equity Interest by the Company or with
the proceeds of the sale of stock or substantially all of the assets of any
other Unrestricted Subsidiary which was capitalized with such funds to the
extent that a liquidating dividend is paid to the Company or any Restricted
Subsidiary from the proceeds of such sale.
"Restricted Subsidiary" means, for the purposes of this Indenture,
a Subsidiary of the Company which at the time of determination is not an
Unrestricted Subsidiary. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation, the Company could incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 4.09 hereof, on a pro
forma basis taking into account such designation.
"Revolving Credit Agreement" means that certain credit agreement
entered into by and among the Company, certain financial institutions parties
thereto, and The Chase Manhattan Bank, N.A., as agent, providing for a $670
million revolving credit facility, as amended, modified, renewed, refunded or
refinanced from time to time, as permitted in clause (i) of the second paragraph
of Section 4.09.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Preferred Stock" means the Company's $2.875 Senior
Exchangeable Preferred Stock, par value $.01 per share.
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"Series B Preferred Stock" means the Company's $11.625 Series B
Exchangeable Preferred Stock, par value $.01 per share.
"Series C Preferred Stock" means the Company's $10.00 Series C
Exchangeable Preferred Stock Redeemable 2008, par value $.01 per share.
"Series D Preferred Stock" means the Company's $10.00 Series D
Exchangeable Preferred Stock Redeemable 2008 of the Company, issuable in
connection with the Exchange Offer and containing terms identical to the Series
C Preferred Stock (except that dividends thereon will accrue from the Exchange
Offer Consummation Date (as defined in the Registration Rights Agreement and
except that such securities shall bear no legend and shall be free from
restrictions or transfer).
"Subordinated Debentures" means the 11 5/8% Class B Subordinated
Exchange Debentures due 2005 of the Company issuable upon exchange of the Series
B Preferred Stock and the 10% Class C Subordinated Exchange Debentures due 2008
of the Company issuable upon exchange of the Series C Preferred Stock and the
10% Class D Subordinated Exchange Debentures due 2008 of the Company issuable in
exchange for the Series D Preferred Stock or, in connection with a Registered
Exchange Offer for the Class C Subordinated Debentures and containing terms
identical to the Class C Subordinated Debentures (except that if issued in
connection with a Registered Exchange Offer (as defined in the Registration
Rights Agreement), interest thereon shall accrue from the Exchange Offer
Consummation Date (as defined in the Registration Rights Agreement) and except
that such securities shall bear no legend and shall be free from restrictions on
transfer).
"Subsidiary" of any Person means any corporation, association or
other business entity of which more than 50% of the total voting power of shares
of Capital Stock 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 such Person or one or more
of the other Subsidiaries of such Person or a combination thereof.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
Sec.Sec. 77aaa-77bbbb).
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.06(b) hereof.
"Transfers" means (i) any payment of interest on Indebtedness,
dividends or repayments of loans or advances and (ii) any other transfers of
assets, in each case from an Unrestricted Subsidiary to the Company or any of
its Restricted Subsidiaries.
"Treasury Rate" means, for the purposes of this Indenture, the
yield to maturity at the time of computation of United States Treasury
securities with a constant maturity (as compiled by and published in the most
recent Federal Reserve Statistical Release H.15 (519) which has become publicly
available at least two Business Days prior to the date fixed for prepayment (or,
if such Statistical Release is no longer published, any publicly available
source of similar market
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data)) most nearly equal to the then remaining Average Life of the Securities;
provided that if the Average Life of the Securities is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the Average Life of the Securities is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means, for the purposes of this
Indenture, (i) any Subsidiary of the Company which at the time of determination
is an Unrestricted Subsidiary (as designated by the Board of Directors, as
provided below) and (ii) 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) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns, or holds any Lien on,
any property of, any other Subsidiary of the Company which is not a Subsidiary
of the Subsidiary to be so designated; provided that (a) the Company certifies
that such designation complies with Section 4.07 and 4.14 hereof, and (b) the
Subsidiary to be so designated has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become
directly
or indirectly liable with respect to any Indebtedness pursuant to which the
lender has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that immediately after giving effect to
such designation, the Company could incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 4.09 hereof, on a pro
forma basis taking into account such designation.
"U.S. Government Obligations" means direct noncallable obligations
of or guaranteed by the United States of America.
"Working Capital" means, with respect to any Person for any period,
the current assets of such Person and its Subsidiaries (other than, in the case
of the Company and its Restricted Subsidiaries, Unrestricted Subsidiaries) on a
consolidated basis, after excluding therefrom cash and cash equivalents and
deferred income taxes, less the current liabilities of such Person and its
Subsidiaries (other than, in the case of the Company and its Restricted
Subsidiaries, Unrestricted Subsidiaries on a consolidated basis, after excluding
therefrom, in each case to the extent otherwise included therein, all short-term
Indebtedness for borrowed money, the current portion of any long-term
Indebtedness, liabilities arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts, which will not be, and will not be deemed to be
inadvertent) drawn against insufficient funds in the ordinary course of
business, provided that such liabilities are extinguished within three Business
Days of this incurrence, and deferred income taxes of such Person and its
Subsidiaries (other than, in the case of the Company and its Restricted
Subsidiaries, Unrestricted Subsidiaries).
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SECTION 1.02 OTHER DEFINITIONS
Defined in
Term Section
---- -----------
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . 4.12
"Change of Control Offer" . . . . . . . . . . . . . . . . . 4.10
"Change of Control Payment" . . . . . . . . . . . . . . . . 4.10
"Change of Control Payment Date" . . . . . . . . . . . . . . 4.10(2)
"Event of Default" . . . . . . . . . . . . . . . . . . . . . 6.01
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . 11.07
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Refinancing Indebtedness" . . . . . . . . . . . . . . . . . 4.09
"Restricted Payments" . . . . . . . . . . . . . . . . . . . 4.07
"Retired Capital Stock" . . . . . . . . . . . . . . . . . . 4.07
"Refunding Capital Stock" . . . . . . . . . . . . . . . . . 4.07
"Successor" . . . . . . . . . . . . . . . . . . . . . . . . 5.01(i)
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities and the Guarantees.
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Securities means the Company, any other obligor
upon the Securities or any successor obligor upon the Securities or any
Guarantor.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
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SECTION 1.04 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
SECTION 2.01 FORM AND DATING
The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A to this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Security shall be dated the date of its
authentication. The Securities shall be in denominations of $1,000 and integral
multiples thereof. The Guaranty shall be substantially in the form of
Exhibit A-1, the terms of which are incorporated herein and made part of this
Indenture.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Securities issued in global form shall be substantially in the form
of Exhibit A attached hereto (including the text referred to in footnotes 1 and
2 thereto). Securities issued in definitive form shall be substantially in the
form of Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 2 thereto). Each Global Note shall represent such of the
outstanding Securities as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Securities from time to
time endorsed thereon and that the aggregate amount of outstanding Securities
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the amount of
outstanding Securities represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
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SECTION 2.02 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities
and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to
the aggregate principal amount stated in paragraph 4 of the Securities, upon a
written order of the Company signed by an Officer to a Responsible Officer of
the Trustee. The aggregate principal amount of Securities outstanding at any
time may not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. An authenticating agent
may authenticate Securities whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with the
Company or an Affiliate of the Company.
SECTION 2.03 REGISTRAR AND PAYING AGENT
The Company shall maintain an office or agency where Securities may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Securities may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Registrar" includes any co-
registrar and the term "Paying Agent" includes any additional paying agent. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company shall notify the Trustee in writing of the name and address of any
Agent not a party to this Indenture. If the Company fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as such. The
Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Custodian with respect to the Global Notes.
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SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, Liquidated Damages, if any, or interest on the Securities, and will
notify the Trustee in writing of any default by the Company or any Guarantor in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Guarantor or a Subsidiary) shall have no further liability for the
money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate
and hold in a separate trust fund for the benefit of the Holders all money held
by it as Paying Agent.
SECTION 2.05 HOLDER LISTS
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Sec. 312(a). If the Trustee is not
the Registrar, the Company and/or the Guarantors shall furnish to the Trustee at
least seven Business Days before each Interest Payment Date and, at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Holders, and the Company and the Guarantors shall otherwise comply with
TIA Sec. 312(a).
SECTION 2.06 TRANSFER AND EXCHANGE
(a) When Securities are presented to the Registrar with the
request:
(x) to register the transfer of such Securities; or
(y) to exchange such Securities for an equal principal amount
of Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met;
provided, however, that the Securities presented or surrendered for
register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar
and the Trustee, duly executed by the Holder thereof or by his
attorney, duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities, shall be
accompanied by the following additional information and
documents, as applicable:
(A) if such Transfer Restricted Security is being delivered
to the Registrar by a Holder for registration in the name of
such Holder, without transfer, a
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certification from such Holder to that effect (in
substantially the form of Exhibit B hereto); or
(B) if such Transfer Restricted Security is being
transferred to a qualified institutional buyer (as defined in
Rule 144A under the Securities Act) or institutional
accredited investor within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act, in accordance with
Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rules 144 or
145 or Regulation S under the Securities Act or pursuant to
an effective registration statement under the Securities Act,
a certification to that effect (in substantially the form of
Exhibit B hereto).
(b) Legends.
(i) Except as permitted by the following paragraph (ii), each
Security certificate (and all Securities issued in exchange
therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY,
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN "INSTITUTIONAL ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT
WILL NOT, WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO THE COMPANY OR MORGAN STANLEY & CO. INCORPORATED, DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, OR SALOMON BROTHERS
INC, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY) AND IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
SECURITIES AT THE TIME OF TRANSFER OF
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LESS THAN $1,000,000 AN OPINION OF COUNSEL, ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND IN CONNECTION
WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF THE SECURITY. IF THE PROPOSED TRANSFEREE
IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER FURNISH TO THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS MAY REASONABLY BE
REQUIRED TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT."
(ii) Upon any sale or transfer of a Transfer Restricted
Security satisfying the conditions set forth in subclause (F) of
the legend set forth in the immediately preceding paragraph (i)
above and in connection with the Exchange Offer, the Registrar
shall permit the Holder thereof to exchange such Transfer
Restricted Security for a Security that does not bear the legend
set forth above and, upon transfer of such Transfer Restricted
Security, the restrictions contained in such legend shall be no
longer applicable.
(c) Obligations with respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
Securities at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration or transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith
(other than any such transfer tax or similar governmental charge
payable upon exchange or transfer pursuant to Sections 3.07,
3.08 and 9.05 hereof).
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(iii) The Registrar shall not be required to register the
transfer or exchange of any Security selected for redemption in
whole or in part, except the unredeemed portion of any Security
being redeemed in part.
(iv) All Securities issued upon any registration of transfer or
exchange of Securities shall be valid obligations of the
Company, evidencing the same debt, and entitled to the same
benefits under the Indenture, as the Securities surrendered upon
such registration of transfer or exchange.
(v) The Company shall not be required:
(A) to issue, register the transfer of or exchange
Securities during a period beginning at the opening of
business 15 days before the day of any selection of
Securities for redemption under Section 3.02 and ending at
the close of business on the day of selection,
(B) to register the transfer of any Security so selected
for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part, or
(C) to register the transfer of or exchange any Security
during the period between a record date and the corresponding
Interest Payment Date.
(vi) Prior to due presentment for registration of transfer of
any Security, the Trustee, any Agent and the Company may deem
and treat the person in whose name any Security is registered as
the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security, and
neither the Trustee, any Agent nor the Company shall be affected
by notice to the contrary.
SECTION 2.07 REPLACEMENT SECURITIES
If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon the written order of the Company signed by an Officer, shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent or any authenticating agent from any
loss which any of them may suffer if a Security is replaced. The Company may
charge Holders for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company and shall be entitled to all benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder.
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SECTION 2.08 OUTSTANDING SECURITIES
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Securities payable on that date, then on and after that date
such Securities shall be deemed to be no longer outstanding and shall cease to
accrue interest.
Except as set forth in Section 2.09 hereof, a Security does not
cease to be outstanding because the Company or an Affiliate holds the Security.
SECTION 2.09 TREASURY SECURITIES
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, any Guarantor or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities which a Responsible Officer
of the Trustee actually knows are so owned shall be so disregarded.
SECTION 2.10 TEMPORARY SECURITIES
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary securities upon a written
order of the Company signed by an Officer and delivered or caused to be
delivered to a Responsible Officer. Temporary Securities shall be substantially
in the form of definitive Securities but may have variations that the Company
considers appropriate for temporary Securities. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate, upon a written order
of the Company, definitive Securities in exchange for temporary Securities.
Holders of temporary securities shall be entitled to all benefits
of this Indenture.
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SECTION 2.11 CANCELLATION
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Securities surrendered
for registration of transfer, exchange, payment, replacement or cancellation and
the Company shall direct that cancelled Securities be returned to it. The
Company may not issue new Securities to replace Securities that it has paid or
that have been delivered to the Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the Securities,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Securities and in Section 4.01 hereof. The Company shall, with the
consent of the Trustee, fix each such special record date and payment date. At
least 15 days before the record date, the Company (or the Trustee, in the name
of and at the expense of the Company) shall mail to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3
OPTIONAL REDEMPTION AND
OPTIONAL REDEMPTION UPON CHANGE OF CONTROL
SECTION 3.01 NOTICES TO TRUSTEE
(a) If the Company elects to redeem Securities pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth that such redemption shall occur pursuant to
Section 3.07 hereof and setting forth the redemption date, the principal amount
of Securities to be redeemed and the redemption price.
(b) If the Company elects to redeem Securities pursuant to the
provisions of Section 3.08 hereof, it shall furnish to the Trustee, at least 45
days but not more than 60 days before the redemption date, an Officers'
Certificate setting forth that a Change of Control has occurred and the date of
such Change of Control and that such redemption shall occur pursuant to Section
3.08 hereof, and further setting forth the principal amount of Securities to be
redeemed, the redemption price of such Securities and the intended redemption
date.
SECTION 3.02 SELECTION OF SECURITIES TO BE REDEEMED
If less than all of the Securities are to be redeemed at any
time, selection of the Securities for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Securities are listed, or, if the
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Securities are not listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Security in denominations of $1,000 or less shall be redeemed
in part. The Trustee may select for redemption any portion (equal to $1,000 or
any integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed. The particular
Securities to be redeemed shall be selected, unless otherwise provided herein,
not less than 30 nor more than 60 days prior to the redemption date by the
Trustee from the outstanding Securities not previously called for redemption.
SECTION 3.03 NOTICES TO HOLDERS
(a) If the Company elects to redeem Securities pursuant to either
of Section 3.07 or 3.08 hereof, notice of redemption shall be mailed by first
class mail at least 30 days but not more than 60 days before the redemption date
to each Holder of Securities to be redeemed at its registered address.
The notice shall identify the Securities to be redeemed (including
CUSIP number) and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and
that, after the redemption date, upon surrender of such
Security, a new Security or Securities in principal amount
equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered
to the Paying Agent at the address specified in such
notice to collect the redemption price;
(6) that interest on Securities or portions of them called for
redemption ceases to accrue on and after the redemption
date;
(7) the paragraph of the Securities pursuant to which the
Securities are being redeemed; and
(8) the aggregate principal amount of Securities that are
being redeemed.
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(b) At the Company's timely request, the Trustee shall give the
notice required in Section 3.03(a) hereof above in the Company's name and at its
expense and setting forth the information to be stated in such notice as
provided in Section 3.03(a) hereof.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed (after the Trustee has received
the notice provided for in Section 3.01 hereof), Securities called for
redemption become due and payable on the redemption date at the redemption price
and shall cease to bear interest from and after the redemption date (unless the
Company shall fail to make payment of the redemption price or accrued interest
on the redemption date). Upon surrender to the Paying Agent, such Securities
shall be paid at the redemption price, plus premium and Liquidated Damages, if
any, plus accrued interest, if any, to the redemption date, but interest
installments whose maturity is on or prior to the redemption date and Liquidated
Damages which become payable on or prior to the redemption date will be payable
to the Holder of record at the close of business on the relevant record dates
referred to in the Securities.
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE OR PURCHASE PRICE
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money (in same-day funds)
sufficient to pay the redemption price of, premium and Liquidated Damages, if
any, and accrued interest on, all Securities to be redeemed on that date other
than Securities or portions thereof called for redemption on that date which
previously have been delivered by the Company to the Trustee for cancellation.
The Trustee or the Paying Agent shall return to the Company any such money not
required for that purpose.
If the Company complies with the preceding paragraph, interest on
the Securities or portions thereof to be redeemed, whether or not such
Securities are presented for payment, will cease to accrue on the applicable
redemption date. If any Security called for redemption shall not be so paid
upon surrender for redemption because of the failure of the Company to comply
with the preceding paragraph, then interest will be paid on the unpaid principal
from the redemption date until such principal is paid and on any interest not
paid on such unpaid principal, in each case, at the rate provided in the
Securities and in Section 4.01 hereof.
SECTION 3.06 SECURITIES REDEEMED IN PART
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee, upon the written order of the Company, shall
authenticate for the Holder at the expense of the Company a new Security equal
in principal amount to the unredeemed portion of the Security surrendered.
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SECTION 3.07 OPTIONAL REDEMPTION
The Company may redeem all or any of the Securities, in whole or in
part, at any time on or after February 1, 2001 at the redemption prices
(expressed as percentages of the principal amount) set forth in the immediately
succeeding paragraph, plus accrued and unpaid interest thereon to the applicable
redemption date.
The redemption price as a percentage of the principal amount shall
be as follows, if the Securities are redeemed during the twelve-month period
beginning February 1 of the year indicated below:
Year Percentage
---- ----------
2001 . . . . . . . . . . 104.250%
2002 . . . . . . . . . . 102.125%
2003 and thereafter . . . 100.000%
Notwithstanding the foregoing, upon the occurrence at any time of a
Change in Control, the Securities will be redeemable, at the option of the
Company, in whole or in part, pursuant to the provisions of Section 3.08 hereof.
Any redemption pursuant to this Section 3.07 shall be made, to the
extent applicable, pursuant to the provisions of Sections 3.01 through 3.06
hereof.
SECTION 3.08 OPTIONAL REDEMPTION UPON CHANGE OF CONTROL
In addition to any redemption pursuant to Section 3.07 hereof, the
Securities will be redeemable, at the option of the Company, in whole or in
part, at any time within 160 days after a Change of Control upon not less than
30 nor more than 60 days' prior notice to each Holder of Securities to be
redeemed, at a redemption price equal to the sum of (i) the then outstanding
principal amount of the Securities being redeemed plus Liquidated Damages for
such Securities, if any, plus (ii) accrued and unpaid interest, if any, to the
redemption date plus (iii) the Applicable Premium.
Any redemption pursuant to this Section 3.08 shall be made, to the
extent applicable, pursuant to the provisions of Sections 3.01 through 3.06
hereof.
SECTION 3.09 SINKING FUND
The Securities will not be entitled to any sinking fund payments.
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ARTICLE 4
COVENANTS
SECTION 4.01 PAYMENT OF SECURITIES
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities, and shall
pay Liquidated Damages, if any, on the dates and in the manner provided in the
Registration Rights Agreement. Principal and interest shall be considered paid
on the date due if the Paying Agent, other than the Company or a Subsidiary of
the Company, holds on that date money deposited by the Company in available
funds and designated for and sufficient to pay all principal and interest then
due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, at the same rate per annum on the Securities to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY
The Company shall maintain, in the Borough of Manhattan, The City
of New York, an office or agency (which may be an office of the Trustee or the
Registrar) where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.
SECTION 4.03 SEC REPORTS; FINANCIAL STATEMENTS
(a) The Company and the Guarantors shall file with the Trustee,
within 15 days after it files the same with the SEC, copies of the annual
reports and the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) that the Company and/or the Guarantors are required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not
subject to the requirements of such Section 13 or 15(d), the Company shall file
with the Trustee, within 15 days after it would have been required to file the
same with the SEC, financial statements, including any notes thereto (and with
respect to annual reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," both comparable to that which the Company would have
been required to include in such annual reports, information, documents or other
reports if the Company had been subject to the requirements of such Section 13
or 15(d). Any Guarantor not required to file with the SEC
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pursuant to Section 13 or 15(d) of the Exchange Act shall not be required to
file such reports with the SEC or Trustee. The Company and the Guarantors shall
also comply with the other provisions of TIA Sec.314(a).
(b) If the Company is required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, the Company shall
cause any annual report furnished to its stockholders generally and any
quarterly or other financial reports furnished by it to its stockholders
generally to be filed with the Trustee and mailed to the Holders at their
addresses appearing in the register of Securities maintained by the Registrar.
If the Company is not required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act, so long as at least 5% of the
original principal amount of the Securities remain outstanding, the Company
shall cause its financial statements referred to in Section 4.03(a) hereof,
including any notes thereto (and with respect to annual reports, an auditors'
report by a firm of established national reputation), and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" to be
so mailed to the Holders within 90 days after the end of each of the Company's
fiscal years and within 60 days after the end of each of the Company's first
three fiscal quarters. The Company will cause to be disclosed in a statement
accompanying any annual report or comparable information as of the date of the
most recent financial statements in each such report or comparable information
the amount available for payments pursuant to Section 4.07 hereof. As of the
date hereof, the Company's fiscal year ends on December 31. Any Guarantor not
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act shall not be required to file such reports with the SEC or Trustee.
SECTION 4.04 COMPLIANCE CERTIFICATE
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company, an Officers' Certificate
stating that a review of the activities of the Company and its Subsidiaries
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining whether the Company has kept,
observed, performed and fulfilled its obligations under this Indenture, and
further stating, as to each such Officer signing such certificate, that to the
best of his knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he may have knowledge and what action the
Company is taking or proposes to take with respect thereto) and that to the best
of his knowledge no event has occurred and remains in existence by reason of
which payments on account of the principal of or interest,
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if any, on the Securities are prohibited or, if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.03 hereof shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Articles 4 or 5 of this Indenture or, if
any such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Securities are
outstanding, (i) deliver to the Trustee, forthwith upon any Officer becoming
aware of any Default or Event of Default under this Indenture, an Officers'
Certificate specifying such Default or Event of Default and what action the
Company is taking or proposes to take with respect thereto and (ii) promptly
notify the Trustee of any Change of Control.
SECTION 4.05 COMPLIANCE WITH LAWS, TAXES
The Company shall, and shall cause each of its Subsidiaries to,
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, noncompliance with which would materially adversely
affect the business, earnings, properties, assets or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole.
The Company shall, and shall cause each of its Subsidiaries to, pay
prior to delinquency all taxes, assessments, and governmental levies except as
contested in good faith and by appropriate proceedings.
SECTION 4.06 STAY, EXTENSION AND USURY LAWS
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
Company's obligation to pay the Securities; and the Company (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law insofar as such law applies to the Securities, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 4.07 LIMITATIONS ON RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on account of the Company's or any of its Restricted
Subsidiaries' Capital Stock or other Equity Interests (other
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than (A) dividends or distributions payable in Equity Interests (other than
Redeemable Stock) of the Company or such Restricted Subsidiary or (B) dividends
or distributions payable to the Company or any of its Restricted Subsidiaries),
(ii) (A) voluntarily purchase, redeem or otherwise acquire or retire for value
any preferred stock of the Company or any of its Restricted Subsidiaries, which
by its terms, is exchangeable for any Indebtedness that is pari passu with or
subordinated in right of payment to the Securities or (B) purchase, redeem or
otherwise acquire or retire for value any Equity Interests (other than
Exchangeable Preferred Stock) of the Company or any of its Restricted
Subsidiaries (other than any such Equity Interests purchased from the Company or
any of its Restricted Subsidiaries), (iii) voluntarily purchase, repay, redeem,
defease (including, but not limited to, in-substance or legal defeasance) or
otherwise acquire or retire for value any Indebtedness (other than (A) the
Securities, (B) Indebtedness under the Credit Agreements, (C) Indebtedness
permitted under clause (v) or (vi) of the second paragraph of Section 4.09
hereof, and any extension, refinancing, renewal, replacement, substitution or
refunding thereof permitted under clause (vii) of the second paragraph of
Section 4.09 hereof or (D) Indebtedness between and among the Company and the
Restricted Subsidiaries) that is pari passu with or subordinated in right of
payment to the Securities (other than in connection with the refunding or
refinancing of such Indebtedness) or (iv) make Investments in Restricted Payment
Unrestricted Subsidiaries (the foregoing actions set forth in clauses
(i) through (iv) being referred to as "Restricted Payments"), if, at the time of
such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; or
(b) the Company could not incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 4.09 hereof
(without giving effect to clauses (i) through (xv) of the second
paragraph thereof), which calculation shall be made on a pro forma
basis deducting from Adjusted Consolidated Net Income the amount of
any Investment the Company has made in an Unrestricted Subsidiary
during the relevant period and any Investment the Company intends to
make in an Unrestricted Subsidiary, to the extent that such Investment
is made with amounts included in Adjusted Consolidated Net Income as a
result of Transfers described in clause (c)(x) of this Section 4.07 or
clause (c)(y) of Section 4.14 hereof; or
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made after May 13, 1992 exceeds the sum of
the following: (w) 50% of the amount of the Adjusted Consolidated Net
Income (other than amounts included in the next succeeding clause
(c)(x)) of the Company for the period (taken as one accounting period)
from the beginning of the first quarter commencing immediately after
May 13, 1992 through the end of the Company's fiscal quarter ending
immediately prior to the time of such Restricted Payment (or, if
Adjusted Consolidated Net Income for such period is a deficit, 100% of
such deficit); plus (x) 100% of the amount of all Transfers from a
Restricted Payment Unrestricted Subsidiary up to the aggregate amount
of the Investment (after taking into account all prior Transfers from
such Restricted Payment Unrestricted Subsidiary) in such Restricted
Payment Unrestricted Subsidiary (valued in each case as provided in
the definition of "Investment"); plus (y) in the event of a
designation of a Restricted Payment Unrestricted Subsidiary as a
Restricted Subsidiary, 100% of an amount equal to the
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Consolidated Net Cash Flow generated by such Subsidiary for the period
(taken as one accounting period) from the beginning of its first
fiscal quarter commencing immediately after the date of its
designation as a Restricted Payment Unrestricted Subsidiary through
such Subsidiary's fiscal quarter ending immediately prior to its
designation as a Restricted Subsidiary (or if such Consolidated Net
Cash Flow for such period is a deficit, 100% of such deficit); plus
(z) 100% of the aggregate net cash proceeds received by the Company
from (i) the issuance or sale of Equity Interests of the Company
(other than such Equity Interests issued or sold to a Restricted
Subsidiary of the Company and other than Redeemable Stock) or (ii) the
sale of the stock of an Unrestricted Subsidiary or the sale of all or
substantially all of the assets of an Unrestricted Subsidiary to the
extent that a liquidating dividend is paid to the Company or any
Restricted Subsidiary from the proceeds of such sale;
provided, however, that for purposes of making Investments in Unrestricted
Subsidiaries, if the amount determined in accordance with clauses (w) or (y)
above is a deficit, such deficit shall be excluded from the computation of this
clause (c); and provided, further, that all such amounts applied pursuant to
this clause (c) shall not be available for application under clause (c) of
Section 4.14 hereof.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) (A) the retirement of any shares of the Company's Capital Stock
(the "Retired Capital Stock") either (1) in exchange for or (2) out of the net
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of other shares of the Company's Capital Stock (the
"Refunding Capital Stock") other than any Redeemable Stock, and (B) if
immediately prior to such retirement of such Retired Capital Stock the
declaration and payment of dividends thereon was permitted under either clause
(iii) or (vii) of this paragraph, the declaration and payment of dividends on
the Refunding Capital Stock in an aggregate amount per year no greater than the
aggregate amount of dividends per year that was declarable and payable on such
Retired Capital Stock immediately prior to such retirement; (iii) the
declaration and payment of dividends to the holders of the Senior Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock; (iv) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company issued to present and former
members of management of the Company and its Subsidiaries pursuant to
subscription and option agreements in effect on the date hereof and Equity
Interests of the Company issued to future members of management pursuant to
subscription agreements executed subsequent to the date hereof, containing
provisions for the repurchase of such Equity Interests upon death, disability or
termination of employment of such persons which are substantially identical to
those contained in the subscription agreements in effect on the date hereof;
(v) the declaration and payment of dividends on the Company's Common Stock, of
up to 6% per annum of the net proceeds received at any time by the Company in
any public offering; (vi) the repurchase, redemption or other acquisition or
retirement for value of Indebtedness of the Company which is subordinated in
right of payment to the Securities either (A) in exchange for or (B) with the
proceeds of the issuance of, Equity Interests (other than Redeemable Stock) of
the Company; (vii) the declaration and payment of dividends to holders of any
class or series of the Company's preferred stock issued after the date hereof
(including, without limitation, the declaration and payment of dividends on
Refunding Capital Stock in
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excess of the dividends declarable and payable thereon pursuant to clause
(ii) of this paragraph), provided that at the time of such issuance the
Company's Fixed Charge Coverage Ratio, after giving effect to such issuance,
would be greater than 1.25 to 1; (viii) the redemption, repurchase or other
acquisition or retirement for value of any Indebtedness of the Company which is
subordinated in right of payment to the Securities (A) with the proceeds of, or
in exchange for, Indebtedness incurred pursuant to clause (vii) of the second
paragraph of Section 4.09 hereof or (B) if, after giving effect to such
redemption, repurchase or retirement, the Company could incur at least $1.00 of
Indebtedness under the first paragraph of Section 4.09 hereof (without giving
effect to clauses (i) through (xv) of the second paragraph thereof); (ix) the
retirement of the Senior Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock in exchange for the issuance of the
Exchange Debentures, Class B Subordinated Debentures, Class C Subordinated
Debentures and Class D Subordinated Debentures, respectively, pursuant to the
respective Certificates of Designations relating thereto and (x) the purchase of
Exchange Debentures, Class B Subordinated Debentures, Class C Subordinated
Debentures and Class D Subordinated Debentures in accordance with the Change of
Control Covenants in the Exchange Debenture Indenture, Class B Debenture
Indenture, Class C Debenture Indenture and Class D Subordinated Debenture
Indenture, respectively; provided that in determining the aggregate amount
expended for Restricted Payments in accordance with paragraph (c) above, (1) no
amounts expended under clauses (ii)(A)(1), (vi)(A), (viii) and (ix) of this
paragraph shall be included, (2) 100% of the amounts expended under clauses
(ii)(A)(2), (iv), (v), (vi)(B), (vii) and (x) of this paragraph shall be
included, (3) 50% of the amounts expended under clause (iii) of this paragraph
shall be included, (4) amounts expended under clause (ii)(B) of this paragraph
shall be included to the extent previously included for the Retired Capital
Stock and (5) 100% of the amounts expended under clause (i) of this paragraph to
the extent not included under subclauses (1) through (4) of this proviso shall
be included.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations may
be based on the Company's latest available internal financial statements.
SECTION 4.08 DIVIDENDS AND PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock, or any other interest or participation in, or measured by,
its profits, owned by the Company or any of its Restricted Subsidiaries, or pay
any Indebtedness owed to the Company or any of its Restricted Subsidiaries,
(ii) make loans or advances to the Company or any of its Restricted Subsidiaries
or (iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of: (A) the terms (as in effect on the date hereof) of the
Existing Indebtedness, (B) the terms (as in effect on the date hereof) of the
Credit Agreements and the Outstanding Notes and Outstanding Note Indentures
(C) the terms of Indebtedness of the Company incurred in accordance with Section
4.09 hereof; provided that such terms of any such Indebtedness constitute no
greater encumbrance or restriction on the ability of any Restricted
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Subsidiary to pay dividends or make distributions, make loans or advances or
transfer properties or assets than is permitted by this Section 4.08, (D) the
terms of this Indenture and the Securities, (E) applicable law, (F) customary
non-assignment provisions entered into in the ordinary course of business and
consistent with past practices, (G) the terms of purchase money obligations for
property acquired in the ordinary course of business, but only to the extent
that such purchase money obligations restrict or prohibit the transfer of the
property so acquired, (H) the terms of the Exchange Debentures, Exchange
Debenture Indentures, the Class B Subordinated Debentures, the Class B Debenture
Indenture, Class C Subordinated Debentures, the Class C Debenture Indenture, the
Class D Subordinated Debentures and the Class D Subordinated Debenture Indenture
(I) any encumbrance or restriction with respect to a Subsidiary of the Company
that is not a Subsidiary of the Company on the date of this Indenture, which
encumbrance or restriction is in existence at the time such Person becomes a
Subsidiary of the Company or is created on the date it becomes a Subsidiary of
the Company, (J) any encumbrance or restriction with respect to a Subsidiary of
the Company imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all the Capital Stock or assets of
such Subsidiary, or (K) any encumbrance or restriction existing under any
agreement which refinances or replaces the agreements described in clauses (A),
(B), (D) and (H), provided that the terms and conditions of any such
encumbrances or restrictions contained in any such agreement constitute no
greater encumbrance or restriction on the ability of any Restricted Subsidiary
to pay dividends or make distributions, make loans or advances or transfer
properties or assets than those under or pursuant to the agreement evidencing
the Indebtedness or obligations refinanced. Nothing contained in this
Section 4.08 shall prevent the Company or a Restricted Subsidiary from entering
into any agreement permitting or providing for the incurrence of Liens otherwise
permitted by Section 4.13 hereof.
SECTION 4.09 INCURRENCE OF INDEBTEDNESS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to any
Indebtedness unless the Company's Debt to Consolidated Cash Flow Ratio for its
four full fiscal quarters ending immediately prior to the date such additional
Indebtedness is created, incurred, issued, assumed or guaranteed would have been
no greater than 6 to 1, and such Indebtedness is not senior in right of payment
to the Securities; provided that such calculation shall give effect to (A) the
incurrence of any Indebtedness (after giving effect to the application of the
proceeds thereof) in connection with the simultaneous acquisition of any person,
business, property or assets and (B) the Consolidated Cash Flow generated by
such acquired person, business, property or assets, giving effect in each case
to such incurrence of Indebtedness, application of proceeds and Consolidated
Cash Flow as if such acquisition had occurred at the beginning of such four
quarter period. For purposes of the foregoing provision, cash flow generated by
any acquired person, business, property or asset shall be determined on the same
basis as the definition of Consolidated Cash Flow and shall be based on the
actual earnings before interest, taxes, depreciation and amortization of such
acquired person, business, property or asset during the immediately preceding
four full fiscal quarters plus (y) (i) the savings in cost of goods sold that
would have resulted during that period from the effect of using the Company's
actual costs for comparable goods and services during that period and (ii) other
savings in cost of goods sold or eliminations of selling, general and
administrative expenses as determined by the Company in good faith in its
consideration of such acquisitions and consistent with the Company's experiences
in acquisitions of similar businesses minus (z) the incremental expenses that
would be included in cost of goods sold and selling, general and administrative
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expenses that would have been incurred by the Company in the operation of such
acquired person, business, property or assets during such period.
The foregoing limitations shall not apply to the incurrence of
(i) Indebtedness pursuant to the Credit Agreements (provided that the principal
amount of such Indebtedness shall not exceed $1,250 million, less the amount of
all repayments made in respect of term loans and of all permanent commitment
reductions with respect to revolving loans (except to the extent, and only to
the extent, that any required repayments of principal in connection with such
commitment reduction are not made) made under the Credit Agreements (excluding
such repayments and commitment reductions which occur substantially
contemporaneously with a refinancing or a refunding thereof)), plus any amounts
then available under clause (vi) of this paragraph; (ii) Existing Indebtedness;
(iii) Indebtedness represented by the Outstanding Notes; (iv) Indebtedness
represented by the Exchange Debentures issued upon the exchange for of all
outstanding Senior Preferred Stock, Class B Subordinated Debentures issued in
exchange for all outstanding Series B Preferred Stock, the Class C Subordinated
Debentures issued in exchange for all the Outstanding Series C Preferred Stock
and the Class D Subordinated Debentures issued in exhange for all the
Outstanding Series D Preferred Stock; (v) Capital Lease Obligations at any one
time outstanding not in excess of $75 million; (vi) Indebtedness in an aggregate
principal amount equal to the greater of (A) $150 million in the aggregate at
any one time outstanding for the Company and its Restricted Subsidiaries or
(B) Indebtedness created, incurred, issued, assumed or guaranteed (x) by the
Company at any one time outstanding not in excess of 7% of the Consolidated Net
Worth of the Company at the time of such creation, incurrence, issuance,
assumption or guarantee or (y) by any Restricted Subsidiary of the Company at
any one time outstanding not in excess of 7% of the Consolidated Net Worth of
such Restricted Subsidiary at the time of such creation, incurrence, issuance,
assumption or guarantee; (vii) Indebtedness created, incurred, issued, assumed
or guaranteed in exchange for or the proceeds of which are used to extend,
refinance, renew, replace, substitute or refund Indebtedness referred to in
clauses (i) through (vi) above (the "Refinancing Indebtedness"); provided, that
(A) the principal amount of such Refinancing Indebtedness shall not exceed the
principal amount of Indebtedness (including unused commitments) so extended,
refinanced, renewed, replaced, substituted or refunded plus any amounts then
available under clause (vi) of this paragraph, (B) in the case of Refinancing
Indebtedness for Indebtedness permitted under clauses (ii) and (iv) of this
paragraph, the Refinancing Indebtedness permitted under clauses (ii) and (iv) of
this paragraph shall have an Average Life equal to or greater than the Average
Life of the Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded and (C) the Refinancing Indebtedness for Indebtedness
permitted under clauses (ii) and (iv) of this paragraph shall rank, in right of
payment, no more senior than such Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded and the Refinancing Indebtedness for
Indebtedness permitted under clauses (i), (iii), (v) and (vi) of this paragraph
shall rank, in right of payment, pari passu with or junior to the Securities;
(viii) intercompany Indebtedness incurred in connection with Investments in
Unrestricted Subsidiaries; provided that such Investments are permitted by
Section 4.07 or Section 4.14 hereof; (ix) Indebtedness under Currency Agreements
and Interest Rate Agreements, provided that in the case of Currency Agreements
which relate to other Indebtedness, such
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Currency Agreements do not increase the Indebtedness of the Company outstanding
other than as a result of fluctuations in foreign currency exchange rates;
(x) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing any obligations of
the Company or any Restricted Subsidiary of the Company pursuant to such
agreements, incurred or assumed by the acquired Subsidiary in connection with
the acquisition or disposition of any business, assets or Restricted Subsidiary
of the Company, other than guarantees or similar credit support by the Company
of Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; provided that the maximum aggregate liability in respect of all
such Indebtedness in the nature of such guarantees shall at no time exceed the
gross proceeds actually received from the sale of such business, assets or
Restricted Subsidiary; (xi) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts, which will not be, and
will not be deemed to be, inadvertent) drawn against insufficient funds in the
ordinary course of business, provided that such Indebtedness is extinguished
within three Business Days of its incurrence; (xii) Indebtedness of an entity at
the time it is acquired as a Restricted Subsidiary, provided that such
Indebtedness was not incurred or assumed by such entity in connection with or in
anticipation of such acquisition; (xiii) Indebtedness between the Company and
any Restricted Subsidiary; (xiv) Non-Compete Notes, not to exceed $50 million in
aggregate principal amount less the amount of all principal repayments made in
respect thereof; and (xv) the Company's Obligations arising from the repurchase,
redemption or other acquisitions of Capital Stock from management investors to
the extent permitted by Section 4.07 hereof. For the purposes of determining
the aggregate Indebtedness of any referent Person, Indebtedness shall not
include guarantees by any other Person of such Indebtedness.
SECTION 4.10 CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have
the right to require the repurchase of such Holder's Securities pursuant to the
offer described below (the "Change of Control Offer") at a purchase price equal
to 101% of the aggregate principal amount of such Securities plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Payment"). Within 40 days following any Change of Control, the Company shall
mail a notice to each Holder stating:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.10 and that all Securities tendered will be accepted for
payment;
(2) the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 40 days from the date such notice
is mailed (the "Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue
interest;
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(4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(5) that Holders electing to have any Securities purchased
pursuant to a Change of Control Offer will be required to surrender
the Securities, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying
Agent at the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control Payment
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Securities delivered
for purchase, and a statement that such Holder is withdrawing his
election to have such Securities purchased; and
(7) that Holders whose Securities are being purchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; provided that each
Holder shall tender Securities, and each Security purchased and each
such new Security issued by the Company shall be in a principal amount
of $1,000 or integral multiples thereof.
The Change of Control Offer shall be deemed to have commenced upon
mailing of notice described in this paragraph and shall terminate 20 Business
Days after its commencement, unless a longer offering period is required by law.
If the Change of Control Payment Date is on or after an interest payment record
date and on or before the related interest payment date, any accrued interest
will be paid to the person in whose name a Security is registered at the close
of business on such record date, and no additional interest will be payable to
Holders who tender Securities pursuant to the Change of Control Offer.
On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Securities or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee, the Securities so accepted together with an Officers' Certificate
stating the Securities or portions thereof were tendered to the Company. The
Paying Agent shall promptly mail to each Holder of Securities so accepted,
payment in an amount equal to the purchase price for such Securities, and the
Trustee shall promptly authenticate and mail to such Holder a new Security equal
in principal amount to any unpurchased portion of the Securities surrendered;
provided that each such new Security shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
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SECTION 4.11 LIMITATIONS ON ASSET SALES
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, consummate an Asset Sale (including the
sale of any of the stock of any Subsidiary) unless at least 100% of the Net
Proceeds from such Asset Sale are applied first to repay Obligations or reduce
commitments under the Credit Agreements in accordance with the terms thereof,
second to offer to redeem at par the Outstanding Notes and third to offer to
redeem at par the Securities. The foregoing application of Net Proceeds from
Asset Sales is not required in the case of (i) sales or dispositions generating
cash proceeds of less than, with respect to the Company and Restricted
Subsidiaries, $2.5 million and (ii) sales and dispositions as to which the
Company delivers a reinvestment notice and the proceeds are so reinvested in one
or more communications, publishing, information, education or media assets or
businesses within twelve months of the date the relevant Asset Sale is
consummated. Notwithstanding the foregoing provisions of this Section 4.11,
neither the Company nor its Subsidiaries shall be required to apply the Net
Proceeds from any Asset Sale (i) to the extent that the aggregate Net Proceeds
from such Asset Sale, together with the Net Proceeds, if any, of any other Asset
Sale which have not been previously applied, are less than $25 million or
(ii) to the extent that, and for so long as, such Net Proceeds cannot be so
applied as a result of an encumbrance or restriction permitted pursuant to
Section 4.13 hereof.
