<PAGE>
[LOGO]
COMMUNICATIONS
CORPORATION
<TABLE>
<S> <C>
WILLIAM F. REILLY 745 FIFTH AVENUE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER NEW YORK, NY 10151
</TABLE>
March 28, 1997
DEAR STOCKHOLDER:
You are cordially invited to attend the Annual Meeting of Stockholders of K-III
Communications Corporation. The meeting will be held at 10:00 a.m. on Thursday,
May 15, 1997, at the Inter-Continental Hotel, 111 East 48th St., New York, New
York 10017.
Information regarding the business to be conducted at the meeting is set forth
in the following formal Notice of Annual Meeting and Proxy Statement. You will
be asked to vote upon the election of eight directors and the appointment of the
auditors. Stockholders will also have an opportunity to ask questions about the
items under consideration as well as other matters relating to the Company's
business.
I cannot stress too strongly that your vote, no matter the number of shares you
own, is important. Therefore, after you read the Notice of Annual Meeting and
Proxy Statement, please complete and return promptly the enclosed form of proxy
to ensure that your shares will be represented.
A return envelope is enclosed for your convenience. You may revoke your proxy at
any time before it is exercised at the meeting. Accordingly, you should sign and
return your proxy even if you plan to attend the meeting.
I look forward to receiving your proxy and meeting you on May 15.
Sincerely,
[LOGO]
<PAGE>
K-III COMMUNICATIONS CORPORATION
745 Fifth Avenue
New York, New York 10151
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, MAY 15, 1997
To the Stockholders of
K-III COMMUNICATIONS CORPORATION:
The annual meeting of stockholders of K-III Communications Corporation will be
held on Thursday, May 15, 1997, at the Inter-Continental Hotel, 111 East 48th
Street, New York, New York 10017, at 10:00 a.m. to:
(1) Elect eight directors;
(2) Act upon the selection of auditors for the fiscal year ending December
31, 1997;
(3) Transact such other business as may properly come before the meeting.
Only holders of record of Common Stock, $.01 par value, at the close of business
on March 17, 1997, will be entitled to vote at the meeting.
Beverly C. Chell
VICE CHAIRMAN AND SECRETARY
March 28, 1997
<PAGE>
PROXY STATEMENT
SOLICITATION OF PROXIES
This proxy statement is furnished by the Board of Directors (the "Board") of
K-III Communications Corporation (the "Company" or "K-III" and, where
appropriate, together with its subsidiaries), in connection with its
solicitation of proxies for use at the annual meeting of stockholders to be held
on Thursday, May 15, 1997, at 10:00 a.m., at the Inter-Continental Hotel, 111
East 48th Street, New York, New York 10017, and at any and all adjournments
thereof. Mailing of the proxy statement will commence on or about March 28,
1997. Holders of record of Common Stock, $.01 par value (the "Common Stock"), at
the close of business on March 17, 1997, will be entitled to one vote for each
share held on all matters to come before the meeting. On March 17, 1997, there
were outstanding 129,150,691 shares of Common Stock.
A proxy on the enclosed form may be revoked at any time before it has been
exercised. Unless the proxy is revoked or there is a direction to abstain on one
or more proposals, it will be voted on each proposal and, if a choice is made
with respect to any matter to be acted upon, in accordance with such choice. If
no choice is specified, the proxy will be voted as recommended by the Board.
VOTING AT THE MEETING
A majority of the votes entitled to be cast on matters to be considered at the
meeting constitutes a quorum. If a share is represented for any purpose at the
meeting, it is deemed to be present for all other matters. Abstentions and
shares held of record by a broker or its nominee ("Broker Shares") that are
voted on any matter are included in determining the number of votes present.
Broker Shares that are not voted on any matter at the meeting will not be
included in determining whether a quorum is present.
The election of each nominee for director and the selection of the auditors
requires a majority of the votes cast. Abstentions and Broker Shares that are
not voted on the matter will not be included in determining the number of votes
cast.
Stockholders' proxies are received by the Company's independent proxy processing
agent, and the vote is certified by independent inspectors of election. Proxies
and ballots that identify the vote of individual stockholders will be kept
confidential, except as necessary to meet legal requirements, in cases where
stockholders write comments on their proxy cards or in a contested proxy
solicitation. During the proxy solicitation period, the Company will receive
vote tallies from time to time from the inspectors, but such tallies will
provide aggregate figures rather than names of stockholders. The independent
inspectors will notify the Company if a stockholder has failed to vote so that
he or she may be reminded and requested to do so.
------------------------
ELECTION OF DIRECTORS
GENERAL INFORMATION
The Board has responsibility for establishing broad corporate policies and for
the overall performance of the Company. Members of the Board are kept informed
of the Company's businesses by various reports and documents sent to them each
month as well as by operating and financial reports made at Board and committee
meetings by the Chairman of the Board and other officers.
1
<PAGE>
Regular meetings of the Board are held each calendar quarter. The organizational
meeting will follow immediately after the annual meeting of stockholders. The
Board held three meetings in 1996 and acted times by unanimous written
consent.
------------------------
COMMITTEES OF THE BOARD
Various committees of the Board have been established to assist it in the
discharge of its responsibilities. Those committees are described below. The
biographical information on the nominees for director set forth in this proxy
statement includes committee memberships currently held by each nominee.