(b) At least 15 days prior to the Company's mailing of a notice of
a Net Proceeds Offer, the Company shall notify the Trustee of the Company's
obligation to make such Net Proceeds Offer. Notice of a Net Proceeds Offer
shall be mailed by the Company not less than 30 Business Days nor more than 40
days before the Net Proceeds Payment Date to the Holders of the Securities at
their last registered addresses with a copy to the Trustee and the Paying Agent.
The Net Proceeds Offer shall remain open from the time of mailing until the
close of business on the Business Day prior to the Net Proceeds Payment Date.
The notice shall contain all instructions and materials necessary to enable such
Holders to tender Securities pursuant to the Net Proceeds Offer. The notice,
which shall govern the terms of the Net Proceeds Offer, shall state:
(1) that the Net Proceeds Offer is being made pursuant to this
Section 4.11 and that the Securities will be accepted for payment
on a pro rata basis (rounded down to the nearest $1,000), if
necessary;
(2) the Purchase Price and the Net Proceeds Payment Date;
(3) that any Security not tendered or accepted for payment
will continue to accrue interest;
(4) that any Security accepted for payment pursuant to the Net
Proceeds Offer shall cease to accrue interest after the Net
Proceeds Payment Date;
(5) that each Holder of a Security electing to have such
Security purchased pursuant to a Net Proceeds Offer will be
required to surrender the Security, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the Security
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completed, to the Trustee at the address specified in the notice
prior to the close of business on the Business Day prior to the Net
Proceeds Payment Date;
(6) that Holders will be entitled to withdraw their election
if the Trustee receives, not later than the close of business on
the fifth Business Day next preceding the Net Proceeds Payment
Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of Securities
the Holder delivered for purchase and a statement that such Holder
is withdrawing his election to have such Securities purchased; and
(7) that Holders whose Securities are purchased only in part
will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.
The Trustee shall notify the Company at the opening of business on
the Net Proceeds Payment Date as to the principal amount of each of the
Securities or portions thereof which have been surrendered to the Trustee in
connection with the Net Proceeds Offer. On the Net Proceeds Payment Date, the
Company shall (i) accept for payment on a pro rata basis (if necessary)
Securities or portions thereof tendered pursuant to the Net Proceeds Offer,
(ii) deposit with the Paying Agent money sufficient to pay the purchase price of
all Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company and any other information that the Trustee may reasonably request in
order to make the payments required to be made on the Net Proceeds Payment Date.
The Paying Agent shall promptly mail to Holders of Securities so accepted,
payment in an amount equal to the Purchase Price, and the Trustee shall promptly
authenticate and mail to such Holders a new Security equal in principal amount
to any unpurchased portion of the Security surrendered. Any Securities not so
accepted shall be promptly mailed by the Trustee to the Holder thereof. The
Company will publicly announce the results of the Net Proceeds Offer on or as
soon as practicable after the Net Proceeds Payment Date. For purposes of this
Section 4.11, the Trustee shall act as the Paying Agent.
SECTION 4.12 TRANSACTIONS WITH AFFILIATES
Neither the Company nor any of its Restricted Subsidiaries shall
make any loan, advance, guarantee or capital contribution to, or for the benefit
of, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or for the benefit of, or purchase or lease any property or assets
from, or enter into or amend any contract, agreement or understanding with, or
for the benefit of, (i) any Person (or any Affiliate of such Person) holding 10%
or more of any class of Capital Stock of the Company or any of its Restricted
Subsidiaries or (ii) any Affiliate of the Company or any of its Restricted
Subsidiaries (each an "Affiliate Transaction"), except on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary, as the case may
be, than those that could have been obtained in a comparable transaction on an
arm's length basis from a Person that is not such a holder or Affiliate;
provided that a transaction with any such holder (or Affiliate thereof) or any
Affiliate of the Company or any of its Restricted Subsidiaries shall be deemed
to be on terms that are no less favorable to the Company or such
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Restricted Subsidiary than those obtainable at the time of the transaction from
a Person who is not such a holder or Affiliate if (a) the Company or such
Restricted Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view or (b) a
disinterested majority of the Board of Directors of the Company or such
Restricted Subsidiary approves the transaction; and provided, further, that, the
foregoing restriction shall not apply to (i) the payment of an annual fee to KKR
for the rendering of management consulting and financial services to the Company
and its Restricted Subsidiaries in an aggregate amount which is reasonable in
relation thereto, (ii) the payment of transaction fees to KKR in amounts which
are in accordance with past practices for the rendering of financial advice and
services in connection with acquisitions, dispositions and financings by the
Company and its Subsidiaries, (iii) the payment of reasonable and customary
regular fees to directors of the Company and its Subsidiaries who are not
employees of the Company or its Restricted Subsidiaries, (iv) loans to officers,
directors and employees of the Company and its Subsidiaries for business or
personal purposes and other loans and advances to such officers, directors and
employees for travel, entertainment, moving and other relocation expenses made
in the ordinary course of business of the Company and its Subsidiaries, (v) any
Restricted Payments not prohibited by Section 4.07 hereof or any Investment not
prohibited by Section 4.14 hereof, (vi) transactions between or among any of the
Company and its Restricted Subsidiaries or (vii) allocation of corporate
overhead to Unrestricted Subsidiaries on a basis no less favorable to the
Company than such allocations to Restricted Subsidiaries.
SECTION 4.13 LIMITATIONS ON LIENS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien (other than Permitted Liens) on any of its assets or any income
or profits therefrom or assign or convey any right to receive income therefrom
unless the Securities are equally and ratably secured.
SECTION 4.14 INVESTMENTS IN UNRESTRICTED SUBSIDIARIES
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, make any Investment in any Unrestricted
Subsidiary, if at the time of such Investment:
(a) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; or
(b) immediately before such Investment, the Company would not be
permitted to incur at least $1.00 of Indebtedness pursuant to the
first paragraph of Section 4.09 (without giving effect to clauses (i)
through (xv) of the second paragraph thereof), which calculation shall
be made on a pro forma basis deducting from Adjusted Consolidated Net
Income the amount of any Investment the Company has made in an
Unrestricted Subsidiary during the relevant period and any Investment
the Company intends to make in an Unrestricted Subsidiary, to the
extent that such Investment is made with amounts included in Adjusted
Consolidated Net Income as a result of Transfers described in clause
(c)(x) of Section 4.07 hereof or clause (c)(y) of this Section 4.14;
or
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(c) such Investment, together with the aggregate of all other
Investments in Unrestricted Subsidiaries made after May 13, 1992,
exceeds (w) the aggregate Consolidated Net Cash Flow of the Company
for the period (taken as one accounting period) from the beginning of
the first quarter immediately after May 13, 1992 to the end of the
Company's most recently ended fiscal quarter at the time of such
Investment; plus (x) 100% of the aggregate net cash proceeds received
by the Company from (i) the issue or sale of Equity Interests of the
Company (other than such Equity Interests issued or sold to a
Restricted Subsidiary of the Company and other than Redeemable Stock)
or (ii) the sale of the stock of an Unrestricted Subsidiary or the
sale of all or substantially all of the assets of an Unrestricted
Subsidiary to the extent that a liquidating dividend is paid to the
Company or any Restricted Subsidiary from the proceeds of such sale;
plus (y) 100% of the amount of all Transfers from a Net Cash Flow
Unrestricted Subsidiary up to the aggregate Investment (after taking
into account all prior Transfers from such Net Cash Flow Unrestricted
Subsidiary) in such Net Cash Flow Unrestricted Subsidiary resulting
from such payments or transfers of assets (valued in each case as
provided in the definition of "Investment"); plus (z) in the event of
a designation of an Unrestricted Subsidiary as a Restricted
Subsidiary, 100% of an amount equal to the Consolidated Net Cash Flow
generated by such Subsidiary for the period (taken as one accounting
period) from the beginning of its first fiscal quarter commencing
immediately after the date of its designation as an Unrestricted
Subsidiary through such Subsidiary's fiscal quarter ending immediately
prior to its designation as a Restricted Subsidiary (or if such
Consolidated Net Cash Flow for such period is a deficit, 100% of such
deficit);
provided, that all such amounts applied pursuant to this clause (c) shall not be
available for application under clause (c) of Section 4.07 hereof.
The foregoing limitations shall not apply to an Investment to the
extent that it is (i) to capitalize a Restricted Payment Unrestricted Subsidiary
permitted pursuant to Section 4.07 hereof.
Not later than the date of making any Investment described above,
the Company shall deliver to the Trustee an Officer's Certificate stating that
such Investment is permitted (including, without limitation, whether such
Investment is capitalizing a Net Cash Flow Unrestricted Subsidiary or a
Restricted Payment Unrestricted Subsidiary) and setting forth the basis upon
which the calculations required by this Section 4.14 were computed, which
calculations may be based on the Company's latest available internal financial
statements.
SECTION 4.15 PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Securities for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Securities unless such consideration is offered to be
paid or agreed to be paid to all Holders of the Securities which so consent,
waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
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SECTION 4.16 CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational documents
of each Restricted Subsidiary and the rights (charter and statutory), licenses
and franchises of the Company and its Restricted Subsidiaries; provided that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any Restricted Subsidiary,
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Restricted Subsidiaries taken as a whole and that the loss thereof is not
adverse in any material respect to the Holders.
SECTION 4.17 SUBSIDIARY OWNERSHIP.
All Restricted Subsidiaries and all Net Cash Flow Unrestricted
Subsidiaries shall at all times remain wholly-owned, directly or indirectly, by
the Company or a Restricted Subsidiary except if sold, leased, conveyed,
disposed of or transferred in accordance with Section 4.11 hereof.
SECTION 4.18 RULE 144A INFORMATION REQUIREMENT.
The Company will furnish to the Holders or beneficial holders of
the Securities and prospective purchasers of the Securities designated by the
holders of Transfer Restricted Securities, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act
until such time as the Company consummates the Exchange Offer or has registered
the Securities for resale under the Securities Act.
ARTICLE 5
SUCCESSORS
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company may not consolidate with, merge with or into, or
transfer all or substantially all of its assets (as an entirety or substantially
as an entirety in one transaction or a series of related transactions), to any
Person (except a Restricted Subsidiary with a positive Consolidated Net Worth,
provided that in connection with any merger of the Company with a Restricted
Subsidiary of the Company, no consideration (other than common stock in the
surviving corporation or the Company) shall be issued or distributed to the
shareholders of the Company) or permit any person to merge with or into it
unless:
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which the properties and assets of the Company are transferred
(collectively, the "Successor") shall be a corporation organized and existing
under the laws of the United States or any State thereof or the
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District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
of the obligations of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction, no
Default and no Event of Default under this Indenture shall have occurred and be
continuing;
(iii) immediately after giving effect to such transaction on a pro
forma basis, the Consolidated Net Worth of the surviving entity is at least
equal to the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(iv) immediately after giving effect to such transaction on a pro
forma basis, the Fixed Charge Coverage Ratio of the surviving entity is at least
1:1; provided that if the Fixed Charge Coverage Ratio of the Company before
giving effect to such transaction is within the range set forth in column
(A) below, then the pro forma Fixed Charge Coverage Ratio of the surviving
entity shall be at least equal to the lesser of (x) the ratio determined by
multiplying the percentage set forth in Column B by the Fixed Charge Coverage
Ratio of the Company prior to such transaction, and (y) the ratio set forth in
Column C below:
(A) (B) (C)
--- --- -----
1.11:1 to 1.99:1 . . . . . . . . . . . . . . 90% 1.5:1
2.00:1 to 2.99:1 . . . . . . . . . . . . . . 80% 2.1:1
3.00:1 to 3.99:1 . . . . . . . . . . . . . . 70% 2.4:1
4.00:1 or more . . . . . . . . . . . . . . . 60% 2.5:1
and provided, further, that if the pro forma fixed Charge Coverage Ratio of the
surviving entity is 3:1 or more, the calculation in the preceding provisio shall
be inapplicable and such transaction shall be deemed to have complied with the
requirements of clause (iv) of this Section 5.01.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company or
any assignment of its obligations under this Indenture or the Securities in
accordance with Section 5.01 hereof, the Successor formed by such consolidation
or into or with which the Company is merged or to which such sale, lease,
conveyance or other disposition or assignment is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such Successor has been named as the
Company herein and the predecessor Company, in the case of a sale, lease,
conveyance or other disposition or assignment, shall be released from all
obligations under this Indenture and the Securities.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT
Each of the following constitutes an "Event of Default":
(1) the Company fails to make any payment of interest on any
Security when the same shall become due and payable and the Default
continues for a period of 30 days;
(2) the Company fails to make any payment of the principal or
premium of any Security when the same shall become due and payable at
maturity, or upon acceleration, redemption or otherwise;
(3) the Company fails to comply with any of its other agreements
or covenants in, or provisions of, the Securities or this Indenture
and such failure continues for the period and after the notice
specified below;
(4) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee is now existing or thereafter created in the
future, if either (A) such default is the failure to pay the final
scheduled principal installment in an amount of at least $10 million
in respect of any such Indebtedness on the stated maturity date
thereof (after giving effect to any extension of such maturity date by
the holder of such Indebtedness and after the expiration of any grace
period in respect of such final scheduled principal installment
contained in the instrument under which such Indebtedness is
outstanding) or (B) as a result of such default the maturity of such
Indebtedness has been accelerated prior to its express maturity and
the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness the maturity of which has been
accelerated, aggregates $20 million or more; provided that an Event of
Default shall not be deemed to occur with respect to any accelerated
Indebtedness which is repaid or prepaid within 20 days after such
declaration;
(5) a final judgment that exceeds $15 million individually, or
final judgments that exceed $25 million in the aggregate, for the
payment of money are entered by a court or courts of competent
jurisdiction against the Company, or any of its Restricted
Subsidiaries and such judgment or judgments shall not be discharged,
satisfied, stayed, annulled or rescinded within 60 days of being
entered;
(6) the Company or any of the Restricted Subsidiaries pursuant to
or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
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(b) consents to the entry of an order for relief against it in
an involuntary case,
(c) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(d) makes a general assignment for the benefit of its
creditors; or
(7) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company, or any of its
Restricted Subsidiaries as debtor in an involuntary case,
(b) appoints a Custodian of the Company, or any of its
Restricted Subsidiaries or a Custodian for all or
substantially all of the property of the Company, or any
of its Restricted Subsidiaries, or
(c) orders the liquidation of the Company, or any of its
Restricted Subsidiaries,
and the order or decree remains unstayed and in effect for 60 days.
(8) except as permitted by this Indenture and the Securities, the
Guarantees shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect with respect to any Guarantor or any Guarantor shall
deny or disaffirm its obligations under its Guarantee.
The Company is required, pursuant to Section 4.04(a) hereof, to
deliver to the Trustee annually a statement regarding compliance with this
Indenture, and the Company is required, pursuant to Section 4.04(c) hereof, upon
becoming aware of any Default or Event of Default to deliver a statement to the
Trustee specifying such Default or Event of Default. The Trustee shall not be
deemed to know of a Default unless a Responsible Officer has actual knowledge of
such Default or receives written notice of such Default with specific reference
to such Default.
In the case of any Event of Default pursuant to the provisions of
this Section 6.01 occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium, if any, which the Company would have had to pay if the
Company then had elected to redeem the Securities pursuant to Section 3.07
hereof, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law, anything in this Indenture or in the
Securities contained to the contrary notwithstanding.
A Default under clause (3) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in principal amount
of the then outstanding Securities notify the Company and the Trustee, in
writing, of the Default and the Company does not cure the Default within 30 days
after receipt of the notice. The notice must specify the Default, demand that
it be remedied and state that the notice is a "Notice of Default."
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SECTION 6.02 ACCELERATION
If an Event of Default (other than an Event of Default with respect
to the Company specified in clauses (6) or (7) of Section 6.01 hereof) occurs
and is continuing, the Trustee by written notice to the Company, or the Holders
of at least 25% in principal amount of the then outstanding Securities by
written notice to the Company and the Trustee, may and the Trustee at the
request of such Holders shall, declare all unpaid principal of, premium and
Liquidated Damages, if any, and accrued interest on the Securities to be due and
payable immediately. Upon such declaration of acceleration such principal of,
premium and Liquidated Damages, if any, and accrued interest, due and payable on
the Securities, as determined in the next succeeding paragraph, shall be due and
payable immediately. If an Event of Default with respect to the Company
specified in clause (6) or (7) of Section 6.01 hereof occurs, all unpaid
principal of, premium and Liquidated Damages, if any, and accrued interest on
the Securities then outstanding shall ipso facto become and be immediately due
and payable without any declaration, notice or other act on the part of the
Trustee or any Holder. The Holders of at least 51% in aggregate principal
amount of the then outstanding Securities by written notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, premium and Liquidated Damages, if any, or
interest on the Securities that has become due solely as a result of such
acceleration) have been cured or waived.
In the event that the maturity of the Securities is accelerated
pursuant to this Section 6.02, 100% of the principal amount thereof and premium
or Liquidated Damages, if any, plus accrued interest to the date of payment
shall become due and payable.
SECTION 6.03 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium and
Liquidated Damages, if any, or interest then due on the Securities or to enforce
the performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04 WAIVER OF PAST DEFAULTS
The Holders of at least 51% in principal amount of the then
outstanding Securities by notice to the Trustee may waive an existing Default or
Event of Default and its consequences (including waivers obtained in connection
with a tender offer or exchange offer for Securities), except a continuing
Default or Event of Default (i) in the payment of the principal of, premium or
Liquidated Damages, if any, or interest on any Security (including, without
limitation, pursuant to any mandatory or optional redemption obligation
hereunder) or (ii) that resulted from the
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failure to comply with Section 4.10 or 4.11 hereof. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.05 CONTROL BY MAJORITY
The Holders of a majority in principal amount of the then
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of other Holders, or that may involve the
Trustee in personal liability.
SECTION 6.06 LIMITATIONS ON SUITS
A Holder may not pursue a remedy with respect to this Indenture,
the Securities or any Guarantee unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense
(including, without limitation, fees and expenses of counsel);
(4) the Trustee does not comply with the request within 30 days
after receipt of the request and the offer of indemnity; and
(5) during such 30-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction which is inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment of principal of, premium and
Liquidated Damages, if any, and interest on the Security, on or after the
respective due dates expressed in the Security, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Holder.
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SECTION 6.08 COLLECTION SUIT BY TRUSTEE
If an Event of Default specified in Section 6.01(1) or (2) or
(3) (with respect to the Company's obligations under Section 4.10 or 4.11
hereof) hereof occurs and is continuing, the Trustee is authorized to recover
judgment in its own name and as trustee of an express trust against the Company
or any Guarantor for the amount of principal, premium, if any, and interest
remaining unpaid on the Securities, determined in accordance with Section 6.02
hereof and interest on overdue principal, premium and Liquidated Damages, if
any, and, to the extent lawful, interest, and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company, its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
To the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties which the Holders of the Securities may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10 PRIORITIES
If the Trustee collects any money pursuant to this Article 6, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07 hereof;
Second: to Holders for amounts due and unpaid on the Securities
for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any
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kind, according to the amounts due and payable on the Securities for
principal, premium, if any, and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment
to Holders pursuant to this Article 6.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
SECTION 7.01 DUTIES OF TRUSTEE
(1) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in such exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(2) Except during the continuance of an Event of Default:
(a) the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee pursuant to and conforming to the
requirements of this Indenture. However, the Trustee shall examine
the certificates and opinions to determine whether or not, on their
face, they appear to conform to the requirements of this Indenture.
(3) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
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(a) this paragraph does not limit the effect of paragraph (2)
of this Section 7.01;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or other officer,
unless it is proved that the Trustee was negligent in ascertaining
the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Sections 6.02 or 6.05 hereof.
(4) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (1), (2), (3) and (5) of this Section 7.01.
(5) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee is not
obligated to perform any duty or exercise any right or power under this
Indenture at the request of the Holders of the Securities unless it receives an
offer from such Holders of security and indemnity satisfactory to it against any
loss, liability or expense (including, without limitation, fees of counsel).
(6) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02 RIGHTS OF TRUSTEE
(1) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may
require receipt of an Officers' Certificate or an Opinion of Counsel or both.
The Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the advice of such counsel (to be promptly
confirmed in writing) or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder and in reliance thereon.
(3) The Trustee may act through agents, attorneys, custodians and
nominees and shall not be responsible for the misconduct or negligence of any
such agent, attorney, custodian or nominee appointed with due care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture.
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(5) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Guarantor shall be
sufficient if signed by an Officer of the Company or such Guarantor.
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any of
its Affiliates with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. However, the Trustee is subject to
Sections 7.10 and 7.11 hereof.
SECTION 7.04 TRUSTEE'S DISCLAIMER
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities or any money paid to the
Company or upon the Company's direction under any provision hereof, it shall not
be responsible for the use or application of any money received by any Paying
Agent other than the Trustee and it shall not be responsible for any statement
or recital herein or any statement in the Securities other than its certificate
of authentication.
SECTION 7.05 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and if it
is actually known to a Responsible Officer of the Trustee, the Trustee shall
mail to each Holder a notice of the Default or Event of Default within 90 days
after it occurs or, if later, within ten days after such Default or Event of
Default becomes so known to the Trustee unless such Default or Event of Default
has been cured. Except in the case of a Default or Event of Default in payment
of principal of, premium and Liquidated Damages, if any, or interest on any
Security or that resulted from a failure to comply with Section 4.10 or 4.11
hereof, the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers determines in good faith that withholding the notice is in
the interests of the Holders.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS
Within 60 days after each June 1 beginning with June 1, 1996, the
Trustee shall mail to Holders a brief report dated as of such reporting date
that complies with TIA Sec. 313(a) (but if no event described in TIA Sec. 313(a)
has occurred within the twelve months preceding the reporting date, no report
need be transmitted). The Trustee also shall comply with TIA Sec. 313(b).
The Trustee also shall transmit by mail all reports as required by TIA Sec.
313(c).
A copy of each report at the time of its mailing to Holders shall
be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Trustee when the Securities are listed on
any stock exchange.
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SECTION 7.07 COMPENSATION AND INDEMNITY
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law relating to compensation
of a trustee of an express trust. The Company shall reimburse the Trustee
promptly upon request for all reasonable disbursements, advances and expenses
incurred by it. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Trustee and its
directors, officers, employees and agents against any loss, liability or expense
(including without limitation fees and expenses of counsel) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture including, without limitation, costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of its powers and duties hereunder, except as set forth in the
next paragraph. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a Lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay principal of,
premium and Liquidated Damages, if any, and interest on particular Securities.
Such Lien shall survive the satisfaction and discharge of the Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(6) or (7) hereof occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08 REPLACEMENT OF TRUSTEE
The Trustee may resign and be discharged from the trust hereby
created by so notifying the Company. The Holders of a majority in principal
amount of the then outstanding Securities may remove the Trustee by so notifying
the Trustee and the Company. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under
any Bankruptcy Law;
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(3) a Custodian or public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
The foregoing notwithstanding, a resignation or removal of the Trustee and
appointment of a successor Trustee shall become effective only upon the
successor Trustee's acceptance of appointment as provided in this Section 7.08,
and thereafter the Trustee shall have no liability for any acts or omissions of
any successor Trustee.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to the Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.
Subject to Section 7.10 hereof, if the Trustee consolidates, merges
or converts into, or transfers all or substantially all of its corporate trust
business to, another corporation or national banking association, the successor
entity without any further act shall be the successor Trustee. In case any
Securities have been authenticated, but not delivered, by the Trustee then in
office, any successor by merger, conversion or consolidation of such
authenticating trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor trustee had itself
authenticated such Securities.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any state thereof or the District of Columbia authorized under such
laws to exercise corporate trust powers, shall be subject to supervision or
examination by Federal or state (or the District of Columbia) authority
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and shall have a combined capital and surplus of at least $50 million as set
forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sec. 310(a)(1). The Trustee is subject to TIA Sec. 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Trustee is subject to TIA Sec. 311(a), excluding any creditor
relationship listed in TIA Sec. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Sec. 311(a) to the extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01 TERMINATION OF COMPANY'S AND GUARANTORS' OBLIGATIONS
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 hereof and the Trustee's and Paying
Agent's obligations under Section 8.03 hereof shall survive) when all
outstanding Securities theretofore authenticated and issued have been delivered
(other than destroyed, lost or stolen Securities that have been replaced or
paid) to the Trustee for cancellation and the Company has paid all sums payable
hereunder. In addition, the Company may terminate all of its obligations under
this Indenture if:
(1) the Company irrevocably deposits, or causes to be deposited,
in trust with the Trustee or the Paying Agent, or, at the option of
the Trustee, with a trustee satisfactory to the Trustee and the
Company under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee, money or U.S. Government
Obligations in an amount sufficient (without reinvestment thereof) to
pay principal and interest on the Securities to maturity or
redemption, as the case may be, as such amounts become due, and to pay
all other sums payable by it hereunder; provided that (i) the trustee
of the irrevocable trust shall have been irrevocably instructed to pay
such money or the proceeds of such U.S. Government Obligations to the
Trustee and (ii) the Trustee shall have been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Obligations
to the payment of said principal, premium and Liquidated Damages, if
any, and interest with respect to the Securities;
(2) the Company delivers to the Trustee an Officers' Certificate
stating that all conditions precedent to satisfaction and discharge of
this Indenture have been complied with, and an Opinion of Counsel to
the same effect;
(3) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; and
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(4) the Company shall have delivered to the Trustee an Opinion of
Counsel from nationally recognized counsel acceptable to the Trustee
or a tax ruling from the Internal Revenue Service to the effect that
the Holders of the Securities will not recognize income, gain or loss
for Federal income tax purposes as a result of the Company's exercise
of its option under this Section 8.01 and will be subject to Federal
income tax on the same amount and in the same manner and at the same
times as would have been the case if such option had not been
exercised.
In such event, this Indenture shall cease to be of further effect (except as
provided in the next succeeding paragraph), and the Trustee, on demand of the
Company, shall execute proper instruments acknowledging confirmation of and
discharge under this Indenture.
However, the Company's and the Guarantors' obligations in Sections
2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 4.06, 7.07, 7.08 and 8.04 hereof and the
Company's, the Guarantors', the Trustee's and Paying Agent's obligations in
Section 8.03 hereof, and the Trustee's rights under Article 7 hereof, shall
survive until the Securities are no longer outstanding. Thereafter, only the
Company's obligations in Section 7.07 hereof and the Trustee's and Paying
Agent's obligations in Section 8.03 hereof shall survive.
After such irrevocable deposit made pursuant to this Section 8.01
and satisfaction of the other conditions set forth herein, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified above.
In order to have money available on a payment date to pay principal
or interest on the Securities, the U.S. Government Obligations shall be payable
as to principal or interest on or before such payment date in such amounts as
will provide the necessary money. U.S. Government Obligations shall not be
callable at the issuer's option.
SECTION 8.02 APPLICATION OF TRUST MONEY
The Trustee or a trustee satisfactory to the Trustee and the
Company shall hold in trust money or U.S. Government Obligations deposited with
it pursuant to Section 8.01 hereof. It shall apply the deposited money and the
money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of and interest on
the Securities.
SECTION 8.03 REPAYMENT TO COMPANY
The Trustee and the Paying Agent shall promptly pay to the Company
upon written request any excess money or securities held by them at any time,
provided that nothing remains owed to the Trustee pursuant to this Indenture.
The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal or interest
that remains unclaimed for two years after the date upon which such payment
shall have become due; provided that the Company shall
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have either caused notice of such payment to be mailed to each Holder entitled
thereto no less than 30 days prior to such repayment or within such period shall
have published such notice in a financial newspaper of widespread circulation
published in The City of New York. After payment to the Company, Holders
entitled to the money must look to the Company for payment as general creditors
unless an applicable abandoned property law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 8.04 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.01 hereof by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money or U.S. Government Obligations in accordance with
Section 8.01 hereof; provided, that if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01 WITHOUT CONSENT OF HOLDERS
The Company and the Trustee may amend this Indenture, the
Securities or the Guarantee or waive any provision hereof or thereof without the
consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(3) to comply with Section 5.01 hereof;
(4) to make any change that would provide any additional rights
or benefits to the Holders or that does not adversely affect
the rights hereunder of any Holder; or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors authorizing the execution of any such supplemental indenture,
and upon receipt by the Trustee of the documents described in Section 9.06
hereof, the Trustee shall join with the
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Company in the execution of any supplemental indenture authorized or permitted
by the terms of this Indenture and make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into any supplemental indenture that, in its reasonable
discretion, affects its own rights, duties or immunities under this Indenture or
otherwise. After an amendment or waiver under this Section 9.01 becomes
effective, the Company shall mail to the Holders of each Security affected
thereby a notice briefly describing the amendment or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
SECTION 9.02 WITH CONSENT OF HOLDERS
Except as provided below in this Section 9.02, this Indenture, the
Securities or the Guarantee may be amended or supplemented, with the written
consent of the Holders of at least 51% in principal amount of the then
outstanding Securities (including consents obtained in connection with a tender
offer or exchange offer for Securities).
Upon the request of the Company, accompanied by a resolution of the
Board of Directors authorizing the execution of any such supplemental indenture,
and upon the filing with the Trustee of evidence of the consent of the Holders
as aforesaid, and upon receipt by the Trustee of the documents described in
Section 9.06 hereof, the Trustee shall join with the Company in the execution of
such supplemental indenture unless, in the Trustee's reasonable discretion, such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
The Holders of at least 51% in principal amount of the Securities
then outstanding may waive compliance in a particular instance by the Company
with any provision of this Indenture or the Securities (including waivers
obtained in connection with a tender offer for Securities) or any existing
default. However, without the consent of each Holder affected, an amendment or
waiver under this Section may not (with respect to any Securities held by a non-
consenting Holder):
(1) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any
Security or alter the provisions with respect to the
redemption or purchase price in connection with repurchases
under Sections 3.07, 3.08, 4.10 or 4.11 hereof;
(3) reduce the rate of or change the time for payment of interest
on any Security;
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(4) waive a Default or Event of Default in the payment of
principal of or premium and Liquidated Damages, if any, or
interest on the Securities or that resulted from a failure to
comply with Sections 4.10 or 4.11 hereof (except a rescission
of acceleration of the Securities by the Holders of at least
51% in aggregate principal amount of the Securities as
provided in Section 6.02 hereof);
(5) make any Securities payable in money other than that stated
in the Securities;
(6) make any change in Section 6.04 or 6.07 hereof or in this
sentence of this Section 9.02; or
(7) waive a redemption payment with respect to any Security.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of this Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Securities with respect to which such consent is required or sought as of
a date identified by the Trustee in a notice furnished to Holders in accordance
with the terms of this Indenture.
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment to this Indenture or the Securities shall comply in
form and substance with the TIA as then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS
Until an amendment (which includes any supplement) or waiver
becomes effective, a consent to it by a Holder of a Security is a continuing
consent by the Holder and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holder's Security, even
if notation of the consent is not made on any Security. However, any such
Holder or subsequent Holder may revoke the consent as to his or her Security or
portion of a Security if the Trustee receives written notice of revocation
before the date the amendment or waiver becomes effective. An amendment or
waiver becomes effective in accordance with its terms and thereafter binds every
Holder.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment
or waiver. If the Company elects to fix a record date for such purpose, the
record date shall be fixed at (i) the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders
furnished to the Trustee prior to such solicitation pursuant to Section 2.05
hereof, or (ii) such other date as the Company shall designate. If a record
date is fixed, then notwithstanding the provisions of the immediately preceding
paragraph, those Persons who were Holders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such amendment or waiver or to revoke any consent previously given, whether or
not such Persons continue to be Holders after such record date. No consent
shall be valid or effective for
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more than 90 days after such record date unless consents from Holders of the
principal amount of Securities required hereunder for such amendment or waiver
to be effective shall have also been given and not revoked within such 90-day
period.
After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in any of clauses (1) through (7) of
Section 9.02 hereof. In such case, the amendment or waiver shall bind each
Holder of a Security who has consented to it and every subsequent Holder of a
Security that evidences the same debt as the consenting Holder's Security.
SECTION 9.05 NOTATION ON OR EXCHANGE OF SECURITIES
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation about the changed
terms and return it to the Holder and the Trustee may place an appropriate
notation on any Security thereafter authenticated. Alternatively, if the
Company or Trustee so determines, the Company in exchange for all Securities
shall issue and the Trustee shall authenticate new Securities that reflect the
changed terms.
SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment does not, in the
Trustee's reasonable discretion, adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but need
not, sign it. In signing or refusing to sign such amendment or supplemental
indenture, the Trustee shall be entitled to receive and, subject to Section 7.01
hereof, shall be fully protected in relying upon, an Officers' Certificate and
an Opinion of Counsel as conclusive evidence that such amendment or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company in
accordance with its terms.
ARTICLE 10
GUARANTEE
SECTION 10.01 SUBSIDIARY GUARANTEE
Each of the Guarantors hereby, jointly and severally,
unconditionally guaranty to each Holder of a Security authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the
Securities or the obligations of the Company hereunder or thereunder, that:
(a) the principal of, and premium and Liquidated Damages, if any, and interest
on the Securities will be promptly paid in full when due, whether at maturity,
by acceleration, redemption or otherwise, and interest on the overdue principal
of, premium and Liquidated Damages, if any, and interest on the Securities, if
any, if lawful, and all other obligations of the Company to the Holders or the
Trustee hereunder or thereunder will be promptly paid in full or performed, all
in accordance with the terms hereof and thereof; and (b) in case of any
extension of time of payment or renewal
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of any Securities or any of such other obligations, the same will be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at stated maturity, by acceleration or otherwise; provided,
however, that the maximum liability of a Guarantor pursuant to this Guarantee
shall in no event exceed the Maximum Guaranteed Amount (as defined below).
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Guarantors will be jointly and severally
obligated to pay the same immediately. The Guarantors hereby agree that their
obligations hereunder shall be absolute and unconditional, irrespective of the
validity, regularity or enforceability of the Securities or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Securities with respect to any provisions hereof or thereof, the recovery
of any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor other than the defense that payment has been made or that
the other relevant obligations have been paid or performed. Each Guarantor
hereby waives diligence, presentment, demand of payment, claim of fraud, filing
of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice and
all demands whatsoever and covenant that this Guarantee will not be discharged
except by complete performance of the obligations contained in the Securities
and this Indenture. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or Guarantors, or any Custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
Guarantors, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 for
the purposes of this Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6, such obligations (whether or not due
and payable) shall forthwith become due and payable by the Guarantors for the
purpose of this Guarantee. The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Guarantee.
The "Maximum Guaranteed Amount" means, with respect to any
Guarantor, the greater of:
(i) the amount received by such Guarantor in respect of all loans,
advances or capital contributions made to such Guarantor with proceeds
from the Securities ("Security Proceeds"); all debt and/or equity
securities of such Guarantor acquired with Security Proceeds; the fair
market value of all property acquired with Security Proceeds and
transferred to such Guarantor; and, to the extent not included in the
foregoing, the fair market value of all contributions made to such
Guarantor net of any liabilities transferred to such Guarantor; and
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(ii) ninety-five percent (95%) of the Adjusted Net Worth of such
Guarantor as of the date of the execution and delivery of this
Guarantee (the "Guarantee Date").
The "Adjusted Net Worth" of a Guarantor as of the Guarantee Date
shall mean the excess of (a) the amount of the fair saleable value of the assets
of such Guarantor as of such date determined in accordance with applicable
federal and state laws governing determinations of the insolvency of debtors
over (b) the amount of all liabilities of such Guarantor, contingent or
otherwise, as of the Guarantee Date, determined on the basis provided in clause
(a) above (excluding all liabilities under this Guarantee).
Each Guarantor shall be subrogated to all rights of each Holder of
any Securities against the Company in respect of any amounts paid to the Holders
by such Guarantor pursuant to the provisions of this Guarantee; provided that
the Guarantors shall not be entitled to enforce, or to receive, any payments
arising out of or based upon, such right of subrogation until the principal of,
premium and Liquidated Damages, if any, and interest on all the Securities shall
have been paid in full and nothing remains owed to the Trustee pursuant to this
Indenture.
The Guarantee set forth in this Section 10.01 shall not be valid or
become obligatory for any purpose with respect to a Security until the
certificate of authentication on such Security shall have been signed by or on
behalf of the Trustee.
SECTION 10.02 EXECUTION AND DELIVERY OF GUARANTEE
To evidence its Guarantee set forth in Section 10.01 hereof, each
Guarantor hereby agrees that a notation of such Guarantee substantially in the
form of Exhibit A-1 shall be endorsed by an officer of such Guarantor on each
Security authenticated and delivered by the Trustee and that this Indenture
shall be executed on behalf of such Guarantor by its President or one of its
Vice Chairmen or Vice Presidents and attested to by an Officer.
Each Guarantor hereby agrees that its Guarantee set forth in
Section 10.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation of such Guarantee.
If an officer or Officer whose signature is on this Indenture or on
the Guarantee no longer holds that office at the time the Trustee authenticates
the Security on which a Guarantee is endorsed, the Guarantee shall be valid,
binding and enforceable nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Guarantee
set forth in this Indenture on behalf of the Guarantors.
SECTION 10.03 GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS
(a) Except as set forth in Articles 4 and 5 hereof, nothing
contained in this Indenture or in any of the Securities shall prevent any
consolidation or merger of a Guarantor with or into the Company or another
Guarantor or shall prevent any sale or conveyance of the property of a
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Guarantor as an entirety or substantially as an entirety, to the Company or
another Guarantor. Upon any such consolidation, merger, sale or conveyance, the
Guarantee given by such Guarantor shall no longer have any force or effect.
(b) Except as set forth in Articles 4 and 5 hereof, nothing
contained in this Indenture or in any of the Securities shall prevent any
consolidation or merger of a Guarantor with or into a corporation or
corporations other than the Company or another Guarantor (whether or not
affiliated with the Guarantor), or successive consolidations or mergers in which
a Guarantor or its successor or successors shall be a party or parties, or shall
prevent any sale or conveyance of the property of a Guarantor as an entirety or
substantially as an entirety, to a corporation other than the Company or another
Guarantor (whether or not affiliated with the Guarantor) authorized to acquire
and operate the same; provided that each such Guarantor is sold or disposed of
for fair market value, evidenced by a resolution of the Board of Directors set
forth in an Officer's Certificate delivered to the Trustee; and provided,
further, that the foregoing proviso shall not apply to the sale or disposition
of a Guarantor in a foreclosure proceeding to the extent that such proviso would
be inconsistent with the Uniform Commercial Code. Upon any such consolidation,
merger, sale or conveyance, the Guarantee given by such Guarantor shall no
longer have any force or effect.
SECTION 10.04 RELEASES FOLLOWING SALE OF ASSETS
Concurrently with any sale of assets (including, if applicable, all
of the capital stock of any Guarantor), any Liens in favor of the Trustee in the
assets sold thereby shall be released; provided that any such assets are sold or
disposed of for fair market value, evidenced by a resolution of the Board of
Directors set forth in an Officer's Certificate delivered to the Trustee and,
provided, further, that, the foregoing proviso shall not apply to the sale or
disposition of a Guarantor in a foreclosure proceeding to the extent that such
proviso would be inconsistent with the Uniform Commercial Code. If the assets
sold in such sale or other disposition include all or substantially all of the
assets of any Guarantor or all of the capital stock of any Guarantor, then such
Guarantor (in the event of a sale or other disposition of all of the capital
stock of such Guarantor) or the corporation acquiring the property and such
Guarantor (in the event of a sale or other disposition of all or substantially
all of the assets of a Guarantor) shall automatically be released and relieved
of its obligations under this Article 10, provided that any such sale or
disposition of all or substantially all of the assets of a Guarantor is sold or
disposed of for fair market value, evidenced by a resolution of the Board of
Directors set forth in an Officer's Certificate delivered to the Trustee and,
provided, further, that the foregoing proviso shall not apply to the sale or
disposition of a Guarantor in a foreclosure proceeding to the extent that such
proviso would be inconsistent with the Uniform Commercial Code. Upon delivery
by the Company to the Trustee of an Officers' Certificate and an Opinion of
Counsel to the effect that such sale or other disposition was made by the
Company in accordance with the provisions of this Indenture, the Trustee shall
execute any documents reasonably required in order to evidence the release of
any Guarantor from its obligations under its Guarantee. Any Guarantor not
released from its obligations under its Guarantee shall remain liable for the
full amount of principal of and interest on the Securities and for the other
obligations of any Guarantor under the Indenture as provided in this Article 10.
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SECTION 10.05 "TRUSTEE" TO INCLUDE PAYING AGENT
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article 10 shall in such case (unless the context
shall otherwise require) be construed as extending to and including such Paying
Agent within its meaning as fully and for all intents and purposes as if such
Paying Agent were named in this Article 10 in place of the Trustee.
SECTION 10.06 ADDITIONAL SUBSIDIARY GUARANTEES
The Company shall (a) cause each Subsidiary which, after the date
of this Indenture (if not then a Guarantor), becomes a Restricted Subsidiary to
execute a Guarantee of the Obligations of the Company hereunder in the form set
forth in this Article 10 hereof and Exhibit A-1 hereto, provided that no
Subsidiary organized outside of the United States of America and no Unrestricted
Subsidiary shall be required to be a Guarantor, and (b) deliver to the Trustee
an Opinion of Counsel, in form reasonably satisfactory to the Trustee, that such
Subsidiary Guarantee is a valid, binding and enforceable obligation of such
Restricted Subsidiary, subject to customary exceptions for bankruptcy,
fraudulent conveyance and equitable principles and the implied covenant of good
faith and fair dealing.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or conflicts
with another provision which is required to be included herein by any of
Sections 310 to 317 inclusive of the TIA, such required provisions shall
control.
SECTION 11.02 NOTICES
Any notice or communication by the Company, the Guarantors or the
Trustee to the other is duly given if in writing and delivered in person or
mailed by first-class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the other's address:
If to the Company or the Guarantors:
K-III Communications Corporation
745 Fifth Avenue
New York, New York 10151
Attention: General Counsel
Telecopier No.: (212) 745-0199
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With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Gary I. Horowitz, Esq.
Telecopier No.: (212) 455-2502
If to the Trustee:
The Bank of New York
101 Barclay Street -- 21W
New York, New York 10286
Attention: Corporate Trust Administration
Telecopier No.: (212) 815-5915/5917
The Company, the Guarantors or the Trustee by notice to the other
may designate additional or different addresses for subsequent notices or
communications.
All notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first-class mail, certified or registered, return receipt requested, to the
Holder's address shown on the register kept by the Registrar. Failure to mail a
notice or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS
Holders may communicate pursuant to TIA Sec. 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
The Company, the Guarantors, the Trustee, the Registrar and anyone else shall
have the protection of TIA Sec. 312(c).
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SECTION 11.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company and/or any
Guarantors to the Trustee to take any action under this Indenture, the Company
and/or such Guarantor as the case may be shall furnish to the Trustee:
(1) an Officers' Certificate (which shall include the statements
set forth in Section 11.05 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any, provided for
in this Indenture relating to the proposed action have been complied
with; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 11.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
complied with.
SECTION 11.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Sec. 314(a)(4)) shall include:
(1) a statement that the Person making such certificate or
opinion has read and understands such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with; provided
that with respect to matters of fact Opinions of Counsel may rely on
an Officers' Certificate or certificates of public officials.
SECTION 11.06 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.07 LEGAL HOLIDAYS
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment,
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payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 11.08 NO RECOURSE AGAINST OTHERS
No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities, this Indenture or the Guarantees or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of the Securities by accepting the Securities waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Securities.
SECTION 11.09 GOVERNING LAW
This Indenture, the Securities and the Guarantee shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of law.
SECTION 11.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or a Subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.11 SUCCESSORS
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 11.12 SEVERABILITY
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.13 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.14 TRUSTEE AS PAYING AGENT AND REGISTRAR
The Company initially appoints the Trustee as Paying Agent and
Registrar. The provisions regarding the indemnification of the Trustee set
forth in Section 7.07 shall also apply to the Trustee in its capacity as Paying
Agent and Registrar hereunder.
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SECTION 11.15 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 11.16 BANK OF NEW YORK NOT ACTING IN INDIVIDUAL CAPACITY
Notwithstanding anything to the contrary contained herein, this
Indenture has been accepted by The Bank of New York not in its individual
capacity but solely as Trustee and in no event shall The Bank of New York have
any liability for the representations, warranties, covenants, agreements or
other obligations of the Company herein or in any of the certificates, notices
or agreements delivered by the Company pursuant hereto, as to all of which
recourse shall be had solely to the assets of the Company, and under no
circumstances shall The Bank of New York be personally liable for the payment of
any indebtedness or expenses of the Company.
SECTION 11.17 ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES
In addition to the rights provided to Holders of Securities under
the Indenture, Holders of Transfer Restricted Securities shall have all the
rights set forth in the Registration Rights Agreement.
[Signatures on Following Pages]
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SIGNATURES
K-III COMMUNICATIONS CORPORATION
Dated as of January 24, 1996 By: /s/ Beverly C. Chell
---------------------------------
Name: Beverly C. Chell
Title: Vice Chairman and
Secretary
ARGUS PUBLISHERS CORPORATION
AUTOSTAR PRODUCTIONS, INC.
BACON'S INFORMATION, INC.
CHANNEL ONE COMMUNICATIONS
CORPORATION
DAILY RACING FORM, INC.
DRF FINANCE, INC.
THE ELECTRONICS SOURCE BOOK, INC.
FUNK & WAGNALLS YEARBOOK CORP.
HAAS PUBLISHING COMPANIES, INC.
INTERMODAL PUBLISHING COMPANY, LTD.
INTERTEC MARKET REPORTS, INC.
INTERTEC PRESENTATIONS, INC.
INTERTEC PUBLISHING CORPORATION
THE KATHARINE GIBBS SCHOOLS, INC.
THE KATHARINE GIBBS SCHOOLS OF
MONTCLAIR, INC.
THE KATHARINE GIBBS SCHOOLS OF
NORWALK, INC.
THE KATHARINE GIBBS SCHOOLS OF
PISCATAWAY, INC.
THE KATHARINE GIBBS SCHOOLS OF
PROVIDENCE, INC.
K-III KG - MASSACHUSETTS
K-III KG CORPORATION - NEW YORK I
K-III KG CORPORATION - NEW YORK II
K-III DIRECTORY CORPORATION
K-III HOLDINGS CORPORATION III
K-III HPC, INC.
K-III MAGAZINE CORPORATION
K-III MAGAZINE FINANCE CORPORATION
K-III PRIME CORPORATION
K-III REFERENCE CORPORATION
KRAMES COMMUNICATIONS INCORPORATED
LIFETIME LEARNING SYSTEMS, INC.
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MCMULLEN ARGUS PUBLISHING
MH WEST, INC.
MUSICAL AMERICA PUBLISHING, INC.
NELSON PUBLICATIONS, INC.
NEWBRIDGE COMMUNICATIONS, INC.
PARAMOUNT PUBLISHING INC.
PJS PUBLICATIONS INC.
R.E.R. PUBLISHING CORPORATION
STAGEBILL, INC.
SYMBOL OF EXCELLENCE PUBLISHERS, INC.
WEEKLY READER CORPORATION,
AS GUARANTORS
Dated as of January 24, 1996 By: /s/ Beverly C. Chell
---------------------------------
Name: Beverly C. Chell
Title: Secretary
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THE BANK OF NEW YORK,
as Trustee
Dated as of January 24, 1996 By: /s/ Mary Jane Morrissey
---------------------------------
Name: Mary Jane Morrissey
Title: Assistant Vice President
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<PAGE>
EXHIBIT A
8 1/2% SENIOR NOTES DUE 2006
CUSIP 482727AC8
No. $__________
K-III COMMUNICATIONS CORPORATION, a Delaware corporation (herein called the
"Company"), for value received hereby promises to pay to
or registered assigns,
the principal sum of
Dollars on February 1, 2006.
Interest Payment Dates: February 1 and August 1
Record Dates: January 15 and July 15
Reference is hereby made to the further provisions of this Senior Note due 2006
set forth on the reverse side hereof and such further provisions shall for all
purposes have the same effect as if set forth on the front side hereof.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed
manually or by facsimile and its corporate seal to be affixed hereto or
imprinted hereon.
Dated:
-----------------------
CERTIFICATE OF AUTHENTICATION:
This is one of the Securities referred
to in the within mentioned Indenture.
THE BANK OF NEW YORK, K-III COMMUNICATIONS CORPORATION
as Trustee
By By:
---------------------- ------------------------------------------
Authorized Signatory (President)
(SEAL)
By:
---------------------------------------
(Secretary)
<PAGE>
8 1/2% SENIOR NOTES DUE 2006
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.]1/
-
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH
IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
"INSTITUTIONAL ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT
IT WILL NOT, WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
COMPANY OR MORGAN STANLEY & CO. INCORPORATED, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, OR SALOMON BROTHERS INC, (B) INSIDE
THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE COMPANY) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN
$1,000,000 AN OPINION OF COUNSEL, ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN
--------------------
1/ This paragraph should be included only if the Note is issued
-
in global form.
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COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER
THE ORIGINAL ISSUANCE OF THE SECURITY. IF THE PROPOSED TRANSFEREE IS
AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER FURNISH TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS MAY REASONABLY BE REQUIRED TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.2/
-
Capitalized terms used herein have the meaning assigned to them in
the Indenture unless otherwise indicated.
1. INTEREST; LIQUIDATED DAMAGES. The Company promises to pay
interest on the principal amount of this Security at 8 1/2% per annum from the
date of issuance until maturity and shall pay the Liquidated Damages payable
pursuant to Section 5 of the Registration Rights Agreement. The Company will
pay interest and Liquidated Damages, if any, semi-annually on February 1 and
August 1 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Securities will accrue from the most recent date on which interest has been
paid or, if no interest has been paid, from the date of issuance; provided
that if there is no existing Default in the payment of interest, and if this
Security is authenticated between a record date referred to on the face hereof
and the next succeeding Interest Payment Date, interest shall accrue from such
next succeeding Interest Payment Date; provided, further, that the first
Interest Payment Date shall be August 1, 1996. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue principal and premium, if any, from time to time on demand at the
same rate per annum on the Securities to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
--------------------
2/ This legend applies only to Series A Notes, not Series B
-
Notes.
A-3
<PAGE>
2. METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) and premium and Liquidated Damages, if
any, to the Persons who are registered Holders of Securities at the close of
business on the January 15 or July 15 next preceding the Interest Payment Date,
even if such Securities are cancelled after such record date and on or before
such Interest Payment Date. The Securities will be payable as to principal,
premium, interest and Liquidated Damages at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest, premium and Liquidated
Damages may be made by check mailed to the Holders of the Securities at their
addresses set forth in the register of Holders of Securities.
3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-registrar without notice to
any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Securities under an
Indenture dated as of January 24, 1996 (the "Indenture") among the Company, the
Guarantors and the Trustee. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the TIA (15
U.S. Code Sec.Sec. 77aaa-77bbbb). The Securities are subject to all such terms,
and Holders are referred to the Indenture and such Act for a statement of such
terms. The Securities are senior obligations of the Company limited to $300
million in aggregate principal amount, plus premiums and Liquidated Damages, if
any, plus amounts, if any, sufficient to pay interest on outstanding Securities
as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
(a) The Company may redeem all or any of the Securities in whole
or in part, at any time on or after February 1, 2001, at a redemption price
equal to the percentage of the principal amount thereof plus accrued and unpaid
interest to the redemption date as indicated in Section 3.07 of the Indenture.
(b) The Company may redeem all or any of the Securities, in whole
or in part, at any time within 160 days after a Change of Control, upon not less
than 30 nor more than 60 days' prior notice to each Holder of Securities to be
redeemed at a redemption price equal to the sum of (i) the then outstanding
principal amount thereof plus Liquidated Damages, if any, plus (ii) accrued and
unpaid interest, if any, to the redemption date plus (iii) the Applicable
Premium.
6. MANDATORY OFFERS TO REPURCHASE; ASSET SALES.
(a) Upon the occurrence of a Change of Control, the Company will
be required to offer (a "Change of Control Offer") to purchase all outstanding
Securities at a purchase price equal to 101% of the aggregate principal amount
of such Securities, plus premium, Liquidated damages and accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment").
The Change of Control Offer shall remain open for a period of 20 Business Days
after its commencement unless a longer offering period is required by law. No
earlier than 30 days nor later than 40 days after the notice of the Change of
Control Offer has been mailed (the
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"Change of Control Payment Date"), the Company shall deposit, to the extent
lawful, with the Paying Agent an amount equal to the Change of Control Payment
in respect of all Securities or portions thereof tendered by Holders. The
Paying Agent shall promptly mail or deliver payment for all Securities tendered
in the Change of Control Offer.
A Holder of Securities may tender or refrain from tendering all or
any portion of his Securities at his discretion by completing the form entitled
"OPTION OF HOLDER TO ELECT PURCHASE" appearing on this Security. Any portion of
Securities tendered must be in integral multiples of $1,000.
(b) The Company is required to apply 100% of the Net Proceeds of
any Asset Sale (including the sale of stock of any Subsidiary) first to repay
Obligations or reduce commitments under the Credit Agreements, second to offer
to redeem at par the Outstanding Notes and third to offer to redeem at par the
Securities.
7. NOTICE OF REDEMPTION. Notice of any redemption pursuant to
Section 3.07 or 3.08 of the Indenture will be mailed by first class mail at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Securities are to be redeemed at its registered address.
Securities in denominations larger than $1,000 may be redeemed in part but only
in whole multiples of $1,000, unless all of the Securities held by a Holder are
to be redeemed. On and after the redemption date interest ceases to accrue on
Securities or portions thereof called for redemption.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. 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 and fees required by law or permitted by the Indenture. The Company
need not exchange or register the transfer of any Security or portion of a
Security selected for redemption, except the unredeemed portion of any Security
being redeemed in part. Also, it need not exchange or register the transfer of
any Securities for a period of 15 days before a selection of Securities to be
redeemed or during the period between a record date and the corresponding
Interest Payment Date.
9. PERSONS DEEMED OWNERS. The registered Holder of a Security may
be treated as its owner for all purposes.
10. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture, the Securities or the Guarantee may be amended or supplemented and
any existing Default under, or compliance with any provision of, the Indenture
may be waived with the consent of the Holders of at least 51% in principal
amount of the Securities then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Securities). Without the
consent of any Holder, the Company and the Trustee may amend or supplement the
Indenture or the Securities to cure any ambiguity, defect or inconsistency; to
provide for uncertificated Securities in addition to or in place of certificated
Securities; to comply with Section 5.01 of the Indenture; to make any change
that would provide any additional rights or benefits to the Holders of the
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<PAGE>
Securities or that does not adversely affect the legal rights under the
Indenture of any such Holder; or to comply with requirements of the SEC in order
to effect or maintain the qualification of the Indenture under the TIA.
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Securities held by a non-consenting Holder of
Securities) (i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Security or alter the provisions with respect
to the redemption or purchase price in connection with repurchases under
Sections 3.07, 3.08, 4.10 or 4.11 of the Indenture, (iii) reduce the rate of or
change the time for payment of interest on any Security, (iv) waive a Default or
Event of Default in the payment of principal of or premium or Liquidated
Damages, if any, or interest on the Securities or that resulted from a failure
to comply with Sections 4.10 or 4.11 of the Indenture (except a rescission of
acceleration of the Securities by the Holders of at least 51% in aggregate
principal amount of the Securities as provided in Section 6.02 of the
Indenture), (v) make any Securities payable in money other than that stated in
the Securities, (vi) make any change in Section 6.04 or 6.07 of the Indenture or
this sentence, and or (vii) waive a redemption payment with respect to any
Security.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of the Indenture or this Security (and the
obligation of the Company to obtain any such consent otherwise required from
such Holder) may be subject to the requirement that such Holder shall have been
the Holder of record of any Securities with respect to which such consent is
required or sought as of a date identified by the Trustee in a notice furnished
to Holders in accordance with the terms of the Indenture.
11. DEFAULTS AND REMEDIES. Events of Default include: default in
payment of interest or Liquidated Damages on the Securities for 30 days; default
in payment of the principal or premium of any Security at maturity, or upon
acceleration, redemption or otherwise; failure by the Company for 30 days after
written notice to it from the Trustee, or after written notice to it and the
Trustee from Holders of at least 25% in principal amount of the then outstanding
Securities, to comply with any of its other agreements in the Indenture or the
Securities; certain defaults under other Indebtedness; certain final judgments
that remain undischarged for 60 days after being entered; certain events of
bankruptcy or insolvency; and, except as permitted by the Indenture and the
Securities, the Guarantees are held in any judicial proceeding to be
unenforceable or invalid or otherwise cease for any reason to be in full force
and effect with respect to any Guarantor or any Guarantor denies or disaffirms
its obligations under its Guarantee. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities may declare all the Securities to be immediately
due and payable for an amount equal to 100% of the principal amount of the
Securities plus premium and Liquidated Damages, if any, and accrued interest to
the date of payment, except that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Securities become
due and payable immediately without further action or notice. Holders may not
enforce the Indenture or the Securities except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in principal
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<PAGE>
amount of the then outstanding Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders notice of any
continuing Default or Event of Default (except a Default or an Event of Default
in payment of principal, premium or Liquidated Damages, if any, or interest or
that resulted from a failure to comply with Section 4.10 or 4.11 of the
Indenture) if and so long as a committee of its Responsible Officers determines
in good faith that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
12. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
13. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or shareholder of the Company, as such, shall have any liability
for any obligations of the Company under the Securities, this Indenture or the
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of the Securities by accepting the
Securities waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Securities.
14. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
15. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
16. GUARANTORS. Payment of principal, premium and Liquidated
Damages, if any, and interest (including interest on overdue principal of,
premium, if any, and interest, if lawful) is unconditionally guaranteed by each
of the Guarantors.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
K-III COMMUNICATIONS CORPORATION
745 Fifth Avenue
New York, New York 10151
Attention: Treasurer
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
to transfer this Security on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
----------------
Your Signature:
----------------------
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee.
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section or 4.10 or 4.11 of the Indenture, check the appropriate box:
________ Section 4.10 ________ Section 4.11
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 4.10 or 4.11 of the Indenture, state the amount
you elect to have purchased: $___________
Date: Your Signature:
----------------- ----------------------------
(Sign exactly as your name appears on the Security)
Signature Guarantee.
A-9
<PAGE>
SCHEDULE OF EXCHANGES FOR DEFINITIVE NOTES3/
-
The following exchanges of a part of this Global Note for
definitive Notes have been made:
<TABLE><CAPTION>
Amount of Principal Amount of this Signature of
Amount of decrease in increase in Global Note authorize officer of
Date of Principal Amount of Principal Amount of following such decrease Trustee or Note
Exchange this Global Note this Global Note (or increase) Custodian
-------- --------------------- ------------------ ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
--------------------
3/ This should be included only if the Note is issued in global
-
form.
A-10
<PAGE>
EXHIBIT A-1
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
GUARANTEE
Each of the corporations listed below (hereinafter referred to as
the "Guarantors", which term includes any successor or additional Guarantor
under the Indenture (the "Indenture") referred to in the Security upon which
this notation is endorsed) (i) has jointly and severally, unconditionally
guaranteed that (a) the principal of, and premium, if any, and interest on the
Securities will be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of,
premium, if any, and interest on the Securities, if any, if lawful, and all
other obligations of the Company to the Holders or the Trustee will be promptly
paid in full or performed, all in accordance with the terms hereof and as set
forth in the Indenture; and (b) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration, or otherwise;
provided, however, that the maximum liability of a Guarantor pursuant to this
Guarantee shall in no event exceed the Maximum Guaranteed Amount (as defined
below). Capitalized terms used herein have the meanings assigned to them in the
Indenture unless otherwise indicated.
The "Maximum Guaranteed Amount" means, with respect to any
Guarantor, the greater of:
(i) the amount received by such Guarantor in respect of all loans,
advances or capital contributions made to such Guarantor with proceeds
from the Securities ("Security Proceeds"); all debt and/or equity
securities of such Guarantor acquired with Security Proceeds; the fair
market value of all property acquired with Security Proceeds and
transferred to such Guarantor; and, to the extent not included in the
foregoing, the fair market value of all contributions made to such
Guarantor net of any liabilities transferred to such Guarantor; and
(ii) ninety-five percent (95%) of the Adjusted Net Worth of such
Guarantor as of the date of the execution and delivery of this
Guarantee (the "Guarantee Date").
The Adjusted Net Worth of a Guarantor as of the Guarantee Date
shall mean the excess of (a) the amount of the fair saleable value of the assets
of such Guarantor as of such date determined in accordance with applicable
federal and state laws governing determinations of the insolvency of debtors
over (b) the amount of all liabilities of such Guarantor, contingent or
otherwise, as of the Guarantee Date, determined on the basis provided in clause
(a) above (excluding all liabilities under this Guarantee).
A-1-1
<PAGE>
No stockholder, officer, director, employer or incorporator, past,
present or future, of the Guarantors, as such, shall have any personal liability
under this Guarantee by reason of his or its status as such stockholder,
officer, director, employer or incorporator.
This Guarantee shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
This Guarantee shall not be valid or obligatory for any purpose
with respect to a Security until the certificate of authentication on the
Security upon which this Guarantee is noted shall have been executed by or on
behalf of the Trustee under the Indenture by the manual signature of one of its
authorized signatories.
A-1-2
<PAGE>
ARGUS PUBLISHERS CORPORATION
AUTOSTAR PRODUCTIONS, INC.
BACON'S INFORMATION, INC.
CHANNEL ONE COMMUNICATIONS
CORPORATION
DAILY RACING FORM, INC.
DRF FINANCE, INC.
THE ELECTRONICS SOURCE BOOK, INC.
FUNK & WAGNALLS YEARBOOK CORP.
HAAS PUBLISHING COMPANIES, INC.
INTERMODAL PUBLISHING COMPANY, LTD.
INTERTEC MARKET REPORTS, INC.
INTERTEC PRESENTATIONS, INC.
INTERTEC PUBLISHING CORPORATION
THE KATHARINE GIBBS SCHOOLS, INC.
THE KATHARINE GIBBS SCHOOLS OF
MONTCLAIR, INC.
THE KATHARINE GIBBS SCHOOLS OF
NORWALK, INC.
THE KATHARINE GIBBS SCHOOLS OF
PISCATAWAY, INC.
THE KATHARINE GIBBS SCHOOLS OF
PROVIDENCE, INC.
K-III KG - MASSACHUSETTS
K-III KG CORPORATION - NEW YORK
K-III KG CORPORATION - NEW YORK II
K-III DIRECTORY CORPORATION
K-III HOLDINGS CORPORATION III
K-III HPC, INC.
K-III MAGAZINE CORPORATION
K-III MAGAZINE FINANCE CORPORATION
K-III PRIME CORPORATION
K-III REFERENCE CORPORATION
KRAMES COMMUNICATIONS INCORPORATED
LIFETIME LEARNING SYSTEMS, INC.
MADRIGAL PUBLISHING COMPANY, INC.
MCMULLEN ARGUS PUBLISHING
MH WEST, INC.
MUSICAL AMERICA PUBLISHING, INC.
NELSON PUBLICATIONS, INC.
NEWBRIDGE COMMUNICATIONS, INC.
PARAMOUNT PUBLISHING INC.
PJS PUBLICATIONS INC.
R.E.R. PUBLISHING CORPORATION
STAGEBILL, INC.
A-1-3
<PAGE>
SYMBOL OF EXCELLENCE PUBLISHERS, INC.
WEEKLY READER CORPORATION,
AS GUARANTORS
By:
------------------------------------
Name:
Title:
A-1-4
<PAGE>
SCHEDULE I
State or other
Exact Name of Jurisdiction of
Guarantor as specified Incorporation or
in its Charter Organization
-------------------------------- ------------------
Argus Publishers Corporation California
Autostar Productions, Inc. California
Bacon's Information, Inc. Delaware
Channel One Communications Corporation Delaware
Daily Racing Form, Inc. Delaware
DRF Finance, Inc. Delaware
The Electronics Source Book, Inc. Delaware
Funk & Wagnalls Yearbook Corp. Delaware
Haas Publishing Companies, Inc. Delaware
Intermodal Publishing Company, Ltd. New York
Intertec Market Reports, Inc. Delaware
Intertec Presentations, Inc. Colorado
Intertec Publishing Corporation Delaware
The Katharine Gibbs Schools, Inc. Delaware
The Katharine Gibbs Schools of
Montclair, Inc New Jersey
The Katharine Gibbs Schools of
Norwalk, Inc. Connecticut
The Katharine Gibbs Schools of
Piscataway, Inc. New Jersey
The Katharine Gibbs Schools of
Providence, Inc. Rhode Island
K-III Directory Corporation Delaware
K-III Holdings Corporation III Delaware
K-III HPC, Inc. Delaware
K-III KG Corporation--Massachusetts Massachusetts
K-III KG Corporation--New York I New York
K-III KG Corporation--New York II New York
K-III Magazine Corporation Delaware
K-III Magazine Finance Corporation Delaware
K-III Prime Corporation Delaware
K-III Reference Corporation Delaware
Krames Communications Incorporated Delaware
Lifetime Learning Systems, Inc. Delaware
McMullen Argus Publishing California
MH West, Inc. California
Musical America Publishing, Inc. Delaware
Nelson Publications, Inc. Delaware
A-1-1
<PAGE>
Newbridge Communications, Inc. Delaware
Paramount Publishing, Inc. California
PJS Publications, Inc. Delaware
R.E.R. Publishing Corporation New York
Stagebill, Inc. Delaware
Symbol of Excellence Publishers, Inc. Alabama
Weekly Reader Corporation Delaware
A-I-2
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF SECURITIES
Re: 8 1/2% Senior Notes due 2006 of K-III Communications Corporation (the
"Securities").
This Certificate relates to $_____ principal amount of
Securities held by ______ (the "Transferor").
The Transferor has requested the Trustee by written order to
exchange or register the transfer of a Security or Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that Transferor is familiar with
the Indenture relating to the above captioned Securities and as provided in
Section 2.06 of such Indenture, the transfer of this Security does not require
registration under the Securities Act (as defined below) because:*
_________ Such Security is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 2.06(a)(ii)(A) of the
Indenture).
_________ Such Security is being transferred to a qualified
institutional buyer (as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act")) or an institutional accredited investor
within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act,
in reliance on Rule 144A (in satisfaction of Section 2.06(a)(ii)(B) of the
Indenture).
_________ Such Security is being transferred in accordance with Rule
144 or Rule 145 or Regulation S under the Securities Act, or pursuant to an
effective registration statement under the Securities Act (in satisfaction of
Section 2.06(a)(ii)(B) of the Indenture).
-----------------------------------
[INSERT NAME OF TRANSFEROR]
By:
--------------------------------
Date:
-----------------------------------------------
*Check applicable box.
B-1
EXHIBIT 4.2
- ---------------------------------------------------------------------------
K-III COMMUNICATIONS CORPORATION
$200,000,000
10% Subordinated Exchange Debentures due 2008
Class C and Class D
_____________
INDENTURE
Dated as of _______ __, ____
_____________
THE BANK OF NEW YORK
Subordinated Debenture Trustee
- ---------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
----------- -----------------
310(a)(1) . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . .
7.08;7.10;
(b) . . . . . . . . . . . . . . . . . . . . . .
11.02
(c) . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . .
7.06;11.02
(d) . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . .
4.03;11.02
(b) . . . . . . . . . . . . . . . . . . . . . .
N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . 7.01(2)
(b) . . . . . . . . . . . . . . . . . . . . . .
7.05;11.02
(c) . . . . . . . . . . . . . . . . . . . . . . 7.01(1)
(d) . . . . . . . . . . . . . . . . . . . . . . 7.01(3)
(e) . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . 9.04
317(a)(1) . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Other Definitions . . . . . . . . . . . . . . . . . 7
Section 1.03 Incorporation by Reference of Trust Indenture
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.04 Rules of Construction . . . . . . . . . . . . . . . 8
ARTICLE 2
THE SECURITIES
Section 2.01 Form and Dating . . . . . . . . . . . . . . . . . . 8
Section 2.02 Execution and Authentication . . . . . . . . . . . 8
Section 2.03 Registrar and Paying Agent . . . . . . . . . . . . 9
Section 2.04 Paying Agent to Hold Money in Trust . . . . . . . . 9
Section 2.05 Holder Lists . . . . . . . . . . . . . . . . . . . 9
Section 2.06 Transfer and Exchange . . . . . . . . . . . . . . . 10
Section 2.07 Replacement Securities . . . . . . . . . . . . . . 12
Section 2.08 Outstanding Securities . . . . . . . . . . . . . . 13
Section 2.09 Treasury Securities . . . . . . . . . . . . . . . . 13
Section 2.10 Temporary Securities . . . . . . . . . . . . . . . 13
Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . 13
Section 2.12 Defaulted Interest . . . . . . . . . . . . . . . . 14
ARTICLE 3
OPTIONAL REDEMPTION OPTIONAL REDEMPTION UPON CHANGE OF
CONTROL AND OPTIONAL REDEMPTION UPON A PUBLIC EQUITY OFFERING
Section 3.01 Notices to Subordinated Debenture Trustee . . . . . 14
Section 3.02 Selection of Securities to Be Redeemed . . . . . . 14
Section 3.03 Notices to Holders . . . . . . . . . . . . . . . . 15
Section 3.04 Effect of Notice of Redemption . . . . . . . . . . 15
Section 3.05 Deposit of Redemption Price or Purchase Price . . . 16
Section 3.06 Securities Redeemed in Part . . . . . . . . . . . . 16
Section 3.07 Optional Redemption . . . . . . . . . . . . . . . . 16
Section 3.08 Optional Redemption Upon Change of Control . . . . 17
ARTICLE 4
COVENANTS
Section 4.01 Payment of Securities . . . . . . . . . . . . . . . 17
Section 4.02 Maintenance of Office or Agency . . . . . . . . . . 18
Section 4.03 SEC Reports; Financial Statements . . . . . . . . . 18
Section 4.04 Compliance Certificate . . . . . . . . . . . . . . 19
Section 4.05 Compliance With Laws, Taxes . . . . . . . . . . . . 19
Section 4.06 Stay, Extension and Usury Laws . . . . . . . . . . 20
<PAGE>
Page
Section 4.07 Limitations on Restricted Payments . . . . . . . . 20
Section 4.08 Change of Control . . . . . . . . . . . . . . . . . 20
Section 4.09 Transactions With Affiliates . . . . . . . . . . . 21
Section 4.10 Corporate Existence. . . . . . . . . . . . . . . . 22
Section 4.11 Rule 144A Information Requirement . . . . . . . . . 22
ARTICLE 5
SUCCESSORS
Section 5.01 Merger, Consolidation, or Sale of Assets . . . . . 23
Section 5.02 Successor Corporation Substituted . . . . . . . . . 23
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default . . . . . . . . . . . . . . . . . 23
Section 6.02 Acceleration . . . . . . . . . . . . . . . . . . . 25
Section 6.03 Other Remedies . . . . . . . . . . . . . . . . . . 26
Section 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . 26
Section 6.05 Control by Majority . . . . . . . . . . . . . . . . 26
Section 6.06 Limitations on Suits . . . . . . . . . . . . . . . 26
Section 6.07 Rights of Holders to Receive Payment . . . . . . . 27
Section 6.08 Collection Suit by Subordinated Debenture
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.09 Subordinated Debenture Trustee May File Proofs
of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . 28
Section 6.11 Undertaking for Costs . . . . . . . . . . . . . . . 28
ARTICLE 7
SUBORDINATED DEBENTURE TRUSTEE
Section 7.01 Duties of Subordinated Debenture Trustee . . . . . 28
Section 7.02 Rights of Subordinated Debenture Trustee . . . . . 29
Section 7.03 Individual Rights of Subordinated Debenture
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.04 Subordinated Debenture Trustee's Disclaimer . . . . 30
Section 7.05 Notice of Defaults . . . . . . . . . . . . . . . . 30
Section 7.06 Reports by Subordinated Debenture Trustee to
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.07 Compensation and Indemnity . . . . . . . . . . . . 31
Section 7.08 Replacement of Subordinated Debenture Trustee . . . 31
Section 7.09 Successor Subordinated Debenture Trustee by
Merger, etc . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.10 Eligibility; Disqualification . . . . . . . . . . . 33
Section 7.11 Preferential Collection of Claims Against
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01 Termination of Company's Obligations . . . . . . . 33
Section 8.02 Application of Trust Money . . . . . . . . . . . . 34
Section 8.03 Repayment to Company . . . . . . . . . . . . . . . 34
Section 8.04 Reinstatement . . . . . . . . . . . . . . . . . . . 35
<PAGE>
Page
ARTICLE 9
AMENDMENTS
Section 9.01 Without Consent of Holders . . . . . . . . . . . . 35
Section 9.02 With Consent of Holders . . . . . . . . . . . . . . 36
Section 9.03 Compliance with Trust Indenture Act . . . . . . . . 37
Section 9.04 Revocation and Effect of Consents . . . . . . . . . 37
Section 9.05 Notation on or Exchange of Securities . . . . . . . 37
Section 9.06 Subordinated Debenture Trustee to Sign
Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 10
SUBORDINATION
Section 10.01 Agreement to Subordinate . . . . . . . . . . . . . 38
Section 10.02 Certain Definitions . . . . . . . . . . . . . . . 38
Section 10.03 Liquidation; Dissolution; Bankruptcy . . . . . . . 38
Section 10.04 Default on Senior Debt . . . . . . . . . . . . . . 39
Section 10.05 Acceleration of Securities . . . . . . . . . . . . 39
Section 10.06 When Distribution Must Be Paid Over . . . . . . . 39
Section 10.07 Notice by Company . . . . . . . . . . . . . . . . 40
Section 10.08 Subrogation . . . . . . . . . . . . . . . . . . . 40
Section 10.09 Relative Rights . . . . . . . . . . . . . . . . . 40
Section 10.10 Subordination May Not Be Impaired by Company . . . 41
Section 10.11 Distribution or Notice to Representative . . . . . 41
Section 10.12 Rights of Subordinated Debenture Trustee and
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 10.13 Authorization to Effect Subordination . . . . . . 41
ARTICLE 11
MISCELLANEOUS
Section 11.01 Trust Indenture Act Controls . . . . . . . . . . . 42
Section 11.02 Notices . . . . . . . . . . . . . . . . . . . . . 42
Section 11.03 Communication by Holders with Other Holders . . . 43
Section 11.04 Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.05 Statements Required in Certificate or
Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.06 Rules by Subordinated Debenture Trustee and
Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.07 Legal Holidays . . . . . . . . . . . . . . . . . . 44
Section 11.08 No Recourse Against Others . . . . . . . . . . . . 45
Section 11.09 Governing Law . . . . . . . . . . . . . . . . . . 45
Section 11.10 No Adverse Interpretation of Other
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.11 Successors . . . . . . . . . . . . . . . . . . . . 45
Section 11.12 Severability . . . . . . . . . . . . . . . . . . . 45
Section 11.13 Counterpart Originals . . . . . . . . . . . . . . 45
Section 11.14 Subordinated Debenture Trustee as Paying
Agent and Registrar . . . . . . . . . . . . . . . . . . . . . 45
Section 11.15 Table of Contents, Headings, etc. . . . . . . . . 46
Section 11.16 Bank of New York Not Acting In Individual
Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.17 Additional Rights of Holders of Transfer
Restricted Securities. . . . . . . . . . . . . . . . . . . . . 46
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Exhibit A Form of Security . . . . . . . . . . . . . . . . . . . A-1
Exhibit B Certificate to be Delivered Upon Exchange or
Registration of Transfer of Securities . . . . . . . . . . . . . B-1
<PAGE>
INDENTURE dated as of _______ __, ____, between K-III
Communications Corporation, a Delaware corporation, and The Bank of New York, a
New York banking corporation, (the "Subordinated Debenture Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders (as defined below) of 10% Class
C Subordinated Exchange Debentures due 2008 and 10% Class D Subordinated
Debentures due 2008 (collectively, the "Securities") issued by the Company (as
defined below):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01 DEFINITIONS
"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. A Person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies, of the controlled person, whether through ownership
of voting securities, by agreement or otherwise.
"Agent" means any Registrar or Paying Agent.
"Applicable Premium" with respect to any Security is defined as the
greater of (i) 1.0% of the then outstanding principal amount thereof and
(ii) the excess of (A) the present value of the required interest and principal
payments due thereon, computed using a discount rate equal to the Treasury Rate
plus the Applicable Spread, over (B) the then outstanding principal amount of
thereof.
"Applicable Spread", for the purposes of this Indenture, means 100
basis points.
"Average Life" means, as of the date of determination, with respect
to any debt security, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment (assuming the exercise by the
obligor of such debt security of all unconditional (other than as to the giving
of notice) extension options of each such scheduled payment date) of such debt
security multiplied by the amount of such principal payment by (ii) the sum of
all such principal payments.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors of the Company.
"BONY Credit Agreement" means that certain credit agreement entered
into by and among the Company, certain financial institutions parties thereto,
and The Bank of New York, as agent, providing for a $150 million term loan
facility, as amended, modified, renewed, refunded or refinanced from time to
time.
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"Business Day" means any day other than a Legal Holiday (as defined
below).
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
which would at such time be required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other
than KKR and its Affiliates, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than (A) 35 percent (35%) of the total
voting power of the then outstanding voting stock of the Company and (B) the
total voting power of the then outstanding voting stock of the Company
beneficially owned by KKR and its Affiliates or (ii) during any period of two
consecutive calendar years, individuals who at the beginning of such period
constituted the Company's Board of Directors (together with any new directors
whose election by the Company's Board of Directors or whose nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds of the Directors then still in office who either were 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
directors then in office.
"Chase Credit Agreement" means that certain credit agreement
entered into by and among the Company, certain financial institutions parties
thereto, and The Chase Manhattan Bank, N.A., as agent, providing for a $150
million term loan facility, as amended, modified, renewed, refunded or
refinanced from time to time.
"Class A Subordinated Exchange Debentures" means the 11 5/8%
Class A Subordinated Exchange Debentures due 2005.
"Class B Subordinated Exchange Debentures" means the 11 5/8%
Class B Subordinated Exchange Debentures due 2005.
"Class C Subordinated Exchange Debentures" means the 10% Class C
Subordinated Exchange Debentures due 2008 described above issued under this
Indenture.
"Class D Subordinated Exchange Debentures" means the 10% Class D
Subordinated Exchange Debentures due 2008 that may be issued in the Exchange
Offer.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company" means (i) K-III Communications Corporation, a Delaware
corporation and (ii) any successor of K-III Communications Corporation pursuant
to Article 5 hereof.
"Consolidated Net Worth" means, for purposes of this Indenture, at
any date of determination, the sum of the Capital Stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of the referent
Person and its Subsidiaries on a consolidated basis, less amounts attributable
to Redeemable Stock, each item to be determined in conformity with GAAP
(excluding the effects of foreign currency exchange adjustments under Financial
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Accounting Standards Board Statement of Financial Accounting Standards No. 52),
except that all effects of the application of Accounting Principles Board
Opinions Nos. 16 and 17 and related interpretations shall be disregarded.
"Corporate Trust Office of the Subordinated Debenture Trustee"
shall be at either of the addresses of the Subordinated Debenture Trustee
specified in Section 11.02 or such other address as the Subordinated Debenture
Trustee may give notice to the Company.
"Credit Agreements" means, collectively, the Chase Credit
Agreement, the BONY Credit Agreement, the Revolving Credit Agreement and the New
Chase Facility, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, in each case as
amended, modified, renewed, refunded or refinanced from time to time.
"Currency Agreement" means the obligations of any Person pursuant
to any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect such Person or any of its
subsidiaries against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event, act or condition that is, or after
notice or the passage of time or both would be, an Event of Default.
"Equity Interests" means Capital Stock, warrants, options or other
rights to acquire Capital Stock (but excluding any debt security which is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Debentures" means the 11 1/2% Exchange Debentures due
2004 of the Company issued under the Exchange Debenture Indenture.
"Exchange Debenture Indenture" means that certain Indenture to be
dated as of the date of first issuance of the Exchange Debentures, between the
Company and Chemical Bank, as Trustee, as amended or modified from time to time.
"Exchange Debenture Trustee" means Chemical Bank, as Trustee of the
Exchange Debentures, unless and until a successor replaces it accordance with
the applicable provisions thereof and thereafter means the successor serving
thereunder.
"Exchange Offer" means the offer which may be made by the Company
pursuant to the Registration Rights Agreement to exchange Class D Subordinated
Exchange Debentures for then outstanding Class C Subordinated Exchange
Debentures.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of this Indenture.
"Holder" means a Person in whose name a Security is registered.
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"Indebtedness" of any Person means any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement obligations with respect thereto) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to financing leases), if and to the extent any of
the foregoing indebtedness would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP (except that any such balance that
constitutes a trade payable and/or an accrued liability arising in the ordinary
course of business shall not be considered Indebtedness), and shall also
include, to the extent not otherwise included, any Capital Lease Obligations,
the maximum fixed repurchase price of any Redeemable Stock, indebtedness secured
by a Lien to which the property or assets owned or held by such Person is
subject, whether or not the obligations secured thereby shall have been assumed,
guarantees of items that would be included within this definition to the extent
of such guarantees (exclusive of whether such items would appear upon such
balance sheet), and net liabilities in respect of Currency Agreements and
Interest Rate Agreements. For purposes of the preceding sentence, the maximum
fixed repurchase price of any Redeemable Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to this
Indenture, provided that if such Redeemable Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Stock. The amount of Indebtedness of any Person at any date shall be without
duplication (i) the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any such contingent
obligations at such date and (ii) in the case of Indebtedness of others secured
by a Lien to which the property or assets owned or held by such Person is
subject, the lesser of the fair market value at such date of any asset subject
to a Lien securing the Indebtedness of others and the amount of Indebtedness
secured. For the purpose of determining the aggregate Indebtedness of the
Company and its Restricted Subsidiaries, such Indebtedness shall exclude the
Indebtedness of any Unrestricted Subsidiary of the Company or any Unrestricted
Subsidiary of a Restricted Subsidiary.
"Indenture" means this Indenture as amended from time to time.
"Initial Purchasers" means Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc.
"Interest Payment Date" has the meaning assigned to such term in
the Security.
"Interest Rate Agreements" means the obligations of any Person
pursuant to any interest rate swap agreement, interest rate collar agreement or
other similar agreement or arrangement designed to protect such Person or any of
its subsidiaries against fluctuations in interest rates.
"KKR" means Kohlberg Kravis Roberts & Co., L.P.
"Lien" means any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give any security interest in and any filing or other
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all unpaid liquidated damages owing by
the Company pursuant to Section 5 of the Registration Rights Agreement.
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"New Chase Facility" means that certain revolving credit facility
entered into by and among the Company, certain financial institutions parties
thereto, and The Chase Manhattan Bank, N.A., as agent, providing for a $100
million revolving credit facility, as amended, modified, renewed, refunded or
refinanced from time to time.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers" means the President, the Treasurer, any Assistant
Treasurer, Controller, Secretary or any Vice President of the Company, as
applicable.
"Officers' Certificate" means a certificate signed by two Officers,
one of whom must be the Company's chief executive officer, chief financial
officer or controller of financial accounting.
"Opinion of Counsel" means a written opinion prepared in accordance
with Section 11.05 hereof, from legal counsel who is acceptable to the
Subordinated Debenture Trustee. The counsel may be an employee of or counsel to
the Company, if applicable, or the Subordinated Debenture Trustee.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Public Equity Offering" means an underwritten public offering of
primary shares of the Company's common stock (or any other class of common stock
hereinafter duly authorized by the Company) pursuant to a registration statement
(other than a registration statement on form S-8 or S-4 or successor forms)
filed with the SEC in accordance with the Securities Act.
"Redeemable Stock" means any Equity Interest which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable before the stated maturity of the Securities), or upon the
happening of any event, matures or is mandatorily redeemable, in whole or in
part, prior to the stated maturity of the Securities, or is, by its terms or
upon the happening of any event, redeemable at the option of the holder thereof,
in whole or in part, at any time prior to the stated maturity of the Securities.
"Registration Rights Agreement" means the Registration Rights
Agreement dated January 24, 1996, between the Initial Purchasers, the Company
and the subsidiaries of the Company listed on the signature page thereto, as
such agreement may be amended, modified or supplemented from time to time.
"Restricted Subsidiary" means, for the purposes of this Indenture,
a Subsidiary of the Company which at the time of determination is not an
Unrestricted Subsidiary. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary.
"Revolving Credit Agreement" means that certain credit agreement
entered into by and among the Company, certain financial institutions parties
thereto, and The Chase Manhattan Bank, N.A., as agent, providing for a $670
million revolving credit facility, as amended, modified, renewed, refunded or
refinanced from time to time.
"SEC" means the Securities and Exchange Commission.
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"Securities" means the Securities described above issued under this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"8 1/2% Senior Notes" means the 8 1/2% Senior Notes due 2006 of the
Company issued under the 8 1/2% Senior Note Indenture.
"8 1/2% Senior Note Indenture" means that certain Indenture dated
as of January 24, 1996, among the Company, the corporations listed on Schedule I
thereto and The Bank of New York, as Trustee, as amended or modified from time
to time.
"10 1/4% Senior Notes" means the 10 1/4% Senior Notes due 2004 of
the Company issued under the 10 1/4% Senior Note Indenture.
"10 1/4% Senior Note Indenture" means that certain Indenture dated
as of May 31, 1994, among the Company, the corporations listed on Schedule I
thereto and Bankers Trust Company, as Trustee, as amended or modified from time
to time.