The AUDIT COMMITTEE meets with management, the Company's independent accountants
and its internal auditors to consider the adequacy of the Company's internal
controls and other financial reporting matters. The Audit Committee recommends
to the Board the engagement of the Company's independent accountants, discusses
with the independent accountants their audit procedures, including the proposed
scope of the audit, the audit results and the accompanying management letters
and, in connection with determining their independence, reviews the services
performed by the independent accountants. The Committee met twice in 1996. On
March 5, 1997, Professor Meyer Feldberg was elected sole member on the Audit
Committee.
The COMPENSATION COMMITTEE is responsible for administering the Company's
compensation programs and remuneration arrangements for its senior executives,
including the chief executive officer. The Committee's Report on Executive
Compensation appears elsewhere in this proxy statement. The Compensation
Committee consists of three non-employee directors and met twice in 1996.
The EXECUTIVE COMMITTEE, consisting of four directors, has authority to act for
the Board on most matters during intervals between Board meetings. This
committee acted by unanimous written consent eleven times during 1996.
------------------------
THE NOMINEES
It is proposed that eight directors be elected to hold office until the next
annual meeting of stockholders and until their successors have been elected.
Unless otherwise marked, a proxy will be voted for such persons. Each of the
nominees was elected at the last Annual Meeting as a director except for
Professor Meyer Feldberg who was elected to the Board on January 15, 1997
following the increase in the number of directors constituting the Board to
eight members. All other nominees attended at least 75% of the aggregate number
of meetings of the Board and all committees of the Board on which they served
during 1996, except Mr. Roberts.
Although management does not anticipate that any of the persons named below will
be unable or unwilling to stand for election, a proxy, in the event of such an
occurrence, may be voted for a substitute designated by the Board. However, in
lieu of designating a substitute, the Board may amend the By-Laws to reduce the
number of directors.
The Board of Directors recommends that you vote FOR the nominees described
below.
<TABLE>
<CAPTION>
<S> <C>
WILLIAM F. REILLY Mr. Reilly is Chairman of the Board, Chief
Chairman of the Board, Chief Executive Executive Officer and a Director of
Officer and Director K-III and has served in such capacities
Age: 58 since November of 1991. Mr. Reilly is
also a director of FMC Corporation. Mr.
Reilly is Chairman of the Executive
Committee.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
BEVERLY C. CHELL Ms. Chell became Vice Chairman, General
Vice Chairman, General Counsel, Secretary Counsel and Secretary of K-III in
and Director November 1991 and a Director in March
Age: 54 1992.
MEYER FELDBERG Professor Feldberg is Professor and Dean
Director of the Columbia University Graduate
Age: 55 School of Business and has been since
1989. He joined the Board in January
1997. He is also a director of Federated
Department Stores, Inc. and Revlon, Inc.
He is the sole member of the Audit
Committee.
PERRY GOLKIN Mr. Golkin became a Director of K-III in
Director November 1991. He is a General Partner
Age: 43 of KKR Associates and was a General
Partner of KKR from January 1, 1995
until January 1, 1996 when he became a
member of the limited liability company
which serves as the general partner of
KKR. Prior to 1995, Mr. Golkin was an
executive at KKR. Mr. Golkin is a member
of the Compensation and Executive
Committees.
HENRY R. KRAVIS Mr. Kravis became a Director of K-III in
Director November 1991. He is a Founding Partner
Age: 53 of Kohlberg Kravis Roberts & Co. ("KKR")
and KKR Associates. Effective January 1,
1996, he became a managing member of the
Executive Committee of the limited
liability company which serves as the
general partner of KKR. He is also a
director of AutoZone, Inc., Borden Inc.,
Bruno's Inc., Evenflo & Spalding
Holdings Corporation, Flagstar Companies
Inc., Flagstar Corporation, The Gillette
Company, IDEX Corporation, KinderCare
Learning Centers, Inc. Merit Behavioral
Care Corporation, Newquest Capital Plc,
Owens-Illinois Group, Inc.,
Owens-Illinois, Inc., Safeway Inc.,
Sotheby's Holdings, Inc., Union Texas
Petroleum Holdings, Inc. and World Color
Press, Inc. Mr. Kravis is Chairman of
the Compensation Committee and serves on
the Executive Committee.
CHARLES G. MCCURDY Mr. McCurdy became President and a
President and Director Director of K-III in November 1991 and
Age: 41 was also Treasurer from 1991 to August
1993.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
GEORGE R. ROBERTS Mr. Roberts became a Director of K-III in
Director March 1992. He is a Founding Partner of
Age: 53 KKR and KKR Associates. Effective
January 1, 1996, he became a managing
member of the Executive Committee of the
limited liability company which serves
as the general partner of KKR. He is
also a director of AutoZone, Inc.,
Borden Inc., Bruno's, Inc., Evenflo &
Spalding Holdings Corporation, Flagstar
Companies Inc., Flagstar Corporation,
IDEX Corporation, KinderCare Learning
Centers, Inc. Merit Behavioral Care
Corporation, Newquest Capital Plc,
Owens-Illinois Group, Inc.,
Owens-Illinois, Inc., Safeway, Inc.,
Union Texas Petroleum Holdings, Inc. and
World Color Press, Inc.