"Senior Notes" means the 8 1/2% Senior Notes, the 10 1/4% Senior
Notes and the Senior Secured Notes.
"Senior Note Indentures" means the 8 1/2% Senior Note Indenture,
the 10 1/4% Senior Note Indenture and the Senior Secured Note Indenture.
"Senior Secured Notes" means the 10 5/8% Senior Secured Notes due
2002 of the Company issued under the Senior Secured Note Indenture.
"Senior Secured Note Indenture" means that certain Indenture dated
as of May 13, 1992, among the Company, the corporations listed on Schedule I
thereto and The Bank of New York, as Trustee, as amended or modified from time
to time.
"Subordinated Debenture Trustee" means the party named as such
above until a successor replaces it in accordance with the applicable provisions
of this Indenture and thereafter means the successor serving hereunder.
"Subsidiary" means any corporation, association or other business
entity of which more than 50% of the total voting power of shares of Capital
Stock 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 any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
Sec.Sec. 77aaa-77bbbb).
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.06(b) hereof.
"Treasury Rate," for the purposes of this Indenture, is defined as
the yield to maturity at the time of computation of United States Treasury
securities with a constant maturity (as compiled by and published in the most
recent Federal Reserve Statistical Release H.15 (519) which has become publicly
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available at least two Business Days prior to the date fixed for prepayment (or,
if such Statistical Release is no longer published, any publicly available
source of similar market data)) most nearly equal to the then remaining Average
Life of the Securities; provided that if the Average Life of the Securities is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Average Life of the Securities is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Trust Officer" means any officer or assistant officer of the
Subordinated Debenture Trustee assigned by the Subordinated Debenture Trustee to
administer this Indenture.
"Unrestricted Subsidiary" means, for the purposes of this
Indenture, (i) any Subsidiary of the Company which at the time of determination
is an Unrestricted Subsidiary (as designated by the Board of Directors, as
provided below) and (ii) 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) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns, or holds any Lien on,
any property of, any other Subsidiary of the Company which is not a Subsidiary
of the Subsidiary to be so designated; provided that the Subsidiary to be so
designated has not at the time of designation, and does not thereafter, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to any Indebtedness pursuant to which the lender has
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary.
"U.S. Government Obligations" means direct noncallable obligations
of or guaranteed by the United States of America.
SECTION 1.02 OTHER DEFINITIONS
Defined in
Term Section
---- -----------
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . 4.09
"Change of Control Offer" . . . . . . . . . . . . . . . . . 4.08
"Change of Control Payment" . . . . . . . . . . . . . . . . 4.08
"Change of Control Payment Date" . . . . . . . . . . . . . . 4.08
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . 11.07
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Representative" . . . . . . . . . . . . . . . . . . . . . . 10.02
"Restricted Payments" . . . . . . . . . . . . . . . . . . . 4.07
"Senior Debt" . . . . . . . . . . . . . . . . . . . . . . . 10.02
"Successor" . . . . . . . . . . . . . . . . . . . . . . . . 5.01
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
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"indenture securities" means the Security;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Subordinated Debenture Trustee;
"obligor" on the Security means the Company, any other obligor upon
the Security or any successor obligor upon the Security.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
SECTION 2.01 FORM AND DATING
The Class C Subordinated Exchange Debentures and the Subordinated
Debenture Trustee's certificate of authentication shall be substantially in the
form of Exhibit A to this Indenture. The Class D Subordinated Exchange
Debentures shall be substantially in the form of Exhibit A to this Indenture but
shall not include the legend preceding paragraph 1 thereof. The Securities may
have notations, legends or endorsements required by law, stock exchange rules or
usage. Each Security shall be dated the date of its authentication. The
Securities shall be in denominations of $1,000 and integral multiples thereof;
provided, however, that in connection with the payment of interest with respect
to the Securities in additional Securities and the original issuance of
Securities hereunder in exchange for shares of the Company's Series C
Exchangeable Preferred Stock, the Company may elect to pay any amount remaining
after issuance of Securities in denominations of $1,000 and/or integral
multiples thereof, in cash or in additional Securities in denominations of less
than $1,000.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Subordinated Debenture
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Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
SECTION 2.02 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities
and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Subordinated Debenture Trustee. Such signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Subordinated Debenture Trustee shall authenticate Securities
for original issue up to the aggregate principal amount stated in paragraph 4 of
the Securities, upon a written order of the Company signed by an Officer to a
Trust Officer of the Subordinated Debenture Trustee. The aggregate principal
amount of Securities outstanding at any time may not exceed such amount except
as provided in Section 2.07 hereof.
The Subordinated Debenture Trustee may appoint an authenticating
agent acceptable to the Company to authenticate Securities. An authenticating
agent may authenticate Securities whenever the Subordinated Debenture Trustee
may do so. Each reference in this Indenture to authentication by the
Subordinated Debenture Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
SECTION 2.03 REGISTRAR AND PAYING AGENT
The Company shall maintain an office or agency where Securities may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Securities may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Registrar" includes any co-
registrar and the term "Paying Agent" includes any additional paying agent. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company shall notify the Subordinated Debenture Trustee in writing of the
name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Subordinated Debenture Trustee shall act as such. The Company or any of its
Subsidiaries may act as Paying Agent or Registrar.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the
Subordinated Debenture Trustee to agree in writing that the Paying Agent will
hold in trust for the benefit of Holders or the Subordinated Debenture Trustee
all money held by the Paying Agent for the payment of principal, premium or
Liquidated Damages, if any, or interest on the Securities, and will notify the
Subordinated Debenture Trustee of any default by the Company in making any such
payment. While any such default continues, the Subordinated Debenture Trustee
may require a Paying Agent to pay all money
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held by it to the Subordinated Debenture Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Subordinated Debenture
Trustee. Upon payment over to the Subordinated Debenture Trustee, the Paying
Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent,
it shall segregate and hold in a separate trust fund for the benefit of the
Holders all money held by it as Paying Agent.
SECTION 2.05 HOLDER LISTS
The Subordinated Debenture Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders and shall otherwise comply with TIA Sec. 312(a).
If the Subordinated Debenture Trustee is not the Registrar, the Company shall
furnish to the Subordinated Debenture Trustee at least seven Business Days
before each Interest Payment Date and, at such other times as the Subordinated
Debenture Trustee may request in writing, a list in such form and as of such
date as the Subordinated Debenture Trustee may reasonably require of the names
and addresses of Holders, and the Company shall otherwise comply with
TIA Sec. 312(a).
SECTION 2.06 TRANSFER AND EXCHANGE
(a) When Securities are presented to the Registrar with the
request:
(x) to register the transfer of such Securities; or
(y) to exchange such Securities for an equal principal amount
of Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met;
provided, however, that the Securities presented or surrendered for
register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar
and the Trustee, duly executed by the Holder thereof or by his
attorney, duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities, shall be
accompanied by the following additional information and
documents, as applicable:
(A) if such Transfer Restricted Security is being delivered
to the Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification from such
Holder to that effect (in substantially the form of Exhibit B
hereto); or
(B) if such Transfer Restricted Security is being
transferred to a qualified institutional buyer (as defined in
Rule 144A under the Securities Act) in accordance with
Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rules 144 or
145 or an institutional accredited investor within the
meaning of Rule 501 (a)(1), (2), (3) or (7) or Regulation S
under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a
certification to that effect (in substantially the form of
Exhibit B hereto).
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(b) Legends.
(i) Except as permitted by the following paragraph (ii), each
Security certificate (and all Securities issued in exchange
therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY,
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN "INSTITUTIONAL ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT
WILL NOT, WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO THE COMPANY OR MORGAN STANLEY & CO. INCORPORATED, DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, OR SALOMON BROTHERS
INC, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY) AND IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $1,000,000 AN
OPINION OF COUNSEL, ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER
IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND IN CONNECTION WITH ANY TRANSFER OF THIS
SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE
SECURITY. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER
FURNISH TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS MAY REASONABLY BE REQUIRED TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON"
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HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT."
(ii) Upon any sale or transfer of a Transfer Restricted
Security satisfying the conditions set forth in subclause (F) of
the legend set forth in the immediately preceding paragraph (i)
above and in connection with the Exchange Offer, the Registrar
shall permit the Holder thereof to exchange such Transfer
Restricted Security for a Security that does not bear the legend
set forth above and, upon transfer of such Transfer Restricted
Security, the restrictions contained in such legend shall be no
longer applicable.
(c) Obligations with respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Subordinated Debenture Trustee
shall authenticate Securities at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration or transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith
(other than any such transfer tax or similar governmental charge
payable upon exchange or transfer pursuant to Sections 3.07,
3.08 and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer or exchange of any Security selected for redemption in
whole or in part, except the unredeemed portion of any Security
being redeemed in part.
(iv) All Securities issued upon any registration of transfer or
exchange of Securities shall be valid obligations of the
Company, evidencing the same debt, and entitled to the same
benefits under the Indenture, as the Securities surrendered upon
such registration of transfer or exchange.
(v) The Company shall not be required:
(A) to issue, register the transfer of or exchange
Securities during a period beginning at the opening of
business 15 days before the day of any selection of
Securities for redemption under Section 3.02 and ending at
the close of business on the day of selection,
(B) to register the transfer of any Security so selected
for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part, or
(C) to register the transfer of or exchange any Security
during the period between a record date and the corresponding
Interest Payment Date.
(vi) Prior to due presentment for registration of transfer of
any Security, the Subordinated Debenture Trustee, any Agent and
the Company may deem and treat the person in whose name any
Security is registered as the absolute owner of such Security
for the purpose of receiving payment of principal of and
interest on such Security, and neither the Subordinated
Debenture Trustee, any Agent nor the Company shall be affected
by notice to the contrary.
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SECTION 2.07 REPLACEMENT SECURITIES
If any mutilated Security is surrendered to the Subordinated
Debenture Trustee, or the Company and the Subordinated Debenture Trustee receive
evidence to their satisfaction of the destruction, loss or theft of any
Security, the Company shall issue and the Subordinated Debenture Trustee, upon
the written order of the Company signed by an Officer, shall authenticate a
replacement Security if the Subordinated Debenture Trustee's requirements are
met. If required by the Subordinated Debenture Trustee or the Company, an
indemnity bond must be supplied by the Holder that is sufficient in the judgment
of the Subordinated Debenture Trustee and the Company to protect the Company,
the Subordinated Debenture Trustee, any Agent or any authenticating agent from
any loss which any of them may suffer if a Security is replaced. The Company
may charge for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company and shall be entitled to all benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder.
SECTION 2.08 OUTSTANDING SECURITIES
The Securities outstanding at any time are all the Securities
authenticated by the Subordinated Debenture Trustee except for those cancelled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding.
If a Security is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Subordinated Debenture Trustee receives
proof satisfactory to it that the replaced Security is held by a bona fide
purchaser.
If the principal amount of any Security is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Securities payable on that date, then on and after that date
such Securities shall be deemed to be no longer outstanding and shall cease to
accrue interest.
Except as set forth in Section 2.09 hereof, a Security does not
cease to be outstanding because the Company or an Affiliate holds the Security.
SECTION 2.09 TREASURY SECURITIES
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Subordinated Debenture Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which a
Subordinated Debenture Trustee knows are so owned shall be so disregarded.
SECTION 2.10 TEMPORARY SECURITIES
Until definitive Securities are ready for delivery, the Company may
prepare and the Subordinated Debenture Trustee shall authenticate temporary
securities upon a written order of the Company signed by
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an Officer and delivered or caused to be delivered to a Trust Officer.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Subordinated Debenture Trustee shall authenticate definitive Securities in
exchange for temporary Securities.
Holders of temporary Securities shall be entitled to all benefits
of this Indenture.
SECTION 2.11 CANCELLATION
The Company at any time may deliver Securities to the Subordinated
Debenture Trustee for cancellation. The Registrar and Paying Agent shall
forward to the Subordinated Debenture Trustee any Securities surrendered to them
for registration of transfer, exchange or payment. The Subordinated Debenture
Trustee and no one else shall cancel all Securities surrendered for registration
of transfer, exchange, payment, replacement or cancellation. The Company may
not issue new Securities to replace Securities that it has paid or that have
been delivered to the Subordinated Debenture Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the Securities,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Securities and in Section 4.01 hereof. The Company shall, with the
consent of the Subordinated Debenture Trustee, fix each such special record date
and payment date. At least 15 days before the record date, the Company (or the
Subordinated Debenture Trustee, in the name of and at the expense of the
Company) shall mail to Holders a notice that states the special record date, the
related payment date and the amount of such interest to be paid.
ARTICLE 3
OPTIONAL REDEMPTION, OPTIONAL REDEMPTION UPON CHANGE OF
CONTROL AND OPTIONAL REDEMPTION UPON A PUBLIC EQUITY OFFERING
SECTION 3.01 NOTICES TO SUBORDINATED DEBENTURE TRUSTEE
(a) If the Company elects to redeem Securities pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall
furnish to the Subordinated Debenture Trustee, at least 45 days but
not more than 60 days before a redemption date, an Officers'
Certificate stating that such redemption shall occur pursuant to
Section 3.07 hereof and stating the redemption date, the principal
amount of Securities to be redeemed and the redemption price.
(b) If the Company elects to redeem Securities pursuant to the
provisions of Section 3.08 hereof, it shall furnish to the
Subordinated Debenture Trustee, at least 45 days but not more than
60 days before the redemption date, an Officers' Certificate
stating that a Change of Control has occurred, the date of such
Change of Control and that such redemption shall occur pursuant to
Section 3.08 hereof, and further stating the principal amount of
Securities to be redeemed, the redemption price of such Securities
and the intended redemption date.
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SECTION 3.02 SELECTION OF SECURITIES TO BE REDEEMED
If less than all of the Securities are to be redeemed at any time,
selection of the Securities for redemption will be made by the Subordinated
Debenture Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Securities are listed, or, if the
Securities are not listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Subordinated Debenture Trustee shall deem
fair and appropriate; provided that no Securities of $1,000 or less shall be
redeemed in part. The Subordinated Debenture Trustee may select for redemption
any portion (equal to $1,000 or any integral multiple thereof) of the principal
of Securities that have denominations larger than $1,000. Except as provided in
the preceding sentence, provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption.
The Subordinated Debenture Trustee shall promptly notify the
Company in writing of the Securities selected for redemption and, in the case of
any Security selected for partial redemption, the principal amount thereof to be
redeemed. The particular Securities to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Subordinated Debenture Trustee from the outstanding
Securities not previously called for redemption.
SECTION 3.03 NOTICES TO HOLDERS
(a) If the Company elects to redeem Securities pursuant to either
Section 3.07 or 3.08 hereof, notice of redemption shall be mailed
by first class mail at least 30 days but not more than 60 days
before the redemption date to each Holder of Securities are to be
redeemed at its registered address.
The notice shall identify the Securities to be redeemed (including
CUSIP number) and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that,
after the redemption date, upon surrender of such Security, a
new Security or Securities in principal amount equal to the
unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered
to the Paying Agent at the address specified in such notice to
collect the redemption price;
(6) that interest on Securities or portions of them called for
redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the
Securities are being redeemed; and
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(8) the aggregate principal amount of Securities that are
being redeemed.
(b) At the Company's request, the Subordinated Debenture Trustee
shall give the notice required in Section 3.03(a) hereof in the
Company's name and at its expense and setting forth the information
to be stated in such notice as provided in Section 3.03(a) hereof.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed (after the Subordinated
Debenture Trustee has received the notice provided for in Section 3.01 hereof),
Securities called for redemption become due and payable on the redemption date
at the redemption price and shall cease to bear interest from and after the
redemption date (unless the Company shall fail to make payment of the redemption
price or accrued interest on the redemption date). Upon surrender to the Paying
Agent, such Securities shall be paid at the redemption price, plus premium and
Liquidated Damages, if any, plus accrued interest, if any, to the redemption
date, but interest installments whose maturity is on or prior to the redemption
date and Liquidated Damages which become payable on or prior to the redemption
date will be payable to the Holder of record at the close of business on the
relevant record dates referred to in the Securities.
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE OR PURCHASE PRICE
One Business Day prior to the redemption date, the Company shall
deposit with the Subordinated Debenture Trustee or with the Paying Agent money
(in same-day funds) sufficient to pay the redemption price of, premium and
Liquidated Damages, if any, and accrued interest on, all Securities to be
redeemed on that date other than Securities or portions thereof called for
redemption on that date which previously have been delivered by the Company to
the Subordinated Debenture Trustee for cancellation. The Subordinated Debenture
Trustee or the Paying Agent shall return to the Company any such money not
required for that purpose.
If the Company complies with the preceding paragraph, interest on
the Securities or portions thereof to be redeemed, whether or not such
Securities are presented for payment, will cease to accrue on the applicable
redemption date. If any Security called for redemption shall not be so paid
upon surrender for redemption because of the failure of the Company to comply
with the preceding paragraph, then interest will be paid on the unpaid principal
from the redemption date until such principal is paid and on any interest not
paid on such unpaid principal, in each case, at the rate provided in the
Securities and in Section 4.01 hereof.
SECTION 3.06 SECURITIES REDEEMED IN PART
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at the expense of
the Company a new Security equal in principal amount to the unredeemed portion
of the Security surrendered.
SECTION 3.07 OPTIONAL REDEMPTION
Except as otherwise provided herein, prior to February 1, 2001, the
Company may not redeem the Securities, in whole or in part. At any time on or
after February 1, 2001, the Company may redeem all or any of the Securities, in
whole or in part, at a redemption price equal to a percentage of the principal
amount thereof, as set forth in the immediately succeeding paragraph, plus
Liquidated Damages, if any, plus accrued and unpaid interest to the redemption
date.
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The redemption price as a percentage of the principal amount shall
be as follows, if the Securities are redeemed during the 12 month period
beginning February 1 of the following years:
Year Percentage
---- ----------
2001 . . . . . . . . . . . . . . 105%
2002 . . . . . . . . . . . . . . 104
2003 . . . . . . . . . . . . . . 103
2004 . . . . . . . . . . . . . . 102
2005 . . . . . . . . . . . . . . 101
2006 and thereafter . . . . . . . 100
Notwithstanding the foregoing:
(1) the Company may redeem up to 50% of the outstanding aggregate
principal amount of the Securities originally issued at a
redemption price of 110% of the principal amount thereof, plus
Liquidated Damages, if any, plus accrued and unpaid interest to the
redemption date, out of the net proceeds of any Public Equity
Offering, provided that any such redemption shall occur within 180
days of such Public Equity Offering; and
(2) upon the occurrence at any time of a Change in Control, the
Securities will be redeemable, at the option of the Company, in
whole or in part, pursuant to the provisions of Section 3.08
hereof.
Any redemption pursuant to this Section 3.07 shall be made, to the
extent applicable, pursuant to the provisions of Sections 3.01 through 3.06
hereof.
SECTION 3.08 OPTIONAL REDEMPTION UPON CHANGE OF CONTROL
In addition to any redemption pursuant to Section 3.07 hereof, the
Securities will be redeemable, at the option of the Company, in whole or in
part, at any time within 160 days after a Change of Control at a redemption
price equal to the sum of the then outstanding principal amount thereof plus
Liquidated Damages, if any, plus accrued and unpaid interest, if any, to the
redemption date plus the Applicable Premium.
ARTICLE 4
COVENANTS
SECTION 4.01 PAYMENT OF SECURITIES
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities, and shall
pay Liquidated Damages, if any, on the dates and in the manner provided in the
Registration Rights Agreement. Principal and interest shall be considered paid
on the date due if the Paying Agent, other than the Company or a Subsidiary of
the Company, holds on that date money deposited by the Company in available
funds and designated for and sufficient to pay all principal and interest then
due.
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The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, at the same rate per annum on the Securities to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY
The Company shall maintain, in the Borough of Manhattan, The City
of New York, an office or agency (which may be an office of the Subordinated
Debenture Trustee or the Registrar) where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Company shall give prompt written notice to the Subordinated Debenture Trustee
of the location, and any change in the location, of such office or agency. If
at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Subordinated Debenture Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Subordinated Debenture Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company shall
give prompt written notice to the Subordinated Debenture Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby designates the Corporate Trust Office of the
Subordinated Debenture Trustee as one such office or agency of the Company in
accordance with Section 2.03 hereof.
SECTION 4.03 SEC REPORTS; FINANCIAL STATEMENTS
(a) The Company shall file with the Subordinated Debenture
Trustee, within 15 days after it files the same with the SEC,
copies of the annual reports and the information, documents and
other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) that the Company
is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act. If the Company is not subject to the
requirements of such Section 13 or 15(d), the Company shall file
with the Subordinated Debenture Trustee, within 15 days after it
would have been required to file the same with the SEC, financial
statements, including any notes thereto (and with respect to annual
reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," both comparable to
that which the Company would have been required to include in such
annual reports, information, documents or other reports if the
Company had been subject to the requirements of such Section 13 or
15(d). The Company shall also comply with the other provisions of
TIA Sec.314(a).
(b) If the Company is required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, the
Company shall cause any annual report furnished to its stockholders
generally and any quarterly or other financial reports furnished by
it to its stockholders generally to be filed with the Subordinated
Debenture Trustee and mailed to the
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Holders at their addresses appearing in the register of Securities
maintained by the Registrar. If the Company is not required to
furnish annual or quarterly reports to its stockholders pursuant to
the Exchange Act, so long as at least 5% of the original principal
amount of the Securities remain outstanding, the Company shall
cause its financial statements referred to in Section 4.03(a)
hereof, including any notes thereto (and with respect to annual
reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" to be so mailed to
the Holders within 90 days after the end of each of the Company's
fiscal years and within 60 days after the end of each of the
Company's first three fiscal quarters. As of the date hereof, the
Company's fiscal year ends on December 31.
SECTION 4.04 COMPLIANCE CERTIFICATE
(a) The Company shall deliver to the Subordinated Debenture
Trustee, within 120 days after the end of each fiscal year of the
Company, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept,
observed, performed and fulfilled its obligations under this
Indenture, and further stating, as to each such Officer signing
such certificate, that to the best of his knowledge the Company has
kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of
which he may have knowledge and what action the Company is taking
or proposes to take with respect thereto) and that to the best of
his knowledge no event has occurred and remains in existence by
reason of which payments on account of the principal of or
interest, if any, on the Securities are prohibited or, if such
event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.03
hereof shall be accompanied by a written statement of the Company's
independent public accountants (who shall be a firm of established
national reputation) that in making the examination necessary for
certification of such financial statements nothing has come to
their attention that would lead them to believe that the Company
has violated any provisions of Articles 4 or 5 of this Indenture
or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any
Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Securities are
outstanding, (i) deliver to the Subordinated Debenture Trustee,
forthwith upon any Officer becoming aware of any Default or Event
of Default under this Indenture, an Officers' Certificate
specifying such Default or Event of Default and what action the
Company is taking or proposes to take with respect thereto and
(ii) promptly notify the Subordinated Debenture Trustee of any
Change in Control.
SECTION 4.05 COMPLIANCE WITH LAWS, TAXES
The Company shall, and shall cause each of its Subsidiaries to,
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, noncompliance with which would
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materially adversely affect the business, earnings, properties, assets or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole.
The Company shall, and shall cause each of its Subsidiaries to, pay
prior to delinquency all taxes, assessments, and governmental levies except as
contested in good faith and by appropriate proceedings.
SECTION 4.06 STAY, EXTENSION AND USURY LAWS
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
Company's obligation to pay the Securities; and the Company (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law insofar as such law applies to the Securities, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Subordinated Debenture Trustee, but will suffer
and permit the execution of every such power as though no such law has been
enacted.
SECTION 4.07 LIMITATIONS ON RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on account of the Company's or any of its Restricted
Subsidiaries' Capital Stock or other Equity Interests (other than (A) dividends
or distributions payable in Equity Interests of the Company or such Restricted
Subsidiary or (B) dividends or distributions payable to the Company or any of
its Restricted Subsidiaries) or (ii) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Company or any Restricted
Subsidiary (other than any such Equity Interests owned by the Company or any of
its Restricted Subsidiaries) (the foregoing actions set forth in clauses (i) and
(ii) being referred to as "Restricted Payments"), if, at the time of such
Restricted Payment, a Default or Event of Default the Securities shall have
occurred and be continuing or shall occur as a consequence thereof.
SECTION 4.08 CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have
the right to require the repurchase of such Holder's Securities pursuant to the
offer described below (the "Change of Control Offer") at a purchase price equal
to 101% of the aggregate principal amount of such Securities plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Payment"). Prior to the mailing of the notice to holders provided for in the
paragraph below, the Company hereby covenants (i) (A) to repay in full all
Obligations under the Credit Agreements or to offer to repay in full all such
Obligations and to repay the Obligations of each lender who has accepted such
offer or (B) to obtain the requisite consent under the Credit Agreements to
permit the repurchase of Securities pursuant to the Change of Control Offer;
(ii) (A) to commence an offer (the "Senior Secured Note Offer") to repurchase
all Senior Secured Notes and to purchase (upon the termination of the Senior
Secured Note Offer) all Senior Secured Notes tendered pursuant to such offer or
(B) to obtain the requisite consent under the Senior Secured Note Indenture to
permit the repurchase of Securities pursuant to the Change of Control Offer;
(iii) (A) to commence an offer (the "Exchange Debenture Offer") to repurchase
all Exchange Debentures and to purchase (upon termination of the Exchange
Debenture Offer) all Exchange Debentures tendered pursuant to such offer or (B)
to obtain the requisite consent under the Exchange Debenture Indenture to permit
the repurchase of Securities pursuant to the Change of Control Offer and (iv)
with
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respect to all other Senior Debt (as defined below) to (A) repay such Senior
Debt to the extent required by the terms thereof to permit repurchase of the
Securities pursuant to the Change of Control Offer or (B) to obtain the
requisite consents, if any, under all agreements governing all such Senior Debt
to permit the repurchase of Securities pursuant to the Change of Control Offer.
In no event shall the Company be required to offer to repurchase or repurchase
the Securities unless it shall have either repaid the outstanding Senior Debt to
the extent required by the terms thereof or obtained the requisite consents
thereunder, if any, to permit the repurchase of the Securities pursuant to the
Change of Control Offer.
Within the later of (a) 40 days following any Change of Control and
(b) the date that the foregoing conditions are satisfied, the Company shall mail
a notice to each Holder stating:
(1) that the Change of Control Offer is being made pursuant to
this Section 4.08 and that all Securities tendered will be accepted
for payment;
(2) the purchase price and the purchase date (which shall be no
earlier than 30 days nor later than 40 days from the date such
notice is mailed)(the "Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue
interest after the Change of Control Payment Date;
(5) that Holders electing to have any of their Securities
purchased pursuant to a Change of Control Offer will be required to
surrender the Securities, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Security completed, to the
Paying Agent at the address specified in the notice prior to the
close of business on the Business Day preceding the Change of
Control Payment Date;
(6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on
the third Business Day preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Securities delivered for purchase, and a statement that such Holder
is withdrawing his election to have such Securities purchased; and
(7) that Holders whose Securities are being purchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; provided that
each Security purchased and each such new Security issued by the
Company shall be in a principal amount of $1,000 or integral
multiples thereof.
The Change of Control Offer shall be deemed to have commenced upon mailing of
the notice described in this paragraph and shall terminate 20 Business Days
after its commencement, unless a longer offering period is required by law. If
the Change of Control Payment Date is on or after an interest payment record
date and on or before the related interest payment date, any accrued interest
will be paid to the person in whose name a Security is registered at the close
of business on such record date, and no additional interest will be payable to
Holders who tender Securities pursuant to the Change of Control Offer.
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On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Securities or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Subordinated Debenture Trustee, the Securities so accepted together with an
Officers' Certificate stating the Securities or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Securities so
accepted, payment in an amount equal to the purchase price for such Securities,
and the Subordinated Debenture Trustee shall promptly authenticate and mail to
such holder a new Security equal in principal amount to any unpurchased portion
of the Securities surrendered; provided that each such new Security shall be in
a principal amount of $1,000 or integral multiples thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
SECTION 4.09 TRANSACTIONS WITH AFFILIATES
Neither the Company nor any of its Restricted Subsidiaries shall
make any loan, advance, guarantee or capital contribution to, or for the benefit
of, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or for the benefit of, or purchase or lease any property or assets
from, or enter into or amend any contract, agreement or understanding with, or
for the benefit of, (i) any Person (or any Affiliate of such Person) holding 10%
or more of any class of Capital Stock of the Company or any of its Restricted
Subsidiaries or (ii) any Affiliate of the Company or any of its Restricted
Subsidiaries (each an "Affiliate Transaction"), except on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary, as the case may
be, than those that could have been obtained in a comparable transaction on an
arm's length basis from a Person that is not such a holder or Affiliate;
provided that a transaction with any such holder (or Affiliate thereof) or any
Affiliate of the Company or any of its Restricted Subsidiaries shall be deemed
to be on terms that are no less favorable to the Company or such Restricted
Subsidiary than those obtainable at the time of the transaction from a Person
who is not such a holder or Affiliate if (a) the Company or such Restricted
Subsidiary delivers to the Subordinated Debenture Trustee a written opinion of a
nationally recognized investment banking firm stating that the transaction is
fair to the Company or such Restricted Subsidiary from a financial point of view
or (b) a disinterested majority of the Board of Directors of the Company or such
Restricted Subsidiary approves the transaction; and provided, further, that, the
foregoing restriction shall not apply to (i) the payment of an annual fee to KKR
for the rendering of management consulting and financial services to the Company
and its Restricted Subsidiaries in an aggregate amount which is reasonable in
relation thereto, (ii) the payment of transaction fees to KKR in amounts which
are in accordance with past practices for the rendering of financial advice and
services in connection with acquisitions, dispositions and financings by the
Company and its Subsidiaries, (iii) the payment of reasonable and customary
regular fees to directors of the Company and its Subsidiaries who are not
employees of the Company or its Restricted Subsidiaries, (iv) loans to officers,
directors and employees of the Company and its Subsidiaries for business or
personal purposes and other loans and advances to such officers, directors and
employees for travel, entertainment, moving and other relocation expenses made
in the ordinary course of business of the Company and its Subsidiaries, (v) any
Restricted Payments (as defined in the referent indenture) not prohibited by the
RESTRICTED PAYMENTS covenant in the Senior Note Indentures, the Exchange
Debenture Indenture or Series B Debenture Indenture, or any Investment (as
defined in the referent indenture) not prohibited by the INVESTMENTS IN
UNRESTRICTED SUBSIDIARIES covenant in the Senior Note Indentures,
(vi) transactions between or among any of the Company and its Restricted
Subsidiaries or (vii) allocation of corporate overhead to Unrestricted
Subsidiaries on a basis no less favorable to the Company than such allocations
to Restricted Subsidiaries.
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SECTION 4.10 CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational documents
of each Restricted Subsidiary and the rights (charter and statutory), licenses
and franchises of the Company and its Restricted Subsidiaries; provided that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any Restricted Subsidiary,
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Restricted Subsidiaries taken as a whole and that the loss thereof is not
adverse in any material respect to the Holders.
SECTION 4.11 RULE 144A INFORMATION REQUIREMENT.
The Company will furnish to the Holders or beneficial holders of
the Securities and prospective purchasers of the Securities designated by the
holders of Transfer Restricted Securities, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act
until such time as the Company consummates the Exchange Offer or has registered
the Securities for resale under the Securities Act.
ARTICLE 5
SUCCESSORS
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company may not consolidate with, merge with or into, or
transfer all or substantially all of its assets (as an entirety or substantially
as an entirety in one transaction or a series of related transactions) to any
Person or permit any Person to merge with or into it unless:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which
the Company is merged or to which the properties and assets of the
Company are transferred (collectively the "Successor") shall be a
corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and
delivered to the Subordinated Debenture Trustee, in form
satisfactory to the Subordinated Debenture Trustee, all the
obligations of the Company under the Securities and this Indenture;
(2) immediately after giving effect to such transaction, no
Default and no Event of Default under this Indenture shall have
occurred and be continuing; and
(3) immediately after giving effect to such transaction on a pro
forma basis, the Consolidated Net Worth of the surviving entity is
at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and
(4) the Company has delivered an Officers' Certificate and an
Opinion of Counsel relating to such transaction.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED
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Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company or
any assignment of its obligations under this Indenture or the Securities in
accordance with Section 5.01 hereof, the successor formed by such consolidation
or into or with which the Company is merged or to which such sale, lease,
conveyance or other disposition or assignment is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such Successor has been named as the
Company herein and the predecessor Company, in the case of a sale, lease,
conveyance or other disposition or assignment, shall be released from all
obligations under this Indenture and the Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT
An "Event of Default" occurs if:
(1) the Company fails to make any payment of interest or
Liquidated Damages on any Security when the same shall become due
and payable and such default continues for a period of 30 days and
for five days after written notice of such default is given to the
Company by the Holders of at least 51% in principal amount of the
Securities following the expiration of such 30-day period;
(2) the Company fails to make any payment of the principal of or
premium on any Security when the same shall become due and payable,
whether at maturity or upon acceleration, redemption or otherwise,
and such default continues for a period of ten days;
(3) the Company fails to comply with any of its other agreements
or covenants in, or provisions of, the Securities or this Indenture
and such failure continues for the period and after the notice
specified below;
(4) an event of default under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee is now
existing or thereafter created in the future, if as a result of
such event of default the maturity of such Indebtedness has been
accelerated prior to its express maturity and the principal amount
of such Indebtedness is $22.5 million or more or the principal
amount of such Indebtedness, together with the principal amount of
any other such Indebtedness the maturity of which as been
accelerated, aggregates $45 million or more, provided that an Event
of Default shall not be deemed to occur with respect to any
accelerated Indebtedness which is repaid or prepaid, or the
acceleration of which is rescinded, within 60 days after such
declaration;
(5) the Company, or any of the Restricted Subsidiaries pursuant
to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in
an involuntary case,
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(c) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(d) makes a general assignment for the benefit of its
creditors; or
(6) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company, or any of its
Restricted Subsidiaries as debtor in an involuntary case,
(b) appoints a Custodian of the Company, or any of its
Restricted Subsidiaries or a Custodian for all or substantially
all of the property of the Company, or any of its Restricted
Subsidiaries, or
(c) orders the liquidation of the Company, or any of its
Restricted Subsidiaries, and the order or decree remains
unstayed and in effect for 60 days.
The Company is required pursuant to Section 4.04(a) hereof to
deliver to the Subordinated Debenture Trustee annually a statement regarding
compliance with the provisions of this Indenture, and the Company is required
pursuant to Section 4.04(c) hereof upon becoming aware of any Default or Event
of Default to deliver a statement to the Subordinated Debenture Trustee
specifying such Default or Event of Default. The Subordinated Debenture Trustee
shall not be deemed to know of a Default unless a Responsible Officer has actual
knowledge of such Default or receives written notice of such Default with
specific reference to such Default.
In the case of any Event of Default pursuant to the provisions of
this Section 6.01 occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium, if any, which the Company would have had to pay if the
Company then had elected to redeem the Securities pursuant to Section 3.07
hereof, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law, anything contained in this Indenture or
in the Securities to the contrary notwithstanding.
A Default under clause (3) is not an Event of Default until the
Subordinated Debenture Trustee notifies the Company, or the Holders of at least
51% in principal amount of the then outstanding Securities notify the Company
and the Subordinated Debenture Trustee in writing, of the Default and the
Company does not cure the Default within 60 days after receipt of the notice.
The notice must specify the Default, demand that it be remedied and state that
the notice is a "Notice of Default."
SECTION 6.02 ACCELERATION
If an Event of Default (other than an Event of Default with respect
to the Company specified in clauses (5) and (6) of Section 6.01 hereof) occurs
and is continuing, the Subordinated Debenture Trustee or the Holders of at least
51% in principal amount of the then outstanding Securities, by written notice to
the Company and to the agents under the Credit Agreements, the trustees under
the Senior Note Indentures, the Exchange Debenture Indenture (and to the
Subordinated Debenture Trustee if such notice is given by the Holders) may, and
the Subordinated Debenture Trustee at the request of such Holders shall, declare
all unpaid principal of, premium and Liquidated Damages, if any, and accrued
interest on the Securities to be due and payable upon the first to occur of an
acceleration under any of the Credit
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Agreements, any of the Senior Notes or the Exchange Debentures or 15 Business
Days after receipt by the Company, such agent and such trustees of such written
notice to the extent that the Event of Default is continuing. If an Event of
Default with respect to the Company specified in clause (5) or (6) of
Section 6.01 hereof occurs, all unpaid principal of, premium and Liquidated
Damages, if any, and accrued interest on the Securities then outstanding shall
ipso facto become and be immediately due and payable without any declaration,
notice or other act on the part of the Subordinated Debenture Trustee or any
Holder. The Holders of at least 51% in aggregate principal amount of the then
outstanding Securities by written notice to the Subordinated Debenture Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, premium and Liquidated Damages, if any, or
interest on the Securities that has become due solely as a result of such
acceleration) have been cured or waived.
In the event that the maturity of the Securities is accelerated
pursuant to this Section 6.02, 100% of the principal amount thereof and premium
and Liquidated Damages, if any, and accrued interest to the date of payment
shall become due and payable.
SECTION 6.03 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Subordinated
Debenture Trustee may pursue any available remedy to collect the payment of
principal, premium and Liquidated Damages, if any, or interest then due on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Subordinated Debenture Trustee may maintain a proceeding even
if it does not possess any of the Securities or does not produce any of them in
the proceeding. A delay or omission by the Subordinated Debenture Trustee or
any Holder in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver of or acquiescence
in the Event of Default. All remedies are cumulative to the extent permitted by
law.
SECTION 6.04 WAIVER OF PAST DEFAULTS
The Holders of at least 51% in principal amount of the then
outstanding Securities by notice to the Subordinated Debenture Trustee may waive
an existing Default or Event of Default and its consequences (including waivers
obtained in connection with a tender offer or exchange offer for Securities),
except a continuing Default or Event of Default in the payment of the principal
of, premium or Liquidated Damages, if any, or interest on, such Security
(including, without limitation, pursuant to any mandatory or optional redemption
obligation hereunder) or that resulted from the failure to comply with
Section 4.08 hereof. Upon any such waiver, such Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
SECTION 6.05 CONTROL BY MAJORITY
The Holders of at least 51% in principal amount of the then
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Subordinated Debenture Trustee or
exercising any trust or power conferred on it. However, the Subordinated
Debenture Trustee may refuse to follow any direction that conflicts with law or
this Indenture, that the Subordinated
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Debenture Trustee determines may be unduly prejudicial to the rights of other
Holders, or that may involve the Subordinated Debenture Trustee in personal
liability.
SECTION 6.06 LIMITATIONS ON SUITS
A Holder may not pursue a remedy with respect to this Indenture or
the Securities unless:
(1) the Holder gives to the Subordinated Debenture Trustee
written notice of a continuing Event of Default;
(2) the Holders of at least 51% in principal amount of the then
outstanding Securities make a written request to the Subordinated
Debenture Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Subordinated Debenture
Trustee indemnity satisfactory to the Subordinated Debenture Trustee
against any loss, liability or expense (including, without limitation,
fees of counsel);
(4) the Subordinated Debenture Trustee does not comply with the
request within 30 days after receipt of the request and the offer of
indemnity; and
(5) during such 30-day period the Holders of at least 51% in
principal amount of the then outstanding Securities do not give the
Subordinated Debenture Trustee a direction which is inconsistent with
the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment of principal of, premium and
Liquidated Damages, if any, and interest on the Security, on or after the
respective due dates expressed in the Security or the Registration Rights
Agreement, as the case may be, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of the Holder.
SECTION 6.08 COLLECTION SUIT BY SUBORDINATED DEBENTURE TRUSTEE
If an Event of Default specified in Section 6.01(1), (2) or
(3) (with respect to the Company's obligations under Section 4.08 hereof) hereof
occurs and is continuing, the Subordinated Debenture Trustee is authorized to
recover judgment in its own name and as trustee of an express trust against the
Company for the amount of principal, premium and Liquidated Damages, if any, and
interest remaining unpaid on the Securities, determined in accordance with
Section 6.02 hereof and interest on overdue principal, premium, if any, and, to
the extent lawful, interest, and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Subordinated Debenture
Trustee, its agents and counsel.
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SECTION 6.09 SUBORDINATED DEBENTURE TRUSTEE MAY FILE PROOFS OF CLAIM
The Subordinated Debenture Trustee is authorized to file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Subordinated Debenture Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Subordinated Debenture Trustee, its agents and counsel) and the Holders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any Custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Subordinated Debenture Trustee, and in the
event that the Subordinated Debenture Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Subordinated Debenture
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Subordinated Debenture Trustee, its agents and
counsel, and any other amounts due the Subordinated Debenture Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Subordinated Debenture Trustee, its
agents and counsel, and any other amounts due the Subordinated Debenture Trustee
under Section 7.07 hereof out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties which the Holders of the Securities may be entitled to
receive in such proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Subordinated Debenture Trustee to authorize or consent
to or accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights of
any Holder thereof, or to authorize the Subordinated Debenture Trustee to vote
in respect of the claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES
If the Subordinated Debenture Trustee collects any money pursuant
to this Article 6, it shall pay out the money in the following order:
First: to the Subordinated Debenture Trustee for amounts due under
Section 7.07 hereof;
Second: subject to Article 10 hereof, to Holders for amounts due
and unpaid on the Securities for principal, premium and Liquidated
Damages, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on
the Securities for principal, premium and Liquidated Damages, if
any, and interest, respectively; and
Third: to the Company.
The Subordinated Debenture Trustee may fix a record date and
payment date for any payment to Holders pursuant to this Article 6.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Subordinated Debenture Trustee for any
action taken or omitted by it as a Subordinated Debenture Trustee, a court in
its discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good
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faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Subordinated Debenture Trustee, a suit by a
Holder pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 7
SUBORDINATED DEBENTURE TRUSTEE
SECTION 7.01 DUTIES OF SUBORDINATED DEBENTURE TRUSTEE
(1) If an Event of Default has occurred and is continuing, the
Subordinated Debenture Trustee shall exercise such of the rights
and powers vested in it by this Indenture, and use the same degree
of care and skill in such exercise, as a prudent man would exercise
or use under the circumstances in the conduct of his own affairs.
(2) Except during the continuance of an Event of Default:
(a) the Subordinated Debenture Trustee need perform only those
duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read
into this Indenture against the Subordinated Debenture Trustee;
and
(b) in the absence of bad faith on its part, the Subordinated
Debenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Subordinated Debenture Trustee and conforming to the
requirements of this Indenture. However, the Subordinated
Debenture Trustee shall examine the certificates and opinions to
determine whether or not, on their face, they appear to conform
to the requirements of this Indenture.
(3) The Subordinated Debenture Trustee may not be relieved from
liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(a) this paragraph does not limit the effect of paragraph (2)
of this Section 7.01;
(b) the Subordinated Debenture Trustee shall not be liable for
any error of judgment made in good faith by a Trust Officer,
unless it is proved that the Subordinated Debenture Trustee was
negligent in ascertaining the pertinent facts; and
(c) the Subordinated Debenture Trustee shall not be liable
with respect to any action it takes or omits to take in good
faith in accordance with a direction received by it pursuant to
Section 6.05 hereof.
(4) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Subordinated
Debenture Trustee is subject to paragraphs (1), (2) and (3) of this
Section 7.01.
(5) No provision of this Indenture shall require the Subordinated
Debenture Trustee to expend or risk its own funds or incur any
liability. The Subordinated Debenture Trustee is not obligated to
perform any duty or exercise any right or power under this
Indenture at the request of the
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Holders of the Securities unless it
receives an offer from such Holders of security and indemnity
satisfactory to it against any loss, liability or expense
(including, without limitation, fees of counsel).
(6) The Subordinated Debenture Trustee shall not be liable for
interest on any money received by it except as the Subordinated
Debenture Trustee may agree in writing with the Company. Money
held in trust by the Subordinated Debenture Trustee need not be
segregated from other funds except to the extent required by law.
SECTION 7.02 RIGHTS OF SUBORDINATED DEBENTURE TRUSTEE
(1) The Subordinated Debenture Trustee may rely on any document
believed by it to be genuine and to have been signed or presented
by the proper Person. The Subordinated Debenture Trustee need not
investigate any fact or matter stated in the document.
(2) Before the Subordinated Debenture Trustee acts or refrains
from acting, it may require an Officers' Certificate or an Opinion
of Counsel or both. The Subordinated Debenture Trustee shall not
be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The
Subordinated Debenture Trustee may consult with counsel and the
advice of such counsel (to be promptly confirmed in writing) or any
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by
it hereunder and in reliance thereon.
(3) The Subordinated Debenture Trustee may act through agents and
shall not be responsible for the misconduct or negligence of any
agent, attorney, custodian or nominee appointed with due care.
(4) The Subordinated Debenture Trustee shall not be liable for
any action it takes or omits to take in good faith which it
believes to be authorized or within its rights or powers conferred
upon it by this Indenture.
(5) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
SECTION 7.03 INDIVIDUAL RIGHTS OF SUBORDINATED DEBENTURE TRUSTEE
The Subordinated Debenture Trustee in its individual or any other
capacity may become the owner or pledgee of Securities and may otherwise deal
with the Company or any of its Affiliates with the same rights it would have if
it were not Subordinated Debenture Trustee. Any Agent may do the same with like
rights. However, the Subordinated Debenture Trustee is subject to Sections 7.10
and 7.11 hereof.
SECTION 7.04 SUBORDINATED DEBENTURE TRUSTEE'S DISCLAIMER
The Subordinated Debenture Trustee makes no representation as to
the validity or adequacy of this Indenture or the Securities; it shall not be
accountable for the Company's use of the proceeds from the Securities or any
money paid to the Company or upon the Company's direction under any provision
hereof; it shall not be responsible for the use or application of any money
received by any Paying Agent
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other than the Subordinated Debenture Trustee; and it shall not be responsible
for any statement or recital herein or any statement in the Securities other
than its certificate of authentication.
SECTION 7.05 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and if it
is actually known to a trust officer of the Subordinated Debenture Trustee, the
Subordinated Debenture Trustee shall mail to each Holder a notice of the Default
or Event of Default within 90 days after it occurs, or if later, within ten days
after such Default or Event of Default becomes known to the Subordinated
Debenture Trustee unless such Default or Event of Default has been cured.
Except in the case of a Default or Event of Default in payment of principal of,
premium and Liquidated Damages, if any, or interest on any Security or that
resulted from a failure to comply with Section 4.08 hereof, the Subordinated
Debenture Trustee may withhold the notice if and so long as a committee of its
Trust Officers determines in good faith that withholding the notice is in the
interests of Holders.
SECTION 7.06 REPORTS BY SUBORDINATED DEBENTURE TRUSTEE TO HOLDERS
Within 60 days after each May 15 beginning with the first May 15 to
occur after the date of this Indenture, the Subordinated Debenture Trustee shall
mail to Holders a brief report dated as of such reporting date that complies
with TIA Sec. 313(a) (but if no event described in TIA Sec. 313(a) has occurred
within the twelve months preceding the reporting date, no report need be
transmitted). The Subordinated Debenture Trustee also shall comply with TIA
Sec. 313(b). The Subordinated Debenture Trustee shall also transmit by mail
all reports as required by TIA Sec. 313(c).
A copy of each report at the time of its mailing to Holders shall
be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Subordinated Debenture Trustee when the
Securities are listed on any stock exchange.
SECTION 7.07 COMPENSATION AND INDEMNITY
The Company shall pay to the Subordinated Debenture Trustee from
time to time reasonable compensation for its acceptance of this Indenture and
services hereunder. The Subordinated Debenture Trustee's compensation shall not
be limited by any law relating to compensation of a trustee of an express trust.
The Company shall reimburse the Subordinated Debenture Trustee upon request for
all reasonable disbursements, advances and expenses incurred by it. Such
expenses shall include the reasonable compensation, disbursements and expenses
of the Subordinated Debenture Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Subordinated
Debenture Trustee and its directors, officers, employees and agents against any
loss, liability or expense (including, without limitation, fees and expenses of
counsel) incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture including, without limitation,
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of its powers and duties hereunder,
except as set forth in the next paragraph. The Subordinated Debenture Trustee
shall notify the Company promptly of any claim for which it may seek indemnity.
The Company shall defend the claim and the Subordinated Debenture Trustee shall
cooperate in the defense. The Subordinated Debenture Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
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The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Subordinated Debenture Trustee through its
negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07,
the Subordinated Debenture Trustee shall have a Lien prior to the Securities on
all money or property held or collected by the Subordinated Debenture Trustee,
except that held in trust to pay principal, premium and Liquidated Damages, if
any, and interest on particular Securities. Such Lien shall survive the
satisfaction and discharge of the Indenture.
When the Subordinated Debenture Trustee incurs expenses or renders
services after an Event of Default specified in Section 6.01(5) or (6) hereof
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
SECTION 7.08 REPLACEMENT OF SUBORDINATED DEBENTURE TRUSTEE
The Subordinated Debenture Trustee may resign and be discharged
from the trust hereby created by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Securities may remove the
Subordinated Debenture Trustee by so notifying the Subordinated Debenture
Trustee and the Company. The Company may remove the Subordinated Debenture
Trustee if:
(1) the Subordinated Debenture Trustee fails to comply with
Section 7.10 hereof;
(2) the Subordinated Debenture Trustee is adjudged a bankrupt or
an insolvent or an order for relief is entered with respect to the
Subordinated Debenture Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the
Subordinated Debenture Trustee or its property; or
(4) the Subordinated Debenture Trustee becomes incapable of
acting.
Notwithstanding the foregoing, a resignation or removal of the Subordinated
Debenture Trustee and appointment of a successor Subordinated Debenture Trustee
shall become effective only upon the successor Subordinated Debenture Trustee's
acceptance of appointment as provided in this Section 7.08, and thereafter the
Subordinated Debenture Trustee shall have no liability for any acts or omission
of any successor Trustee.
If the Subordinated Debenture Trustee resigns or is removed or if a
vacancy exists in the office of Subordinated Debenture Trustee for any reason,
the Company shall promptly appoint a successor Subordinated Debenture Trustee.
If a successor Subordinated Debenture Trustee does not take office
within 60 days after the retiring Subordinated Debenture Trustee resigns or is
removed, the retiring Subordinated Debenture Trustee, the Company or the Holders
of at least 10% in principal amount of the then outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Subordinated Debenture Trustee.
If the Subordinated Debenture Trustee fails to comply with
Section 7.10 hereof, any Holder may petition any court of competent jurisdiction
for the removal of the Subordinated Debenture Trustee and the appointment of a
successor Subordinated Debenture Trustee.
A successor Subordinated Debenture Trustee shall deliver a written
acceptance of its appointment to the retiring Subordinated Debenture Trustee and
to the Company. Thereupon the resignation or removal of the retiring
Subordinated Debenture Trustee shall become effective, and the successor
Subordinated Debenture Trustee shall have all the rights, powers and duties of
the Subordinated Debenture Trustee under this Indenture. The successor
Subordinated Debenture Trustee shall mail a notice of its succession to
Holders. The retiring Subordinated Debenture Trustee shall promptly transfer
all property held by it as Subordinated Debenture Trustee to the successor
Subordinated Debenture Trustee, subject to the Lien provided for in Section 7.07
hereof. Notwithstanding replacement of the Subordinated Debenture Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Subordinated Debenture
Trustee.
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SECTION 7.09 SUCCESSOR SUBORDINATED DEBENTURE TRUSTEE BY MERGER, ETC.
Subject to Section 7.10 hereof, if the Subordinated Debenture
Trustee consolidates, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the successor entity without any further act shall be the successor
Subordinated Debenture Trustee. In case any Securities have been authenticated,
but not delivered, by the Subordinated Debenture Trustee then in office, any
succession by merger, conversion or consolidation of such authenticating trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor trustee had itself authenticated such
Securities.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Subordinated Debenture Trustee
hereunder which shall be a corporation organized and doing business under the
laws of the United States of America, any state thereof or the District of
Columbia authorized under such laws to exercise corporate trust power, shall be
subject to supervision or examination by Federal or state (or the District of
Columbia) authority and shall have a combined capital and surplus of at least
$50 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Subordinated Debenture Trustee
who satisfies the requirements of TIA Sec. 310(a)(1). The Subordinated
Debenture Trustee is subject to TIA Sec. 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Subordinated Debenture Trustee is subject to TIA Sec. 311(a),
excluding therefrom any creditor relationship listed in TIA Sec. 311(b). A
Subordinated Debenture Trustee who has resigned or been removed shall be subject
to TIA Sec. 311(a) to the extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01 TERMINATION OF COMPANY'S OBLIGATIONS
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 hereof and the Subordinated Debenture
Trustee's and Paying Agent's obligations under Section 8.03 hereof shall
survive) when all outstanding Securities theretofore authenticated and issued
have
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been delivered (other than destroyed, lost or stolen Securities that have been
replaced or paid) to the Subordinated Debenture Trustee for cancellation and the
Company has paid all sums payable hereunder. In addition, the Company may
terminate all of its obligations under this Indenture if:
(1) the Company irrevocably deposits, or causes to be deposited,
in trust with the Subordinated Debenture Trustee or the Paying
Agent or, at the option of the Subordinated Debenture Trustee, with
a trustee satisfactory to the Subordinated Debenture Trustee and
the Company under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Subordinated Debenture
Trustee, money or U.S. Government Obligations in an amount
sufficient (without reinvestment thereof) to pay principal, premium
and Liquidated Damages, if any, and interest on the Securities to
maturity or redemption, as the case may be, as such amounts become
due, and to pay all other sums payable by it hereunder, and such
deposit, when made, does not violate the provisions of Article 10
hereof; provided that (i) the trustee of the irrevocable trust
shall have been irrevocably instructed to pay such money or the
proceeds of such U.S. Government Obligations to the Subordinated
Debenture Trustee and (ii) the Subordinated Debenture Trustee shall
have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of said
principal, premium and Liquidated Damages, if any, and interest on
the Securities;
(2) the Company delivers to the Subordinated Debenture Trustee an
Officers' Certificate stating that all conditions precedent to
satisfaction and discharge of this Indenture have been complied
with, and delivers an Opinion of Counsel to the same effect;
(3) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; and
(4) the Company shall have delivered to the Subordinated
Debenture Trustee an Opinion of Counsel from nationally recognized
counsel acceptable to the Subordinated Debenture Trustee or a tax
ruling from the Internal Revenue Service to the effect that the
Holders of the Securities will not recognize income, gain or loss
for Federal income tax purposes as a result of the Company's
exercise of its option under this Section 8.01 and will be subject
to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such option had
not been exercised.
In such event, this Indenture shall cease to be of further effect, except that
the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 4.06,
7.07, 7.08 and 8.04 hereof and the Company's, the Subordinated Debenture
Trustee's and the Paying Agent's obligations in Section 8.03, and the
Subordinated Debenture Trustee's rights under Article 7 hereof, shall survive
until the Securities are no longer outstanding. Thereafter, only the Company's
obligations in Section 7.07 hereof and the Subordinated Debenture Trustee's and
the Paying Agent's obligations in Section 8.03 hereof shall survive.
After such irrevocable deposit made pursuant to this Section 8.01
and satisfaction of the other conditions set forth herein, the Subordinated
Debenture Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under this Indenture except for those surviving
obligations specified above.
In order to have money available on a payment date to pay principal
or interest on the Securities, the U.S. Government Obligations shall be payable
as to principal or interest on or before such payment
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date in such amounts as will provide the necessary money. U.S. Government
Obligations shall not be callable at the issuer's option.
SECTION 8.02 APPLICATION OF TRUST MONEY
The Subordinated Debenture Trustee or a trustee satisfactory to the
Subordinated Debenture Trustee and the Company shall hold in trust money or U.S.
Government Obligations deposited with it pursuant to Section 8.01 hereof. It
shall apply the deposited money and the money from U.S. Government Obligations
through the Paying Agent and in accordance with this Indenture to the payment of
principal of and interest on the Securities.
SECTION 8.03 REPAYMENT TO COMPANY
The Subordinated Debenture Trustee and the Paying Agent shall
promptly pay to the Company upon written request any excess money or securities
held by them at any time.
The Subordinated Debenture Trustee and the Paying Agent shall pay
to the Company upon written request any money held by them for the payment of
principal or interest that remains unclaimed for two years after the date upon
which such payment shall have become due; provided that the Company shall have
either caused notice of such payment to be mailed to each Holder entitled
thereto no less than 30 days prior to such repayment or within such period shall
have published such notice in a financial newspaper of widespread circulation
published in The City of New York. After payment to the Company, Holders
entitled to the money must look to the Company for payment as general creditors
unless an applicable abandoned property law designates another Person, and all
liability of the Subordinated Debenture Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 8.04 REINSTATEMENT
If the Subordinated Debenture Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with Section 8.01
hereof by reason of any legal proceeding or by reason of any order or judgment
of any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under this Indenture and
the Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.01 hereof until such time as the Subordinated Debenture
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with Section 8.01 hereof; provided that if the Company
has made any payment of interest on or principal of any Securities because of
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Securities to receive such payment from the money
or U.S. Government Obligations held by the Subordinated Debenture Trustee or
Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01 WITHOUT CONSENT OF HOLDERS
Without the consent of any Holder of Securities the Company and the
Subordinated Debenture Trustee may amend or supplement this Indenture or the
Securities:
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(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(3) to comply with Section 5.01 hereof;
(4) to make any change that would provide any additional rights
or benefits to the Holders or that does not adversely affect the
rights hereunder of any Holder; or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors authorizing the execution of any such supplemental indenture,
and upon receipt by the Subordinated Debenture Trustee of the documents
described in Section 9.06 hereof, the Subordinated Debenture Trustee shall join
with the Company in the execution of any supplemental indenture authorized or
permitted by the terms of this Indenture and make any further appropriate
agreements and stipulations that may be therein contained, but the Subordinated
Debenture Trustee shall not be obligated to enter into any supplemental
indenture that affects its own rights, duties or immunities under this Indenture
or otherwise. After an amendment or waiver under this Section 9.01 becomes
effective, the Company shall mail to the Holders of each Security affected
thereby a notice briefly describing the amendment or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
SECTION 9.02 WITH CONSENT OF HOLDERS
Except as provided below in this Section 9.02, this Indenture or
the Securities may be amended or supplemented with the written consent
(including consents obtained in connection with a tender offer or exchange offer
for Securities) of the Holders of at least 51% in principal amount of the then
outstanding Securities.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors authorizing the execution of any such supplemental indenture,
and upon the filing with the Subordinated Debenture Trustee of evidence of the
consent of the Holders as aforesaid, and upon receipt by the Subordinated
Debenture Trustee of the documents described in Section 9.06 hereof, the
Subordinated Debenture Trustee shall join with the Company in the execution of
such supplemental indenture unless such supplemental indenture affects the
Subordinated Debenture Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Subordinated Debenture Trustee may in
its discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
The Holders of 51% in principal amount of the Securities then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Securities (including waivers obtained in
connection with a tender offer or an exchange offer for Securities) or any
existing default. However, without the consent of each Holder affected, an
amendment or waiver under this Section may not (with respect to any Securities
held by a non-consenting Holder):
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(1) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any
Security or alter the provisions with respect to the redemption
price in connection with repurchases under Sections 3.07, 3.08 or
4.08 hereof;
(3) reduce the rate of or change the time for payment of interest
on any Security;
(4) waive a Default or Event of Default in the payment of the
principal of, or premium or Liquidated Damages, if any, or interest
on Securities or that resulted from a failure to comply with
Section 4.08 hereof (except a rescission of acceleration of the
Securities as provided in Section 6.02 hereof);
(5) make any Security payable in money other than that stated in
the Security;
(6) make any change in Article 10 hereof that adversely affects
the rights of any Holder;
(7) make any change in Section 6.04 or 6.07 hereof or in this
sentence of this Section 9.02; or
(8) waive a redemption payment with respect to any Security.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of this Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Securities with respect to which such consent is required or sought as of
a date identified by the Subordinated Debenture Trustee in a notice furnished to
Holders in accordance with the terms of this Indenture.
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment to this Indenture or the Securities shall comply in
form and substance with the TIA as then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS
Until an amendment (which includes any supplement) or waiver
becomes effective, a consent to it by a Holder of a Security is a continuing
consent by the Holder and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holder's Security, even
if notation of the consent is not made on any Security. However, any such
Holder or subsequent Holder may revoke the consent as to his or her Security or
portion of a Security if the Subordinated Debenture Trustee receives written
notice of revocation before the date the amendment or waiver becomes effective.
An amendment or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent
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to any amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment or waiver or to revoke
any consent previously given, whether or not such Persons continue to be Holders
after such record date. No consent shall be valid or effective for more than 90
days after such record date unless consents from Holders of the principal amount
of Securities required hereunder for such amendment or waiver to be effective
shall have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in any of clauses (1) through (8) of
Section 9.02 hereof. In such case, the amendment or waiver shall bind each
Holder of a Security who has consented to it and every subsequent Holder of a
Security that evidences the same debt as the consenting Holder's Security.
SECTION 9.05 NOTATION ON OR EXCHANGE OF SECURITIES
If an amendment, supplement or waiver changes the terms of a
Security, the Subordinated Debenture Trustee may require the Holder of the
Security to deliver it to the Subordinated Debenture Trustee. The Subordinated
Debenture Trustee may place an appropriate notation about the changed terms and
return it to the Holder and the Subordinated Debenture Trustee may place an
appropriate notation on any Security thereafter authenticated. Alternatively,
if the Company or Subordinated Debenture Trustee so determines, the Company in
exchange for all Securities shall issue and the Subordinated Debenture Trustee
shall authenticate new Securities that reflect the changed terms.
SECTION 9.06 SUBORDINATED DEBENTURE TRUSTEE TO SIGN AMENDMENTS, ETC.
The Subordinated Debenture Trustee shall sign any amendment or
supplemental indenture authorized pursuant to this Article 9 if the amendment
does not adversely affect the rights, duties, liabilities or immunities of the
Subordinated Debenture Trustee. If it does, the Subordinated Debenture Trustee
may, but need not, sign it. In signing or refusing to sign such amendment or
supplemental indenture, the Subordinated Debenture Trustee shall be entitled to
receive and, subject to Section 7.01 hereof, shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence
that such amendment or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it will be valid and
binding upon the Company in accordance with its terms.
ARTICLE 10
SUBORDINATION
SECTION 10.01 AGREEMENT TO SUBORDINATE
The Company agrees, and each Holder by accepting a Security agrees,
that the indebtedness evidenced by the Security is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full of all "Senior Debt" (as defined below) and that the
subordination is for the benefit of the holders of Senior Debt. The
Indebtedness evidenced by the Security shall be pari passu with the Series B
Subordinated Debentures.
SECTION 10.02 CERTAIN DEFINITIONS
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"Representative" means (i) with respect to the Credit Agreement,
the Agent (as defined therein) and (ii) with respect to any other Senior Debt,
the indenture trustee or other trustee, agent or representative for such Senior
Debt.
"Senior Debt" means all present and future Indebtedness created,
assumed, incurred or guaranteed by the Company (and all renewals, extensions and
refundings thereof), other than any such Indebtedness which by the terms of the
instrument or agreement creating or evidencing the same is not senior in right
of payment to the Securities, provided that (i) in no event shall Senior Debt
include any Indebtedness of the Company to (a) any of its Subsidiaries or
(b) any trade creditors incurred for the purchase of goods or materials or for
services obtained in the ordinary course of business and (ii) Senior Debt in all
events shall include all Indebtedness incurred under the Credit Agreements, all
Indebtedness incurred under the Senior Note Indentures and all Indebtedness
incurred under the Exchange Debenture Indenture.
A distribution may consist of cash, securities or other property,
by set-off or otherwise.
For the purposes of this Article 10, Obligations with respect to
Senior Debt shall not be deemed to have been paid in full unless the holders
thereof shall have received payment in full in cash.
SECTION 10.03 LIQUIDATION; DISSOLUTION; BANKRUPTCY
Upon any distribution to creditors of the Company in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property or in
an assignment for the benefit of creditors or any marshalling of the assets and
liabilities of the Company:
(1) holders of Senior Debt shall be entitled to receive payment
in full of all Obligations with respect to the Senior Debt
(including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Debt whether or not
such interest is an allowed claim enforceable against the Company
in any such bankruptcy, reorganization, insolvency, receivership or
similar proceeding) before Holders shall be entitled to receive any
payment of any Obligations with respect to the Securities; and
(2) until all Obligations with respect to Senior Debt (as
provided in subsection (1) of this Section 10.03) are paid in full,
any distribution to which Holders would be entitled but for this
Article 10 shall be made to holders of Senior Debt, as their
interests may appear.
SECTION 10.04 DEFAULT ON SENIOR DEBT
No direct or indirect payment or distribution by or on behalf of
the Company of principal of, premium, if any, or interest on the Securities,
whether pursuant to the terms of the Securities or otherwise, may be made (i) if
a default of any Obligations to the holders Senior Debt occurs and has not been
cured or waived, (ii) for a period of 180 days upon the occurrence of a default
(other than a payment default) in respect of Senior Debt and for successive
periods of 180 days if the default is continuing at the end of such 180 day
period or another default (other than a payment default) in respect of Senior
Debt has occurred or (iii) upon the maturity of any Senior Debt, prior to the
payment of all Obligations with respect to Senior Debt that is then due and
payable. In addition, upon the acceleration of the Securities prior to their
stated maturity, holders of the Senior Debt shall receive payment in full before
any payment shall be made to Holders of the Securities.
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SECTION 10.05 ACCELERATION OF SECURITIES
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify the Representatives of Senior Debt of
the acceleration.
SECTION 10.06 WHEN DISTRIBUTION MUST BE PAID OVER
In the event that the Subordinated Debenture Trustee or any Holder
receives any payment of any Obligations (other than, in the case of the
Subordinated Debenture Trustee, fees, expenses and all other amounts payable
pursuant to Section 7.07 hereof) with respect to the Securities at a time when
such payment is prohibited by Section 10.04 hereof, then and in such event (but
with respect to the Subordinated Debenture Trustee, subject to the provisions of
Section 10.12 hereof) such payment shall be held by the Subordinated Debenture
Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request, to, the holders of Senior Debt as
their interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations due to the holders of Senior Debt remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Debt.
If a distribution is made to the Subordinated Debenture Trustee or
any Holder (other than, in the case of the Subordinated Debenture Trustee, fees,
expenses and all other amounts payable pursuant to Section 7.07 hereof) that
because of this Article 10 should not have been made to it, the Subordinated
Debenture Trustee (subject to the provision of Section 10.12 hereof) or such
Holder who receives the distribution shall hold it in trust for the benefit of,
and, upon written request, pay it over to, the holders of Senior Debt as their
interests may appear, or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations due to the holders of Senior Debt remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Debt.
With respect to the holders of Senior Debt, the Subordinated
Debenture Trustee undertakes to perform only such obligations on the part of the
Subordinated Debenture Trustee as are specifically set forth in this Article 10,
and no implied covenants or obligations with respect to the holders of Senior
Debt shall be read into this Indenture against the Subordinated Debenture
Trustee. The Subordinated Debenture Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt, and shall not be liable to any
such holders if the Subordinated Debenture Trustee shall pay over or distribute
to or on behalf of Holders or the Company or any other Person money or assets to
which any holders of Senior Debt shall be entitled by virtue of this Article 10,
unless such payment or distribution is made as a result of the willful
misconduct or gross negligence of the Subordinated Debenture Trustee.
SECTION 10.07 NOTICE BY COMPANY
The Company shall promptly notify the Subordinated Debenture
Trustee and the Paying Agent of any facts known to the Company that would cause
a payment of any Obligations with respect to the Securities to violate this
Article 10, but failure to give such notice shall not affect the subordination
of the Securities to the Senior Debt provided in this Article 10.
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SECTION 10.08 SUBROGATION
After all Obligations with respect to all Senior Debt are paid in
full and until the Securities are paid in full, Holders shall be subrogated
(equally and ratably with all other Indebtedness ranking pari passu with the
Securities) to the rights of holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions otherwise payable to
the Holders have been applied to the payment of Senior Debt. A distribution
made under this Article 10 to holders of Senior Debt which otherwise would have
been made to Holders is not, as between the Company and Holders, a payment by
the Company on the Securities.
SECTION 10.09 RELATIVE RIGHTS
This Article 10 defines the relative rights of Holders and holders
of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to
pay principal of, premium and Liquidated Damages, if any, and
interest on the Securities in accordance with their terms;
(2) affect the relative rights of the Holders and creditors of
the Company other than their rights in relation to holders of
Senior Debt; or
(3) prevent the Subordinated Debenture Trustee or any Holder from
exercising its available remedies upon a Default or Event of
Default, subject to the rights of holders and owners of Senior Debt
to receive distributions and payments otherwise payable to Holders.
If the Company fails because of this Article 10 to pay principal
of, premium or Liquidated Damages, if any, or interest on a Security on the due
date, the failure is still a Default or Event of Default.
SECTION 10.10 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY
No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or by its failure to comply with this Indenture.
SECTION 10.11 DISTRIBUTION OR NOTICE TO REPRESENTATIVE
Whenever a distribution is to be made or a notice given to holders
of Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred
to in this Article 10, the Subordinated Debenture Trustee and the Holders shall
be entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Subordinated Debenture Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Debt and other Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article 10.
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SECTION 10.12 RIGHTS OF SUBORDINATED DEBENTURE TRUSTEE AND PAYING AGENT
Notwithstanding the provisions of this Article 10 or any other
provisions of this Indenture, the Subordinated Debenture Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment or distribution by the Subordinated Debenture Trustee, or
the taking of any action by the Subordinated Debenture Trustee, and the
Subordinated Debenture Trustee and the Paying Agent may continue to make
payments on the Securities unless it shall have received at its Corporate Trust
Office at least three Business Days prior to the date of such payment written
notice of facts that would cause the payment of any Obligations with respect to
the Securities to violate this Article 10. Only the Company, a Representative
of Senior Debt or a holder of an issue of Senior Debt that has no Representative
may give the notice. Nothing in this Article 10 shall impair the claims of, or
payments to, the Subordinated Debenture Trustee under or pursuant to
Section 7.07 hereof. Except as set forth in the immediately preceding sentence,
nothing in this Section 10.12 shall limit the rights of holders of Senior Debt
to recover payments as contemplated by Section 10.06 hereof.
The Subordinated Debenture Trustee in its individual or any other
capacity may hold Senior Debt with the same rights it would have if it were not
Subordinated Debenture Trustee. Any Agent may do the same with like rights.
SECTION 10.13 AUTHORIZATION TO EFFECT SUBORDINATION
Each Holder of a Security by its acceptance thereof authorizes and
directs the Subordinated Debenture Trustee on its behalf to take such action as
may be necessary or appropriate to effectuate the subordination as provided in
this Article 10 and appoints the Subordinated Debenture Trustee his attorney-in-
fact for any and all such purposes.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or conflicts
with another provision which is required to be included herein by any of
Sections 310 to 317 inclusive of the TIA, such required provisions shall
control.
SECTION 11.02 NOTICES
Any notice or communication to the Company, the Subordinated
Debenture Trustee, the agents under the Credit Agreements, the Senior Secured
Note Trustee or the Exchange Debenture Trustee is duly given if in writing and
delivered in person or mailed by first-class mail (registered or certified,
return receipt requested), telex, telecopier or overnight air courier
guaranteeing next day delivery, to the other's address:
If to the Company:
K-III Communications Corporation
745 Fifth Avenue
New York, New York 10151
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Attention: General Counsel
Telecopier No.: (212) 745-0199
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Gary I. Horowitz, Esq.
Telecopier No.: (212) 455-2502
If to the Subordinated Debenture Trustee:
The Bank of New York
101 Barclay Street -- 21W
New York, New York 10286
Attention: Corporate Trust Administration
Telecopier No.: (212) 815-5915/5917
If to the agents under the Credit Agreements:
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10081
Attention: William K. Luby
Telecopier No.: (212) 552-1159
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: _____________________
Telecopier No.: (212) __________
If to the Outstanding Notes Trustee:
The Bank of New York
101 Barclay Street - 21W
New York, New York 10286
Attention: Corporate Trust Department
Telecopier No.: (212) 815-5915/5917
If to the Exchange Debenture Trustee:
Chemical Bank
450 West 33rd Street
New York, New York 10001
Attention: Vice President Corporate Trust Administration - 15th
Floor
Telecopier No.: (212) 613-7799/7800
43
<PAGE>
The Company, the Subordinated Debenture Trustee, the agents under
the Credit Agreements, the Outstanding Note Trustee and the Exchange Debenture
Trustee by notice to the others may designate additional or different addresses
for subsequent notices or communications.
All notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first-class mail, certified or registered, return receipt requested, to the
Holder's address shown on the register kept by the Registrar. Failure to mail a
notice or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Subordinated Debenture Trustee and each Agent at the same
time.
SECTION 11.03 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS
Holders may communicate pursuant to TIA Sec. 312(b) with other
Holders with respect to their rights under this Indenture or the Securities. The
Company, the Subordinated Debenture Trustee, the Registrar and anyone else shall
have the protection of TIA Sec. 312(c).
SECTION 11.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company to the Subordinated
Debenture Trustee to take any action under this Indenture, the Company shall
furnish to the Subordinated Debenture Trustee:
(1) an Officers' Certificate (which shall include the statements
set forth in Section 11.05 hereof) stating that, in the opinion of
the signers, all conditions precedent and covenants, if any,
provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 11.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
complied with.
SECTION 11.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Sec. 314(a)(4)) shall include:
(1) a statement that the Person making such certificate or
opinion has read and understands such covenant or condition;
44
<PAGE>
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with; provided
that with respect to matters of fact Opinions of Counsel may rely
on an Officers' Certificate or certificates of public officials.
SECTION 11.06 RULES BY SUBORDINATED DEBENTURE TRUSTEE AND AGENTS
The Subordinated Debenture Trustee may make reasonable rules for
action by or at a meeting of Holders. The Registrar or Paying Agent may make
reasonable rules and set reasonable requirements for its functions.
SECTION 11.07 LEGAL HOLIDAYS
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 11.08 NO RECOURSE AGAINST OTHERS
No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities or this Indenture or for any claim based on, in respect of,
or by reason of, such obligations of their creation. Each Holder of the
Securities by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Security.
SECTION 11.09 GOVERNING LAW
This Indenture and the Securities shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
SECTION 11.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or a Subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.11 SUCCESSORS
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Subordinated Debenture Trustee
in this Indenture shall bind its successor.
45
<PAGE>
SECTION 11.12 SEVERABILITY
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.13 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.14 SUBORDINATED DEBENTURE TRUSTEE AS PAYING AGENT AND REGISTRAR
The Company initially appoints the Subordinated Debenture Trustee
as Paying Agent and Registrar.
SECTION 11.15 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 11.16 BANK OF NEW YORK NOT ACTING IN INDIVIDUAL CAPACITY
Notwithstanding anything to the contrary contained herein, this
Indenture has been accepted by The Bank of New York not in its individual
capacity but solely as Trustee and in no event shall The Bank of New York have
any liability for the representations, warranties, covenants, agreements or
other obligations of the Company herein or in any of the certificates, notices
or agreements delivered by the Company pursuant hereto, as to all of which
recourse shall be had solely to the assets of the Company, and under no
circumstances shall The Bank of New York be personally liable for the payment of
any indebtedness or expenses of the Company.
SECTION 11.17 ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES
In addition to the rights provided to Holders of Securities under
the Indenture, Holders of Transfer Restricted Securities shall have all the
rights set forth in the Registration Rights Agreement.
[Signatures on Next Page]
46
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SIGNATURES
K-III COMMUNICATIONS CORPORATION
Dated as of , 1996 By:
---------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Subordinated Debenture Trustee
Dated as of , 1996 By:
---------------------------------
Name:
Title:
47
<PAGE>
EXHIBIT A
10% [CLASS C] [CLASS D] SUBORDINATED EXCHANGE DEBENTURE DUE 2008
No. $__________
K-III COMMUNICATIONS CORPORATION
promises to pay to
or registered assigns,
the principal sum of
Dollars on May 1, 2008.
Interest Payment Dates: February 1, May 1, August 1, and November 1.
Record Dates: January 15, April 15, July 15 and October 15.
Dated: ,
------------------ ------
Certificate of Authentication:
This is one of the Securities
issued pursuant to the within-
mentioned Indenture.
THE BANK OF NEW YORK K-III COMMUNICATIONS CORPORATION
as Subordinated Debenture Trustee
By By:
---------------------- ------------------------------------
Authorized Officer
By:
------------------------------------
(SEAL)
<PAGE>
10% [CLASS C] [CLASS D] SUBORDINATED EXCHANGE DEBENTURE DUE 2008
[Unless and until it is exchanged in whole or in part for Debentures
in definitive form, this Debenture may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.]1/
-
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH
IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
"INSTITUTIONAL ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT
IT WILL NOT, WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
COMPANY OR MORGAN STANLEY & CO. INCORPORATED, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, OR SALOMON BROTHERS INC, (B) INSIDE
THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE COMPANY) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN
$1,000,000 AN OPINION OF COUNSEL, ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE
--------------------
1. This paragraph should be included only if the Debenture is
issued in global form.
A-2
<PAGE>
YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER FURNISH TO THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS MAY REASONABLY BE REQUIRED TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.2/
-
Capitalized terms used herein shall have the meanings ascribed to
them in the Indenture unless otherwise indicated.
1. INTEREST; LIQUIDATED DAMAGES. K-III Communications
Corporation, a Delaware corporation (the "Company"), promises to pay interest on
the principal amount of this Security at 10% per annum from _____________, ____
until maturity and shall pay the Liquidated Damages payable pursuant to Section
5 of the Registration Rights Agreement. The Company will pay interest and
Liquidated Damages, if any, quarterly on February 1, May 1, August 1, and
November 1 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Securities will accrue from the most recent date on which interest has been paid
or, if no interest has been paid, from the date of issuance; provided that if
there is no existing Default in the payment of interest, and if this Security is
authenticated between a record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be _____________, ____. The Company shall pay interest
(including post-petition interest in any proceeding under Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at the same
rate per annum on the Securities then in effect; it shall pay interest
(including post-petition interest in any proceeding under Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) and premium and Liquidated Damages, if
any, to the Persons who are registered Holders of Securities at the close of
business on the January 15, April 15, July 15 or October 15 next preceding the
Interest Payment Date, even if such Securities are cancelled after such record
date and on or before such Interest Payment Date. Prior to May 1, 1998,
interest shall be payable, at the option of the Company, in (i) cash or (ii)
additional Securities with a principal amount equal to such interest, in
denominations of $1,000 or integral multiples thereof. Any amount not in
denominations of $1,000 or integral multiples thereof, shall, at the Company's
option, be payable in cash or additional Securities in denominations of less
than $1,000. On and after May 1, 1998, interest shall be paid only in cash.
The Securities will be payable as to principal, premium, interest and Liquidated
Damages at the office or agency of the Company maintained for such purpose
within or without the City of New York, or, at the option of the Company,
payment of interest, premium and Liquidated Damages may be made by check mailed
to the Holders of the Securities at their addresses set forth in the register of
Holders of Securities.
--------------------
2. This legend applies only to the Class C Subordinated
Debentures, not the Class D Subordinated Debentures.
A-3
<PAGE>
3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York,
the Subordinated Debenture Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its subsidiaries may act in any
such capacity.
4. INDENTURE. The Company issued the Securities under an
Indenture dated as of ___________ __, ____ (the "Indenture") between the Company
and the Subordinated Debenture Trustee. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sec.Sec.
77aaa-77bbbb). The Securities are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. The
Securities are general unsecured obligations of the Company limited to $200
million in aggregate principal amount, plus amounts, if any, sufficient to pay
premium and Liquidated Damages, if any, and interest on outstanding Securities
as set forth in Paragraph 2 hereof.
5. SUBORDINATION. The Company's payment of the principal of,
premium and Liquidated Damages, if any, and interest on the Securities is
subordinated to the prior payment in full of the Company's Senior Debt. Each
Holder of Securities by his acceptance hereof covenants and agrees that all
payments of the principal of, premium and Liquidated Damages, if any, and
interest on the Securities by the Company shall be subordinated in accordance
with the provisions of Article 10 of the Indenture, and each Holder accepts and
agrees to be bound by such provisions.
6. OPTIONAL REDEMPTION.
On and after February 1, 2001 and on and after a Change of Control
of the Company, the Securities will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of the principal
amount) set forth below plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
February 1 of the years indicated below.
Year Percentage
---- ----------
2001 . . . . . . . . . . . . . . 105%
2002 . . . . . . . . . . . . . . 104
2003 . . . . . . . . . . . . . . 103
2004 . . . . . . . . . . . . . . 102
2005 . . . . . . . . . . . . . . 101
2006 and thereafter. . . . . . . . .100
Notwithstanding the foregoing:
(1) the Company may redeem up to 50% of the outstanding aggregate
principal amount of the Securities originally issued at a
redemption price of 110% of the principal amount thereof, plus
Liquidated Damages, if any, plus accrued and unpaid interest to the
redemption date, out of the net proceeds of any Public Equity
Offering, provided that any such redemption shall occur within 180
days of such Public Equity Offering; and
(2) upon the occurrence at any time of a Change in Control, the
Securities will be redeemable, at the option of the Company, in
whole or in part, pursuant to the provisions of Section 3.08
hereof.
A-4
<PAGE>
7. MANDATORY OFFERS TO REPURCHASE; MANDATORY REDEMPTION.
Subject to repayment of all then outstanding Senior Debt (to the
extent required by the terms thereof) or receipt by the Company of all consents
with respect thereto required to permit such an offer, following the occurrence
of any Change of Control, the Company will be required to offer (a "Change of
Control Offer") to purchase all outstanding Securities at a purchase price equal
to 101% of the aggregate principal amount of such Securities, plus Liquidated
Damages and accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Payment"), in each case in accordance with and to the extent
provided in the Indenture. The Change of Control Offer shall remain open for a
period of 20 Business Days after its commencement unless a longer offering
period is required by law. No earlier than 30 days nor later than 40 days after
the notice of the Change of Control Offer has been mailed (the "Change of
Control Payment Date"), the Company shall deposit, to the extent lawful, with
the Paying Agent an amount equal to the Change of Control Payment in respect of
all Securities or portions thereof tendered by Holders. The Paying Agent shall
promptly mail or deliver payment for all Securities tendered in the Change of
Control Offer.
A Holder of Securities may tender or refrain from tendering all or
any portion of his Securities at his discretion by completing the form entitled
"OPTION OF HOLDER TO ELECT PURCHASE" appearing on this Security. Any portion of
Securities tendered must be in integral multiples of $1,000.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed by
first class mail at least 30 days but not more than 60 days before the
redemption date to each Holder whose Securities are to be redeemed at its
registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in integral multiples of $1,000, unless all of the
Securities held by a Holder are to be redeemed. On and after the redemption
date interest ceases to accrue on Securities or portions thereof called for
redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000; provided, however, that in connection with the payment of
interest with respect to the Securities in additional Securities and the
original issuance of Securities hereunder in exchange for shares of the
Company's Series A Exchangeable Preferred Stock, the Company may elect to pay
any amount not in denominations of $1,000 and/or integral multiples thereof, in
cash or in additional Securities in denominations of less than $1,000. The
transfer of Securities may be registered and Securities may be exchanged as
provided in the Indenture. The Registrar and the Subordinated Debenture 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 and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Security or portion of a Security
selected for redemption, except for the unredeemed portion of any Security being
redeemed in part. Also, it need not exchange or register the transfer of any
Securities for a period of 15 days before a selection of Securities to be
redeemed or during the period between a record date and the corresponding
Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Security
may be treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Securities may be amended or supplemented and any existing
Default under, or compliance with any provision of, the Indenture may be waived
with the written consent of the Holders of at least 51% in principal amount
A-5
<PAGE>
of the Securities then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Securities). Without the consent of
any Holder, the Company and the Subordinated Debenture Trustee may amend or
supplement the Indenture or the Securities to cure any ambiguity, defect or
inconsistency; to provide for uncertificated Securities in addition to or in
place of certificated Securities; to comply with Section 5.01 of the Indenture;
to make any change that would provide any additional rights or benefits to the
Holders or that does not adversely affect the rights under the Indenture of any
Holder; or to comply with requirements of the SEC in order to effect or maintain
the qualification of the Indenture under the TIA.
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Securities held by a non-consenting Holder): (i)
reduce the principal amount of Securities whose Holders must consent to an
amendment, supplement or waiver; (ii) reduce the principal of or change the
fixed maturity of any Security or alter the provisions with respect to the
redemption or purchase price in connection with repurchases under Sections 3.07,
3.08 or 4.08 of the Indenture; (iii) reduce the rate of or change the time for
payment of interest on any Security; (iv) waive a Default or Event of Default in
the payment of the principal of, premium or Liquidated Damages, if any, or
interest on Securities or that resulted from a failure to comply with Section
4.08 of the Indenture, (except a rescission of acceleration of the Securities by
Holders of at least 51% in aggregate principal amount of the Securities); (v)
make any Security payable in money other than that stated in the Security; (vi)
make any change in Article 10 of the Indenture that adversely affects the rights
of any Holder; (vii) make any change in Section 6.04 or 6.07 of the Indenture or
the last sentence of the fourth paragraph of Section 9.02 of the Indenture; or
(viii) waive a redemption payment with respect to any Security.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of the Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Securities with respect to which such consent is required or sought as of
a date identified by the Subordinated Debenture Trustee in a notice furnished to
Holders in accordance with the terms of this Indenture.