MICHAEL T. TOKARZ Mr. Tokarz became a Director of K-III in
Director November 1991. He is a General Partner
Age: 47 of KKR Associates and was a General
Partner of KKR from January 1, 1993
until January 1, 1996 when he became a
member of the limited liability company
which serves as the general partner of
KKR. Prior to 1993, Mr. Tokarz was an
executive at KKR. He is also a director
of Evenflo & Spalding Holdings
Corporation, Flagstar Companies Inc.,
Flagstar Corporation, IDEX Corporation
and Safeway, Inc. Mr. Tokarz is a member
of the Compensation and Executive
Committees.
</TABLE>
Messrs. Kravis and Roberts are first cousins.
COMPENSATION OF DIRECTORS
Directors who are full-time employees of the Company receive no additional
compensation for services as a director. In 1996, non-employee directors
received an annual all inclusive fee of $45,000 for all services on the Board
and all committees.
A non-employee director may elect to defer all or part of the fee. Deferred
amounts are "credited" to an unfunded cash account or Common Stock equivalent
account, as selected by the director. Interest, at K-III's average borrowing
rate, is credited quarterly for bookkeeping purposes to a director's cash
account. Subject to certain restrictions, a director is permitted to take
distributions in cash from a cash account or in shares of Common Stock or cash
equivalent to the then value of credited shares, at the Company's option, in
whole or in part, from his account following retirement or termination of
service. Messrs. Golkin and Roberts have each elected to defer his fee in Common
Stock equivalents.
On March 5, 1997, the Compensation Committee granted Professor Feldberg ten-year
non-qualified stock options to purchase 25,000 shares of the Company's Common
Stock under the Company's stock option plan, with an exercise price of $13 per
share, the fair market value on the date of grant.
4
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
TO OUR STOCKHOLDERS:
The Compensation Committee is responsible for administering total compensation
programs that are designed to:
- Match the Company's compensation plans to its business strategies, as well
as the external business environment;
- Emphasize the relationship between pay and performance by placing a
significant portion of compensation at risk and subject to the achievement
of financial goals and objectives;
- Maximize profitability through growth and cost efficiency, balancing
appropriately the short-term and long-term goals of the Company;
- Align the interests of executives with those of stockholders through the
use of equity-based incentive awards to link a significant portion of
compensation to stockholder value; and
- Target executive compensation at a level sufficient to insure K-III's
ability to attract and retain superior executives.
The following factors affected the actions of the Committee in 1996:
- The successful implementation of the Company's growth strategy: to have
double digit annual growth fueled equally by organic growth and product
line extension acquisitions.
- The overall financial performance of the Company, as measured by the
Company's growth in EBITDA (earnings before interest, taxes, depreciation
and amortization) and "free cash flow" which is EBITDA after the effect of
changes in working capital and after deductions for capital expenditures.
The Committee believes that the actions undertaken in 1996 with respect to the
Company's compensation program, as discussed below, met its objectives.
The Committee believes that compensation for executive officers should be linked
to performance. To achieve correlation between executive compensation and
performance, more than half of the compensation awarded to the executive officer
group for 1996 was at-risk incentive compensation directly related to the
performance of the Company and its business units. This includes annual cash
bonuses, stock options and long-term incentive plan awards.
BASE SALARY. Base salary, is based on a qualitative evaluation of a variety of
factors, including level of responsibility and individual performance. It is the
policy of the Committee to review base salary of its most senior executives no
more frequently than every 14 to 20 months. During 1996, none of the executive
officers consisting of the named executives plus other group vice presidents
received salary increases other than Messrs. McQuillen and Farnsworth. Those
increases were made in connection with their respective assumption of additional
duties.
ANNUAL INCENTIVES. Annual cash bonuses principally contingent on meeting
performance-targets, are provided to senior executives and middle-managers. For
1996, 588 senior executives and middle managers participated in the Company's
various executive incentive plans. In November 1995, effective for 1996, the
Committee modified its Executive Incentive Compensation Plan (The "Executive
Incentive Plan"), as described in footnote (1) to the Executive Compensation
Table, to reduce the executive compensation that may be subject to the
deductibility limits of Section 162(m) of the Internal Revenue Code ("IRC") for
certain senior executives of K-III including those named in the Summary
Compensation Table. Therefore, for 1996, the most senior executives participated
in two executive incentive plans, which together provide the same level of
incentive compensation provided during 1995 under the one plan.
5
<PAGE>
LONG-TERM PERFORMANCE AWARDS. A new three-year long-term performance cycle began
January 1, 1996 for the three most senior executives. The awards for the covered
officers are based on a formula tied to the achievement of cumulative cash flow
targets during each three year performance cycle.
The Company's 1992 Amended and Restated Stock Option Plan (the "Stock Option
Plan") provides that stock options, restricted stock and performance awards may
be granted to key executives who contribute to the growth and profitability of
the Company. Only stock options are outstanding under the Plan.