12. DEFAULTS AND REMEDIES. Events of Default include: default in
payment of interest or Liquidated Damages on any Security for 30 days and for
five days after written notice of such default is given to the Company by the
Holders of at least 51% in principal amount of any Security following the
expiration of such 30-day period; default in payment of the principal or premium
of the Securities at maturity or upon acceleration, redemption or otherwise, and
such default continues for a period of ten days; failure by the Company for 60
days after written notice to it from the Trustee, or after written notice to it
and the Trustee from Holders of at least 51% in principal amount of the then
outstanding Securities, to comply with any of its other agreements in the
Indenture or the Securities; certain defaults under other Indebtedness; and
certain events of bankruptcy or insolvency. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 51% in principal amount of
the then outstanding Securities by written notice to the Company, to the agent
under the Credit Agreements, the trustees under the Senior Notes and the
Exchange Debenture Trustee (and to the Trustee if such notice is given by the
Holders) may, and the Trustee at the request of the Holders shall, declare all
of the Securities to be immediately due and payable for an amount equal to 100%
of the principal amount of the Securities plus premium and Liquidated Damages,
if any, and accrued interest to the date of payment upon the first to occur of
an acceleration under the Credit Agreements, the Senior Notes or the Exchange
Debentures or 15 Business Days after receipt by the Company, such agent and such
trustees of such written notice to the extent such Event of Default is
continuing, except that in the case of an Event of Default arising from certain
events of bankruptcy or insolvency, all outstanding Securities shall become due
and payable
A-6
<PAGE>
immediately without further action or notice. Holders may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders notice of any
continuing Default or Event of Default (except a Default or Event of Default in
payment of principal, premium or Liquidated Damages, if any, or interest or that
resulted from a failure to comply with Section 4.08 of the Indenture) if and so
long as a committee of its Trust Officers determines in good faith that
withholding notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
13. SUBORDINATED DEBENTURE TRUSTEE DEALINGS WITH COMPANY. The
Subordinated Debenture Trustee, in its individual or any other capacity, may
make loans to, accept deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if it
were not Subordinated Debenture Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or shareholder of the Company, as such, shall have any liability
for any obligations of the Company under the Securities or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations of their
creation. Each Holder of the Securities by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Securities.
15. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Subordinated Debenture Trustee or
an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to Holders of Securities under
the Indenture, Holders of Transfer Restricted Securities shall have all the
rights set forth in the Registration Rights Agreement.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
K-III COMMUNICATIONS CORPORATION
745 Fifth Avenue
New York, New York 10151
Attention: Treasurer
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
to transfer this Security on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
----------------
Your Signature:
----------------------
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee.
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.08 of the Indenture, check the box below:
Section 4.08
If you want to elect to have only part of the Security purchased by
the Company pursuant to Section 4.08 of the Indenture, state the amount you
elect to have purchased: $___________
Date: Your Signature:
----------------- ----------------------------
(Sign exactly as your name appears on the Security)
Tax Identification No.:
-----------------
- -
Signature Guarantee.
A-9
<PAGE>
SCHEDULE OF EXCHANGES FOR DEFINITIVE DEBENTURES3/
-
The following exchanges of a part of this Global Debenture for
definitive Debentures have been made:
<TABLE><CAPTION>
Amount of Principal Amount of this Signature of
Amount of decrease in increase in Global Debenture Authorized officer of
Date of Principal Amount of Principal Amount of following such decrease Trustee or Debenture
Exchange this Global Debenture this Global Debenture (or increase) Custodian
- -------- --------------------- --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
--------------------
3. This should be included only if the Debenture is issued in
global form.
A-10
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 10% [Class C] [Class D] Subordinated Exchange Debentures due 2008 of
K-III Communications Corporation (the "Securities").
This Certificate relates to $_____ principal amount of Securities
held by ______ (the "Transferor").
The Transferor has requested the Subordinated Debenture Trustee by
written order to exchange or register the transfer of a Security or Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that Transferor is familiar with
the Indenture relating to the above captioned Securities and as provided in
Section 2.06 of such Indenture, the transfer of this Security does not require
registration under the Securities Act (as defined below) because:*
[ ] Such Security is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 2.06(a)(ii)(A) of the
Indenture).
[ ] Such Security is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) or an institutional accredited investor within the meaning of
Rule 501 (a)(1), (2), (3) or (7) under the Securities Act, in reliance on Rule
144A (in satisfaction of Section 2.06(a)(ii)(B) of the Indenture).
[ ] Such Security is being transferred in accordance with Rule 144
or Rule 145 or Regulation S under the Securities Act, or pursuant to an
effective registration statement under the Securities Act (in satisfaction of
Section 2.06(a)(ii)(B) of the Indenture).
-----------------------------------
[INSERT NAME OF TRANSFEROR]
By:
--------------------------------
Date:
----------------------
*Check applicable box.
B-1
EXHIBIT 4.3
K-III COMMUNICATIONS CORPORATION
CERTIFICATE OF DESIGNATIONS
_______________
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
_______________
K-III Communications Corporation (the "Company"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that pursuant to the provisions of Section 151 of
the General Corporation Law of the State of Delaware, its Board of Directors, by
unanimous written consent dated May __, 1996, adopted the following resolution,
which resolution remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") is authorized, within the limitations and restrictions stated in the
Certificate of Incorporation, to fix by resolution or resolutions the
designation of each series of preferred stock and the powers, designations,
preferences and relative participating, optional or other rights, if any, or the
qualifications, limitations or restrictions thereof, including, without limiting
the generality of the foregoing, such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors under the General
Corporation Law of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the Company,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of preferred stock and the number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such
series of preferred stock on the terms and with the provisions herein set forth:
<PAGE>
2
1. Designation. The series of preferred stock authorized hereunder
-----------
shall be designated as the "Series D Exchangeable Preferred Stock" (the
"Preferred Stock"). The number of shares constituting such series shall be
2,000,000. The par value of the Preferred Stock shall be $.01 per share. The
number of shares of Preferred Stock may be increased (but not above the total
number of authorized and undesignated shares of preferred stock) or decreased
(but not below the number of shares of Preferred Stock then outstanding) by a
resolution of the Board of Directors filed with the Delaware Secretary of State.
2. Rank. The Preferred Stock shall, with respect to dividend rights
----
and rights on liquidation, winding-up and dissolution, rank senior to all
classes of common stock of the Company (including, without limitation, the
Common Stock), and each other class of capital stock or series of preferred
stock hereafter created which does not expressly provide that it ranks senior to
or on a parity with the Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution. The Preferred Stock shall, with
respect to dividend rights and rights on liquidation, winding-up and
dissolution, rank on a parity with the Series B Preferred Stock, Series C
Exchangeable Preferred Stock and each other class of capital stock or series of
preferred stock hereafter created which expressly provides that it ranks on a
parity with the Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution. The Preferred Stock shall, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, rank junior to the
Senior Exchangeable Preferred Stock and to each other class of capital stock or
series of preferred stock hereafter created which expressly provides that it
ranks senior to the Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution. (All equity securities of the Company
to which the Preferred Stock ranks senior, including, without limitation, the
Common Stock, are collectively referred to herein as the "Junior Securities",
all equity securities of the Company with which the Preferred Stock ranks on a
parity, including Future Parity Securities, are collectively referred to herein
as the "Parity Securities", and all equity securities of the Company to which
the Preferred Stock ranks junior are collectively referred to herein as the
"Senior Securities".)
<PAGE>
3
3. Dividends. (a) The holders of the outstanding shares of
---------
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for the payment of dividends,
cash dividends at an annual rate equal to 10% of the liquidation preference
thereof. Dividends on each share of Preferred Stock shall accrue and be payable
in cash quarterly in arrears on each Dividend Payment Date commencing on the
first such date to occur after the Original Issue Date in preference to
dividends on the Junior Securities. Each such dividend shall be payable to
holders of record as they appear on the stock books of the Company on such
record dates, not less than ten (10) nor more than sixty (60) days preceding
the Dividend Payment Date, as shall be fixed by the Board of Directors.
Accrued and unpaid dividends shall not bear interest. Dividends shall cease
to accrue in respect of the Preferred Stock on the Exchange Date or Redemption
Date.
(b) All dividends paid with respect to shares of the Preferred Stock
pursuant to Section 3(a) shall be paid pro rata to the holders entitled thereto.
(c) Dividends shall accrue and be cumulative from the Original Issue
Date.
(d) Each fractional share of Preferred Stock outstanding shall be
entitled to a ratably proportionate amount of all dividends accruing with
respect to each outstanding share of Preferred Stock pursuant to Section 3(a),
and all such dividends with respect to such outstanding fractional shares shall
be cumulative and shall accrue (whether or not declared), and shall be payable
in the same manner and at such times as provided for in Section 3(a) with
respect to dividends on each outstanding share of Preferred Stock. Each
fractional share of Preferred Stock outstanding shall also be entitled to a
ratably proportionate amount of any other distributions made with respect to
each outstanding share of Preferred Stock, and all such distributions shall be
payable in the same manner and at the same time as distributions on each
outstanding share of Preferred Stock.
(e) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors to
declare, or the Company to pay or set apart for
<PAGE>
4
payment, any dividends on shares of the Preferred Stock at any time.
(f) No full dividends shall be declared by the Board of Directors or
paid or funds set apart for payment by the Company on any Parity Securities for
any period unless full cumulative dividends have been or contemporaneously are
declared and paid, or declared and a sum set apart sufficient for such payment,
on the Preferred Stock for all Dividend Periods terminating on or prior to the
date of payment of such full dividends on such Parity Securities. If any
dividends are not paid in full, as aforesaid, upon the shares of the Preferred
Stock and any other Parity Securities, all dividends declared upon shares of the
Preferred Stock and any other Parity Securities shall be declared pro rata so
that the amount of dividends declared per share on the Preferred Stock and such
Parity Securities shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock and such Parity Securities
bear to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Preferred Stock or
any other Parity Securities which may be in arrears.
(g) (i) Holders of shares of the Preferred Stock shall be entitled
to receive the dividends provided for in Section 3(a) hereof in preference to
and in priority over any dividends upon any of the Junior Securities.
(ii) So long as any shares of the Preferred Stock are outstanding,
the Company shall not declare, pay or set apart for payment any dividend on any
of the Junior Securities or make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the purchase, redemption
or other retirement of, any of the Junior Securities or any warrants, rights,
calls or options exercisable for or convertible into any of the Junior
Securities, or make any distribution in respect thereof, either directly or
indirectly, and whether in cash, obligations or shares of the Company or other
property (other than distributions or dividends in Junior Securities to the
holders of Junior Securities), and shall not permit any corporation or other
entity directly or indirectly controlled by the Company to purchase or redeem
any of the Junior Securities or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior Securities unless, prior
------
to or
<PAGE>
5
concurrently with such declaration, payment, setting apart for payment,
purchase, redemption or distribution, as the case may be, all accrued and unpaid
dividends on shares of the Preferred Stock not paid on the dates provided for in
Section 3(a) hereof (including accrued dividends not paid by reason of the terms
and conditions of Section 3(e) or Section 3(f) hereof) shall have been or be
paid.
(h) Subject to the foregoing provisions of this Section 3, the Board
of Directors may declare and the Company may pay or set apart for payment
dividends and other distributions on any of the Junior Securities or Parity
Securities, and may purchase or otherwise redeem any of the Junior Securities or
Parity Securities or any warrants, rights or options exercisable for or
convertible into any of the Junior Securities or Parity Securities, and the
holders of the shares of the Preferred Stock shall not be entitled to share
therein.
(i) Dividends payable on the Preferred Stock for any period less than
a year shall be computed on the basis of a 360-day year of twelve 30-day months
and the actual number of days elapsed in the period for which payable.
4. Liquidation Preference. (a) In the event of any voluntary or
----------------------
involuntary liquidation, dissolution or winding-up of the affairs of the
Company, the holders of shares of Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its stockholders, whether such assets are capital, surplus or earnings, an
amount in cash equal to $100.00 for each share outstanding, plus an amount in
cash equal to accrued but unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding-up (including an amount equal to a prorated
dividend from the last Dividend Payment Date to the date fixed for liquidation,
dissolution or winding-up) before any payment shall be made or any assets
distributed to the holders of any of the Junior Securities. Except as provided
in the preceding sentence, holders of Preferred Stock shall not be entitled to
any distribution in the event of liquidation, dissolution or winding-up of the
affairs of the Company. If the assets of the Company are not sufficient to pay
in full the liquidation payments payable to the holders of outstanding shares of
the Preferred Stock and all Parity Securities, then the holders of all such
shares shall share ratably in such distribution of assets in
<PAGE>
6
accordance with the amounts which would be payable on such distribution if the
amounts to which the holders of outstanding shares of Preferred Stock and the
holders of outstanding shares of all Parity Securities are entitled were paid in
full.
(b) For the purposes of this Section 4, neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
corporations shall be deemed to be a liquidation, dissolution or winding-up of
the affairs of the Company.
5. Redemption.
----------
(a) Optional Redemption. (i) The Company may, at the option of the
-------------------
Board of Directors, redeem at any time after February 1, 2001, from any source
of funds legally available therefor, in whole or in part, in the manner provided
in Section 5(c) hereof, any or all of the shares of Preferred Stock, at the
redemption prices (expressed as a percentage of liquidation preference) set
forth below plus an amount in cash equal to all accumulated and unpaid dividends
per share (including an amount equal to a prorated dividend from the last
Dividend Payment Date to the Redemption Date), without interest (the "Optional
Redemption Price"):
Year Optional Redemption Price
---- -------------------------
2001......................... 105%
2002......................... 104
2003......................... 103
2004......................... 102
2005......................... 101
2006 and thereafter.......... 100
(ii) At the option of the Board of Directors, the Company may, at any
time prior to February 1, 1999, redeem up to $100 million of the aggregate
liquidation preference of the shares of Preferred Stock then issued and
outstanding with the net proceeds of a public offering of the Common Stock at a
redemption price per share equal to $110.00 plus an amount in cash equal to all
accumulated but unpaid dividends per share (including any amount equal to a
prorated dividend from the last Dividend Payment Date to the Redemption Date)
(the "Public
<PAGE>
7
Offering Redemption Price") in the manner set forth in Section 5(c) hereof. Any
such redemption pursuant to this Section 5(a)(ii) shall be effected by the
Company within 180 days after the consummation of such public offering.
(iii) In the event of a redemption pursuant to Section 5(a)(i) or
5(a)(ii) hereof of only a portion of the then outstanding shares of Preferred
Stock redeemable thereunder, the Company shall effect such redemption pro rata
according to the number of shares held by each Holder of such Preferred Stock,
except that the Company may redeem such shares held by Holders of fewer than 100
shares (or shares held by Holders who would hold less than 100 shares as a
result of such redemption), as may be determined by the Company.
(b) Mandatory Redemption. The Company shall redeem, from any source
--------------------
of funds legally available therefor, in the manner provided in Section 5(c)
hereof, all issued and outstanding shares of Preferred Stock on February 1,
2008, at a redemption price equal to $100.00 per share, plus an amount in cash
equal to all accumulated and unpaid dividends per share (including any amount
equal to a prorated dividend from the last Dividend Payment Date to the
Redemption Date) (the "Mandatory Redemption Price").
(c) Procedure for Redemption. (i) At least thirty (30) days and not
------------------------
more than sixty (60) days prior to the date fixed for any redemption of the
Preferred Stock, written notice (the "Redemption Notice") shall be given by
first class mail, postage prepaid, to each Holder of record on the record date
fixed for such redemption of the Preferred Stock at such Holder's address as the
same appears on the stock register of the Company, provided, however, that no
-------- -------
failure to give such notice nor any deficiency therein shall affect the validity
of the procedure for the redemption of any shares of Preferred Stock to be
redeemed except as to the Holder or Holders to whom the Company has failed to
give said notice or except as to the Holder or Holders whose notice was
defective. The Redemption Notice shall state:
(A) whether the redemption is pursuant to Section 5(a)(i), 5(a)(ii)
or 5(b) hereof;
<PAGE>
8
(B) the Optional Redemption Price, Public Offering Redemption Price
or Mandatory Redemption Price, as the case may be;
(C) whether all or less than all the outstanding shares of the
Preferred Stock redeemable thereunder are to be redeemed and the total
number of shares of such Preferred Stock being redeemed;
(D) the number of shares of Preferred Stock held by the Holder that
the Company intends to redeem;
(E) the date fixed for redemption;
(F) that the Holder is to surrender to the Company, at the place or
places where certificates for shares of Preferred Stock are to be
surrendered for redemption, in the manner and at the price designated, the
certificate or certificates representing the shares of Preferred Stock to
be redeemed; and
(G) that dividends on the shares of the Preferred Stock to be
redeemed shall cease to accrue on such Redemption Date unless the Company
defaults in the payment of the Optional Redemption Price, Public Offering
Redemption Price or Mandatory Redemption Price, as the case may be.
(ii) On or before the date fixed for redemption, each holder of
Preferred Stock shall surrender the certificate or certificates representing
such shares of Preferred Stock to the Company, in the manner and at the place
designated in the Redemption Notice, and on the Redemption Date the full
Optional Redemption Price, Public Offering Redemption Price or Mandatory
Redemption Price, as the case may be, for such shares shall be payable in cash
to the Person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be canceled and retired.
In the event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(iii) Unless the Company defaults in the payment in full of the
Optional Redemption Price, Public Offering Redemption Price or Mandatory
Redemption Price, as the case may be,
<PAGE>
9
dividends on the Preferred Stock called for redemption shall cease to accumulate
on the Redemption Date, and the holders of such redeemed shares shall cease to
have any further rights with respect thereto on the Redemption Date, other than
the right to receive the Optional Redemption Price, Public Offering Redemption
Price or Mandatory Redemption Price, as the case may be, without interest.
6. Voting Rights. (a) The holders of Preferred Stock, except as
-------------
otherwise required under Delaware law and as set forth in paragraphs (b) and (c)
below, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the stockholders of the Company.
(b) The Company may not merge or consolidate with or into or transfer
all or substantially all of its assets (as an entirety in one transaction or a
series of related transactions), to any Person without the affirmative vote or
consent of the Holders of a majority of the issued and outstanding shares of
Preferred Stock, Series C Exchangeable Preferred Stock and any outstanding
Future Parity Securities entitled to vote thereon, voting together as one class,
unless (i)(X) the Company shall be the surviving or continuing Person, or the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or to which the properties and assets of the Company are
transferred shall be a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia and the Preferred
Stock and the Series C Exchangeable Preferred Stock shall be converted into or
exchanged for and shall become shares of such successor or resulting company,
having in respect of such successor or resulting company substantially the same
powers, preferences and relative participating, optional or other special
rights, and the qualifications, limitations or restrictions thereon, that the
Preferred Stock and the Series C Exchangeable Preferred Stock had immediately
prior to such transaction and (Y) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of the surviving
or continuing Person is at least equal to the lesser of (1) the Consolidated
Net Worth of the Company immediately prior to such transaction and (2) the
Consolidated Net Worth of the Company on January 24, 1996 or (ii) the
requisite holders of any Senior Security or any indebtedness of the Company
have consented or granted a waiver with respect to such merger, consolidation
or transfer of all or
<PAGE>
10
substantially all of the Company's assets. If any fee is paid to any holder of
Senior Securities or indebtedness in connection with obtaining the foregoing
consent or waiver, the Company shall pay to the Holders of the Preferred Stock
an amount in cash equal to, in the aggregate, the Consent Payment Amount. If
payment of the Consent Payment Amount (or any portion thereof) in cash would
violate any agreement to which the Company is a party or any terms of any debt
or equity security of the Company then outstanding, then such payment or portion
thereof may be made in additional shares of Preferred Stock. If making such
payment in additional shares of Preferred Stock would constitute such a
violation, then such payment (or portion thereof) may be postponed until the
terms of such agreement or debt or equity security would permit payment of the
unpaid portion of the Consent Payment Amount in cash or Preferred Stock. The
Consent Payment Amount shall be payable pro rata to all Holders of record of
Preferred Stock as of the date of the announcement of the proposed merger,
consolidation or transfer of all or substantially all assets.
(c) In the event that the Company shall fail to declare or pay
dividends on the Preferred Stock as set forth in Section 3(a) hereof for six
consecutive Dividend Periods, then the number of directors constituting the
Board of Directors shall be increased by two to permit the Holders of the
Preferred Stock and the Series C Exchangeable Preferred Stock (if any), voting
together as a class, to elect two members of the Board of Directors of the
Company. Holders of a majority of the issued and outstanding shares of
Preferred Stock and Series C Exchangeable Preferred Stock (if any), voting
together as a class, shall thereupon have the exclusive right to elect two of
the members of the Board of Directors immediately upon such failure to declare
and pay dividends and at every subsequent meeting at which the terms of office
of the directors so elected by the Holders of the Preferred Stock and the Series
C Exchangeable Preferred Stock expire.
(d) The right of the Holders of Preferred Stock and Series C
Exchangeable Preferred Stock (if any), voting together as a class, to elect
members of the Board of Directors as aforesaid shall continue until such time as
all accumulated dividends that are in arrears on the Preferred Stock and the
Series C Exchangeable Preferred Stock are paid in full, at which time the
special right of the Holders of Preferred Stock and
<PAGE>
11
Series C Exchangeable Preferred Stock to vote as a class for the election of
directors and the term of office of the directors elected by the Holders of the
Preferred Stock and Series C Exchangeable Preferred Stock shall terminate. At
any time after voting power to elect directors shall have become vested and be
continuing in the Holders of Preferred Stock and Series C Exchangeable Preferred
Stock pursuant to this Section 6(d), or if vacancies shall exist in the offices
of directors elected by the Holders of Preferred Stock and Series C Exchangeable
Preferred Stock (if any), a proper officer of the Company may, and upon the
written request of the Holders of record of at least twenty percent (20%) of the
aggregate number of shares of Preferred Stock and Series C Exchangeable
Preferred Stock then outstanding addressed to the Secretary of the Company
shall, call a special meeting of the Holders of Preferred Stock and Series C
Exchangeable Preferred Stock, for the purpose of electing directors. Any such
meeting shall be held at the earliest practicable date at the place for the
holding of the annual meetings of stockholders. If such meeting shall not be
called by the proper officer of the Company within twenty (20) days after
personal service of said written request upon the Secretary of the Company, or
within twenty (20) days after mailing the same within the United States by
certified mail, addressed to the Secretary of the Company at its principal
executive offices, then the Holders of record of at least twenty percent (20%)
of the aggregate number of outstanding shares of Preferred Stock and Series C
Exchangeable Preferred Stock may designate in writing one of their number to
call such meeting at the expense of the Company, and such meeting may be called
by the Person so designated upon the notice required for the annual meetings of
stockholders of the Company and shall be held at the place for holding the
annual meetings of stockholders. Any Holder of Preferred Stock or Series C
Exchangeable Preferred Stock so designated shall have access to the lists of
stockholders to be called pursuant to the provisions hereof.
(e) At any meeting held for the purpose of electing directors at
which the Holders of Preferred Stock or Series C Exchangeable Preferred Stock
shall have the right, voting together as a class, to elect directors as
aforesaid, the presence in person or by proxy of the Holders of at least a
majority of the aggregate number of outstanding shares of Preferred Stock and
Series C Exchangeable Preferred Stock, if
<PAGE>
12
any, shall be required to constitute a quorum of such Preferred Stock and Series
C Exchangeable Preferred Stock.
(f) Any vacancy occurring in the office of a director elected by the
Holders of Preferred Stock and Series C Exchangeable Preferred Stock, voting
together as a class, may be filled by the remaining directors elected by the
Holders of Preferred Stock and Series C Exchangeable Preferred Stock unless and
until such vacancy shall be filled by the Holders of Preferred Stock and Series
C Exchangeable Preferred Stock.
(g) In any case in which the Holders of Preferred Stock shall be
entitled to vote pursuant to this Section 6 or pursuant to Delaware law, each
Holder of Preferred Stock shall be entitled to one vote for each share of
Preferred Stock held.
7. Exchange.
--------
(a) Requirements. The Preferred Stock may be exchanged, in whole but
------------
not in part, on any Dividend Payment Date, from any source of funds legally
available therefor, for the Company's 10% Class D Subordinated Exchange
Debentures due 2008 (the "Exchange Debentures") to be substantially in the form
of Exhibit A to the form of Indenture relating thereto presented to the Board of
Directors (the "Indenture"). The exchange rate shall be $100.00 principal
amount of the Exchange Debentures for each $100.00 of liquidation preference of
Preferred Stock. An amount in cash equal to accrued but unpaid dividends
(including any amount equal to a prorated dividend from the last Dividend
Payment Date to the Exchange Date) shall be paid upon exchange.
(b) Procedure for Exchange. (i) At least thirty (30) days and not
----------------------
more than sixty (60) days prior to the date fixed for exchange, written notice
(the "Exchange Notice") shall be given by first-class mail, postage prepaid, to
each Holder of record on the record date fixed for such exchange of the
Preferred Stock at such Holder's address as the same appears on the stock
register of the Company, provided, however, that no failure to give such notice
-------- -------
nor any deficiency therein shall affect the validity of the procedure for the
exchange of any shares of Preferred Stock to be exchanged except as to the
Holder or Holders to whom the Company has failed to give said notice or except
as to the Holder or Holders whose notice was defective. The Exchange Notice
shall state:
<PAGE>
13
(W) the date fixed for exchange;
(X) that the Holder is to surrender to the Company, at the place or
places where certificates for shares of Preferred Stock are to be
surrendered for exchange, in the manner designated, the certificate or
certificates representing the shares of Preferred Stock to be exchanged;
(Y) that dividends on the shares of Preferred Stock to be exchanged
shall cease to accrue on such Exchange Date whether or not certificates for
shares of Preferred Stock are surrendered for exchange on such Exchange
Date; and
(Z) that interest on the Exchange Debentures shall accrue from the
Exchange Date whether or not certificates for shares of Preferred Stock are
surrendered for exchange on such Exchange Date.
(ii) On or before the date fixed for exchange, each Holder of
Preferred Stock shall surrender the certificate or certificates representing
such shares of Preferred Stock, in the manner and at the place designated in the
Exchange Notice. The Company shall cause the Exchange Debentures to be executed
on the Exchange Date and, upon surrender in accordance with the Exchange Notice
of the certificates for any shares of Preferred Stock so exchanged (properly
endorsed or assigned for transfer, if the notice shall so state), such shares
shall be exchanged by the Company into Exchange Debentures as aforesaid. The
Company shall pay interest on the Exchange Debentures at the rate and on the
dates specified therein from the Exchange Date.
(iii) If notice has been mailed as aforesaid, and if before the
Exchange Date specified in such notice (x) the Indenture shall have been duly
executed and delivered by the Company and the trustee thereunder and (y) all
Exchange Debentures necessary for such exchange shall have been duly executed by
the Company and delivered to the trustee under the Indenture with irrevocable
instructions to authenticate the Exchange Debentures necessary for such
exchange, then the rights of the Holders of Preferred Stock so exchanged as
stockholders of the Company shall cease (except the right to receive Exchange
Debentures and an amount in cash equal to the amount of accrued and unpaid
dividends to the Exchange Date), and the Person or Persons entitled to receive
the Exchange Debentures issuable upon
<PAGE>
14
exchange shall be treated for all purposes as the registered Holder or Holders
of such Exchange Debentures as of the date of exchange.
(c) No Exchange in Certain Cases. Notwithstanding the foregoing
----------------------------
provisions of this Section 7, the Company shall not be entitled to exchange the
Preferred Stock for Exchange Debentures if (i) such exchange, or any term or
provision of the Indenture or the Exchange Debentures, or the performance of the
Company's obligations under the Indenture or the Exchange Debentures, shall
violate or conflict with any applicable law or agreement or instrument then
binding on the Company, (ii) after consummation of such exchange, any shares of
Senior Exchangeable Preferred Stock remain outstanding with respect to which the
Company has not delivered Senior Subordinated Debentures pursuant to Section
7(b)(iii)(y) of the Senior Exchangeable Preferred Stock Certificate of
Designations, or (iii) at the time of such exchange, it would be rendered
insolvent or its capital would be impaired by such exchange.
8. Conversion or Exchange. Except as provided in Section 7, the
----------------------
Holders of shares of Preferred Stock shall not have any rights herein to convert
such shares into or exchange such shares for shares of any other class or
classes or of any other series of any class or classes of Capital Stock of the
Company.
9. Preemptive Rights. No shares of Preferred Stock shall have any
-----------------
rights of preemption whatsoever as to any securities of the Company, or any
warrants, rights or options issued or granted with respect thereto by the
Company at any time, regardless of how such securities or such warrants, rights
or options may be denominated, issued or granted.
10. Reissuance of Preferred Stock. Shares of Preferred Stock that
-----------------------------
have been issued and reacquired in any manner, including shares purchased or
redeemed or exchanged, shall (upon compliance with any applicable provisions of
the laws of the State of Delaware) have the status of authorized and unissued
shares of preferred stock undesignated as to series and may be redesignated and
reissued as part of any series of preferred stock.
<PAGE>
15
11. Business Day. If any payment, redemption or exchange shall be
------------
required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
12. Definitions. As used herein, the following terms shall have the
-----------
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
"Business Day" shall mean a day other than a Saturday, Sunday,
------------
national or New York state holiday or other day on which commercial banks
in New York city are authorized or required by law to close.
"Capital Stock" shall mean any and all shares, interests,
-------------
participation, rights or other equivalents (however designated) of
corporate stock.
"Common Stock" shall mean the Common Stock, $.01 par value, of the
------------
Company and any other class of common stock issued by the Company from time
to time.
"Company" shall mean K-III Communications Corporation.
-------
"Consolidated Net Worth" shall mean, at any date of determination,
----------------------
the sum of the Capital Stock and additional paid-in capital plus retained
earnings (or minus accumulated deficit) of the Company and its subsidiaries
on a consolidated basis, less amounts attributable to Redeemable Stock,
each item to be determined in conformity with GAAP (excluding the effects
upon the Company and the Person with which the Company is merging or
consolidating or to which the Company is selling all or substantially all
its assets of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
52), except that all effects upon the Company and the Person with which the
Company is merging or consolidating or to which the Company is selling all
or substantially all its assets of the application of Accounting Principles
Board Opinions Nos. 16 and 17 and related interpretations and all
reasonable costs and expenses incurred in connection with or arising out of
such
<PAGE>
16
merger, consolidation or transfer of assets shall be disregarded.
"Consent Payment Amount" shall mean the product of (a) the aggregate
----------------------
liquidation preference of all issued and outstanding shares of Preferred
Stock and (b) the sum of all Fee Amounts for all classes or series of
Senior Securities or indebtedness with respect to which a fee was paid in
connection with any consent or waiver referred to in Section 6(b) hereof.
"Dividend Payment Date" shall mean February 1, May 1, August 1 and
---------------------
November 1 of each year.
"Dividend Period" shall mean the Initial Dividend Period and,
---------------
thereafter each Quarterly Dividend Period.
"Exchange Date" shall mean the date on which the shares of Preferred
-------------
Stock are exchanged for the Exchange Debentures by the Company.
"Exchange Debentures" shall have the meaning ascribed to them in
-------------------
Section 7(a) hereof.
"Exchange Notice" shall have the meaning ascribed to it in Section
---------------
7(b) hereof.
"Fee Amount" shall mean, with respect to any series or class of Senior
----------
Securities or indebtedness, a fraction, the numerator of which is the
aggregate fee paid to such class or series and the denominator of which is
(i) in the case of each class or series of Senior Securities, the aggregate
liquidation preference of the outstanding shares of such class or series of
Senior Securities and (ii) in the case of each class or series of
indebtedness, the aggregate outstanding principal amount of such
indebtedness.
"Future Parity Securities" shall mean Parity Securities issued after
------------------------
the Original Issue Date.
"Holder" shall mean a holder of shares of Preferred Stock.
------
<PAGE>
17
"Indenture" shall have the meaning ascribed to it in Section 7(a)
---------
hereof.
"Initial Dividend Period" shall mean the dividend period commencing on
-----------------------
the Original Issue Date and ending on the first Dividend Payment Date to
occur thereafter.
"Junior Securities" shall have the meaning ascribed to them in Section
-----------------
2 hereof.
"Mandatory Redemption Price" shall have the meaning ascribed to it in
--------------------------
Section 5(b) hereof.
"Optional Redemption Price" shall have the meaning ascribed to it in
-------------------------
Section 5(a)(i) hereof.
"Original Issue Date" shall mean, the date upon which the Preferred
-------------------
Stock was originally issued by the Company.
"Parity Securities" shall have the meaning ascribed to them in Section
-----------------
2 hereof.
"Person" shall mean any individual, partnership, corporation, business
------
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Preferred Stock" shall mean the $10.00 Series D Exchangeable
---------------
Preferred Stock, par value $.01 per share, liquidation preference $100.00
per share, of the Company.
"Public Offering Redemption Price" shall have the meaning ascribed to
--------------------------------
it in Section 5(a)(ii) hereof.
"Quarterly Dividend Period" shall mean the quarterly period commencing
-------------------------
on each February 1, May 1, August 1 and November 1 and ending on each
Dividend Payment Date, respectively.
"Redeemable Stock" shall mean Capital Stock that is redeemable prior
----------------
to the scheduled final redemption of the Preferred Stock.
<PAGE>
18
"Redemption Date," with respect to any shares of Preferred Stock,
---------------
shall mean the date on which such shares of Preferred Stock are redeemed by
the Company.
"Redemption Notice" shall have the meaning ascribed to it in Section
-----------------
5(c) hereof.
"Senior Exchangeable Preferred Stock" shall mean the $2.875 Senior
-----------------------------------
Exchangeable Preferred Stock, par value $0.01 per share, liquidation
preference $25.00 per share, of the Company.
"Senior Exchangeable Preferred Stock Certificate of Designations"
---------------------------------------------------------------
shall mean the Certificate of Designations relating to the authorization of
the Senior Exchangeable Preferred Stock.
"Senior Securities" shall have the meaning ascribed to them in Section
-----------------
2 hereof.
"Senior Subordinated Debentures" shall mean the 11 1/2% Subordinated
------------------------------
Debentures Due 2004 of the Company.
"Series B Preferred Stock" shall mean the $11.625 Series B
------------------------
Exchangeable Preferred Stock, par value $.01 per share, liquidation
preference $100.00 per share, of the Company.
"Series C Exchangeable Preferred Stock" shall mean the $10.00 Series C
-------------------------------------
Exchangeable Preferred Stock, par value $.01 per share, liquidation
preference $100.00 per share, of the Company.
"Subsidiary" means any corporation, association or other business
----------
entity of which more than 50% of the total voting power of shares of
Capital Stock 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 any
person or one or more of the other Subsidiaries of that person or a
combination thereof.
IN WITNESS WHEREOF, K-III Communications Corporation has caused this
certificate to be executed by Charles P. McCurdy,
<PAGE>
19
as President, and attested by Ann M. Riposanu, as Assistant Secretary, this ____
day of May, 1996.
K-III COMMUNICATIONS
CORPORATION
By:___________________________
Title: President
Attest:
_________________________
Assistant Secretary
Exhibit 5
May 14, 1996
K-III Communications Corporation
745 Fifth Avenue
New York, NY 10151
Dear Sirs:
We have acted as counsel to K-III Communications Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing by the Company with the Securities and Exchange Commission of a
Registration Statement on Form S-4 filed on the date hereof (as amended, the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to (i) up to $300,000,000 in aggregate principal amount of 8 1/2% Senior
Notes due 2006 of the Company (the "Notes") to be issued in exchange for the
$300,000,000 in aggregate principal amount of the Company's outstanding 8 1/2%
Senior Notes due 2006 (the "Old Notes"), and the unconditional guarantees of
such Notes (the "Guarantees") by the subsidiaries of the Company listed on
Schedule I hereto (the "Guarantors"), (ii) up to 2,000,000 shares of $10.00
Series D Exchangeable Preferred Stock, par value $.01 per share and liquidation
value $100 per share, of the Company (the "Preferred Stock") to be issued in
exchange for the
<PAGE>
K-III Communications Corp. -2- May 14, 1996
Company's $10.00 Series C Exchangeable Preferred Stock (the "Old Preferred
Stock"), and (iii) up to $200,000,000 in aggregate principal amount of the
Company's 10% Class D Subordinated Debentures due 2008 (the "Subordinated
Debentures") issuable, at the Company's option, in exchange for the Preferred
Stock, all as described in the Registration Statement.
The Notes will be issued under the Indenture dated as of January 24,
1996 (the "Indenture") among the Company and The Bank of New York, as Trustee
(the "Trustee"), which has been filed with the Commission as an exhibit to the
Registration Statement. The Preferred Stock will be issued pursuant to the
provisions of the Certificate of Incorporation of the Company, as amended, which
has been filed as an exhibit to the Registration Statement, and the certificate
of designations for the Preferred Stock (the "Certificate of Designations"), a
form of which has been filed as an exhibit to the Registration Statement. The
Subordinated Debentures, if and when issued, will be issued under an indenture,
a form of which has been filed as an exhibit to the Registration Statement (the
"Subordinated Debenture Indenture"), to be entered into between the Company and
The Bank of New York, as trustee (the "Subordinated Debenture Trustee").
We have reviewed the corporate action of the Company and the Guarantors
in connection with the proposed issuance and exchange of the Notes for the Old
Notes (including the Guarantees thereof) and the Preferred Stock for the Old
Preferred Stock and have examined, and have relied as to matters of fact upon,
originals or copies, certified or
<PAGE>
K-III Communications Corp. -3- May 14, 1996
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments and such certificates or comparable documents of
public officials and of officers and representatives of the Company and the
Guarantors, and have made such other and further investigations, as we have
deemed relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, 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 certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. The Notes have been duly authorized by the Company and upon
issuance and execution of the Notes by the Company, due authentication
of the Notes by the Trustee and delivery of the Notes in exchange for
the Old Notes in accordance with the terms of the prospectus included in
the Registration Statement (the "Prospectus"), the Notes will constitute
valid and legally binding obligations of the Company, enforceable against
the Company in accordance with their terms and entitled to the benefits of
the Indenture.
2. The Guarantees have been duly authorized by each of the Guarantors
incorporated in the State of New York or the State of Delaware (the "New
York/Delaware Guarantors") and upon issuance and execution of such
Guarantees by the New York/Delaware Guarantors, due authentication of the
Notes by the Trustee and delivery of the Notes in exchange for the Old
Notes in accordance with the terms of the Prospectus included in the
Registration Statement, such Guarantees will constitute valid and legally
binding obligations of each of the New York/Delaware Guarantors, enforceable
against each of them in accordance with their terms. Assuming that the
Guarantees have been duly authorized, executed and issued
<PAGE>
K-III Communications Corp. -4- May 14, 1996
by each of the Guarantors incorporated in states other than the State of
New York or the State of Delaware (the "Non-New York/Delaware Guarantors")
and, assuming due authentication of the Notes by the Trustee, upon delivery
of the Notes in exchange for the Old Notes, in accordance with the terms of
the Prospectus included in the Registration Statement, such Guarantees will
constitute valid and legally binding obligations of each of the Non-New
York/Delaware Guarantors, enforceable against each of them in accordance
with their terms.
3. The Preferred Stock has been duly authorized and, when the
Certificate of Designations is filed with the Secretary of State of the
State of Delaware in accordance with Section 103 of the Delaware General
Corporation Law, and upon delivery of the Preferred Stock in exchange for
the Old Preferred Stock in accordance with the terms of the Prospectus
included in the Registration Statement, the Preferred Stock will be validly
issued, fully paid and nonassessable.
4. The Subordinated Debentures have been duly authorized and, upon
execution and delivery of the Subordinated Debenture Indenture by the
Company and the Subordinated Debenture Trustee and upon issuance and
execution of the Subordinated Debentures by the Company, due authentication
of the Subordinated Debentures by the Subordinated Debenture Trustee and
delivery of the Subordinated Debentures against receipt of shares of
Preferred Stock surrendered in exchange therefor in accordance with the
terms of the Subordinated Debenture Indenture and the Certificate of
Designations, the Subordinated Debentures will constitute valid and legally
binding obligations of the Company enforceable against the Company in
accordance with their terms and entitled to the benefits of the
Subordinated Debenture Indenture.
Our opinions set forth in paragraph 1, 2 and 4 above are subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
<PAGE>
K-III Communications Corp. -5- May 14, 1996
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 as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus included therein.
This opinion is rendered to you in connection with the above-described
transactions. This opinion may not be relied upon by you for any other purpose,
or relied upon by, or furnished to, any other person, firm or corporation
without our prior written consent.
Very truly yours,
SIMPSON THACHER & BARTLETT
<PAGE>
Schedule I
----------
Guarantor Jurisdiction of
--------- Incorporation
-------------
Argus Publishers Corporation California
Bacon's Information, Inc. Delaware
Channel One Communications Corporation Delaware
Daily Racing Form, Inc. Delaware
DRF Finance, Inc. Delaware
The Electronics Source Book, Inc. Delaware
Funk & Wagnalls Yearbook Corp. Delaware
Haas Publishing Companies, Inc. Delaware
Intermodal Publishing Company, Ltd. New York
Intertec Market Reports, Inc. Delaware
Intertec Presentations, Inc. Colorado
Intertec Publishing Corporation Delaware
Krames Communications Incorporated Delaware
K-III Directory Corporation Delaware
K-III Holdings Corporation III Delaware
K-III HPC, Inc. Delaware
K-III KG Corporation--Massachusetts Massachusetts
K-III KG Corporation--New York I New York
K-III KG Corporation--New York II New York
K-III Magazine Corporation Delaware
K-III Magazine Finance Corporation Delaware
K-III Prime Corporation Delaware
K-III Reference Corporation Delaware
The Katharine Gibb Schools, Inc. Delaware
The Katharine Gibbs Schools of Montclair, New Jersey
Inc.
The Katharine Gibbs Schools of Norwalk, Inc. Connecticut
The Katharine Gibbs Schools of Piscataway, New Jersey
Inc.
The Katharine Gibbs Schools of Providence, Rhode Island
Inc.
<PAGE>
K-III Communications Corp. -2-
Lifetime Learning Systems, Inc. Delaware
McMullen Argus Publishing, Inc. California
MH West, Inc. California
Musical America Publishing, Inc. Delaware
Nelson Publications, Inc. Delaware
Newbridge Communications, Inc. Delaware
Paramount Publishing Inc. California
PJS Publications, Inc. Delaware
R.E.R Publishing Corporation New York
Stagebill, Inc. Delaware
Symbol of Excellence Publishers, Inc. Alabama
Weekly Reader Corporation Delaware
Exhibit 8
May 14, 1996
K-III Communications Corporation
745 Fifth Avenue
New York, NY 10151
Dear Sirs:
We have acted as counsel to K-III Communications Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing by the Company with the Securities and Exchange Commission of a
Registration Statement on Form S-4 filed on the date hereof (as amended, the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to (i) up to $300,000,000 in aggregate principal amount of 8 1/2% Senior
Notes due 2006 of the Company (the "Notes") to be issued in exchange for the
$300,000,000 in aggregate principal amount of the Company's outstanding 8 1/2%
Senior Notes due 2006 (the "Old Notes"), and the unconditional guarantees of
such Notes (the "Guarantees") by the subsidiaries of the Company listed on
Schedule I hereto (the "Guarantors"), (ii) up to 2,000,000 shares of $10.00
Series D Exchangeable Preferred Stock, par value $.01 per share and liquidation
value $100 per share, of the Company (the "Preferred Stock") to be issued in
exchange for the
<PAGE>
K-III Communications Corp. -2- May 14, 1996
Company's $10.00 Series C Exchangeable Preferred Stock (the "Old Preferred
Stock"), and (iii) up to $200,000,000 in aggregate principal amount of the
Company's 10% Class D Subordinated Debentures due 2008 (the "Subordinated
Debentures") issuable, at the Company's option, in exchange for the Preferred
Stock, all as described in the Registration Statement.
In connection with the aforementioned we have given the opinions
contained in the section of the Registration Statement entitled "Certain Federal
Income Tax Considerations".
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the section entitled
"Certain Federal Income Tax Considerations".
This opinion is rendered to you in connection with the above-described
transactions. This opinion may not be relied upon by you for any other purpose,
or relied upon by, or furnished to, any other person, firm or corporation
without our prior written consent.
Very truly yours,
SIMPSON THACHER & BARTLETT
<PAGE>
Schedule I
----------
Jurisdiction of
Guarantor Incorporation
- --------- ----------------
Argus Publishers Corporation California
Bacon's Information, Inc. Delaware
Channel One Communications Corporation Delaware
Daily Racing Form, Inc. Delaware
DRF Finance, Inc. Delaware
The Electronics Source Book, Inc. Delaware
Funk & Wagnalls Yearbook Corp. Delaware
Haas Publishing Companies, Inc. Delaware
Intermodal Publishing Company, Ltd. New York
Intertec Market Reports, Inc. Delaware
Intertec Presentations, Inc. Colorado
Intertec Publishing Corporation Delaware
Krames Communications Incorporated Delaware
K-III Directory Corporation Delaware
K-III Holdings Corporation III Delaware
K-III HPC, Inc. Delaware
K-III KG Corporation--Massachusetts Massachusetts
K-III KG Corporation--New York I New York
K-III KG Corporation--New York II New York
K-III Magazine Corporation Delaware
K-III Magazine Finance Corporation Delaware
K-III Prime Corporation Delaware
K-III Reference Corporation Delaware
The Katharine Gibb Schools, Inc. Delaware
The Katharine Gibb Schools of Montclair, Inc. New Jersey
The Katharine Gibb Schools of Norwalk, Inc. Connecticut
The Katharine Gibb Schools of Piscataway, Inc. New Jersey
The Katharine Gibb Schools of Providence, Inc. Rhode Island
Lifetime Learning Systems, Inc. Delaware
McMullen Argus Publishing, Inc. California
<PAGE>
K-III Communications Corp. -2- May 14, 1996
MH West, Inc. California
Musical America Publishing, Inc. Delaware
Nelson Publications, Inc. Delaware
Newbridge Communications, Inc. Delaware
Paramount Publishing Inc. California
PJS Publications, Inc. Delaware
R.E.R. Publishing Corporation New York
Stagebill, Inc. Delaware
Symbol of Excellence Publishers, Inc. Alabama
Weekly Reader Corporation Delaware
EXHIBIT 12
PAGE 1 OF 3
K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
RATIOS OF EARNINGS TO FIXED CHARGES
AND RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 AND
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------------------------- ------------------------------------------------
1996 1996 1995 1995 1995 1994 1993
PRO FORMA ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL ACTUAL
--------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before fixed
charges:
Net loss............... $(20,194 ) $(20,740) $(20,701) $(48,845 ) $ (75,435) $ (41,403) $ (86,496)
Income tax benefit..... -- -- -- (59,600 ) (59,600) (42,100) --
--------- -------- -------- --------- --------- --------- ---------
Loss from continuing
operations before
income tax benefit..... (20,194 ) (20,740) (20,701) (108,445 ) (135,035) (83,503) (86,496)
Interest expense and
amortization of
deferred financing
costs.................. 28,405 28,951 25,347 113,564 108,519 81,324 77,856
Interest portion of
rental expenses........ 2,578 2,578 2,149 10,000 8,129 7,991 5,838
--------- -------- -------- --------- --------- --------- ---------
Earnings (loss) before
fixed charges.......... 10,789 10,789 6,795 15,119 (18,387) 5,812 (2,802)
--------- -------- -------- --------- --------- --------- ---------
Fixed charges:
Interest expense and
amortization of
deferred financing
costs................ 28,405 28,951 25,347 113,564 108,519 81,324 77,856
Interest portion of
rental expenses...... 2,578 2,578 2,149 10,000 8,129 7,991 5,838
--------- -------- -------- --------- --------- --------- ---------
Total fixed
charges............ 30,983 31,529 27,496 123,564 116,648 89,315 83,694
--------- -------- -------- --------- --------- --------- ---------
Deficiency of earnings
to fixed charges....... (20,194 ) (20,740) (20,701) (108,445 ) (135,035) (83,503) (86,496)
Preferred stock
dividends.............. (11,844 ) (6,844) (6,414) (46,287 ) (28,978) (25,959) (22,290)
--------- -------- -------- --------- --------- --------- ---------
Deficiency of earnings
to fixed charges and
preferred stock
dividends.............. $(32,038 ) $(27,584) $(27,115) $(154,732) $(164,013) $(109,462) $(108,786)
--------- -------- -------- --------- --------- --------- ---------
--------- -------- -------- --------- --------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 12
PAGE 2 OF 3
K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
RATIOS OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND
PROVISION FOR ONE-TIME CHARGES TO CASH INTEREST EXPENSE, RATIOS OF EARNINGS
BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND PROVISION FOR ONE-TIME
CHARGES TO CASH INTEREST EXPENSE AND CASH DIVIDENDS ON PREFERRED STOCK, RATIOS
OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND PROVISION FOR
ONE-TIME CHARGES TO INTEREST EXPENSE AND DIVIDENDS ON PREFERRED STOCK
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31,
---------------------------------
1996 1996 1995
PRO FORMA ACTUAL ACTUAL
--------- -------- --------
<S> <C> <C> <C>
Earnings before interest, taxes, depreciation, amortization and
provision for one-time charges................................ $250,597 $225,424 $197,478
--------- -------- --------
--------- -------- --------
Interest expense.............................................. $110,255 $108,821 $ 86,067
Less: non-cash portion of interest expense.................... (2,480 ) (2,417) (5,587)
--------- -------- --------
Cash interest expense.......................................... $107,775 $106,404 $ 80,480
--------- -------- --------
--------- -------- --------
Ratio of earnings before interest, taxes, depreciation,
amortization and provision for one-time charges to cash
interest expense............................................... 2.3x 2.1x 2.5x
--------- -------- --------
--------- -------- --------
Earnings before interest, taxes, depreciation, amortization and
provision for one-time charges................................ $250,597 $225,424 $197,478
--------- -------- --------
--------- -------- --------
Cash interest expense.......................................... $107,775 $106,404 $ 80,480
Cash dividends on preferred stock.............................. 31,500 11,500 11,500
--------- -------- --------
Cash interest expense plus cash dividends on preferred stock... $139,275 $117,904 $ 91,980
--------- -------- --------
--------- -------- --------
Ratio of earnings before interest, taxes, depreciation,
amortization and provision for one-time charges to cash
interest expense and cash dividends on preferred stock......... 1.8x 1.9x 2.1x
--------- -------- --------
--------- -------- --------
Earnings before interest, taxes, depreciation, amortization and
provision for one-time charges................................ $250,597 $225,424 $197,478
--------- -------- --------
--------- -------- --------
Interest expense............................................... $110,255 $108,821 $ 86,067
Dividends on preferred stock................................... 46,717 29,408 26,342
--------- -------- --------
Interest expense plus dividends on preferred stock............. $156,972 $138,229 $112,409
--------- -------- --------
--------- -------- --------
Ratio of earnings before interest, taxes, depreciation,
amortization and provision for one-time charges to interest
expense and dividends on preferred stock....................... 1.6x 1.6x 1.8x
--------- -------- --------
--------- -------- --------
</TABLE>
<PAGE>
EXHIBIT 12
PAGE 3 OF 3
K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
RATIOS OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND
PROVISION FOR ONE-TIME CHARGES TO CASH INTEREST EXPENSE, RATIOS OF EARNINGS
BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND PROVISION FOR ONE-TIME
CHARGES TO CASH INTEREST EXPENSE AND CASH DIVIDENDS ON PREFERRED STOCK, RATIOS
OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION AND PROVISION FOR
ONE-TIME CHARGES TO INTEREST EXPENSE AND DIVIDENDS ON PREFERRED STOCK
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1995 1995 1994 1993
PRO FORMA ACTUAL ACTUAL ACTUAL
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings before interest, taxes, depreciation,
amortization and provision for one-time charges...... $254,814 $216,115 $162,094 $138,242
--------- -------- -------- --------
--------- -------- -------- --------
Interest expense..................................... $109,791 $105,384 $ 78,244 $ 74,336
Less: non-cash portion of interest expense........... (2,774 ) (2,690) (5,807) (8,533)
--------- -------- -------- --------
Cash interest expense................................. $107,017 $102,694 $ 72,437 $ 65,803
--------- -------- -------- --------
--------- -------- -------- --------
Ratio of earnings before interest, taxes,
depreciation, amortization and provision for one-time
charges to cash interest expense...................... 2.4x 2.1x 2.2x 2.1x
--------- -------- -------- --------
--------- -------- -------- --------
Earnings before interest, taxes, depreciation,
amortization and provision for one-time charges...... $254,814 $216,115 $162,094 $138,242
--------- -------- -------- --------
--------- -------- -------- --------
Cash interest expense................................. $107,017 $102,694 $ 72,437 $ 65,803
Cash dividends on preferred stock..................... 31,500 11,500 11,500 11,500
--------- -------- -------- --------
Cash interest expense plus cash dividends on preferred
stock................................................ $138,517 $114,194 $ 83,937 $ 77,303
--------- -------- -------- --------
--------- -------- -------- --------
Ratio of earnings before interest, taxes,
depreciation, amortization and provision for one-time
charges to cash interest expense and cash dividends
on preferred stock.................................... 1.8x 1.9x 1.9x 1.8x
--------- -------- -------- --------
--------- -------- -------- --------
Earnings before interest, taxes, depreciation,
amortization and provision for one-time charges...... $254,814 $216,115 $162,094 $138,242
--------- -------- -------- --------
--------- -------- -------- --------
Interest expense...................................... $109,791 $105,384 $ 78,244 $ 74,336
Dividends on preferred stock.......................... 46,287 28,978 25,959 22,290
--------- -------- -------- --------
Interest expense plus dividends on preferred stock.... $156,078 $134,362 $104,203 $ 96,626
--------- -------- -------- --------
--------- -------- -------- --------
Ratio of earnings before interest, taxes,
depreciation, amortization and provision for one-time
charges to interest expense and dividends on
preferred stock....................................... 1.6x 1.6x 1.6x 1.4x
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
K-III COMMUNICATIONS CORPORATION:
We consent to the incorporation by reference in this Registration Statement
of K-III Communications Corporation on Form S-4 of our reports dated February 6,
1996, appearing in the Annual Report on Form 10-K of K-III Communications
Corporation for the year ended December 31, 1995 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
NEW YORK, NEW YORK
May 14, 1996
Exhibit 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER
THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ____
THE BANK OF NEW YORK
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-5160382
JURISDICTION OF INCORPORATION (I.R.S. Employer
IF NOT A U.S. NATIONAL BANK Identification no.)
48 WALL STREET
NEW YORK, NY 10286
(Address of principal (Zip Code)
executive offices)
K-III COMMUNICATIONS CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3647573
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification no.)
745 FIFTH AVENUE
NEW YORK, NY 10151
(Address of principal executive offices) (Zip Code)
See Table of Additional Obligors
8 1/2% SENIOR NOTES DUE 2006
(TITLE OF THE INDENTURE SECURITIES)
<PAGE>
TABLE OF ADDITIONAL OBLIGORS
<TABLE>
<CAPTION>
State Or Other Primary Standard I.R.S.
Exact Name Of Jurisdiction Of Industrial Employer
Obligors As Specified Incorporation Or Classification Identification
In Its Charter Organization Code Number Number
- --------------------------------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Argus Publishers Corporation ...................... California 2721 95-2219151
Bacon's Information, Inc. ......................... Delaware 7389 36-4011543
Channel One Communications Corporation............. Delaware 4833 13-3783276
Daily Racing Form, Inc. ........................... Delaware 2721 13-3616342
DRF Finance, Inc. ................................. Delaware 2721 13-3616341
The Electronics Source Book, Inc. ................. Delaware 2741 36-0645610
Funk & Wagnalls Yearbook Corp. .................... Delaware 2731 13-3603787
Haas Publishing Companies, Inc. ................... Delaware 2741 58-1858150
Intermodal Publishing Company, Ltd. ............... New York 2721 13-2633752
Intertec Market Reports, Inc....................... Delaware 2721 36-1534790
Intertec Presentations, Inc. ...................... Colorado 2721 84-0840004
Intertec Publishing Corporation.................... Delaware 2721 48-1071277
Krames Communications Incorporated................. Delaware 2731 94-3151780
K-III Directory Corporation........................ Delaware 2721 13-3555670
K-III Holdings Corporation III..................... Delaware 6719 13-3617238
K-III HPC, Inc..................................... Delaware 6719 58-2105885
K-III KG Corporation--Massachusetts................ Massachusetts 8222 04-3218659
K-III KG Corporation--New York I................... New York 8222 11-3193464
K-III KG Corporation--New York II.................. New York 8222 13-3751139
K-III Magazine Corporation......................... Delaware 2721 13-3616344
K-III Magazine Finance Corporation................. Delaware 2721 13-3616343
K-III Prime Corporation............................ Delaware 6719 13-3631019
K-III Reference Corporation........................ Delaware 2731 13-3603781
The Katharine Gibbs Schools, Inc. ................. Delaware 6719 13-3755180
The Katharine Gibbs Schools of Montclair, Inc. .... New Jersey 8222 22-3275485
The Katharine Gibbs Schools of Norwalk, Inc. ...... Connecticut 8222 06-1388463
The Katharine Gibbs Schools of Piscataway, Inc. ... New Jersey 8222 22-3275484
The Katharine Gibbs Schools of Providence, Inc. ... Rhode Island 8222 05-0475713
Lifetime Learning Systems, Inc. ................... Delaware 2741 13-3763276
McMullen Argus Publishing, Inc. ................... California 2721 95-2663753
MH West, Inc. ..................................... California 2721 95-4190756
Musical America Publishing, Inc. .................. Delaware 2721 13-2782528
Nelson Publications, Inc. ......................... Delaware 2741 13-3740812
Newbridge Communications, Inc...................... Delaware 2735 13-1932571
Paramount Publishing Inc. ......................... California 2741 33-0087025
PJS Publications, Inc. ............................ Delaware 2721 52-1654079
R.E.R. Publishing Corporation...................... New York 2721 13-3090623
Stagebill, Inc. ................................... Delaware 2721 36-2693071
Symbol of Excellence Publishers, Inc. ............. Alabama 2721 63-0845698
Weekly Reader Corporation.......................... Delaware 2721 13-3603780
</TABLE>
The address, including zip code, and telephone number, including area code,
of each additional registrant's principal executive office is 745 Fifth Avenue,
New York, New York 10151 (212-745-0100).
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<S> <C> <C>
NAME ADDRESS
---- -------
Superintendent of Banks of the State of 2 Rector Street, New York, N.Y.
New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y.
10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None. (See Note on page 3)
ITEM 16. LIST OF EXHIBITS.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule
24 of the Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1
to Form T-1 filed with Registration Statement No. 33-6215,
Exhibits 1a and 1b to Form T-1 filed with Registration Statement
No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
<PAGE>
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, The Bank of New York, a corporation organized and existing under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
The City of New York, and State of New York, on the 14th day of May, 1996.
THE BANK OF NEW YORK
By /s/ Mary Jane Morrissey
------------------------
Mary Jane Morrissey
Vice President
<PAGE>
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the
close of business December 31, 1995, published in
accordance with a call made by the Federal
Reserve Bank of this District pursuant to the provi-
sions of the Federal Reserve Act.
Dollar Amounts
ASSETS
in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin . . . . . . . . . . . . . . $ 4,500,312
Interest-bearing balances . . . . . . . . . . . . . 643,938
Securities:
Held-to-maturity securities . . . . . . . . . . . . 806,221
Available-for-sale securities . . . . . . . . . . 2,036,768
Federal funds sold and securities
purchased under agreements
to resell in domestic offices of
the bank:
Federal funds sold . . . . . . . . . . . . . . . 4,166,720
Securities purchased under
agreements to resell . . . . . . . . . . . . . . . 50,413
Loans and lease financing
receivables:
Loans and leases, net of unearned
income . . . . . . 27,068,535
LESS: Allowance for loan and
lease losses . . . . . 520,024
LESS: Allocated transfer risk
reserve . . . . . . . . . 1,000
Loans and leases, net of unearned
income and allowance, and
reserve . . . . . . . . . . . . . . . . . . . . 26,547,511
Assets held in trading accounts . . . . . . . . . . . 758,462
Premises and fixed assets (including
capitalized leases) . . . . . . . . . . . . . . . . 615,330
Other real estate owned . . . . . . . . . . . . . . . . 63,769
Investments in unconsolidated sub-
sidiaries and associated com-
panies . . . . . . . . . . . . . . . . . . . . . . 223,174
Customers' liability to this bank on
acceptances outstanding . . . . . . . . . . . . . . 900,795
Intangible assets . . . . . . . . . . . . . . . . . . 212,220
Other assets . . . . . . . . . . . . . . . . . . 1,186,274
-----------
Total assets . . . . . . . . . . . . . . . . . . $42,711,907
===========
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . $21,248,127
Noninterest-bearing . . 9,172,079
Interest-bearing . . 12,076,048
In foreign offices, Edge and
Agreement subsidiaries, and IBFs . . . . . . . . 9,535,088
Noninterest-bearing . . . 64,417
Interest-bearing . . . 9,470,671
Federal funds purchased and secu-
rities sold under agreements to re-
purchase in domestic offices of
the bank and of its Edge and
Agreement subsidiaries, and in
IBFs:
<PAGE>
Federal funds purchased . . . . . . . . . . . . . 2,095,668
Securities sold under agreements
to repurchase . . . . . . . . . . . . . . . . . . . 69,212
Demand notes issued to the U.S.
Treasury . . . . . . . . . . . . . . . . . . . . . 107,340
Trading liabilities . . . . . . . . . . . . . . . . . 615,718
Other borrowed money:
With original maturity of one year
or less . . . . . . . . . . . . . . . . . . . . 1,638,744
With original maturity of more than
one year . . . . . . . . . . . . . . . . . . . . 120,863
Bank's liability on acceptances exe-
cuted and outstanding . . . . . . . . . . . . . . . 909,527
Subordinated notes and debentures . . . . . . . . . 1,047,860
Other liabilities . . . . . . . . . . . . . . . . . 1,836,573
----------
Total liabilities . . . . . . . . . . . . . . . . . 39,224,720
----------
EQUITY CAPITAL
Common Stock . . . . . . . . . . . . . . . . . . . . 942,284
Surplus . . . . . . . . . . . . . . . . . . . . . . . 525,666
Undivided profits and capital
reserves . . . . . . . . . . . . . . . . . . . . 1,995,316
Net unrealized holding gains
(losses) on available-for-sale se-
curities . . . . . . . . . . . . . . . . . . . . . . 29,668
Cumulative foreign currency transla-
tion adjustments . . . . . . . . . . . . . . . ( 5,757)
-----------
Total equity capital . . . . . . . . . . . . . . 3,487,187
-----------
Total liabilities and equity capital . . . . . . $42,711,907
===========
I, Robert E. Keilman, Senior Vice President and
Comptroller of the above-named bank do hereby
declare that this Report of Condition has been pre-
pared in conformance with the instructions issued
by the Board of Governors of the Federal Reserve
System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the cor-
rectness of this Report of Condition and declare that
it has been examined by us and to the best of our
knowledge and belief has been prepared in confor-
mance with the instructions issued by the Board of
Governors of the Federal Reserve System and is
true and correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
EXHIBIT 25.2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER
THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ____
THE BANK OF NEW YORK
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-5160382
JURISDICTION OF INCORPORATION (I.R.S. Employer
IF NOT A U.S. NATIONAL BANK Identification no.)
48 WALL STREET
NEW YORK, NY 10286
(Address of principal (Zip Code)
executive offices)
K-III COMMUNICATIONS CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3647573
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification no.)
745 FIFTH AVENUE
NEW YORK, NY 10151
(Address of principal executive offices) (Zip Code)
See Table of Additional Obligors
10% CLASS D SUBORDINATED EXCHANGE DEBENTURES DUE 2008
(TITLE OF THE INDENTURE SECURITIES)
<PAGE>
TABLE OF ADDITIONAL OBLIGORS
<TABLE>
<CAPTION>
State Or Other Primary Standard I.R.S.
Exact Name Of Jurisdiction Of Industrial Employer
Obligors As Specified Incorporation Or Classification Identification
In Its Charter Organization Code Number Number
- --------------------------------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Argus Publishers Corporation ...................... California 2721 95-2219151
Bacon's Information, Inc. ......................... Delaware 7389 36-4011543
Channel One Communications Corporation............. Delaware 4833 13-3783276
Daily Racing Form, Inc. ........................... Delaware 2721 13-3616342
DRF Finance, Inc. ................................. Delaware 2721 13-3616341
The Electronics Source Book, Inc. ................. Delaware 2741 36-0645610
Funk & Wagnalls Yearbook Corp. .................... Delaware 2731 13-3603787
Haas Publishing Companies, Inc. ................... Delaware 2741 58-1858150
Intermodal Publishing Company, Ltd. ............... New York 2721 13-2633752
Intertec Market Reports, Inc....................... Delaware 2721 36-1534790
Intertec Presentations, Inc. ...................... Colorado 2721 84-0840004
Intertec Publishing Corporation.................... Delaware 2721 48-1071277
Krames Communications Incorporated................. Delaware 2731 94-3151780
K-III Directory Corporation........................ Delaware 2721 13-3555670
K-III Holdings Corporation III..................... Delaware 6719 13-3617238
K-III HPC, Inc..................................... Delaware 6719 58-2105885
K-III KG Corporation--Massachusetts................ Massachusetts 8222 04-3218659
K-III KG Corporation--New York I................... New York 8222 11-3193464
K-III KG Corporation--New York II.................. New York 8222 13-3751139
K-III Magazine Corporation......................... Delaware 2721 13-3616344
K-III Magazine Finance Corporation................. Delaware 2721 13-3616343
K-III Prime Corporation............................ Delaware 6719 13-3631019
K-III Reference Corporation........................ Delaware 2731 13-3603781
The Katharine Gibbs Schools, Inc. ................. Delaware 6719 13-3755180
The Katharine Gibbs Schools of Montclair, Inc. .... New Jersey 8222 22-3275485
The Katharine Gibbs Schools of Norwalk, Inc. ...... Connecticut 8222 06-1388463
The Katharine Gibbs Schools of Piscataway, Inc. ... New Jersey 8222 22-3275484
The Katharine Gibbs Schools of Providence, Inc. ... Rhode Island 8222 05-0475713
Lifetime Learning Systems, Inc. ................... Delaware 2741 13-3763276
McMullen Argus Publishing, Inc. ................... California 2721 95-2663753
MH West, Inc. ..................................... California 2721 95-4190756
Musical America Publishing, Inc. .................. Delaware 2721 13-2782528
Nelson Publications, Inc. ......................... Delaware 2741 13-3740812
Newbridge Communications, Inc...................... Delaware 2735 13-1932571
Paramount Publishing Inc. ......................... California 2741 33-0087025
PJS Publications, Inc. ............................ Delaware 2721 52-1654079
R.E.R. Publishing Corporation...................... New York 2721 13-3090623
Stagebill, Inc. ................................... Delaware 2721 36-2693071
Symbol of Excellence Publishers, Inc. ............. Alabama 2721 63-0845698
Weekly Reader Corporation.......................... Delaware 2721 13-3603780
</TABLE>
The address, including zip code, and telephone number, including area code,
of each additional registrant's principal executive office is 745 Fifth Avenue,
New York, New York 10151 (212-745-0100).
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<S> <C> <C>
NAME ADDRESS
---- -------
Superintendent of Banks of the State of 2 Rector Street, New York, N.Y.
New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y.
10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None. (See Note on page 3)
ITEM 16. LIST OF EXHIBITS.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule
24 of the Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1
to Form T-1 filed with Registration Statement No. 33-6215,
Exhibits 1a and 1b to Form T-1 filed with Registration Statement
No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
<PAGE>
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, The Bank of New York, a corporation organized and existing under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
The City of New York, and State of New York, on the 14th day of May, 1996.
THE BANK OF NEW YORK
By /s/ Mary Jane Morrissey
------------------------
Mary Jane Morrissey
Vice President
<PAGE>
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the
close of business December 31, 1995, published in
accordance with a call made by the Federal
Reserve Bank of this District pursuant to the provi-
sions of the Federal Reserve Act.
Dollar Amounts
ASSETS
in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin . . . . . . . . . . . . . . $ 4,500,312
Interest-bearing balances . . . . . . . . . . . . . 643,938
Securities:
Held-to-maturity securities . . . . . . . . . . . . 806,221
Available-for-sale securities . . . . . . . . . . 2,036,768
Federal funds sold and securities
purchased under agreements
to resell in domestic offices of
the bank:
Federal funds sold . . . . . . . . . . . . . . . 4,166,720
Securities purchased under
agreements to resell . . . . . . . . . . . . . . . 50,413
Loans and lease financing
receivables:
Loans and leases, net of unearned
income . . . . . . 27,068,535
LESS: Allowance for loan and
lease losses . . . . . 520,024
LESS: Allocated transfer risk
reserve . . . . . . . . . 1,000
Loans and leases, net of unearned
income and allowance, and
reserve . . . . . . . . . . . . . . . . . . . . 26,547,511
Assets held in trading accounts . . . . . . . . . . . 758,462
Premises and fixed assets (including
capitalized leases) . . . . . . . . . . . . . . . . 615,330
Other real estate owned . . . . . . . . . . . . . . . . 63,769
Investments in unconsolidated sub-
sidiaries and associated com-
panies . . . . . . . . . . . . . . . . . . . . . . 223,174
Customers' liability to this bank on
acceptances outstanding . . . . . . . . . . . . . . 900,795
Intangible assets . . . . . . . . . . . . . . . . . . 212,220
Other assets . . . . . . . . . . . . . . . . . . 1,186,274
-----------
Total assets . . . . . . . . . . . . . . . . . . $42,711,907
===========
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . $21,248,127
Noninterest-bearing . . 9,172,079
Interest-bearing . . 12,076,048
In foreign offices, Edge and
Agreement subsidiaries, and IBFs . . . . . . . . 9,535,088
Noninterest-bearing . . . 64,417
Interest-bearing . . . 9,470,671
Federal funds purchased and secu-
rities sold under agreements to re-
purchase in domestic offices of
the bank and of its Edge and
Agreement subsidiaries, and in
IBFs:
<PAGE>
Federal funds purchased . . . . . . . . . . . . . 2,095,668
Securities sold under agreements
to repurchase . . . . . . . . . . . . . . . . . . . 69,212
Demand notes issued to the U.S.
Treasury . . . . . . . . . . . . . . . . . . . . . 107,340
Trading liabilities . . . . . . . . . . . . . . . . . 615,718
Other borrowed money:
With original maturity of one year
or less . . . . . . . . . . . . . . . . . . . . 1,638,744
With original maturity of more than
one year . . . . . . . . . . . . . . . . . . . . 120,863
Bank's liability on acceptances exe-
cuted and outstanding . . . . . . . . . . . . . . . 909,527
Subordinated notes and debentures . . . . . . . . . 1,047,860
Other liabilities . . . . . . . . . . . . . . . . . 1,836,573
----------
Total liabilities . . . . . . . . . . . . . . . . . 39,224,720
----------
EQUITY CAPITAL
Common Stock . . . . . . . . . . . . . . . . . . . . 942,284
Surplus . . . . . . . . . . . . . . . . . . . . . . . 525,666
Undivided profits and capital
reserves . . . . . . . . . . . . . . . . . . . . 1,995,316
Net unrealized holding gains
(losses) on available-for-sale se-
curities . . . . . . . . . . . . . . . . . . . . . . 29,668
Cumulative foreign currency transla-
tion adjustments . . . . . . . . . . . . . . . ( 5,757)
-----------
Total equity capital . . . . . . . . . . . . . . 3,487,187
-----------
Total liabilities and equity capital . . . . . . $42,711,907
===========
I, Robert E. Keilman, Senior Vice President and
Comptroller of the above-named bank do hereby
declare that this Report of Condition has been pre-
pared in conformance with the instructions issued
by the Board of Governors of the Federal Reserve
System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the cor-
rectness of this Report of Condition and declare that
it has been examined by us and to the best of our
knowledge and belief has been prepared in confor-
mance with the instructions issued by the Board of
Governors of the Federal Reserve System and is
true and correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
EXHIBIT 99.1
LETTER OF TRANSMITTAL
THE NOTES EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1996 (AS SUCH DATE AND TIME MAY BE EXTENDED BY THE
COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION DATE").
K-III COMMUNICATIONS CORPORATION
8 1/2% SENIOR NOTES DUE 2006
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Notes Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to The Bank of New York, Exchange
Agent:
<TABLE>
<S> <C> <C>
By mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Section (212) 571-3080 Reorganization Section
101 Barclay Street--7 East 101 Barclay Street--7 East
New York, NY 10286 Confirm by Telephone: New York, NY 10286
Attention: Henry Lopez (212) 815-2742 Attention: Henry Lopez
</TABLE>
Delivery of this Letter of Transmittal to an address other than as set forth
above or transmission of instructions via a facsimile number other than that set
forth above will not constitute a valid delivery.
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1996 (the "Prospectus") of K-III Communications Corporation, a Delaware
corporation ("K-III " or the "Company"), and this Letter of Transmittal (the
"Letter of Transmittal "), that together constitute K-III's offer (the "Notes
Exchange Offer ") to exchange $1,000 in principal amount of a new series of its
8 1/2% Senior Notes due 2006 (the "New Notes") for each $1,000 in principal
amount of its outstanding 8 1/2% Senior Notes due 2006 (the "Old Notes"). The
New Notes and the Old Notes are collectively referred to as the "Notes".
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus.
THE REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 33- ) OF WHICH THE
PROSPECTUS IS A PART WAS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE
COMMISSION ON , 1996.
The undersigned hereby tenders the principal amount of Old Notes described
in Box 1 below (the "Tendered Notes") pursuant to the terms and conditions
described in the Prospectus and this Letter of Transmittal. The undersigned is
the registered owner of all the Tendered Notes and the undersigned represents
that it has received from each beneficial owner of Tendered Notes ("Beneficial
Owners") a duly completed and executed form of "Instruction to Registered Holder
from Beneficial Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the Tendered
Notes, the undersigned hereby exchanges, assigns, and transfers to, or upon the
order of, K-III, all right, title, and interest in, to, and under the Tendered
Notes.
Please issue the New Notes exchanged for Tendered Notes in the name(s) of
the undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions" below (Box 3), please send or cause to be sent the certificate(s)
for New Notes (and accompanying documents, as appropriate) to the undersigned at
the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Notes to the Company or cause ownership of the Tendered
Notes to be transferred to, or upon the order of, the Company, on the books of
the registrar for the Old Notes or on the account books maintained by a
book-entry transfer facility and deliver all accompanying evidences of transfer
and authenticity to, or upon the order of, the Company upon receipt by the
Exchange Agent, as the undersigned's agent, of the New Notes to which the
undersigned is entitled upon the acceptance by the Company of the Tendered Notes
pursuant to the Notes Exchange Offer, and (ii) receive all benefits and
otherwise exercise all rights of beneficial ownership of the Tendered Notes, all
in accordance with the terms of the Notes Exchange Offer.
<PAGE>
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offers--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Notes Exchange Offer, subject only to
withdrawal of such tenders on the terms set forth in the Prospectus under the
caption "The Exchange Offers--Withdrawal of Tenders." All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned and any Beneficial Owner(s), and every obligation of the undersigned
or any Beneficial Owners hereunder shall be binding upon the heirs,
representatives, successors, and assigns of the undersigned and such Beneficial
Owner(s).
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign, and transfer the Tendered Notes
and that the Company will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges, encumbrances, and adverse claims when
the Tendered Notes are acquired by the Company as contemplated herein. The
undersigned and each Beneficial Owner will, upon request, execute and deliver
any additional documents reasonably requested by the Company as necessary or
desirable to complete and give effect to the transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Notes Exchange Offer, the undersigned hereby represents and
warrants that (i) the New Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Notes Exchange Offer are being
acquired by the undersigned and any Beneficial Owner(s) in the ordinary course
of business of the undersigned and any Beneficial Owner(s), (ii) the undersigned
and each Beneficial Owner are not participating, do not intend to participate,
and have no arrangement or understanding with any person to participate, in the
distribution of the New Notes, and (iii) the undersigned and each Beneficial
Owner acknowledge and agree that any person participating in the Notes Exchange
Offer for the purpose of distributing the New Notes must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (together with the rules and regulations promulgated thereunder, the
"Securities Act"), in connection with a secondary resale transaction of the New
Notes acquired by such person and cannot rely on the position of the Staff of
the Securities and Exchange Commission (the "Commission") set forth in the
no-action letters that are discussed in the section of the Prospectus entitled
"The Exchange Offers--Resales of the New Notes and the New Preferred Stock."
The undersigned and each Beneficial Owner understands that any secondary
resale transaction described in clause (iii) above should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the Commission. Except as
otherwise disclosed to the Company in writing, the undersigned hereby represents
and warrants that neither it nor any Beneficial Owner(s) is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
<TABLE>
<CAPTION>
BOX 1
DESCRIPTION OF OLD NOTES TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED OLD PRINCIPAL
NOTES HOLDERS(S), AMOUNT
EXACTLY AS NAME(S) APPEAR(S) OF NOTES AGGREGATE
ON OLD NOTES CERTIFICATE REPRESENTED PRINCIPAL
CERTIFICATE(S) NUMBER(S) BY AMOUNT OF NOTES
(PLEASE FILL IN, IF BLANK) OF OLD NOTES* CERTIFICATE(S) TENDERED**
<S> <C> <C> <C>
TOTAL
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated in this column, the full aggregate principal
amount represented by all Old Notes Certificates identified in this Box 1
or delivered to the Exchange Agent herewith shall be deemed tendered. See
Instruction 4.
BOX 2
BENEFICIAL OWNER(S)
STATE OF PRINCIPAL RESIDENCE OF NUMBER OF TENDERED NOTES
EACH BENEFICIAL OWNER OF HELD FOR ACCOUNT OF BENEFICIAL
TENDERED NOTES OWNER
This Letter of Transmittal is to be used either if certificates of Notes are
to be forwarded herewith or if delivery of Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company, pursuant to the procedures set forth in "The Exchange
Offers--Procedures for Tendering" in the Prospectus. Delivery of documents to
the book-entry transfer facility does not constitute delivery to the Exchange
Agent.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date must tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offers--Guaranteed Delivery Procedures."
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ____________________________________________
/ / The Depository Trust Company
Account Number ___________________________________________________________
Transaction Code Number __________________________________________________
<PAGE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if the New Notes exchanged for Old Notes and untendered
Old Notes are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown
above.
Mail New Notes and any untendered Old Notes to:
Name(s):
________________________________________________________________________________
(please print)
Address:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(include Zip Code)
Tax Identification or
Social Security No.:
BOX 4
USE OF GUARANTEED DELIVERY
/ / CHECK HERE ONLY IF OLD NOTES ARE BEING TENDERED
BY MEANS OF A NOTICE OF GUARANTEED DELIVERY.
See Instruction 2. If this box is checked, please provide the following
information:
Name(s) of Registered
Holder(s): ____________________________________________________________________
_______________________________________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ___________________________
Name of Institution which Guaranteed Delivery: ________________________________
If Delivered by Book-Entry Transfer:
Account Number: _______________________________________________________________
<PAGE>
BOX 5
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
X _______________________________________
X _______________________________________
(Signature of Registered Holder(s)
or Authorized Signatory)
Note: The above lines must be signed by the registered holder(s) of Old
Notes as their name(s) appear(s) on the Old Notes or by person(s)
authorized to become registered holder(s) (which must be transmitted with
this Letter of Transmittal). If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer, or other person
acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. See Instruction 5.
Name(s): ________________________________ Signature Guarantee
(If required by Instruction 5)
________________________________ Authorized Signature
Capacity: ________________________________ X ___________________________________
________________________________ Name: _______________________________
(please print)
Street Address: ___________________________
Title: ______________________________
___________________________________
Name of Firm: _______________________
___________________________________
(include Zip Code) (Must be an Eligible
Institution as defined
Area Code and Telephone Number: in Instruction 2)
_____________________________________ Address: ____________________________
____________________________
Tax Identification or Social Security Number:
____________________________
_____________________________________ (incude Zip Code)
Area Code and Telephone Number:
____________________________
Dated: ______________________________
<PAGE>
<TABLE><CAPTION>
PAYOR'S NAME: K-III COMMUNICATIONS CORPORATION
SUBSTITUTE Name (if joint names, list first and circle the name of the person or
entity whose number you enter in Part I below. See instructions if your
name has changed.)
Address
<S> <C> <C>
FORM W-9
City, state and ZIP Code
Department of the Treasury
List account number(s) here (optional)
Internal Revenue Service Part 1 - PLEASE PROVIDE YOUR TAXPAYER Social Security
IDENTIFICATON NUMBER ("TIN") IN THE BOX AT RIGHT number or TIN
AND CERTIFY BY SIGNING AND DATING BELOW
Part 2 - Check the box if you are NOT subject to backup withholding
under the provisions of section 3408(a)(1)(C) of the Internal Revenue
Code because (1) you have not been notified that you are subject to
backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified you that you
are no longer subject to backup withholding. / /
Payor's Request for TIN CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I Part 3 -
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM
IS TRUE, CORRECT AND COMPLETE AWAITING TIN
Signature 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 EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE NOTES EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes. The Tendered Notes
or confirmation of any book-entry transfer, as well as a properly completed and
duly executed copy of this Letter of Transmittal, a Substitute Form W-9 (or
facsimile thereof) and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein prior to the Expiration Date. The method of delivery of certificates for
Old Notes and all other required documents is at the election and risk of the
tendering holder and delivery will be deemed made only when actually received by
the Exchange Agent. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. Instead of delivery by mail, it is
recommended that the holder use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. Neither
K-III nor the registrar is under any obligation to notify any tendering holder
of the Company's acceptance of Tendered Notes prior to the Expiration Date.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Notes but whose Old Notes are not immediately available and who cannot deliver
their Old Notes, Letter of Transmittal and any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the Expiration Date or
comply with book-entry transfer procedures on a timely basis must tender their
Old Notes according to the guaranteed delivery procedures set forth below,
including completion of Box 4. Pursuant to such procedures: (i) such tender must
be made by or through a firm which is a member of a registered national
securities exchange or if the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution") and the Notice of Guaranteed Delivery must
be signed by the holder; (ii) prior to the Expiration Date, the Exchange Agent
must have received from the holder and the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail, or hand delivery setting forth the name and address of the
holder, the certificate number or numbers of the Tendered Notes, and the
principal amount of Tendered Notes, stating that the tender is being made
thereby and guaranteeing that, within five business days after the Expiration
Date, of the Letter of Transmittal (or facsimile thereof), together with the
Tendered Notes (or a confirmation of any book-entry transfer of the Old Notes
into the Exchange Agent's account at a book-entry transfer facility) and any
other required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed documents
required by this Letter of Transmittal and the Tendered Notes (or a confirmation
of any book-entry transfer of the Old Notes into the Exchange Agent's account at
a book-entry transfer facility) in proper form for transfer must be received by
the Exchange Agent within five business days after the Expiration Date. Any
holder who wishes to tender Old Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery relating to such Old Notes prior to the Expiration
Date. Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by an Eligible Holder who
attempted to use the guaranteed delivery process.
3. Beneficial Owner Instructions to Registered Holders. Only a holder in
whose name the Old Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of Old Notes who is
not the registered holder must arrange promptly with the registered holder to
execute and deliver this Letter of Transmittal on his or her behalf through the
execution and delivery to the registered holder of the Instructions to
Registered Holder from Beneficial Owner form accompanying this Letter of
Transmittal.
4. Partial Tenders. If less than the entire principal amount of Old Notes is
tendered, the tendering holder should fill in the principal amount tendered in
the column labeled "Principal Amount of Notes Tendered" of the box entitled
"Description of Old Notes Tendered" (Box 1) above. The entire principal amount
of Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. If the entire principal amount of all Old
Notes is not tendered, Old Notes for the principal amount of Old Notes not
tendered and New Notes exchanged for any Old Notes tendered will be sent to the
holder at his or her registered address, unless a different address is provided
in the appropriate box on this Letter of Transmittal, as soon as practicable
following the Expiration Date.
<PAGE>
5. Signatures on the Letter of Transmittal; Stock Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement, or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names on several Old Notes it will be necessary to
complete, sign, and submit as many separate copies of the Letter of Transmittal
documents as there are names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) (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 Tendered Notes tendered and New Notes are to be issued (or any untendered Old
Notes are to be reissued) to the registered holder(s), the registered holder(s)
need not and should not endorse any Tendered Notes nor provide a separate bond
power. In any other case, such registered holder(s) must either properly endorse
the Old Notes tendered or transmit a properly completed separate bond power with
this Letter of Transmittal, with the signature(s) on the endorsement or bond
power guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
Registered Holder(s) of any Old Notes, the Tendered Notes must be endorsed or
accompanied by appropriate stock powers, in each case, signed as the name of the
registered holder(s) appears on the Old Notes, with the signature on the
endorsement or bond power guaranteed by an Eligible Institution.