The Committee periodically evaluates its stock option award guidelines. In 1996,
the Committee granted options to 231 executives based on the desire to
strengthen their focus on long-term stock-based compensation. The executives to
whom options were to be granted in 1996 were determined based on individual
performance, future needs of the Company and role within the Company. The size
of actual stock option awards was based on a model by job and was adjusted
upward or downward based on a subjective evaluation of individual contribution
and potential. In order to receive an initial grant, the executive must purchase
and hold shares of Common Stock equal to at least 25% of the number of options
granted.
COMPENSATION OF THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. Mr.
Reilly's salary was not increased in 1996. His last increase was November 1995,
and is consistent with the Company's policy to review the base salary of the
most senior management no more frequently than every 14 to 20 months.
Mr. Reilly's target bonus under the Senior Executive Non-Discretionary Plan was
60% of his base salary, of which one-half related to the attainment by K-III of
EBITDA and one-half to attainment of free cash flow goals. His target bonus
under the Senior Executive Performance Plan was 40% of his base salary and the
amount awarded is at the discretion of the Committee. In exercising such
discretion, the Committee may award a discretionary bonus equal to 150% of the
target bonus. For 1996, the Committee determined that the Company's outstanding
overall performance under Mr. Reilly's leadership including increasing
shareholder value and successful implementation of the Company's growth strategy
merited awarding the maximum discretionary bonus.
At the same time that stock options were granted to other executives and key
employees, the Committee granted to Mr. Reilly ten-year, nonqualified stock
options to purchase 150,000 shares of K-III Common Stock, with an exercise price
equal to the fair market value on the date of grant. The factors considered in
determining the size of Mr. Reilly's award were the stock option guidelines
established for all participants and Mr. Reilly's performance and contribution
to the Company. Such grant represented 7.6% of all stock options granted in
1996.
POLICY WITH RESPECT TO QUALIFYING COMPENSATION FOR DEDUCTIBILITY AND OTHER
MATTERS. Section 162(m) of the IRC generally limits to $1,000,000 the annual tax
deductible compensation paid to a covered officer. However, the limitation does
not apply to performance-based compensation, provided certain conditions are
satisfied.
The Company's policy is generally to preserve the federal income tax
deductibility of compensation paid. Accordingly, the Company has taken, to the
extent it believes feasible, appropriate actions to preserve the deductibility
of annual incentive, long-term performance, and stock option awards. However,
notwithstanding the Company's general policy, the Committee retains the
authority to authorize payments that may not be deductible if it believes that
is in the best interests of the Company and its stockholders. The Committee
believes that retaining the discretion to grant or withhold a portion of Mr.
Reilly's compensation is an important aspect of increasing shareholder value.
Hence, $244,389 of Mr. Reilly's compensation under the Senior Executive
Performance Plan may be non-deductible. As, the Company is not currently a
taxpayer for federal income tax purposes, the loss of deductibility does not
have a current effect on the Company.
COMPENSATION COMMITTEE
Henry R. Kravis, Chairman
Perry Golkin
Michael T. Tokarz
6
<PAGE>
PERFORMANCE GRAPH
COMPARISION OF CUMULATIVE TOTAL RETURN
FOR THE PERIOD FROM NOVEMBER 1, 1995 THROUGH DECEMBER 31, 1996
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
KCC S&P 500 PEER GROUP
<S> <C> <C> <C>
11/1/1995 $ 100.00 $ 100.00 $ 100.00
12/31/1995 121.25 105.89 107.01
12/31/1996 107.50 129.20 111.54
</TABLE>
FOR THE PERIOD FROM NOVEMBER 1, 1995 THROUGH FEBRUARY 28, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
KCC S&P 500 PEER GROUP
<S> <C> <C> <C>
11/1/95 $ 100.00 $ 100.00 $ 100.00
12/31/95 121.25 105.89 107.01
12/31/96 107.50 129.20 111.54
2/28/97 127.50 139.04 112.30
</TABLE>
The two graphs above assume a $100 investment on November 1, 1995, the date of
K-III's initial public offering, and reinvestment of all dividends, in the
Company Common Stock, the S&P 500 Index, and a composite peer group of the
following education, information and specialty media companies: Harcourt General
Inc., Houghton-Mifflin Co., John Wiley & Sons, Meredith Corp. McGraw-Hill
Companies, Reader's Digest Association Inc. and Scholastic Corp. Dun &
Bradstreet, Inc. ("D&B") was in the peer group in last year's proxy statement
but as D&B has been broken up into three separate entities, they have been
excluded from the peer group for all purposes.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ending December 31, 1994, 1995
and 1996, the compensation paid by the Company to the Chief Executive Officer
and each of the other four most highly compensated executive officers of the
Company in 1996 in all capacities in which they served:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
PAYOUTS
ANNUAL COMPENSATION AWARDS -----------
NAME AND PRINCIPAL ------------------------ --------------- LONG-TERM ALL OTHER
POSITION YEAR SALARY BONUS(1) STOCK OPTIONS PLAN(2) COMPENSATION(3)
- -------------------------------- --------- ----------- ----------- --------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
William F. Reilly............... 1996 $ 914,992 $ 743,499 150,000 $ 205,875 $ 49,724
Chairman and Chief Executive 1995 852,409 604,805 275,000 205,875 45,657
Officer 1994 833,698 502,440 188,000 189,000 44,440
Charles G. McCurdy.............. 1996 574,990 389,352 100,000 96,600 37,374
President 1995 512,407 452,972 190,000 96,600 33,306
1994 496,061 374,132 40,000 84,000 32,241
Beverly C. Chell................ 1996 539,994 365,655 50,000 90,720 35,100
Vice Chairman, General Counsel 1995 506,619 253,305 85,000 90,720 32,930
and Secretary 1994 496,061 349,132 40,000 84,000 32,241
Harry A. McQuillen.............. 1996 625,014 523,927 100,000 -- 40,626
Executive Vice President 1995 555,774 440,557 205,000 -- 36,067
1994 508,661 385,893 38,000 -- 31,384
Jack Farnsworth................. 1996 527,890 398,438 80,000 -- 34,313
Vice President 1995 474,235 307,038 135,000 -- 30,825
1994 459,041 199,212 38,000 -- 29,837
</TABLE>
- ------------------------
(1) During the calendar years ended December 31, 1994 and 1995, all executive
officers participated in the Company's Executive Incentive Compensation Plan
(the "Executive Incentive Plan"). Under this plan, cash awards are
contingent and are based on three factors: (i) an "Earnings Performance
Measure," payable if and to the extent that the earnings performance goals
set for the calendar year are met, (ii) a "Cash Flow Measure" payable if and
to the extent that cash flow goals set for the calendar year are met and
(iii) a "Discretionary Performance Measure," based on the executive's
individual performance during the calendar year in question as evaluated by
the committee overseeing the Executive Incentive Plan. Commencing in 1996,
the Company established the K-III Short Term Senior Executive
Non-Discretionary Plan and the K-III Short Term Senior Executive Performance
Plan, which substitutes for the Executive Incentive Plan for the above named
executive officers and certain other executive officers. The Executive
Incentive Plan had two components, the formula portion and the discretionary
portion. In order to comply with Section 162(m) of the IRC, that Plan was
split into two plans, one based on a formula and the other discretionary,
which in the aggregate provide for the same formula and discretionary
bonuses as the Executive Incentive Plan did in the aggregate.
(2) Payments are contingent based on the attainment of cash flow targets
pursuant to the Free Cash Flow Long-Term Plan.
(3) Represents contributions made by the Company for the benefit of the
executives to the K-III Thrift and Retirement Plan, a defined contribution
plan covering more than half of the Company's employees and the K-III
Restoration Plan, a deferred unfunded program restoring to employees the
amount of the Company contribution to the K-III Thrift and Retirement Plan
or K-III Pension Plan which the Company was not permitted to contribute
because of the limit on contributions to qualified plans under the IRC. For
the fiscal year ended December 31, 1996, the Company made contributions on
behalf of Messrs. Reilly and McCurdy, Ms. Chell, and Messrs. McQuillen and
Farnsworth to the K-III
(Footnotes continued on following page)
8
<PAGE>
(Footnotes continued from preceding page)
Thrift and Retirement Plan in the amounts of $0, $9,750, $9,750, $9,750 and
$9,750, respectively, and to the K-III Restoration Plan in the amounts of
$49,724, $27,624, $25,350, $30,876 and $24,563, respectively.
OPTION GRANTS IN LAST FISCAL YEAR END
The following table provides information regarding Options granted to the
officers named in the preceding table during 1996. The value assigned to each
reported Option was computed by an independent consultant using the
Black-Scholes option pricing model assuming a twelve-month volatility of 20.0%,
a risk-free rate of return of 6.53%, a dividend yield of zero and an exercise
date ten years after the options were granted. In assessing these values it
should be kept in mind that no matter what the theoretical value is placed on a
stock option on the date of grant, its ultimate value will be dependent on the
value of the Common Stock at a future date.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF THEORETICAL
TOTAL DOLLAR VALUE
OPTIONS OPTIONS EXERCISE OF THE
GRANTED GRANTED PRICE OPTIONS AT
NAME (#) IN 1996 ($/SH) EXPIRATION DATE DATE OF GRANT
- ------------------------------- --------- ------------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
William F. Reilly.............. 150,000 7.6% 11.125 10/7/2006 $ 858,000
Charles G. McCurdy............. 100,000 5.1 11.125 10/7/2006 572,000
Beverly C. Chell............... 50,000 2.5 11.125 10/7/2006 286,000
Harry A. McQuillen............. 100,000 5.1 11.125 10/7/2006 572,000
Jack L. Farnsworth............. 80,000 4.0 11.125 10/7/2006 457,600
</TABLE>
The Options are exercisable at the rate of 20% per year over a five-year period,
expire no later than ten years from the date of grant and subject to
cancellation upon termination of the optionee's employment under certain
circumstances.
AGGREGATE FISCAL YEAR-END OPTION TABLE
The following table shows the number of shares and value of Common Stock
represented by outstanding Options held by each of the named officers as of
December 31, 1996.
<TABLE>
<CAPTION>
VALUE OF
IN-THE-MONEY OPTIONS
NUMBER OF OPTIONS AT FISCAL YEAR-END 1996(1)
----------------------------- -------------------------------
NAME EXERCISABLE NONEXERCISABLE EXERCISABLE NONEXERCISABLE
- ------------------------------------------------ ------------ --------------- -------------- ---------------
<S> <C> <C> <C> <C>
William F. Reilly............................... 2,920,360 457,800 $ 16,326,471 $ 790,200
Charles G. McCurdy.............................. 1,883,798 258,000 10,615,839 397,000
Beverly C. Chell................................ 1,587,484 130,000 8,993,033 201,250
Harry A. McQuillen.............................. 249,200 273,800 1,153,300 452,450
Jack L. Farnsworth.............................. 183,200 234,800 845,800 488,700
</TABLE>
- ------------------------
(1) Calculated based on the difference between the December 31, 1996 closing
market price of the Common Stock and the exercise price with respect to such
Options.
9
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS
The table below represents potential payouts of cash-denominated awards pursuant
to the Free Cash Flow Long-Term Plan to be made in 1998 and annually thereafter
to the named executives which are tied to free cash flow targets for the
respective performance cycle. No payments are made unless 100% of target is
achieved for each performance cycle and the target award is the maximum which
can be paid. Awards, if earned, will be paid in cash at the end of the
respective performance cycle.
<TABLE>
<CAPTION>
TARGET AWARD
FOR THREE YEAR PERFORMANCE
CYCLE ENDING IN 1997
NAME (ASSUMING NO SALARY INCREASES IN 1997)
- --------------------------------------------- --------------------------------------
<S> <C>
William F. Reilly............................ $ 205,875
Charles G. McCurdy........................... 96,600
Beverly C. Chell............................. 90,720
</TABLE>
The annual target award for each completed performance cycle after 1997 for
Messrs. Reilly and McCurdy and Ms. Chell, respectively, (as well as the
percentage of any increase in salary in 1997) is 22.5%, 16.8% and 16.8% of their
annual rate of salary in effect for the last calendar year in the performance
cycle.
PENSION PLAN TABLE
The K-III Pension Plan ("Pension Plan") is a noncontributory defined benefit
pension plan covering most employees of the consumer magazines and DAILY RACING
FORM. The Pension Plan is funded by means of contributions by the Company to the
Pension Plan trust. No named executive officers are covered by the Pension Plan.
The annual normal retirement benefit payable under the Pension Plan is equal to
1.0% of five-year final average pay times years of benefit service, plus 0.6% of
five-year final average pay in excess of "Covered Compensation" times years of
benefit service not to exceed 35 years. The benefit levels in the table assume
retirement at age 65, the years of service shown, continued existence of the
current plan without substantial change and payment in the form of a single life
annuity.
Compensation utilized for pension formula purposes includes compensation
received or accrued during each calendar year from the Company that is required
to be reported as wages on the participant's Form W-2 for income tax purposes,
including any amount which is contributed by the Company pursuant to a salary
reduction agreement and which is not includable in the gross income of such
participant under Sections 125, 402(a)(8) or 402(h) of the Code, but excluding
bonuses, taxable fringe benefits, severance pay and any compensation paid in a
form other than cash. The maximum compensation in any calendar year which may be
taken into account for any purpose under the Plan is $150,000 (indexed under
Section 401(a)(17) of the Code). "Covered Compensation" is the 35-year average
of the Social Security Wage Base for the 35-year period ending with the year an
employee reaches his or her
10
<PAGE>
Social Security Retirement Age. Based on the current compensation limit and
"Covered Compensation", the following table sets forth the annual pension
benefit payable under the Pension Plan at various pay and service levels:
<TABLE>
<CAPTION>
FIVE-YEAR YEARS OF SERVICE
FINAL ---------------------------------
AVERAGE PAY 10 20 30
- -------------- --------- --------- -----------
<S> <C> <C> <C>
$ 400,000 $ 22,345 $ 44,691 $ 67,036
600,000 22,345 44,691 67,036
800,000 22,345 44,691 67,036
1,000,000 22,345 44,691 67,036
1,200,000 22,345 44,691 67,036
1,400,000 22,345 44,691 67,036
1,600,000 22,345 44,691 67,036
1,800,000 22,345 44,691 67,036
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Kravis, Tokarz and Golkin, none
of whom has ever been an officer or employee of the Company. Messrs. Kravis,
Tokarz and Golkin are general partners of KKR Associates, the sole general
partner of the partnerships, which own as of December 31, 1996, approximately
70% of the outstanding Common Stock (on a fully diluted basis). As general
partners of KKR Associates, Messrs. Kravis, Tokarz and Golkin may be deemed to
share beneficial ownership of the Common Stock beneficially owned by KKR
Associates; however, they disclaim such beneficial ownership. See "Certain
Relationships and Related Transactions" and "Security Ownership of Certain
Beneficial Owners and Management."
From time to time, KKR, which is an affiliate of KKR Associates, may receive
customary investment banking fees for services rendered to the Company in
connection with divestitures, acquisitions and certain other transactions. In
addition, KKR renders management, consulting, acquisition and financial services
to the Company for an annual fee of $1 million payable quarterly in arrears. The
Company believes that this fee is no less favorable than that which could be
obtained for comparable services from unaffiliated third parties. Partners of
KKR who also serve as directors of the Company do not receive additional
compensation for service in such capacity, other than customary director's fees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. McQuillen was granted a loan of $76,000 accruing interest at the annual rate
of 7 1/2% to assist in his purchase of K-III Common Stock required as a
condition to the grant of Stock Options . This loan, including accrued interest,
is repayable on the earlier of the tenth anniversary of the loan, the date any
shares of Common Stock are sold by Mr. McQuillen or upon termination of his
employment. At December 31, 1996, the outstanding loan balance was $91,514.50.
This loan is secured by Common Stock and is full recourse.
In December 1996, Messrs. McQuillen and Farnsworth entered into employment
agreements with the Company which expire on December 31, 1999. The agreements,
provide as to Messrs. McQuillen and Farnsworth for salaries of $675,000 and
$550,000, respectively, and continued participation in the bonus and other
executive compensation plans described above. In the event of a change of
control of K-III, the definition of which is the same as in the Company's main
credit agreement, the term of each agreement is extended for a term of three
years from the date of such change of control and all unvested stock options
vest. If either executive is terminated without cause or terminates for good
reason, the Company is obligated to pay the amounts which would have been paid
through the full term, as such term may have been extended by reason of a change
in control. The agreements provide for a tax gross-up
11
<PAGE>
payment if following a change of control and termination without cause or for
good reason, any excise taxes are payable on salary, bonus or fringe benefit
plan payments.
On March 5, 1997, Pedro Mata, a Vice President of the Company since January,
1996 ceased holding that position and is no longer employed by the Company.
Pursuant to his agreement with the Company, Mr. Mata will receive severance
payments totalling approximately $1 million payable over a two year period.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 17, 1997 by (i) each beneficial owner
of more that five percent of the Company's outstanding Common Stock, (ii) each
of the Company's directors, (iii) each of the Company's five executive officers
named in the table under "Management--Executive Compensation" and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY
NAME OWNED(1)(2) PERCENTAGE
- ---------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
KKR Associates (3)
9 West 57th Street
New York, New York 10019.................................................. 106,886,265 82.8%
William F. Reilly (2)(4) ................................................... 4,536,653 3.4
Charles G. McCurdy (2)(5)................................................... 2,328,612 1.8
Beverly C. Chell(2)......................................................... 2,014,357 1.5
Harry A. McQuillen(2)....................................................... 345,300 *
Jack L. Farnsworth(2)....................................................... 303,300 *
Henry R. Kravis (3)......................................................... -- --
Meyer Feldberg.............................................................. 6,250 *
Perry Golkin (3)............................................................ 3,000 *
George R. Roberts (3)....................................................... -- --
Michael T. Tokarz (3)....................................................... 5,000 *
All directors and executive officers as a group (14 persons)................ 9,909,392 7.3
</TABLE>
- --------------------------
(1) For purposes of this table, a person or group is deemed to have "beneficial
ownership" of any shares as of a given date which such person has the right
to acquire within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person or group of persons
named above on a given date, any security which such person or persons has
the right to acquire within 60 days after such date is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage of ownership of any other person.
(2) Of the shares shown as owned, 2,987,960, 1,911,798, 1,600,484, 272,800 and
229,800 shares, respectively, for Messrs. Reilly and McCurdy, Ms. Chell and
Messrs. McQuillen and Farnsworth are in fact represented by Options which
were either exercisable on March 17, 1997 or become exercisable within 60
days thereafter.
(3) Shares of Common Stock shown as owned by KKR Associates are owned of record
by MA Associates, L.P., FP Associates, L.P., Magazine Associates, L.P.,
Publishing Associates, L.P., Channel One Associates, L.P. and KKR Partners
II, L.P., of which KKR Associates is the sole general partner and as to
which it possessed sole voting and investment power. Messrs. Kravis,
Roberts, Tokarz and Golkin (directors of K-III) and Robert I. MacDonnell,
Paul E. Raether, Michael W. Michelson, James H. Greene, Edward A. Gilhuly,
Clifton S. Robbins and Scott M. Stuart, as the general partners of KKR
Associates, may be deemed to share beneficial ownership of the shares shown
as beneficially owned by KKR Associates. Such persons disclaim beneficial
ownership of such shares.
(4) Disclaims beneficial ownership of 200,000 of such shares.
(5) Disclaims beneficial ownership of 160,000 of such shares.
* Less than one percent.
12
<PAGE>
SELECTION OF AUDITORS
The Audit Committee has recommended to the Board that Deloitte & Touche, L.L.P.,
which firm has been the independent accountants of the Company since the
Company's inception in 1991, (and its predecessors from 1989) be continued as
auditors for the Company. The stockholders are being asked to approve the
Board's decision to retain Deloitte & Touche, L.L.P. for the fiscal year ending
December 31, 1997. A representative of Deloitte & Touche, L.L.P. will be present
at the meeting. The representative will be given an opportunity to make a
statement if he or she desires to do so and will be available to answer
questions.
THE BOARD RECOMMENDS A VOTE FOR.
OTHER MATTERS
Management knows of no other business that will be presented to the meeting for
a vote, except that stockholder proposals not included in this proxy statement
may be presented. If other matters properly come before the meeting, the persons
named as proxies will vote on them in accordance with their best judgment.
The cost of this solicitation of proxies will be borne by the Company. In
addition to the use of the mails, some of the officers and regular employees of
the Company may solicit proxies by telephone and will request brokerage houses,
banks and other custodians, nominees and fiduciaries to forward soliciting
material to the beneficial owners of Common Stock held of record by such
persons. The Company will reimburse such persons for expenses incurred in
forwarding such soliciting material. It is contemplated that additional
solicitation of proxies will be made in the same manner under the engagement and
direction of D.F. King & Co., at an anticipated cost of, less than $5,000, plus
reimbursement of out-of-pocket expenses.
Under the federal securities laws, the Company's directors, officers and ten
percent shareholders are required to report to the Securities and Exchange
Commission and the New York Stock Exchange, by specific dates, transactions and
holdings in the Company's Common Stock. Based solely on its review of the copies
of such forms received by it or written representations from certain reporting
persons that no annual corrective filings were required for those persons, the
Company believes that during fiscal 1996 all these filing requirements were
satisfied.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, including certified financial statements and all other required
information, has been furnished to all persons who were shareholders of the
Company on the record date for the Annual Meeting of Shareholders.
1998 ANNUAL MEETING
For a stockholder to bring matters before the 1998 Annual Meeting, notice must
be received by the Company within the time limits described below. The notice
must include a description of the proposed business, the reasons therefore and
other specified matters. For a matter to be included in the Company's proxy
statement and proxy for the 1998 Annual Meeting, notice must be received by the
Company on or before January 1, 1998. In each case, the notice must be given to
the Secretary of the Company, whose address is 745 Fifth Avenue, New York, New
York, 10151. Any stockholder desiring a copy of the Company's By-Laws will be
furnished one without charge upon written request to the Secretary.
Beverly C. Chell
VICE CHAIRMAN AND SECRETARY
March 28, 1997
13
<PAGE>
K-III COMMUNICATIONS CORPORATION
PROXY CARD
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
K-III COMMUNICATIONS CORPORATION
FOR THE ANNUAL MEETING ON MAY 15, 1997
The undersigned appoints Ann M. Riposanu and Douglas B. Smith, and each
of them, with full power of substitution in each, the proxies of the
undersigned, to represent the undersigned and vote all shares of K-III
Communications Corporation Common Stock which the undersigned may be entitled
to vote at the Annual Meeting of Shareholders to be held on May 15, 1997, and
at any adjournment or postponement thereof, as indicated on the reverse side.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy
will be voted FOR proposals 1 and 2.
K-III COMMUNICATIONS CORPORATION
P.O. BOX 11283
NEW YORK, N.Y. 10203-0283
(Continued, and to be signed and dated on reverse side.)
<PAGE>
K-III COMMUNICATIONS CORPORATION
745 FIFTH AVENUE
NEW YORK, NEW YORK 10151
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 1997
Dear Plan Participant:
The Annual Meeting of Shareholders of K-III Communications Corporation will
be held at 10:00 a.m. on Thursday, May 15, 1997 at the Inter-Continental
Hotel, 111 East 48th Street, New York, New York 10017, for the following
purposes:
1. To elect eight directors to the Board of Directors.
2. To approve selection of independent public accountants.
Only holders of Common Stock of K-III Communications Corporation of record at
the close of business on March 17, 1997 will be entitled to vote at the
meeting or any adjournment thereof.
TO BE SURE THAT YOUR VOTE IS COUNTED, WE URGE YOU TO COMPLETE AND SIGN THE
PROXY CARD BELOW, DETACH IT FROM THIS LETTER AND RETURN IT IN THE POSTAGE
PAID ENVELOPE ENCLOSED IN THIS PACKAGE SO THAT IT IS RECEIVED BY MAY 12,
1997. The prompt return of your signed proxy will aid the Company in reducing
the expense of additional proxy solicitation.
BY ORDER OF THE BOARD OF DIRECTORS
March 27, 1997 /s/ Beverly C. Chell
Beverly C. Chell
Vice Chairman and Secretary
DETACH PROXY CARD HERE
- -------------------------------------------------------------------------------
/ /
1. Election of Directors FOR all nominees
listed below / /
WITHHOLD AUTHORITY to vote
for all nominees listed below. / /
*EXCEPTIONS / /
Nominees: William F. Reilly, Beverly C. Chell, Meyer Feldberg, Perry Golkin,
Henry R. Kravis, Charles G. McCurdy, George R. Roberts, Michael T. Tokarz
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
*EXCEPTIONS _________________________________________________________________
2. To ratify and approve the selection by the Board of Directors of Deloitte &
Touche LLP as independent public accountants for the Company for the fiscal
year ending December 31, 1997.
FOR / / AGAINST / / ABSTAIN / /
In their discretion the Proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment or
postponement thereof.
CHANGE OF ADDRESS AND
OR COMMENTS MARK HERE / /
The signature on this Proxy should correspond exactly with stockholder's name
as printed to the left. In the case of joint tenancies, co-executors, or
co-trustees, both should sign. Persons signing as Attorney, Executor,
Administrator, Trustee or Guardian should give their full title.
Dated: ____________________________, 199
Signature _________________________________
Signature _________________________________
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. / /
(Please sign, date and return this proxy in the enclosed postage prepaid
envelope.)