If this 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 and, unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a Registered Holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. Special Delivery Instructions. Tendering Eligible Holders should
indicate, in the applicable box (Box 3), the name and address to which the New
Notes and/or substitute Old Notes for Old Notes not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the sale and transfer of Old Notes to it or its order pursuant to
the Notes Exchange Offer. If, however, a transfer tax is imposed for any reason
other than the transfer and sale of Old Notes to the Company or its order
pursuant to the Notes Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or on any other person) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption from taxes therefrom is not submitted with this Letter of
Transmittal, the amount of transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
8. Tax Identification Number. Federal income tax law requires that a holder
of any Old Notes which are accepted for exchange must provide the Company (as
payor) with its correct taxpayer identification number ("TIN"), which, in the
case of a holder who is an individual, is his or her social security number. If
the Company is not provided with the correct TIN, the holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. (If withholding results in
an over-payment of taxes, a refund may be obtained.) Certain holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
<PAGE>
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Old Notes are registered 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 information on which TIN to
report.
K-III reserves the right in its sole discretion to take whatever steps are
necessary to comply with the Company's obligation regarding backup withholding.
9. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Tendered Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the right to reject any and all Old Notes not
validly tendered or any Old Notes the Company's acceptance of which would, in
the opinion of the Company or its counsel, be unlawful. The Company also
reserves the right to waive any conditions of the Notes Exchange Offer or
defects or irregularities in tenders of Old Notes as to any ineligibility of any
holder who seeks to tender Old Notes in the Exchange Offer. The interpretation
of the terms and conditions of the Notes Exchange Offer (including this Letter
of Transmittal and the instructions hereto) by the Company shall 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. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes,
but shall not incur any liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to amend,
waive, or modify specified conditions in the Notes Exchange Offer in the case of
any Tendered Notes.
11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of shares of Old Notes or transmittal of this Letter of
Transmittal will be accepted.
12. Mutilated, Lost, Stolen, or Destroyed Shares of Old Notes. Any tendering
holder whose Old Notes have been mutilated, lost, stolen, or destroyed should
contact the Exchange Agent at the address indicated above for further
instruction.
13. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Notes Exchange Agent at the address specified in the Prospectus. Holders
may also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Notes Exchange Offer.
14. Acceptance of Tendered Notes and Issuance of New Notes; Return of Old
Notes. Subject to the terms and conditions of the Notes Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Expiration Date and will issue New Notes therefor as soon
as practicable thereafter. For purposes of the Notes Exchange Offer, the Company
shall be deemed to have accepted tendered Old Notes when, as and if the Company
has given written or oral notice thereof to the Exchange Agent. If any Tendered
Notes are not exchanged pursuant to the Notes Exchange Offer for any reason,
such unexchanged Old Notes will be returned, without expense, to the undersigned
at the address shown below or at a different address as may be indicated herein
under "Special Delivery Instructions."
15. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offers--Withdrawal of Tenders."
<PAGE>
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
K-III COMMUNICATIONS CORPORATION
8 1/2% SENIOR NOTES DUE 2006
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1996 (the "Prospectus") of K-III Communications Corporation, a Delaware
corporation (the "Company") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Notes Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Notes Exchange Offer with respect to the 8 1/2% Senior
Notes due 2006 (the "Old Notes") held by you for the account of the undersigned.
The principal amount of Old Notes held by you for the account of the
undersigned is (fill in principal amount):
principal amount of Old Notes.
- -------------
With respect to the Notes Exchange Offer, the undersigned hereby
instructs you (check appropriate box):
/ / To TENDER the following principal amount of Old Notes held by you
for the account of the undersigned (insert principal amount of Old
Notes to be tendered, if any):
principal amount of Old Notes.
------------ --------------
/ / NOT to TENDER any principal amount of Old Notes held by you for
the account of the undersigned.
If the undersigned instructs you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
Beneficial Owner (as defined in the Letter of Transmittal), including but not
limited to the representations that (i) the undersigned's principal residence is
in the state of (fill in state) _____________________ , (ii) the undersigned is
acquiring the New Notes in the ordinary course of business of the undersigned,
(iii) the undersigned is not participating, does not intend to participate, and
has no arrangement or understanding with any person to participate, in the
distribution of the New Notes, and (iv) the undersigned acknowledges that any
person participating in the Notes Exchange Offer for the purpose of distributing
the New Notes must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended, in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the Staff of the Securities and Exchange Commission set
forth in the no-action letters that are discussed in the section of the
Prospectus entitled "The Exchange Offers--Resales of the New Notes and the New
Preferred Stock"; (b) to agree, on behalf of the undersigned, as set forth in
the Letter of Transmittal; and (c) to take such other action as necessary under
the Prospectus or the Letter of Transmittal to effect the valid tender of such
Old Notes.
SIGN HERE
Name of Beneficial
Owner(s): _____________________________________________________________________
Signature(s): _________________________________________________________________
Name(s) (please
print): _______________________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
Telephone
Number: _______________________________________________________________________
Taxpayer Identification or Social Security
Number: _______________________________________________________________________
Date: _________________________________________________________________________
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--SOCIAL SECURITY NUMBERS HAVE NINE DIGITS SEPARATED BY TWO HYPHENS: I.E.
000-00-0000. EMPLOYER IDENTIFICATION NUMBERS HAVE NINE DIGITS SEPARATED BY ONLY
ONE HYPHEN: 00-0000000. THE TABLE BELOW WILL HELP DETERMINE THE NUMBER TO GIVE
THE PAYER.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
GIVE THE IDENTIFICATION
SOCIAL SECURITY NUMBER OF--
NUMBER OF--
- ------------------------------------------------------------ ------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity
pension trust (Do not furnish the
identifying number of
the personal representative
or trustee unless the legal
entity itself is not
designated in the account
title.)(5)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if combined 11. Religious charitable, or The organization
funds, any one of the educational organization
individuals on the account
account(1)
The grantor-trustee(1) 12. Partnership account held in The partnership
the name of the business
13. Association, club, The organization
or other tax-exempt
The actual owner(1)
3. Husband and wife (joint The actual owner of the
account organization account or,
if joint funds,
either person(1)
4. Custodian account of a The minor(2) 14. A broker or registered The broker or nominee
minor (Uniform Gift to nominee
Minors Act)
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State or
local government, school
district, or prison) that
5. Adult and minor (joint account) The adult or, if the minor receives agricultural
is the only contributor, the program payments
minor(1)
6. Account in the name of guardian The ward, minor, or other
or committee for a designated incompetent person(3)
ward, minor or incompetent
person
7a.The usual revocable
savings trust account
(grantor is also
trustee)
b. So-called trust account
that is not a legal or
valid trust under State law
8. Sole proprietorship account The owner(4)
<CAPTION>
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's minor's or incompetent person's name and furnish such
person's social security number.
(4) 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 employer identification number.
(5) 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>
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 Number Card,
or Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government,
agency, or instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in
the U.S. or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A trust exempt from tax under section 664 or described in section 4947.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U. S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business 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 non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
AND RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes Payers must be given the numbers whether or not
<PAGE>
recipients are required to file a tax return. Beginning January 1, 1984, payers
must generally withold 20% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR 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) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includable payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--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>
LETTER OF TRANSMITTAL
THE PREFERRED STOCK EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1996 (AS SUCH DATE AND TIME MAY BE EXTENDED
BY THE COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION DATE").
K-III COMMUNICATIONS CORPORATION
$10.00 SERIES C EXCHANGEABLE PREFERRED STOCK
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Preferred Stock Exchange Offer, this Letter of
Transmittal should be completed, signed, and submitted to The Bank of New York,
Exchange Agent:
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange Department (For Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Confirm Facsimile by Telephone: Receive and Deliver Window
New York, NY 10286-1248 (For Confirmation Only) New York, NY 10286
(800) 507-9357
</TABLE>
Delivery of this Letter of Transmittal to an address other than as set forth
above or transmission of instructions via a facsimile number other than that set
forth above will not constitute a valid delivery.
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1996 (the "Prospectus") of K-III Communications Corporation, a Delaware
corporation ("K-III " or the "Company"), and this Letter of Transmittal (the
"Letter of Transmittal "), that together constitute K-III's offer (the
"Preferred Stock Exchange Offer ") to exchange one share (or fraction thereof)
of its $10.00 Series D Exchangeable Preferred Stock (the "New Preferred Stock")
for each share (or fraction thereof) of its outstanding $10.00 Series C
Exchangeable Preferred Stock (the "Old Preferred Stock"). The New Preferred
Stock and the Old Preferred Stock are collectively referred to as the "Preferred
Stock". Capitalized terms used but not defined herein have the meanings ascribed
to them in the Prospectus.
THE REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 33- ) OF WHICH THE
PROSPECTUS IS A PART WAS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE
COMMISSION ON , 1996.
The undersigned hereby tenders the shares of Old Preferred Stock described
in Box 1 below (the "Tendered Shares") pursuant to the terms and conditions
described in the Prospectus and this Letter of Transmittal. The undersigned is
the registered owner of all the Tendered Shares and the undersigned represents
that it has received from each beneficial owner of Tendered Shares ("Beneficial
Owners") a duly completed and executed form of "Instruction to Registered Holder
from Beneficial Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the Tendered
Shares, the undersigned hereby exchanges, assigns, and transfers to, or upon the
order of, K-III, all right, title, and interest in, to, and under the Tendered
Shares.
Please issue the shares of New Preferred Stock exchanged for Tendered Shares
in the name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions" below (Box 3), please send or cause to be sent
the certificate(s) for shares of New Preferred Stock (and accompanying
documents, as appropriate) to the undersigned at the address shown below in Box
1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Shares, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Shares to the Company or cause ownership of the
Tendered Shares to be transferred to, or upon the order of, the Company, on the
books of the registrar for the Old Preferred Stock or on the account books
maintained by a book-entry transfer facility and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company
upon receipt by the Exchange Agent, as the undersigned's agent, of the shares of
New Preferred Stock to which the undersigned is entitled upon the acceptance by
the Company of the Tendered Shares pursuant to the Preferred Stock Exchange
Offer, and (ii) receive all benefits and otherwise exercise all rights of
beneficial ownership of the Tendered Shares, all in accordance with the terms of
the Preferred Stock Exchange Offer.
<PAGE>
The undersigned understands that tenders of shares of Old Preferred Stock
pursuant to the procedures described under the caption "The Exchange
Offers--Procedures for Tendering" in the Prospectus and in the instructions
hereto will constitute a binding agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Preferred Stock
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offers--Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any Beneficial Owner(s), and
every obligation of the undersigned or any Beneficial Owners hereunder shall be
binding upon the heirs, representatives, successors, and assigns of the
undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign, and transfer the Tendered
Shares and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Shares are acquired by the Company as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Company as
necessary or desirable to complete and give effect to the transactions
contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Preferred Stock Exchange Offer, the undersigned hereby
represents and warrants that (i) the shares of New Preferred Stock to be
acquired by the undersigned and any Beneficial Owner(s) in connection with the
Exchange Offer are being acquired by the undersigned and any Beneficial Owner(s)
in the ordinary course of business of the undersigned and any Beneficial
Owner(s), (ii) the undersigned and each Beneficial Owner are not participating,
do not intend to participate, and have no arrangement or understanding with any
person to participate, in the distribution of the New Preferred Stock, and (iii)
the undersigned and each Beneficial Owner acknowledge and agree that any person
participating in the Preferred Stock Exchange Offer for the purpose of
distributing the New Preferred Stock must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the "Securities
Act"), in connection with a secondary resale transaction of the shares of New
Preferred Stock acquired by such person and cannot rely on the position of the
Staff of the Securities and Exchange Commission (the "Commission") set forth in
the no-action letters that are discussed in the section of the Prospectus
entitled "The Exchange Offers--Resales of the New Notes and the New Preferred
Stock."
The undersigned and each Beneficial Owner understands that any secondary
resale transaction described in clause (iii) above should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the Commission. Except as
otherwise disclosed to the Company in writing, the undersigned hereby represents
and warrants that neither it nor any Beneficial Owner(s) is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
<TABLE>
<CAPTION>
BOX 1
DESCRIPTION OF OLD PREFERRED STOCK TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
NAME(S) AND ADDRESS(ES) OF REGISTERED OLD AGGREGATE
PREFERRED STOCK HOLDERS(S), CERTIFICATE NUMBER OF
EXACTLY AS NAME(S) APPEAR(S) NUMBER(S) SHARES AGGREGATE
ON OLD PREFERRED STOCK OF SHARES OF REPRESENTED NUMBER OF
CERTIFICATE(S) OLD PREFERRED BY SHARES
(PLEASE FILL IN, IF BLANK) STOCK* CERTIFICATE(S) TENDERED**
<S> <C> <C> <C>
TOTAL
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated in this column, the number of shares
represented by all Old Preferred Stock Certificates identified in this
Box 1 or delivered to the Exchange Agent herewith shall be deemed
tendered. See Instruction 4.
BOX 2
BENEFICIAL OWNER(S)
STATE OF PRINCIPAL RESIDENCE OF NUMBER OF TENDERED SHARES
EACH BENEFICIAL OWNER OF HELD FOR ACCOUNT OF BENEFICIAL
TENDERED SHARES OWNER
This Letter of Transmittal is to be used either if shares of Old Preferred
Stock are to be forwarded herewith or if delivery of Old Preferred Stock is to
be made by book-entry transfer to an account maintained by the Exchange Agent at
The Depository Trust Company, pursuant to the procedures set forth in "The
Exchange Offers-- Procedures for Tendering" in the Prospectus. Delivery of
documents to the book-entry transfer facility does not constitute delivery to
the Exchange Agent.
Holders whose shares of Old Preferred Stock are not immediately available or
who cannot deliver their shares of Old Preferred Stock and all other documents
required hereby to the Exchange Agent on or prior to the Expiration Date must
tender their shares of Old Preferred Stock according to the guaranteed delivery
procedure set forth in the Prospectus under the caption "The Exchange
Offers--Guaranteed Delivery Procedures."
/ /CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE
TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
/ / The Depository Trust Company
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
<PAGE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if the shares of New Preferred Stock exchanged for shares
of Old Preferred Stock and untendered shares of Old Preferred Stock are to be
sent to someone other than the undersigned, or to the undersigned at an
address other than that shown above.
Mail shares of New Preferred Stock and any untendered shares of Old Preferred
Stock to:
Name(s):
_______________________________________________________________________________
(please print)
Address:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(include Zip Code)
Tax Identification or
Social Security No.:
BOX 4
USE OF GUARANTEED DELIVERY
/ / CHECK HERE ONLY IF SHARES OF OLD PREFERRED STOCK ARE BEING
TENDERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY.
See Instruction 2. If this box is checked, please provide the following
information:
Name(s) of Registered
Holder(s): ____________________________________________________________________
________________________________________________________________________________
Date of Execution of Notice of Guaranteed Delivery: __________________________
Name of Institution which Guaranteed Delivery: _______________________________
If Delivered by Book-Entry Transfer:
Account Number: _______________________________________________________________
<PAGE>
BOX 5
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
X _______________________________________
X _______________________________________
(Signature of Registered Holder(s)
or Authorized Signatory)
Note: The above lines must be signed by the registered holder(s) of Old
Preferred Stock as their name(s) appear(s) on the shares of Old Preferred
Stock or by person(s) authorized to become registered holder(s) (which
must be transmitted with this Letter of Transmittal). If signature is by
a trustee, executor, administrator, guardian, attorney-in-fact, officer,
or other person acting in a fiduciary or representative capacity, such
person must set forth his or her full title below. See Instruction 5.
Name(s): ________________________________ Signature Guarantee
(If required by Instruction 5)
________________________________ Authorized Signature
Capacity: _______________________________ X ____________________________________
_______________________________ Name: ________________________________
(please print)
Street Address: _________________________
Title: _______________________________
__________________________________
Name of Firm: ________________________
__________________________________ (Must be an Eligible
(include Zip Code) Institution as defined
in Instruction 2)
Area Code and Telephone Number:
____________________________________ Address: _____________________________
Tax Identification or Social Security _____________________________
Number
____________________________________
_____________________________
(incude Zip Code)
Area Code and Telephone Number:
_______________________________
Dated: _______________________________
<PAGE>
<TABLE>
<S> <C> <C>
PAYOR'S NAME: K-III COMMUNICATIONS CORPORATION
SUBSTITUTE Name (if joint names, list first and circle the name of the person or
entity whose number you enter in Part I below. See instructions if your
name has changed.)
Address
FORM W-9
City, state and ZIP Code
Department of the Treasury
List account number(s) here (optional)
Internal Revenue Service Part 1 - PLEASE PROVIDE YOUR TAXPAYER Social Security
IDENTIFICATON NUMBER ("TIN") IN THE BOX AT RIGHT number or TIN
AND CERTIFY BY SIGNING AND DATING BELOW
Part 2 - Check the box if you are NOT subject to backup withholding
under the provisions of section 3408(a)(1)(C) of the Internal Revenue
Code because (1) you have not been notified that you are subject to
backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified you that you
are no longer subject to backup withholding. / /
Payor's Request for TIN CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I Part 3 -
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM
IS TRUE, CORRECT AND COMPLETE AWAITING TIN
Signature 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 EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE PREFERRED STOCK EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Preferred Stock. The
Tendered Shares or confirmation of any book-entry transfer, as well as a
properly completed and duly executed copy of this Letter of Transmittal, a
Substitute Form W-9 (or facsimile thereof) and any other documents required by
this Letter of Transmittal must be received by the Exchange Agent at its address
set forth herein prior to the Expiration Date. The method of delivery of
certificates for Old Preferred Stock and all other required documents is at the
election and risk of the tendering holder and delivery will be deemed made only
when actually received by the Exchange Agent. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. Instead of
delivery by mail, it is recommended that the holder use an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
timely delivery. Neither K-III nor the registrar is under any obligation to
notify any tendering holder of the Company's acceptance of Tendered Shares prior
to the Expiration Date.
2. Guaranteed Delivery Procedures. Holders who wish to tender their shares
of Old Preferred Stock but whose shares of Old Preferred Stock are not
immediately available and who cannot deliver their shares of Old Preferred
Stock, Letter of Transmittal and any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date or comply with
book-entry transfer procedures on a timely basis must tender their shares of Old
Preferred Stock according to the guaranteed delivery procedures set forth below,
including completion of Box 4. Pursuant to such procedures: (i) such tender must
be made by or through a firm which is a member of a registered national
securities exchange or if the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution") and the Notice of Guaranteed Delivery must
be signed by the holder; (ii) prior to the Expiration Date, the Exchange Agent
must have received from the holder and the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail, or hand delivery setting forth the name and address of the
holder, the certificate number or numbers of the Tendered Shares, and the
principal amount of Tendered Shares, stating that the tender is being made
thereby and guaranteeing that, within five business days after the Expiration
Date, of the Letter of Transmittal (or facsimile thereof), together with the
Tendered Shares (or a confirmation of any book-entry transfer of the Old
Preferred Stock into the Exchange Agent's account at a book-entry transfer
facility) and any other required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed documents required by this Letter of Transmittal and the Tendered
Shares (or a confirmation of any book-entry transfer of the Old Preferred Stock
into the Exchange Agent's account at a book-entry transfer facility) in proper
form for transfer must be received by the Exchange Agent within five business
days after the Expiration Date. Any holder who wishes to tender shares of Old
Preferred Stock pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such shares of Old Preferred Stock prior to the Expiration Date.
Failure to complete the guaranteed delivery procedures outlined above will not,
of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by an Eligible Holder who
attempted to use the guaranteed delivery process.
3. Beneficial Owner Instructions to Registered Holders. Only a holder in
whose name the shares of Old Preferred Stock are registered on the books of the
registrar (or the legal representative or attorney-in-fact of such registered
holder) may execute and deliver this Letter of Transmittal. Any Beneficial Owner
of shares of Old Preferred Stock who is not the registered holder must arrange
promptly with the registered holder to execute and deliver this Letter of
Transmittal on his or her behalf through the execution and delivery to the
registered holder of the Instructions to Registered Holder from Beneficial Owner
form accompanying this Letter of Transmittal.
<PAGE>
4. Partial Tenders. If less than the entire number of shares of Old
Preferred Stock is tendered, the tendering holder should fill in the number of
shares tendered in the column labeled "Aggregate Number of Shares Tendered" of
the box entitled "Description of Old Preferred Stock Tendered" (Box 1) above.
The entire number of shares of Old Preferred Stock delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire number of shares of all Old Preferred Stock is not tendered, shares of
Old Preferred Stock for the number of shares of Old Preferred Stock not tendered
and shares of New Preferred Stock exchanged for any shares of Old Preferred
Stock tendered will be sent to the holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal, as soon as practicable following the Expiration Date.
5. Signatures on the Letter of Transmittal; Stock Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Shares, the signature must correspond with
the name(s) as written on the face of the Tendered Shares without alteration,
enlargement, or any change whatsoever.
If any of the Tendered Shares are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Shares are held in different names on several shares of Old Preferred Stock, it
will be necessary to complete, sign, and submit as many separate copies of the
Letter of Transmittal documents as there are names in which Tendered Shares are
held.
If this Letter of Transmittal is signed by the registered holder(s) (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
Preferred Stock) of Tendered Shares tendered and shares of New Preferred Stock
are to be issued (or any untendered shares of Old Preferred Stock are to be
reissued) to the registered holder(s), the registered holder(s) need not and
should not endorse any Tendered Shares nor provide a separate bond power. In any
other case, such registered holder(s) must either properly endorse the shares of
Old Preferred Stock tendered or transmit a properly completed separate stock
power with this Letter of Transmittal, with the signature(s) on the endorsement
or stock power guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
Registered Holder(s) of any shares of Old Preferred Stock, the Tendered Shares
must be endorsed or accompanied by appropriate stock powers, in each case,
signed as the name of the registered holder(s) appears on the shares of Old
Preferred Stock, with the signature on the endorsement or stock power guaranteed
by an Eligible Institution.
If this Letter of Transmittal or any shares of Old Preferred Stock or stock
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 and,
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with this Letter of Transmittal.
Endorsements on shares of Old Preferred Stock or signatures on stock powers
required by this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Shares are tendered (i) by a Registered Holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. Special Delivery Instructions. Tendering Eligible Holders should
indicate, in the applicable box (Box 3), the name and address to which the
shares of New Preferred Stock and/or substitute shares of Old Preferred Stock
for shares not tendered or not accepted for exchange are to be sent, if
different from the name and address of the person signing this Letter of
Transmittal.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the sale and transfer of Old Preferred Stock to it or its order
pursuant to the Preferred Stock Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the transfer and sale of Old Preferred Stock
to the Company or its order pursuant to the Preferred Stock Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered holder
or on any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption from taxes therefrom is not
submitted with this Letter of Transmittal, the amount of transfer taxes will be
billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the shares of Old Preferred Stock listed in
this Letter of Transmittal.
<PAGE>
8. Tax Identification Number. Federal income tax law requires that a holder
of any shares of Old Preferred Stock which are accepted for exchange must
provide the Company (as payor) with its correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Company is not provided with the correct TIN, the
holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
(If withholding results in an over-payment of taxes, a refund may be obtained.)
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the shares of Old Preferred Stock are registered 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
information on which TIN to report.
K-III reserves the right in its sole discretion to take whatever steps are
necessary to comply with the Company's obligation regarding backup withholding.
9. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Tendered Shares will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the right to reject any and all shares
of Old Preferred Stock not validly tendered or any shares of Old Preferred Stock
the Company's acceptance of which would, in the opinion of the Company or its
counsel, be unlawful. The Company also reserves the right to waive any
conditions of the Preferred Stock Exchange Offer or defects or irregularities in
tenders of shares of Old Preferred Stock as to any ineligibility of any holder
who seeks to tender shares of Old Preferred Stock in the Preferred Stock
Exchange Offer. The interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of shares of Old Preferred Stock must
be cured within such time as the Company shall determine. The Company will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of shares of Old Preferred Stock, but shall not incur any
liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to amend,
waive, or modify specified conditions in the Preferred Stock Exchange Offer in
the case of any Tendered Shares.
11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of shares of Old Preferred Stock or transmittal of this Letter
of Transmittal will be accepted.
12. Mutilated, Lost, Stolen, or Destroyed Shares of Old Preferred Stock. Any
tendering holder whose shares of Old Preferred Stock have been mutilated, lost,
stolen, or destroyed should contact the Exchange Agent at the address indicated
above for further instruction.
13. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Preferred Stock Exchange Agent at the address specified in the
Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company, or other nominee for assistance concerning the Preferred Stock
Exchange Offer.
14. Acceptance of Tendered Shares and Issuance of Shares of New Preferred
Stock; Return Shares of Old Preferred Stock. Subject to the terms and conditions
of the Preferred Stock Exchange Offer, the Company will accept for exchange all
validly tendered shares of Old Preferred Stock as soon as practicable after the
Expiration Date and will issue shares of New Preferred Stock therefor as soon as
practicable thereafter. For purposes of the Preferred Stock Exchange Offer, the
Company shall be deemed to have accepted tendered shares of Old Preferred Stock
when, as and if the Company has given written or oral notice thereof to the
Exchange Agent. If any Tendered Shares are not exchanged pursuant to the
Preferred Stock Exchange Offer for any reason, such unexchanged shares of Old
Preferred Stock will be returned, without expense, to the undersigned at the
address shown below or at a different address as may be indicated herein under
"Special Delivery Instructions."
15. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offers--Withdrawal of Tenders."
<PAGE>
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
K-III COMMUNICATIONS CORPORATION
$10% SERIES C EXCHANGEABLE PREFERRED STOCK
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1996 (the "Prospectus") of K-III Communications Corporation, a
Delaware corporation (the "Company") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), that together constitute the Company's offer (the
"Preferred Stock Exchange Offer"). Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Preferred Stock Exchange Offer with respect to the $10.00
Series C Exchangeable Preferred Stock (the "Old Preferred Stock") held by you
for the account of the undersigned.
The number of shares of the Old Preferred Stock held by you for the account
of the undersigned is (fill in number of shares):
shares of Old Preferred Stock.
-------
With respect to the Preferred Stock Exchange Offer, the undersigned
hereby instructs you (check appropriate box):
/ / To TENDER the following shares of Old Preferred Stock held by you
for the account of the undersigned (insert number of shares of Old
Preferred Stock to be tendered, if any):
shares of Old Preferred Stock.
---------
/ / NOT to TENDER any shares of Old Preferred Stock held by you for
the account of the undersigned.
If the undersigned instructs you to tender the shares of Old Preferred Stock
held by you for the account of the undersigned, it is understood that you are
authorized (a) to make, on behalf of the undersigned (and the undersigned, by
its signature below, hereby makes to you), the representation and warranties
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as a Beneficial Owner (as defined in the Letter of Transmittal),
including but not limited to the representations that (i) the undersigned's
principal residence is in the state of (fill in state)____________________,
(ii) the undersigned is acquiring the shares of New Preferred Stock in the
ordinary course of business of the undersigned, (iii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Preferred Stock, and (iv) the undersigned acknowledges that any person
participating in the Preferred Stock Exchange Offer for the purpose of
distributing the New Preferred Stock must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended, in
connection with a secondary resale transaction of the New Preferred Stock
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission set forth in the no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange
Offers--Resales of the New Notes and the New Preferred Stock"; (b) to agree, on
behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to
take such other action as necessary under the Prospectus or the Letter of
Transmittal to effect the valid tender of such shares of Old Preferred Stock.
SIGN HERE
Name of Beneficial
Owner(s): _______________________________________________________________
Signature(s): ___________________________________________________________
Name(s) (please
print): _________________________________________________________________
Address:
_________________________________________________________________________
_________________________________________________________________________
Telephone
Number: _________________________________________________________________
Taxpayer Identification or Social Security
Number: _________________________________________________________________
Date: ___________________________________________________________________
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--SOCIAL SECURITY NUMBERS HAVE NINE DIGITS SEPARATED BY TWO HYPHENS: I.E.
000-00-0000. EMPLOYER IDENTIFICATION NUMBERS HAVE NINE DIGITS SEPARATED BY ONLY
ONE HYPHEN: 00-0000000. THE TABLE BELOW WILL HELP DETERMINE THE NUMBER TO GIVE
THE PAYER.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
GIVE THE IDENTIFICATION
SOCIAL SECURITY NUMBER OF--
NUMBER OF--
- ------------------------------------------------------------ ------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity
pension trust (Do not furnish the
identifying number of
the personal representative
or trustee unless the legal
entity itself is not
designated in the account
title.)(5)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if combined 11. Religious charitable, or The organization
funds, any one of the educational organization
individuals on the account
account(1)
The grantor-trustee(1) 12. Partnership account held in The partnership
the name of the business
13. Association, club, The organization
or other tax-exempt
The actual owner(1)
3. Husband and wife (joint The actual owner of the
account organization account or,
if joint funds,
either person(1)
4. Custodian account of a The minor(2) 14. A broker or registered The broker or nominee
minor (Uniform Gift to nominee
Minors Act)
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State or
local government, school
district, or prison) that
5. Adult and minor (joint account) The adult or, if the minor receives agricultural
is the only contributor, the program payments
minor(1)
6. Account in the name of guardian The ward, minor, or other
or committee for a designated incompetent person(3)
ward, minor or incompetent
person
7a.The usual revocable
savings trust account
(grantor is also
trustee)
b. So-called trust account
that is not a legal or
valid trust under State law
8. Sole proprietorship account The owner(4)
<CAPTION>
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's minor's or incompetent person's name and furnish such
person's social security number.
(4) 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 employer identification number.
(5) 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>
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 Number Card,
or Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government,
agency, or instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in
the U.S. or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A trust exempt from tax under section 664 or described in section 4947.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U. S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business 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 non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file form w-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
AND RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes Payers must be given the numbers whether or not
recipients are required to file a tax return. Beginning January 1, 1984, payers
must generally withold 20% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR 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) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includable payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being
due to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--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
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
K-III COMMUNICATIONS CORPORATION
8 1/2% SENIOR NOTES DUE 2006
This form must be used by a holder of the 8 1/2% Senior Notes due 2006 (the
"Old Notes") of K-III Communications Corporation ("K-III") who wishes to tender
Old Notes to the Exchange Agent pursuant to the guaranteed delivery procedures
described in "The Exchange Offers--Guaranteed Delivery Procedures" of the
Prospectus dated , 1996 (the "Prospectus") and in Instruction 2 to the
Letter of Transmittal. Any holder who wishes to tender Old Notes pursuant to
such guaranteed delivery procedures must ensure that the Exchange Agent receives
this Notice of Guaranteed Delivery prior to the Expiration Date of the Notes
Exchange Offer. Capitalized terms not defined herein have the meanings ascribed
to them in the Prospectus or the Letter of Transmittal.
To: The Bank of New York, Exchange Agent
<TABLE>
<CAPTION>
By Facsimile
By Mail: Transmission: By Hand or Overnight Courier:
<S> <C> <C>
Reorganization Section (212) 571-3080 Reorganization Section
101 Barclay Street--7 East 101 Barclay Street--7 East
New York, NY 10286 Confirm by Telephone: New York, NY 10286
Attention: Henry Lopez (212) 815-2742 Attention: Henry Lopez
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to K-III, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount of Old Notes
specified below pursuant to the guaranteed delivery procedures set forth in the
Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned
hereby tenders the principal amount Old Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
OF OLD NOTES NOTES REPRESENTED NOTES TENDERED
<S> <C> <C>
</TABLE>
/ / Depository Trust Company
(check if Old Notes will be tendered by book-entry transfer)
SIGN HERE
Name of Holder: ________________________________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Old Notes tendered hereby in proper
form for transfer and any other required documents, all by 5:00 p.m., New York
City time, on the fifth business day following the Expiration Date.
SIGN HERE
Name of firm: ___________________________
Authorized Signature: ___________________
Name (please print): ____________________
Address:
________________________________
________________________________
________________________________
Telephone Number: _______________________
Date: ___________________________________
DO NOT SEND NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and risk of the holder, and
the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. Instead of delivery by mail, it is recommended
that the holder use an overnight or hand delivery service. In all cases
sufficient time should be allowed to assure timely delivery. For a description
of the guaranteed delivery procedure, see Instruction 2 of the Letter of
Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Old Notes listed, this Notice of Guaranteed Delivery
must be accompanied by appropriate bond powers, signed as the name of the
registered holder(s) appears on the Old Notes.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Notes Exchange Offer.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
K-III COMMUNICATIONS CORPORATION
$10.00 SERIES C EXCHANGEABLE PREFERRED STOCK
This form must be used by a holder of the $10.00 Series C Exchangeable
Preferred Stock (the "Old Preferred Stock") of K-III Communications Corporation
("K-III") who wishes to tender shares of Old Preferred Stock to the Exchange
Agent pursuant to the guaranteed delivery procedures described in "The Exchange
Offers--Guaranteed Delivery Procedures" of the Prospectus dated ,
1996 (the "Prospectus") and in Instruction 2 to the Letter of Transmittal. Any
holder who wishes to tender shares of Old Preferred Stock pursuant to such
guaranteed delivery procedures must ensure that the Exchange Agent receives this
Notice of Guaranteed Delivery prior to the Expiration Date of the Preferred
Stock Exchange Offer. Capitalized terms not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
To: The Bank of New York, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight
Tender & Exchange (For Eligible Institutions Courier:
Department Only) Tender & Exchange
P.O. Box 11248 (212) 815-6213 Department
Church Street Station Confirm Facsimile by 101 Barclay Street
New York, NY 10286-1248 Telephone: Receive and Deliver Window
(For Confirmation Only) New York, NY 10286
(800) 507-9357
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to K-III, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the number of shares of Old Preferred
Stock specified below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal. The
undersigned hereby tenders the shares of Old Preferred Stock listed below:
<TABLE>
<S> <C> <C>
CERTIFICATE NUMBER(S) (IF KNOWN) NUMBER OF SHARES NUMBER OF SHARES
OF SHARES OF OLD PREFERRED STOCK REPRESENTED TENDERED
</TABLE>
/ / The Depositary Trust Company
(check if Old Preferred Stock will be tendered by book-entry transfer)
Account Number: ________________________________________________________________
SIGN HERE
Name of Holder: ________________________________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the shares of Old Preferred Stock tendered
hereby in proper form for transfer and any other required documents, all by 5:00
p.m., New York City time, on the fifth business day following the Expiration
Date.
SIGN HERE
Name of firm: ___________________________
Authorized Signature: ___________________
Name (please print): ____________________
Address:
________________________________
________________________________
________________________________
Telephone
Number: _________________________________
Date: ___________________________________
DO NOT SEND SHARES WITH THIS FORM. ACTUAL SURRENDER OF SHARES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and risk of the holder, and
the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. Instead of delivery by mail, it is recommended
that the holder use an overnight or hand delivery service. In all cases
sufficient time should be allowed to assure timely delivery. For a description
of the guaranteed delivery procedure, see Instruction 2 of the Letter of
Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Preferred
Stock referred to herein, the signature must correspond with the name(s) written
on the face of the shares of Old Preferred Stock without alteration,
enlargement, or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any shares of Old Preferred Stock listed, this Notice of
Guaranteed Delivery must be accompanied by appropriate bond powers, signed as
the name of the registered holder(s) appears on the shares of Old Preferred
Stock.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Preferred Stock Exchange Offer.
EXCHANGE AGENCY AGREEMENT
The Bank of New York
101 Barclay Street-12W
New York, New York 10286
Attention: Corporate Trust Administration
Dear Sirs:
K-III Communications Corporation (the "Company"), a Delaware
corporation, proposes to offer to exchange (i) (the "Notes Exchange Offer") up
to $300,000,000 in aggregate principal amount of a new series of its 8 1/2%
Senior Notes due 2006 (the "New Notes"), which will have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), for $300,000,000
in aggregate principal amount of its 8 1/2% Senior Notes due 2006 (the
"Old Notes") and (ii) (the "Preferred Stock Exchange Offer" and together with
the Notes Exchange Offer, the "Exchange Offers") one share of its $10.00 Series
D Exchangeable Preferred Stock, par value $.01 per share, liquidation preference
$100.00 per share (the "New Preferred Stock"), which will have been registered
under the Securities Act, for each outstanding share of its $10.00 Series C
Exchangeable Preferred Stock, par value $.01 per share, liquidation preference
$100.00 per share (the "Old Preferred Stock") of which 2,000,000 shares are
outstanding.
The Exchange Offers will commence on ______, 1996 and will expire at
5:00 p.m., New York City time, on ______, 1996, unless the Company extends the
offers by notice to you.
1. Appointment as Exchange Agent. Subject to your acceptance
-----------------------------
hereof, the Company appoints you as the Exchange Agent for the purposes and upon
the terms and conditions set forth herein. In this connection, the Company has
enclosed the Exchange Documents (as defined below) and certified copies of
resolutions of the Company's Board of Directors approving the Exchange Offers
and authorizing the officers of the Company to enter into this Agreement and to
carry out the transactions contemplated by the Exchange Offers.
<PAGE>
2
2. Compensation. The Company hereby agrees to pay you a fee for
------------
your services hereunder as previously agreed to with you.
3. Receipt of Tenders. You shall receive all tenders of the Old
------------------
Notes and the Old Preferred Stock and determine whether each such tender has
been made in accordance with the procedures set forth in the Prospectus relating
to the Exchange Offers dated ______, 199_ (the "Prospectus") and the applicable
Letter of Transmittal described therein (the "Letter of Transmittal"), subject
to the right of the Company to determine the validity of any tender, as
described in the Prospectus.
You shall segregate all tenders which are in accordance with the
procedures set forth in the Prospectus and the applicable Letter of Transmittal
from those which are not ("Defective Deposits"). Upon consultation with the
Company or its representatives, you shall use your best efforts to cause holders
who effected any Defective Deposit to cure such Defective Deposit.
You will hold all items which are deposited for tender with you after
5:00 p.m., New York City time, on the date the Exchange Offers expire pending
further instructions from an officer of the Company.
4. Exchange Documents. At the request of the Company you shall
------------------
furnish copies of any or all of the Prospectus, the applicable Letter of
Transmittal and the applicable Notice of Guaranteed Delivery (collectively, the
"Exchange Documents") promptly to any person designated in such request. All
mailings under this Section shall be by first class mail, postage prepaid,
unless otherwise specified in such request. The Company will furnish you with
such additional copies of the Exchange Documents as you may request to fulfill
your obligations under this Section.
5. Notification of Changes in the Exchange Offers. At the request
----------------------------------------------
of the Company, you shall notify tendering holders of the Old Notes and the Old
Preferred Stock in the event of any rescission or modification of the Exchange
Offers. In the event of any such rescission, you will return all tendered Old
Notes and Old Preferred Stock to the persons entitled thereto, at the request of
the Company.
<PAGE>
3
6. Delivery of New Notes or New Preferred Stock. As soon as
--------------------------------------------
practicable after ______, 1996 and after each period of extension of the
Exchange Offers, you shall complete and countersign the certificates for New
Notes or New Preferred Stock to which holders who have tendered their New Notes
or New Preferred Stock are entitled, and deliver the New Notes or the New
Preferred Stock in the manner requested in the applicable Letter of Transmittal
relating to a valid tender, but only upon receipt by you of oral or written
notice from Ann M. Riposanu of the Company of acceptance by the Company of such
Old Notes or Old Preferred Stock for exchange. The New Notes or New Preferred
Stock shall be registered as set forth in the applicable Letter of Transmittal
and delivered to the address specified in each such Letter of Transmittal.
You shall have no obligation to deliver any certificates for New Notes
or New Preferred Stock unless the Company has ordered you as Registrar and
Transfer Agent for the New Notes or New Preferred Stock, to countersign such New
Notes or New Preferred Stock certificates and you have received New Notes or New
Preferred Stock certificates sufficient to make deliveries thereof.
7. Return of Old Notes or Old Preferred Stock. Subject to Section
------------------------------------------
3, you shall return, in accordance with the applicable Letter of Transmittal,
any Old Notes or Old Preferred Stock not validly tendered.
8. Limited Liability of Exchange Agent. As Exchange Agent you:
-----------------------------------
(a) shall have no duties or obligations other than those specifically
set forth herein;
(b) will not be required to and will make no representations and have
no responsibilities as to the validity, sufficiency, value or genuineness
of (i) any Old Notes or Old Preferred Stock, any Exchange Documents
deposited with you, or any New Notes or New Preferred Stock delivered by
you pursuant to the Exchange Offers or (ii) any signatures or endorsements,
other than your own;
(c) shall not be obligated to take any action hereunder that might in
your judgment involve any expense or liability unless you have been
furnished with reasonable indemnity;
<PAGE>
4
(d) shall not be liable for any action taken or omitted by you, or
any action suffered by you to be taken or omitted, without negligence,
misconduct or bad faith on your part, in connection with this Agreement or
your compliance with the instructions set forth herein or with any written
or oral instructions delivered to you pursuant hereto, and may rely on, and
shall be protected in acting on, any certificate, instrument, opinion,
notice, letter, telegram or other document, or any security, delivered to
you and reasonably believed by you to be genuine and to have been signed by
a proper party or parties;
(e) may rely on, and shall be protected in acting on, the written or
oral instructions, with respect to any matter relating to your duties as
Exchange Agent, of any officer of the Company; and
(f) may consult counsel satisfactory to you (including counsel for
the Company) and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by you hereunder in good faith and in accordance with such advice
of such counsel.
9. Indemnification of Exchange Agent. The Company agrees to
---------------------------------
reimburse you for, to indemnify you against and hold you harmless from all
liability, cost or expense (including reasonable counsel fees and expenses) that
may be paid, incurred or suffered by you or to which you may become subject
without negligence, wilful misconduct or bad faith on your part, arising out of
or in connection with this Agreement.
10. Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications hereunder shall be in writing, shall be
delivered by hand or first class mail, postage prepaid, shall be deemed given
when received and shall be sent to the addresses listed below or to such other
addresses as the addressee shall designate from time to time by notice:
Company: K-III Communications Corporation
745 Fifth Avenue
<PAGE>
5
New York, New York 10151
Attention: Ann M. Riposanu
Exchange The Bank of New York
Agent: 101 Barclay Street-12W
New York, New York 10286
Attention: Corporate Trust Administration
11. Amendment, Modification. This Agreement may not
-----------------------
be modified, amended or supplemented without an express written
agreement executed by the parties hereto.
12. Governing Law; Benefit of Agreement. This
-----------------------------------
Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York. This Agreement shall inure
solely to the benefit of, and the obligations created hereby
shall be binding upon, the successors of the parties hereto. No
other person shall acquire or have any rights under or by virtue
of this Agreement.
If the foregoing is in accordance with your
understanding, would you please indicate your agreement by
signing and returning the enclosed copy of this letter to the
Company.
Very truly yours,
K-III COMMUNICATIONS CORPORATION
By
---------------------------------
Title:
Agreed to this __th day of
____, 1996
THE BANK OF NEW YORK
By
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Title:
