<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934)
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
(Name of Issuer)
PRIMEDIA INC.
(Name of Person(s) Filing Statement)
$9.20 SERIES E EXCHANGEABLE PREFERRED STOCK
(Title of Class of Securities)
482727 70 8 (144A) AND 449412 20 5 (REG. S)
(CUSIP Number of Class of Securities)
ANN M. RIPOSANU, ESQ.
PRIMEDIA INC.
745 FIFTH AVENUE
NEW YORK, NEW YORK 10151
(212) 745-0100
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
COPY TO:
GARY I. HOROWITZ, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
January 16, 1998
--------------------------------------------------
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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TRANSACTION VALUATION*: AMOUNT OF FILING FEE:
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$121,450,000.00 $37,879.00
</TABLE>
* For purposes of calculating the filing fee in accordance with Rule
0-11(b)(2) under the Securities Exchange Act of 1934, as amended, the
market value of the $9.20 Series E Preferred Stock (the "Old Preferred
Stock") to be acquired pursuant to the Exchange Offer (as defined in the
Prospectus attached hereto as Exhibit (a)(i)) was determined by multiplying
$97.16 (the book value per share of the Old Preferred Stock as of the date
hereof) by 1,250,000 (the maximum number of shares of Old Preferred Stock
to be acquired in the Exchange Offer).
/X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
<TABLE>
<S> <C>
Amount Previously Paid: $37,879.00 (representing a portion of the filing fees paid with respect
to the filing of the Exchange Offer Registration Statement)
Filing Party: K-III Communications Corporation
Form or Registration
No.: Form S-4 Registration No. 333-38451
Date Filed: October 22, 1997
</TABLE>
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Page 1 of 6 pages
Exhibit Index at Page 6
<PAGE>
ITEM 1. SECURITY AND ISSUER.
(a) The issuer of the securities to which this Statement relates is PRIMEDIA
Inc. (formerly known as K-III Communications Corporation), a Delaware
corporation ("PRIMEDIA"). The principal executive office of PRIMEDIA is located
at 745 Fifth Avenue, New York, New York 10151.
(b) Upon the terms and subject to the conditions set forth in the prospectus
dated January 16, 1998 (the "Prospectus"), filed as Exhibit (a)(i) hereto, and
in the accompanying Letter of Transmittal, PRIMEDIA is offering to exchange (the
"Exchange Offer") one share (or fraction thereof) of its $9.20 Series F
Exchangeable Preferred Stock (the "New Preferred Stock") for each outstanding
share (or fraction thereof) of its $9.20 Series E Exchangeable Preferred Stock
(the "Old Preferred Stock"). The form and terms of the New Preferred Stock are
the same as the form and terms of the Old Preferred Stock except that the shares
of New Preferred Stock will have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and hence will not bear legends
restricting their transfer pursuant to the Securities Act.
As of January 16, 1998, 1,250,000 shares of Old Preferred Stock were
outstanding. No shares of Old Preferred Stock are currently owned by any
officer, director or affiliate of PRIMEDIA and, as such, no shares of Old
Preferred Stock will be purchased from any of such persons in the Exchange
Offer.
(c) There is currently no established trading market for the Old Preferred
Stock.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The consideration to be paid for shares of Old Preferred Stock will be
shares of New Preferred Stock newly issued by PRIMEDIA.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
The information set forth in "The Exchange Offer--Purpose and Effect of the
Exchange Offer" in the Prospectus is specifically incorporated herein by
reference.
In accordance with the terms of the Certificate of Designations for the Old
Preferred Stock, shares of Old Preferred Stock acquired by PRIMEDIA in the
Exchange Offer will 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.
(a) Except as set forth in the preceding paragraph, no person will acquire
additional securities of PRIMEDIA in connection with the Exchange Offer.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
(i) Not applicable.
2
<PAGE>
(j) Not applicable.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Not applicable.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIPS WITH
RESPECT TO THE ISSUER'S SECURITIES.
The information relating to the Registration Rights Agreement between
PRIMEDIA and the placement agents of the Old Preferred Stock set forth in "The
Exchange Offer--Purpose and Effect of the Exchange Offer" in the Prospectus is
specifically incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in "The Exchange Offer--Exchange Agent" and
"--Fees and Expenses" in the Prospectus is specifically incorporated herein by
reference.
ITEM 7. FINANCIAL INFORMATION.
(a) The audited consolidated financial statements of PRIMEDIA for the fiscal
years ended December 31, 1994, 1995 and 1996 are included in the Prospectus, and
are specifically incorporated herein by reference.
The unaudited consolidated condensed balance sheets and comparative
year-to-date income statements and statements of changes in financial position
and related earnings per share amounts for the interim periods ended September
30, 1997 and 1996 are included in the Prospectus, and are specifically
incorporated herein by reference.
The information regarding the ratio of earnings to fixed charges for the
fiscal years ended December 31, 1996 and 1995 and the interim periods ended
September 30, 1997 and 1996 are included in "Prospectus Summary--Summary
Consolidated Financial Data" in the Prospectus, and are specifically
incorporated herein by reference.
Book value per share when issued on September 26, 1997, and September 30,
1997 was $97.16.
(b) Not applicable.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
3
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
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(a)(i) Prospectus, dated January 16, 1998.
(a)(ii) Letter of Transmittal with respect to the Old Preferred Stock.
(a)(iii) Instruction to Registered Holder from Beneficial Owner of the Old Preferred Stock.
(a)(iv) Notice of Guaranteed Delivery with respect to the Old Preferred Stock.
(a)(v) Guidelines for Certification of Taxpayer Identification Number on Substitute Form
W-9.
(b) Not applicable.
(c) Registration Rights Agreement dated as of September 26, 1997 among K-III
Communications Corporation, Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Brothers, Inc.
(d) Opinion of Simpson Thacher & Bartlett regarding the material United States federal
income tax consequences to holders of the Old and New Preferred Stock.
(e) See the Prospectus filed as Exhibit (a)(i) above.
(f) Not applicable.
</TABLE>
4
<PAGE>
SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
PRIMEDIA INC.
BY: /S/ DOUGLAS B. SMITH
-----------------------------------------
Douglas B. Smith
VICE PRESIDENT, TREASURER
Dated: January 16, 1998
5
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EXHIBIT INDEX
<TABLE>
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NUMBER EXHIBIT
- --------- ------------------------------------------------------------------------------------------
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(a)(i) Prospectus, dated January 16, 1998.
(a)(ii) Letter of Transmittal with respect to the Old Preferred Stock.
(a)(iii) Instruction to Registered Holder from Beneficial Owner of the Old Preferred Stock.
(a)(iv) Notice of Guaranteed Delivery with respect to the Old Preferred Stock.
(a)(v) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(b) Not applicable.
(c) Registration Rights Agreement dated as of September 26, 1997 among K-III Communications
Corporation, Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc.
(d) Opinion of Simpson Thacher & Bartlett regarding the material United States federal income
tax consequences to holders of the Old and New Preferred Stock.
(e) See the Prospectus filed as Exhibit (a)(i) above.
(f) Not applicable.
</TABLE>
<PAGE>
EXHIBIT (a)(i)
PROSPECTUS
JANUARY 16, 1998
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
OFFER TO EXCHANGE
ITS $9.20 SERIES F EXCHANGEABLE PREFERRED STOCK REDEEMABLE 2009 (LIQUIDATION
PREFERENCE $100 PER SHARE) (EXCHANGEABLE AT THE OPTION OF PRIMEDIA) FOR UP
TO 1,250,000 SHARES OF ITS $9.20 SERIES E EXCHANGEABLE PREFERRED STOCK
REDEEMABLE 2009 (LIQUIDATION PREFERENCE $100 PER SHARE)
(EXCHANGEABLE AT THE OPTION OF PRIMEDIA)
------------------------
PRIMEDIA INC., A DELAWARE CORPORATION ("PRIMEDIA" OR THE "COMPANY"), HEREBY
OFFERS, UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS
PROSPECTUS (THIS "PROSPECTUS") AND THE ACCOMPANYING LETTER OF TRANSMITTAL
(THE "LETTER OF TRANSMITTAL") TO EXCHANGE (THE "EXCHANGE OFFER") ONE
SHARE OF ITS $9.20 SERIES F EXCHANGEABLE PREFERRED STOCK REDEEMABLE
2009, PAR VALUE $.01 PER SHARE, LIQUIDATION PREFERENCE $100.00 PER
SHARE (THE "NEW PREFERRED STOCK"), FOR EACH OUTSTANDING SHARE
OF ITS $9.20 SERIES E EXCHANGEABLE PREFERRED STOCK REDEEMABLE
2009, PAR VALUE $.01 PER SHARE, LIQUIDATION PREFERENCE
$100.00 PER SHARE (THE "OLD PREFERRED STOCK"), OF WHICH
1,250,000 SHARES ARE OUTSTANDING. THERE WILL BE NO
CASH PROCEEDS TO PRIMEDIA FROM THE EXCHANGE OFFER.
------------------------
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 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
PREFERRED STOCK WILL NOT BE ENTITLED TO CERTAIN RIGHTS OF HOLDERS OF THE OLD
PREFERRED STOCK UNDER THE REGISTRATION RIGHTS AGREEMENT (AS DEFINED) WHICH
WILL TERMINATE UPON THE CONSUMMATION OF THE EXCHANGE OFFER. SEE "THE EXCHANGE
OFFER--CONSEQUENCES OF FAILURE TO EXCHANGE." 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 9.20% CLASS
F SUBORDINATED EXCHANGE DEBENTURES DUE 2009 (THE "NEW SUBORDINATED
DEBENTURES"), IN WHOLE BUT NOT IN PART, AT THE OPTION OF PRIMEDIA ON ANY
SCHEDULED DIVIDEND PAYMENT DATE. HOLDERS OF NEW PREFERRED STOCK WILL BE
ENTITLED TO RECEIVE THE PRINCIPAL AMOUNT OF THE NEW SUBORDINATED
DEBENTURES EQUAL TO $100.00 FOR EACH $100.00 OF LIQUIDATION PREFERENCE
OF NEW 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. THE FORM AND TERMS OF THE NEW
SUBORDINATED DEBENTURES WILL BE THE SAME AS THE FORM AND TERMS OF THE
9.20% CLASS E SUBORDINATED EXCHANGE DEBENTURES DUE 2009 (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 AND THE OLD SUBORDINATED DEBENTURES ARE
SOMETIMES REFERRED TO HEREIN COLLECTIVELY AS THE "9.20% SUBORDINATED
DEBENTURES," AND THE NEW PREFERRED STOCK AND THE NEW SUBORDINATED
DEBENTURES ARE SOMETIMES REFERRED TO HEREIN COLLECTIVELY AS THE
"SECURITIES." AS OF SEPTEMBER 30, 1997, THE AMOUNT OF PRO FORMA
SENIOR INDEBTEDNESS (INCLUDING INDEBTEDNESS AND OTHER CURRENT AND
NON-CURRENT LIABILITIES OF PRIMEDIA'S SUBSIDIARIES), WAS
APPROXIMATELY $2,065 MILLION AND THE AGGREGATE LIQUIDATION
PREFERENCE OF THE PRO FORMA OUTSTANDING PREFERRED STOCK (EXCLUDING
THE OLD PREFERRED STOCK) WAS APPROXIMATELY $357.6 MILLION, ALL OF
WHICH PREFERRED STOCK RANKS PARI PASSU WITH THE PREFERRED STOCK.
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 PREFERRED STOCK WAS ORIGINALLY ISSUED AND SOLD ON SEPTEMBER 26, 1997 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
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 SET FORTH IN NO-ACTION LETTERS, THE COMPANY
BELIEVES THAT THE NEW PREFERRED STOCK ISSUED PURSUANT TO THE EXCHANGE OFFER IN
EXCHANGE FOR 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 PRIMEDIA 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 PREFERRED
STOCK IS ACQUIRED IN THE ORDINARY COURSE OF SUCH HOLDER'S BUSINESS, SUCH
HOLDERS HAVE NO ARRANGEMENT WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH NEW PREFERRED STOCK AND NEITHER SUCH HOLDERS NOR
ANY OTHER PERSON IS ENGAGING IN OR INTENDS TO ENGAGE IN A DISTRIBUTION
OF SUCH NEW PREFERRED STOCK.. HOWEVER, PRIMEDIA HAS NOT SOUGHT, AND DOES
NOT INTEND TO SEEK, ITS OWN NO-ACTION LETTER, AND THERE CAN BE NO
ASSURANCE THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION
WOULD MAKE A SIMILAR DETERMINATION WITH RESPECT TO THE EXCHANGE OFFER.
EACH BROKER-DEALER THAT RECEIVES NEW PREFERRED STOCK FOR ITS OWN
ACCOUNT PURSUANT TO THE EXCHANGE OFFER WHERE THE OLD PREFERRED STOCK
WAS ACQUIRED BY SUCH BROKER-DEALER AS A RESULT OF MARKET-MAKING OR
OTHER TRADING ACTIVITIES, MAY BE A STATUTORY UNDERWRITER AND MUST
ACKNOWLEDGE THAT IT WILL DELIVER A PROSPECTUS IN CONNECTION WITH ANY
RESALE OF SUCH NEW PREFERRED STOCK. THE LETTER OF TRANSMITTAL RELATING
TO THE EXCHANGE OFFER STATES THAT BY SO ACKNOWLEDGING AND BY
DELIVERING A PROSPECTUS, A BROKER-DEALER WILL NOT BE DEEMED TO ADMIT
THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES
ACT. THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, MAY BE USED BY A BROKER-DEALER IN CONNECTION WITH
NEW PREFERRED STOCK RECEIVED IN EXCHANGE FOR OLD PREFERRED STOCK
WHERE SUCH OLD PREFERRED STOCK WAS ACQUIRED BY SUCH BROKER-DEALER
AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES. PRIMEDIA WILL, FOR A PERIOD OF 90 DAYS AFTER THE
EXPIRATION DATE (AS DEFINED HEREIN), MAKE COPIES OF THIS
PROSPECTUS AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION
WITH ANY SUCH RESALE. SEE "PLAN OF DISTRIBUTION."
THE PREFERRED STOCK, AND THE SUBORDINATED DEBENTURES WHICH MAY BE ISSUED IN
EXCHANGE THEREFOR, CONSTITUTE NEW ISSUES OF SECURITIES WITH NO ESTABLISHED
TRADING MARKET. ANY SHARES OF OLD PREFERRED STOCK NOT TENDERED AND
ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN OUTSTANDING. TO THE EXTENT THAT
SHARES OF OLD PREFERRED STOCK ARE TENDERED AND ACCEPTED IN THE
EXCHANGE OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED SHARES OF OLD
PREFERRED STOCK COULD BE ADVERSELY AFFECTED. NO ASSURANCE CAN BE
GIVEN AS TO THE LIQUIDITY OF THE TRADING MARKET FOR THE PREFERRED
STOCK OR, IF ISSUED IN EXCHANGE THEREFOR, THE SUBORDINATED
DEBENTURES. SEE "RISK FACTORS--LACK OF PUBLIC MARKET."
PRIMEDIA WILL ACCEPT FOR EXCHANGE ANY AND ALL SHARES OF OLD PREFERRED STOCK
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
FEBRUARY 17, 1998, UNLESS EXTENDED BY PRIMEDIA IN ITS SOLE DISCRETION
(SUCH DATE AS IT MAY BE SO EXTENDED, THE "EXPIRATION DATE"). THE COMPANY
WILL NOT EXTEND THE EXCHANGE OFFER BEYOND MARCH 29, 1998. TENDERS OF
SHARES OF OLD PREFERRED STOCK MAY BE WITHDRAWN AT ANY TIME PRIOR TO
THE EXPIRATION DATE. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN
CUSTOMARY CONDITIONS. SEE "THE EXCHANGE OFFER."
APPROXIMATELY 76% OF THE SHARES OF COMMON STOCK OF PRIMEDIA (ON A FULLY DILUTED
BASIS) IS HELD BY CERTAIN INVESTMENT PARTNERSHIPS, OF WHICH KKR ASSOCIATES,
AN AFFILIATE OF KKR, IS THE GENERAL PARTNER. CONSEQUENTLY, KKR ASSOCIATES
AND ITS GENERAL PARTNERS HAVE THE POWER TO APPROVE ANY CORPORATE ACTION
REQUIRING STOCKHOLDER APPROVAL. SEE "RISK FACTORS--CONTROL BY KKR."
<PAGE>
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 19 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>
AVAILABLE INFORMATION
PRIMEDIA 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 PRIMEDIA 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. In
addition, PRIMEDIA has agreed to furnish to holders of the 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 Offer.
PRIMEDIA 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 PRIMEDIA 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 Citicorp Center, 500
West Madison Street, Suite 1400, Chicago. Illinois 60661. Such material may also
be accessed electronically by means of the Commission's home page on the
Internet (http://www.sec.gov). Reports and other information concerning PRIMEDIA
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
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
(a) Current Report on Form 8-K dated June 14, 1996;
(b) the Annual Report on Form 10-K for the fiscal year ended December 31,
1996; and
(c) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997.
All documents filed by the Company pursuant to Section 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 Offer shall be deemed to be incorporated by
reference in this Prospectus and to be a part of this Prospectus from the date
of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Prospectus shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any subsequently
filed document which also is or is deemed to be incorporated by reference in
this Prospectus modifies or supersedes such statement. Any 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, PRIMEDIA INC., 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
FEBRUARY 9, 1998.
2
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TABLE OF CONTENTS
<TABLE>
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PAGE
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Available Information...................................................................................... 2
Incorporation of Certain Documents by Reference............................................................ 2
Summary.................................................................................................... 4
Glossary of Certain Defined Terms.......................................................................... 17
Risk Factors............................................................................................... 19
Use of Proceeds............................................................................................ 22
Capitalization............................................................................................. 23
Selected Financial Information............................................................................. 24
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 26
Business................................................................................................... 41
Management................................................................................................. 49
The Exchange Offer......................................................................................... 51
Description of Preferred Stock and 9.20% Subordinated Debentures........................................... 59
Description of Capital Stock of the Company................................................................ 77
Security Ownership of Certain Beneficial Owners and Management............................................. 82
Certain Federal Income Tax Considerations.................................................................. 83
Plan of Distribution....................................................................................... 94
Legal Matters.............................................................................................. 94
Experts.................................................................................................... 94
Unaudited Pro Forma Consolidated Financial Data............................................................ P-1
Index to Financial Statements.............................................................................. F-1
</TABLE>
-------------------
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 Offer covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by PRIMEDIA. This Prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy, 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 PRIMEDIA since the date hereof.
-------------------
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. UNLESS THE
CONTEXT OTHERWISE INDICATES, THE TERM "COMPANY" OR "PRIMEDIA" MEANS THE COMBINED
BUSINESS OPERATIONS OF PRIMEDIA INC. (AND ITS PREDECESSORS) AND ITS
SUBSIDIARIES. PLEASE REFER TO "GLOSSARY OF CERTAIN DEFINED TERMS" FOR
DEFINITIONS OF CERTAIN CAPITALIZED TERMS USED IN THIS PROSPECTUS. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER THE CAPTION
"RISK FACTORS." MARKET SHARE DATA CONTAINED HEREIN IS BASED UPON A PRODUCT'S
SHARE OF ADVERTISING OR CIRCULATION, DEPENDING ON THE PRODUCT AS COMPARED TO ITS
DIRECT COMPETITION.
THE COMPANY
GENERAL
The Company is the authoritative source for specialized information targeted
to specific high growth segments in the specialty magazines, education and
business information markets. Most of PRIMEDIA's products are premier brands
with leadership positions in their specialty niche markets: specialty magazines
(E.G., SEVENTEEN, SOAP OPERA DIGEST, LOW RIDER, SEW NEWS and TELEPHONY);
education (E.G., CHANNEL ONE NEWS, WEEKLY READER and WESTCOTT); and information
(E.G., APARTMENT GUIDE, WARD'S, THE WORLD ALMANAC and NELSON'S).
The Company has achieved substantial growth through the development of its
franchises, combined with its operating expertise and a successful acquisition
strategy. From 1991 through 1996, net sales have grown at a compound annual rate
of 19%, to $1,374 million. Operating income in 1996 was $86 million compared to
an operating loss of $37 million in 1991 (after deductions for amortization and
depreciation of $191 million in 1996 and $142 million in 1991).
The Company had net income (loss) of ($41.4) million, ($75.4) million and
$8.0 million for the years ended December 31, 1994, 1995 and 1996, respectively,
and $(171.9) million for the nine months ended September 30, 1997. The Company's
deficiency of earnings to fixed charges was $71.6 million, $135.0 million and
$35.7 million for the years ended December 31, 1994, 1995 and 1996,
respectively, and $158.2 million for the nine months ended September 30, 1997.
The Company's deficiency of earnings to fixed charges and preferred stock
dividends was $97.6 million, $164.0 million and $79.2 million for the years
ended December 31, 1994, 1995 and 1996, respectively, and $195.4 million for the
nine months ended September 30, 1997. The Company's pro forma deficiency of
earnings to fixed charges and earnings to fixed charges plus preferred stock
dividends was $55.2 million and $98.7 million, respectively, for the year ended
December 31, 1996. The Company's pro forma deficiency of earnings to fixed
charges and earnings to fixed charges plus preferred stock dividends was $157.5
million and $194.7 million, respectively, for the nine months ended September
30, 1997.
GROWTH STRATEGY
PRIMEDIA's strategy is to address growing needs in today's information
economy. Technology has created a flood of information. Consequently, management
believes the key role of the media is shifting from making information broadly
available across all audiences to sifting out and qualifying information for the
benefit of specific audiences. The Company's products are authoritative
information sources meeting customers' particular needs in the most beneficial
formats--print, electronic, and multimedia. Its pursuit of this strategy in its
targeted markets has enabled PRIMEDIA to achieve an average 59% market share
across all products, with 83% ranking number one or two in their markets.
PRIMEDIA provides authoritative information in six areas that show superior
growth: specialty consumer magazines and technical and trade magazines in the
specialty magazines segment; classroom learning and workplace learning in the
education segment; and consumer directories and business
4
<PAGE>
directories in the information segment. See "--Business Segments." In each of
these six areas, the Company offers authoritative information products that have
a branded presence and leading market positions.
The Company is taking advantage of fundamental growth trends in these six
markets. The Company's specialty magazines products take advantage of trends in
the specialty consumer market where advertising growth has outpaced general
interest magazine, broadcast television, radio and newspaper advertising growth
since 1989. In classroom and workplace learning, PRIMEDIA is building on rising
elementary and secondary school enrollments, increased spending on supplementary
educational materials and the rapid growth in outsourced workplace education.
The Company's consumer and business directories are capitalizing on the trend
towards targeted marketing and away from general interest sources such as
newspapers and the increased spending by businesses for information.
The Company seeks to maximize its operating performance by capitalizing on
its leading position in each of these growing markets. Each of PRIMEDIA's six
growth vehicles has opportunities for expansion through both internal organic
development and product line acquisitions. Organic growth results from both
market expansion and product innovation in conventional and new media formats.
Growth through product line acquisition is made possible by the constant
availability of leading brands for sale in the myriad of niche markets in
PRIMEDIA's six growth areas. To support this aspect of growth, the Company has
successfully developed a selective and disciplined process of identifying,
evaluating and integrating acquired companies. The primary source of funds for
these product line acquisitions is the cash generated by the Company's
operations, which by their nature have high operating margins and low capital
requirements. Net capital expenditures were $23 million and $29 million, or 2.2%
and 2.1% of net sales, in 1995 and 1996, respectively. Additionally, cash
available for reinvestment is amplified because the Company pays virtually no
income taxes largely as a result of having structured most of its acquisitions
to create tax-deductible amortization of intangible assets which results in net
operating losses.
MANAGEMENT
The Company was founded in 1989 by William F. Reilly, Charles G. McCurdy and
Beverly C. Chell, former members of senior management of Macmillan, Inc.
("Macmillan"), together with Kohlberg Kravis Roberts & Co. L.P. ("KKR"). At
Macmillan, Mr. Reilly served as President and Chief Operating Officer, Mr.
McCurdy served as Vice President--Corporate Finance and Ms. Chell served as Vice
President-- General Counsel. At PRIMEDIA, they have recruited and developed a
cadre of strong, seasoned operating managers. All of the senior operating
managers and several of the business unit heads worked at Macmillan.
PRIMEDIA's Chairman and CEO, William F. Reilly, has 28 years of experience
in operations, finance and development. Charles G. McCurdy, President, and
Beverly C. Chell, Vice Chairman and General Counsel, have 15 and 28 years,
respectively, of finance, development and operations related experience. The two
Group Presidents, Jack L. Farnsworth and George Philips, each have over 30 years
of operating experience and over 15 years of experience as CEOs of substantial
operating companies.
The Company's management, including the executives named above, have
invested in excess of $23 million in the Common Stock through September 10,
1997. Assuming the exercise of all stock options, management would have owned
approximately 12%, in the aggregate, of the Company's outstanding Common Stock
as of such date.
BUSINESS SEGMENTS
The Company organizes its business into three operating segments: speciality
magazines, education and information. These segments accounted for approximately
50%, 27% and 23%, respectively, of PRIMEDIA's net sales of $1,374 million for
the year ended December 31, 1996.
5
<PAGE>
SPECIALTY MAGAZINES
The specialty magazines segment consists of 66 specialty consumer magazines
and 66 technical and trade magazines. In 1996, 62% of the Company's specialty
consumer magazines and 50% of its technical and trade magazines were ranked
number one in their respective markets. The Company's specialty consumer
magazines include SOAP OPERA DIGEST, SEVENTEEN, AMERICAN BABY, over 30
automotive magazines and numerous bridal, sewing, crafts and other titles. The
Company's technical and trade titles provide vital information to professionals
in fields such as telecommunications (TELEPHONY and CELLULAR BUSINESS),
agriculture (SOYBEAN DIGEST), transportation (FLEET OWNER) and real estate
(NATIONAL REAL ESTATE INVESTOR).
EDUCATION
The Company is a leading provider of supplementary educational materials and
programming in the United States, targeting both classroom and workplace
learning. Included in the education segment are educational television and video
programming, periodicals and supplementary educational materials for the
classroom, as well as training for professionals in various disciplines.
PRIMEDIA's best-known brands in the classroom learning area are CHANNEL ONE NEWS
and WEEKLY READER, and in workplace learning, WESTCOTT COMMUNICATIONS. CHANNEL
ONE NEWS, the award-winning daily news broadcast, reaches over eight million
students in approximately 12,000 secondary schools in the United States, more
than any other electronically delivered educational product. WEEKLY READER is
the best-known and highest circulation student newspaper in the United States,
with over 6.8 million subscriptions for elementary school students alone. WEEKLY
READER and its related products are sold in approximately 70% of all elementary
schools and 59% of all secondary schools. In workplace learning, WESTCOTT
COMMUNICATIONS is a leading provider of high quality workplace educational
programming. WESTCOTT COMMUNICATIONS has approximately 20,000 corporate and
institutional subscribers and provides workplace learning to approximately 2.5
million professionals in the healthcare, automotive, financial services,
government, public service and corporate fields. Its production capabilities
enable it to design and produce annually over 3,600 hours of educational content
targeted to over 20 different disciplines, delivered via satellite and video
cassette.
INFORMATION
The Company produces over 140 highly targeted consumer and business
directories, most of which hold dominant positions in their niche markets. The
Company's premier consumer directories include APARTMENT GUIDE, THE WORLD
ALMANAC and such specialty reference products as FACTS ON FILE NEWS SERVICE,
which is used by public and institutional libraries. The Company's leading
business directories include NELSON'S for financial professionals and BACON'S
for public relations professionals. Over 70 consumer directories including
guides and specialized reference products are published by the Company. These
products are distributed nationally in retail outlets and are sold to public and
institutional libraries. The Company is the leading publisher of rental
apartment guides in the United States. The Company has expanded this original
business to include new homes and computer shopping guides, as well as web sites
for all three categories. The Company's business directories target the
financial services, public relations, transportation, musical performance,
credit and collection, construction and global trade industries. Most of the
business directories published by the Company have no competition, and where
competition does exist, in most cases the Company's publication is dominant.
Management believes that the comprehensiveness and quality of its data and the
specialized focus of its publications have prevented others from launching
competing publications or competing effectively.
6
<PAGE>
RECENT DEVELOPMENTS
NON-CORE BUSINESSES BEING SOLD
As a part of its strategy to focus on areas of its business that have the
greatest potential for growth, the Company is in the process of divesting
certain businesses that do not fit within its growth vehicles (the "Non-Core
Businesses"). The Non-Core Businesses are: the DAILY RACING FORM group, which
includes a national daily newspaper covering thoroughbred horseracing and PRO
FOOTBALL WEEKLY; KRAMES COMMUNICATIONS, a leading publisher of patient
information sold to healthcare providers for distribution to patients and other
healthcare users; the KATHARINE GIBBS SCHOOLS, a chain of seven business
schools; NEWBRIDGE COMMUNICATIONS (excluding Films for the Humanities and
Sciences), an operator of book clubs for professionals and educational
continuity programs; NEW WOMAN magazine, a guide for personal relationships and
careers; STAGEBILL, a performing arts magazine; and INTERTEC MAILING SERVICES.
The Company has completed the sales of KRAMES, KATHARINE GIBBS, NEW WOMAN and
INTERTEC MAILING SERVICES. The proceeds from the sales of the Non-Core
Businesses will be used to repay indebtedness.
The following table presents unaudited combined operating results for the
year ended December 31, 1996 and total assets at December 31, 1996 for the
Non-Core Businesses. There can be no assurance that the remaining Non-Core
Businesses will be divested.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Sales, net..................................................................... $ 299,652
Operating loss................................................................. (2,305)
Depreciation and amortization.................................................. 29,410
Total assets................................................................... 350,736
</TABLE>
ACQUISITIONS
On November 17, 1997, the Company completed a product-line acquisition in
the technical and trade magazines group.
On November 28, 1997, the Company entered into an agreement to acquire a
leading provider of training products for the insurance industry and on December
19, 1997, the acquisition was consummated.
On January 8, 1998, the Company entered into a Stock Purchase Agreement
pursuant to which it will acquire the Cowles Enthusiast Media and Cowles
Business Media divisions of Cowles Media Company from McClatchy Newspapers, Inc.
("McClatchy") for approximately $200 million (including assumed liabilities).
The transaction is subject to the completion of McClatchy's purchase of Cowles
Media Company, which is expected to close by March 31, 1998.
OFFERING AND REDEMPTION
On September 26, 1997, the Company completed a private offering of 1,250,000
shares of $9.20 Series E Exchangeable Preferred Stock (the "Offering") and
called for redemption all of its Senior Preferred Stock (the "Redemption"). Net
proceeds of the Offering of approximately $121.5 million were used to redeem the
4,000,000 outstanding shares of Senior Preferred Stock on November 3, 1997 at a
redemption price of $26.45 per share plus accrued and unpaid dividends to the
redemption date and to repay borrowings outstanding under its Bank Credit
Facilities, which amounts may be reborrowed for general corporate purposes
including acquisitions.
NAME CHANGE
On November 18, 1997, the Company changed its name to PRIMEDIA Inc. to
better reflect the "prime" positioning the Company has in six areas of
specialized "media." On November 18, 1997, the Company's New York Stock Exchange
symbol was changed from KCC to PRM.
7
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
SPECIALTY MEDIA EDUCATION INFORMATION
<S> <C> <C>
SPECIALTY CONSUMER MAGAZINES CLASSROOM LEARNING CONSUMER DIRECTORIES
- -73 Publications -Channel One News -74 Consumer Guides in 28
(including Soap Opera Digest, -Weekly Reader States
Seventeen, American Baby, -Films for the Humanities (including Apartment Guide,
Automobile, Modern Bride, and Sciences MicroTimes and new homes
New York, Chicago, Low Rider, guides)
Sew News and Dog World) -Specialized Reference
Products
(including The World Almanac
and
Facts on File News Service)
TECHNICAL AND TRADE MAGAZINES WORKPLACE LEARNING BUSINESS DIRECTORIES
- -63 Publications -Westcott Communications -70 Specialized Directories
(including Telephony, -Executive Education Network (including Nelson's, Bacon's,
Cellular -Interactive Distance Ward's
Business, Soybean Digest, Training Network Automotive Reports, Aircraft
Fleet Owner, National -18 other product lines Bluebook and Pacific Shipper)
Real Estate Investor and
Transmission and
Distribution)
</TABLE>
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Registration Rights
Agreement; Effect on
Holders.................... The Old Preferred Stock was sold by PRIMEDIA on September 26,
1997 to Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Brothers
Inc, as the placement agents (the "Placement Agents")
pursuant to a Placement Agreement dated September 22, 1997
between PRIMEDIA and the Initial Purchasers (the "Placement
Agreement"). The Placement Agents subsequently sold the 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 Placement
Agreement, PRIMEDIA and the Placement Agents entered into a
Registration Rights Agreement dated as of September 26, 1997
(the "Registration Rights Agreement") which grants the
holders of the Old Preferred Stock certain exchange and
registration rights. This Exchange Offer is 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 shares of Old
Preferred Stock will continue to be subject to the
restrictions on transfer described under "The Exchange
Offer--Consequences of Failure to Exchange." To the extent
that shares of Old Preferred Stock are tendered and accepted
in the Exchange Offer, the trading market for untendered
shares of Old Preferred Stock could be adversely affected.
See "The Exchange Offer--Purpose and Effect of the Exchange
Offer" and "--Consequences of Failure to Exchange" and "Risk
Factors--Lack of Public Market."
The Exchange Offer......... One share of New Preferred Stock will be exchanged for each
share of Old Preferred Stock. As of the date hereof, 1,250,000
shares of Old Preferred Stock are outstanding. PRIMEDIA 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 February 17, 1998 unless the
Exchange Offer is extended by PRIMEDIA in its sole
discretion, in which case the term "Expiration Date" means
the latest date and time to which the Exchange Offer is
extended. The Company will not extend the Exchange Offer
beyond March 29, 1998.
Conditions to the Exchange
Offers................... The Exchange Offer is not conditioned upon any minimum number
of shares of Old Preferred Stock being tendered for exchange.
However, the Exchange Offer is subject to certain customary
conditions, which may be waived by PRIMEDIA. See "The
Exchange Offer-- Conditions of the Exchange Offer." PRIMEDIA
reserves the right to terminate the Exchange Offer if any of
such conditions have not been satisfied and to amend the
Exchange Offer at any time prior to the Expiration Date.
Procedures for Tendering
the Old Preferred
Stock.................... See "The Exchange Offer--Procedures for Tendering" and
"--Guaranteed Delivery Procedures."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the Expiration
Date. See "The Exchange Offer--Withdrawal of Tenders."
Acceptance of the Old Pre-
ferred Stock and Delivery
of the New Preferred
Stock.................... PRIMEDIA will accept for exchange any and all shares of Old
Preferred Stock which are properly tendered in the Exchange
Offer prior to the Expiration Date. The shares of New
Preferred Stock issued pursuant to the Exchange Offer will
be delivered on the earliest practicable date following the
Expiration Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Certain Tax
Considerations........... For a discussion of certain federal income tax consequences of
the exchange of the Old Preferred Stock, see "Certain Federal
Income Tax Considerations--Tax Consequences of the Exchange
Offer."
Exchange Agent............. The Bank of New York is serving as the exchange agent (the
"Exchange Agent") in connection with the Exchange Offer.
</TABLE>
TERMS OF THE PREFERRED STOCK AND THE 9.20% SUBORDINATED DEBENTURES
The Exchange Offer applies to 1,250,000 shares of the Old Preferred Stock.
The form and terms of the New Preferred Stock are the same as the form and terms
of the Old Preferred Stock except that 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 Preferred Stock and 9.20%
Subordinated Debentures."
<TABLE>
<S> <C>
THE PREFERRED STOCK
Dividends.................. Cumulative at $9.20 per annum. All dividends are payable
quarterly in cash on February 1, May 1, August 1, and November
1 of each year, commencing February 1, 1998. The Company
presently intends to pay such dividends even in the absence
of earnings and profits through cash flow generated from
operations. 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 Series E 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--Tax Consequences for United States
Holders--Dividends on Series E Preferred Stock."
Liquidation Preference..... $100 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 Certificate
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
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
outstanding shares of Preferred Stock, voting together as a
class, will be entitled to elect two members to the Board of
Directors of PRIMEDIA. Subject to certain exceptions,
holders of a majority of the outstanding Preferred Stock
together with any parity securities issued in the future
will have the right, voting together as a class, to approve
certain mergers, consolidations and sales of assets by the
Company. See "Description of Preferred Stock and 9.20%
Subordinated Debentures--The Preferred Stock--Merger,
Consolidation and Sale of Assets."
Mandatory Redemption....... PRIMEDIA is required to redeem the Preferred Stock on November
1, 2009 at a redemption price equal to the liquidation
preference plus accrued and unpaid dividends to the
redemption date.
Optional Redemption........ Prior to November 1, 2002, the Preferred Stock is redeemable
at the Company's option, in whole or in part, at any time or
from time to time, at a redemption price equal to the sum of
the aggregate liquidation preference of such Preferred Stock
plus accrued and unpaid dividends to the redemption date
plus the Applicable Preferred Stock Make-Whole Premium (as
defined) thereon at the time of redemption. At any time on
or after November 1, 2002, the Preferred Stock is
redeemable, at the option of PRIMEDIA, in whole or in part,
initially at $104.60 per share, declining ratably to $100
per share on or after November 1, 2004, plus accrued and
unpaid dividends to the redemption date. See "Description of
Preferred Stock and 9.20% Subordinated Debentures--The
Preferred Stock--Optional Redemption."
Optional Redemption Upon
Public Equity Offering... At any time prior to November 1, 2000, PRIMEDIA may, at its
option, redeem, in whole or in part, up to $60 million of the
aggregate liquidation preference of the Preferred Stock at a
price per share of $109, 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 9.20%
Subordinated Debentures--The Preferred Stock--Optional
Redemption."
Ranking.................... The Preferred Stock ranks PARI PASSU with the Series B
Preferred Stock, the Series D Preferred Stock and any Future
Parity Securities (as defined) and senior to all Junior
Securities (as defined). As of September 10, 1997, 1,576,036
shares of Series B Preferred Stock ($157,603,600 aggregate
liquidation preference), which include dividends paid in
kind from time to time thereon to such date, have been
issued and are outstanding and 2,000,000 shares of Series D
Preferred Stock ($200,000,000 aggregate liquidation
preference), have been issued and are outstanding. See
"Description of Capital Stock of the Company." The Company
has agreed in the Certificate of Designations relating to
the Preferred Stock not to issue any other preferred stock
which by its terms is senior to the Series B Preferred
Stock, Series D Preferred Stock and the Preferred Stock. See
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
"Description of Preferred Stock and 9.20% Subordinated
Debentures--The Preferred Stock--Limitation on Issuance of
Senior Preferred Stock."
Exchange Feature........... The Preferred Stock is exchangeable on any scheduled dividend
payment date into 9.20% Subordinated Debentures, in whole but
not in part, at the option of PRIMEDIA. See "Description of
Preferred Stock and 9.20% Subordinated Debentures--The
Preferred Stock-- Exchange."
THE 9.20% SUBORDINATED
DEBENTURES
Maturity Date.............. November 1, 2009.
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
issuance of the 9.20% Subordinated Debentures.
Optional Redemption........ Prior to November 1, 2002, the 9.20% Subordinated Debentures
are redeemable at the Company's option, in whole or in part,
at any time or from time to time, at a redemption price
(expressed as a percentage of principal amount) equal to the
sum of the principal amount of such 9.20% Subordinated
Debentures plus the Applicable Debenture Make-Whole Premium
(as defined) thereon at the time of redemption, plus accrued
and unpaid interest to the redemption date. On or after
November 1, 2002, the 9.20% Subordinated Debentures are
redeemable, in whole or in part, at the option of PRIMEDIA,
initially at 104.60% of their principal amount, declining
ratably to 100% of their principal amount on or after
November 1, 2004, plus accrued and unpaid interest to the
redemption date. See "Description of Preferred Stock and
9.20% Subordinated Debentures--The 9.20% Subordinated
Debentures--Optional Redemption."
Optional Redemption Upon
Public Equity Offering... At any time prior to November 1, 2000, PRIMEDIA may, at its
option, redeem, in whole or in part, up to $60 million of the
aggregate principal amount of the 9.20% Subordinated
Debentures at 109% 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 9.20%
Subordinated Debentures--The 9.20% Subordinated Deben-
tures--Optional Redemption."
Change of Control.......... In the event of a Change of Control (i) each holder of the
9.20% Subordinated Debentures will have the right to require
PRIMEDIA to repurchase such holder's 9.20% 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) PRIMEDIA will have the option
to redeem the 9.20% 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
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
the event of a Change of Control will in all cases be equal
to or greater than this repurchase price. Notwithstanding
the foregoing, PRIMEDIA shall not be required to make any
such repurchase unless PRIMEDIA 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 9.20% Subordinated Debentures. Because of
the substantial indebtedness of the Company, there can be no
assurance that PRIMEDIA will have sufficient funds to
repurchase the 9.20% Subordinated Debentures in the event of
a Change of Control. See "Description of Preferred Stock and
9.20% Subordinated Debentures--The 9.20% Subordinated
Debentures--Change of Control."
Ranking.................... The 9.20% Subordinated Debentures (i) will rank PARI PASSU
with the Class B Subordinated Debentures and Class D
Subordinated Debentures, (ii) will be subordinate to all
existing and future Senior Indebtedness of PRIMEDIA and
(iii) effectively will be subordinate to the creditors,
including trade creditors, of PRIMEDIA's subsidiaries. As of
September 30, 1997, the amount of pro forma senior
indebtedness (including indebtedness and other current and
non-current liabilities of PRIMEDIA's subsidiaries) was
approximately $2,065 million. None of such indebtedness was
secured.
Certain Covenants.......... The 9.20% Debenture Indenture contains certain covenants
which, among other things, limit the ability of the Company
(i) to engage in certain mergers, consolidations and sales
of assets, (ii) to engage in certain transactions with
Affiliates (as defined) and (iii) to pay dividends on or
retire or repurchase capital stock.
</TABLE>
USE OF PROCEEDS
There will be no cash proceeds to PRIMEDIA from the Exchange Offer.
RISK FACTORS
Holders of the Old Preferred Stock should take into account the specific
considerations set forth under "Risk Factors" as well as the other information
set forth in this Prospectus before tendering shares of Old Preferred Stock in
exchange for shares of New Preferred Stock.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables present summary consolidated financial data derived
from the Company's audited consolidated financial statements for the years ended
December 31, 1994, 1995 and 1996 and the Company's unaudited condensed
consolidated financial statements for the nine months ended September 30, 1996
and 1997. In addition, the following tables present summary consolidated
financial data relating to the Company's unaudited pro forma consolidated
operating results for the year ended December 31, 1996 and the nine months ended
September 30, 1997 and the Company's unaudited pro forma consolidated balance
sheet at September 30, 1997. Such unaudited pro forma consolidated financial
data does not reflect adjustments for the divestitures of the Non-Core
Businesses.
The summary unaudited pro forma consolidated operating data for the year
ended December 31, 1996 gives effect to the following transactions and events as
if they had occurred on January 1, 1996: (i) the acquisition of the common stock
of Westcott Communications, Inc. which occurred on May 30, 1996 as described in
the Company's Current Report on Form 8-K dated June 14, 1996 incorporated by
reference into this Prospectus (referred to as the "Acquired Business") and (ii)
the offering of the Old Preferred Stock (the "Offering") and the redemption of
the Senior Preferred Stock (the "Redemption"). The summary unaudited pro forma
consolidated operating data for the nine months ended September 30, 1997 gives
effect to the Offering and Redemption as if they had occurred on January 1,
1996. The adjustments to reflect the acquisition of the Acquired Business and
the Offering and Redemption are hereinafter referred to as the "Pro Forma
Adjustments." The summary unaudited pro forma consolidated balance sheet data at
September 30, 1997 gives effect to the Redemption as if it had occurred on
September 30, 1997.
The summary unaudited pro forma consolidated financial data does not purport
to represent what the Company's consolidated results of operations or financial
condition 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
or financial condition 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 and
the unaudited pro forma consolidated financial statements and the notes thereto
included elsewhere in this Prospectus.
14
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1996 1997
ACTUAL ACTUAL ACTUAL PRO FORMA(1) ACTUAL ACTUAL
----------- ----------- ----------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Sales, net................................ $ 964,648 $ 1,046,329 $ 1,374,449 $ 1,413,930 $ 995,051 $ 1,089,997
Depreciation and amortization............. 136,866 192,276 190,702 199,713 139,944 125,694
Other charges(2).......................... 15,025 50,114 -- -- -- 138,640
Operating income (loss)(3)................ 10,203 (26,275) 85,901 77,893 48,784 (52,330)
Interest expense.......................... 78,351 105,837 124,601 136,111 91,313 103,728
Income tax benefit(4)..................... 42,100 59,600 53,300 53,300 -- 1,685
Income (loss) before extraordinary
charge.................................. (29,529) (75,435) 17,597 (1,921) (39,701) (156,520)
Extraordinary charge--extinguishment of
debt(5)................................. (11,874) -- (9,553) (9,553) (7,572) (15,401)
Net income (loss)(3)...................... (41,403) (75,435) 8,044 (11,474) (47,273) (171,921)
Preferred stock dividends................. 25,959 28,978 43,526 43,526 31,326 37,237
Loss applicable to common shareholders.... (67,362) (104,413) (35,482) (55,000) (78,599) (209,158)
Loss applicable to common shareholders per
common and common equivalent
share(3)(6):
Loss before extraordinary charge........ $ (.54) $ (.91) $ (.20) $ (.35) $ (.55) $ (1.50)
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Net loss................................ $ (.65) $ (.91) $ (.27) $ (.42) $ (.61) $ (1.62)
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Weighted average common and common
equivalent shares outstanding(6)...... 103,642,668 115,077,498 130,007,632 130,007,632 128,721,459 129,271,743
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
OTHER DATA:
EBITDA(7)................................. $ 162,094 $ 216,115 $ 276,603 $ 277,606 $ 188,728 $ 212,004
Capital expenditures, net................. 14,184 23,414 28,790 31,078 18,103 22,305
Net cash provided by operating
activities.............................. 64,890 64,062 150,192 151,658 63,836 46,117
Net cash used in investing activities..... (442,126) (318,712) (721,709) (723,997) (683,338) (92,903)
Net cash provided by financing
activities.............................. 383,924 263,644 580,946 580,946 624,780 31,824
Deficiency of earnings to fixed
charges(8)(9)........................... (71,629) (135,035) (35,703) (55,221) (39,701) (158,205)
Deficiency of earnings to fixed charges
and preferred stock dividends(8)(9)..... (97,588) (164,013) (79,229) (98,747) (71,027) (195,442)
Ratio of EBITDA to interest expense....... 2.1x 2.0x 2.2x 2.0x 2.1x 2.0x
Ratio of EBITDA to interest expense and
dividends on preferred stock............ 1.6x 1.6x 1.6x 1.5x 1.5x 1.5x
Leverage ratio(10)........................ 5.4x 4.9x 5.4x 5.4x 5.6x 5.2x
<CAPTION>
<S> <C>
1997
PRO FORMA(1)
-------------
OPERATING DATA:
Sales, net................................ $ 1,089,997
Depreciation and amortization............. 125,694
Other charges(2).......................... 138,640
Operating income (loss)(3)................ (52,330)
Interest expense.......................... 102,986
Income tax benefit(4)..................... 1,685
Income (loss) before extraordinary
charge.................................. (155,778)
Extraordinary charge--extinguishment of
debt(5)................................. (15,401)
Net income (loss)(3)...................... (171,179)
Preferred stock dividends................. 37,237
Loss applicable to common shareholders.... (208,416)
Loss applicable to common shareholders per
common and common equivalent
share(3)(6):
Loss before extraordinary charge........ $ (1.49)
-------------
-------------
Net loss................................ $ (1.61)
-------------
-------------
Weighted average common and common
equivalent shares outstanding(6)...... 129,271,743
-------------
-------------
OTHER DATA:
EBITDA(7)................................. $ 212,004
Capital expenditures, net................. 22,305
Net cash provided by operating
activities.............................. 46,859
Net cash used in investing activities..... (92,903)
Net cash provided by financing
activities.............................. 31,824
Deficiency of earnings to fixed
charges(8)(9)........................... (157,463)
Deficiency of earnings to fixed charges
and preferred stock dividends(8)(9)..... (194,700)
Ratio of EBITDA to interest expense....... 2.1x
Ratio of EBITDA to interest expense and
dividends on preferred stock............ 1.5x
Leverage ratio(10)........................ 5.6x
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------
<S> <C> <C>
ACTUAL PRO FORMA(1)
--------- --------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................ $ 21,693 $ 21,693
Working capital deficiency(11)....................................................................... (19,735) (19,735)
Intangible assets, net............................................................................... 1,641,957 1,641,957
Total assets......................................................................................... 2,404,313 2,404,313
Long-term debt (12).................................................................................. 1,525,223 1,632,940
Exchangeable preferred stock......................................................................... 569,527 471,056
Common stock subject to redemption................................................................... 4,234 4,234
Total shareholders' deficiency....................................................................... (126,732) (135,978)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
15
<PAGE>
(1) The 1996 summary pro forma consolidated financial data reflects the
operating results of the Acquired Business as if such business was acquired
on January 1, 1996. The 1996 pro forma interest expense reflects the
additional borrowings to finance the acquisition at an assumed weighted
average rate of 7.08%. The 1996 and 1997 summary pro forma consolidated
financial data reflects the net reduction in long-term debt and interest
expense as a result of the reduced level of borrowings from the application
of the remainder of the net proceeds from the Offering. Amounts repaid under
the Bank Credit Facilities may be reborrowed for general corporate purposes,
including acquisitions. The reduction in total shareholders' equity reflects
the difference between the carrying value and redemption value of the Senior
Preferred Stock and the payment of accrued but unpaid dividends upon
Redemption.
(2) Represents net provision in 1994, 1995 and 1997 for loss on the sales of
businesses and provision in 1995 for restructuring and other costs.
(3) The adoption of a change in method of accounting for advertising costs (the
"Accounting Change") resulted in an increase in operating income (decrease
in operating loss) and an equal decrease in net loss and loss per common and
common equivalent share of approximately $9,800 ($.09 per share), $11,800
($.10 per share) and $2,000 ($.02 per share) for the years ended December
31, 1994, 1995 and 1996, respectively.
(4) At December 31, 1994, 1995, and 1996, management of the Company reviewed
recent operating results for the years then ended and projected future
operating results for the years through December 31, 2002 and determined
that a portion of the net deferred income tax assets at December 31, 1994,
1995 and 1996 would likely be realized. Accordingly, the Company recorded an
income tax benefit of $42,100 in 1994, $59,600 in 1995 and $53,300 in 1996.
At September 30, 1997, the Company had net operating loss carryforwards for
Federal and state income tax purposes ("NOLs") of approximately $752,000
which will be available to reduce future taxable income. In addition to the
NOLs, management estimates that approximately $783,000 of unamortized
goodwill and other intangible assets will be available as deductions from
any future taxable income. For the nine months ended September 30, 1997, the
Company recorded an income tax carryback claim of $1,685.
(5) Represents the write-off of unamortized deferred financing costs. For the
year ended December 31, 1996 and the nine months ended September 30, 1997,
amount also includes the premiums paid on the redemptions of the 10 5/8%
Senior Notes.
(6) The 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 3 of the notes to the consolidated financial statements
for the years ended December 31, 1994, 1995 and 1996 and Note 9 of the notes
to the unaudited condensed consolidated financial statements for the nine
months ended September 30, 1996 and 1997 included elsewhere in 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 income
(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.
This measure may not be comparable to similarly titled measures used by
other companies.
(8) The deficiency of earnings to fixed charges consists of income (loss) before
income taxes and extraordinary charge plus fixed charges. Fixed charges
consist of interest expense on 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) Income (loss) before income taxes and extraordinary charge 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, net provision for loss on the
sales of businesses, restructuring and other costs and non-cash interest
expense on an acquisition obligation, distribution advance and other current
liability. These non-cash charges totaled $160,778, $241,536 and $192,895
for the years ended December 31, 1994, 1995 and 1996, respectively, and
$143,359 and $268,614 for the nine months ended September 30, 1996 and 1997,
respectively. The pro forma non-cash charges totaled $201,906 for the year
ended December 31, 1996 and $268,614 for the nine months ended September 30,
1997. Adjusted to eliminate such non-cash charges, earnings would have
exceeded fixed charges and fixed charges plus cash preferred stock dividends
by approximately $89,149 and $77,649, $106,501 and $95,001 and $157,192 and
$130,248 for the years ended December 31, 1994, 1995 and 1996, respectively,
and $103,658 and $84,589 and $110,409 and $77,623 for the nine months ended
September 30, 1996 and 1997, respectively. On a pro forma basis and after
eliminating such non-cash charges, earnings would have exceeded fixed
charges and fixed charges plus cash preferred stock dividends by $146,685
and $119,741 for the year ended December 31, 1996, respectively, and
$111,151 and $78,365 for the nine months ended September 30, 1997,
respectively.
(10) The leverage ratio on an actual and pro forma basis 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, for
the twelve months ended December 31, 1994, 1995, 1996 and for the twelve
months ended September 30, 1996 and 1997.
(11) Includes current maturities of long-term debt and assets held for sale as
of September 30, 1997.
(12) Excludes current maturities of long-term debt.
16
<PAGE>
GLOSSARY OF CERTAIN DEFINED TERMS
<TABLE>
<S> <C>
8 1/2% Senior Notes.................... The $300,000,000 principal amount of 8 1/2% Senior
Notes due 2006 issued by PRIMEDIA.
10 1/4% Senior Notes................... The $100,000,000 principal amount of 10 1/4% Senior
Notes due 2004 issued by PRIMEDIA.
9.20% Debenture Indenture.............. The Indenture governing the Old Subordinated
Debentures and, upon exchange, the New
Subordinated Debentures.
9.20% Subordinated Debentures.......... The collective reference to the Old Subordinated
Debentures and the New Subordinated Debentures.
Applicable Debenture Make-Whole
Premium.............................. With respect to a 9.20% Subordinated Debenture at
any time, the greater of (i) 1.0% of the principal
amount of such 9.20% Subordinated Debenture at
such time and (ii) the excess of (A) the present
value at such time of the principal amount plus
all interest payments due on such 9.20%
Subordinated Debenture, computed using a discount
rate equal to the Treasury Rate plus 75 basis
points, over (B) the principal amount of such
9.20% Subordinated Debenture at such time.
Applicable Preferred Stock Make-Whole
Premium.............................. With respect to a share of Preferred Stock at any
time, the greater of (i) 1.0% of the aggregate
liquidation preference of Preferred Stock at such
time and (ii) the excess of (A) the present value
at such time of the aggregate liquidation
preference plus all dividends accrued and unpaid
on such share of Preferred Stock, computed using
a discount rate equal to the Treasury Rate plus
75 basis points, over (B) the aggregate
liquidation preference of such share of Preferred
Stock at such time.
Bank Credit Facilities................. The $1.4 billion credit facilities with The Chase
Manhattan Bank, The Bank of New York, Bankers Trust
Company and The Bank of Nova Scotia, as agents.
Credit Facilities...................... The collective reference to the Bank Credit
Facilities and the New Credit Facility.
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.
Class D Debenture Indenture............ The Indenture governing the Class D Subordinated
Debentures, if and when issued.
Class D Subordinated Debentures........ The 10% Subordinated Exchange Debentures due 2008,
issuable upon exchange of the Series D Preferred
Stock.
Common Stock........................... The common stock, par value $.01 per share, of
PRIMEDIA.
Debenture Exchange Offer............... The offer by PRIMEDIA to holders of Old
Subordinated Debentures to exchange the same for
the New Subordinated Debentures.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Exchange Offer......................... The offer by PRIMEDIA to holders of the Old
Preferred Stock to exchange the same for the New
Preferred Stock.
New Credit Facility.................... The $150 million credit facility with The Chase
Manhattan Bank, The Bank of New York, Bankers Trust
Company and The Bank of Nova Scotia, as agents.
New Preferred Stock.................... The 1,250,000 shares of Series F Exchangeable
Preferred Stock Redeemable 2009, par value $.01 per
share, liquidation preference $100 per share,
being exchanged hereby for the Old Preferred
Stock.
New Subordinated Debentures............ The 9.20% Class F Subordinated Exchange Debentures
due 2009 issuable upon exchange of the New
Preferred Stock.
Old Preferred Stock.................... The 1,250,000 shares of outstanding $9.20 Series E
Exchangeable Preferred Stock Redeemable 2009, par
value $.01 per share, liquidation preference $100
per share.
Old Subordinated Debentures............ The 9.20% Subordinated Exchange Debentures due
2009, issuable upon exchange of the Old Preferred
Stock.
Preferred Stock........................ The collective reference to the Old Preferred Stock
and the New Preferred Stock.
Securities............................. The collective reference to the New Preferred Stock
and the New Subordinated Debentures, if and when
issued.
Senior Note Indentures................. The collective reference to the indentures
governing the Senior Notes.
Senior Notes........................... The collective reference to the 8 1/2% Senior Notes
and the 10 1/4% Senior 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 which
were redeemed with the net proceeds of the
Offering.
Series B Preferred Stock............... The 1,576,036 Shares of $11.625 Series B
Exchangeable Preferred Stock Redeemable 2005, par
value $.01 per share, liquidation preference
$100.00 per share, plus dividends which are paid
in kind from time to time thereon.
Series D 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.
Subordinated Debenture Indentures...... The collective reference to the Exchange Debenture
Indenture, the Class B Debenture Indenture, the
Class D Debenture Indenture and the 9.20%
Debenture Indenture.
Subordinated Debentures................ The collective reference to the Exchange
Debentures, Class B Subordinated Debentures, the
Class D Subordinated Debentures and the 9.20%
Subordinated Debentures.
</TABLE>
18
<PAGE>
RISK FACTORS
HOLDERS OF OLD PREFERRED STOCK SHOULD TAKE INTO ACCOUNT THE CONSIDERATIONS
SET FORTH BELOW AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS
BEFORE TENDERING THEIR SHARES OF OLD PREFERRED STOCK IN EXCHANGE FOR SHARES OF
NEW PREFERRED STOCK OFFERED HEREBY. THE RISK FACTORS SET FORTH BELOW ARE
GENERALLY APPLICABLE TO THE OLD PREFERRED STOCK AS WELL AS THE NEW PREFERRED
STOCK. CERTAIN INFORMATION INCLUDED IN OR INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS UNDER THIS SECTION AND UNDER THE CAPTIONS "SUMMARY--GROWTH STRATEGY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "BUSINESS" AND ELSEWHERE INCLUDE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AND
IS SUBJECT TO THE SAFE HARBOR CREATED BY THAT ACT. THERE ARE SEVERAL IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED BY THE FORWARD-LOOKING STATEMENTS CONTAINED IN SUCH DISCUSSIONS.
ADDITIONAL INFORMATION ON THE RISK FACTORS WHICH COULD AFFECT THE COMPANY'S
FINANCIAL RESULTS IS INCLUDED IN THIS PROSPECTUS AND IN OTHER DOCUMENTS
INCORPORATED BY REFERENCE HEREIN.
SUBSTANTIAL INDEBTEDNESS
The Company has substantial indebtedness and intends to incur additional
indebtedness under the Credit Facilities to finance acquisitions. At September
30, 1997, the Company had a ratio of consolidated debt to total equity
(including all preferred stock and Common Stock subject to redemption) of 3.4 to
1. At September 30, 1997, on a pro forma basis, the Company would have had a
ratio of consolidated debt to total equity (including all preferred stock and
Common Stock subject to redemption) of 4.8 to 1. See "Capitalization" and
"Selected Financial Information." The indebtedness of the Company requires a
substantial portion of the Company's cash flow to be dedicated to the payment of
principal and interest on indebtedness, thereby reducing funds available for
capital expenditures and future business opportunities. For the nine-month
period ended September 30, 1997, there were no scheduled maturities on
outstanding indebtedness and the Company made cash interest payments of $113.2
million.
At September 30, 1997, borrowings under the Credit Facilities, on a pro
forma basis, were approximately $1,184.6 million. Such borrowings bear interest
at floating rates based on the federal funds rate, the prime lending rate or
LIBOR. Increases in interest rates on indebtedness under the Credit Facilities
would increase the Company's interest payment obligations and could have an
adverse effect on the Company. The weighted average interest rate on the Credit
Facilities was 7.08% for the year ended December 31, 1996. As of November 30,
1997, the weighted average interest rate on the Credit Facilities was 6.82%.
RESTRICTIVE COVENANTS
The agreements governing the Company's indebtedness impose certain operating
and financial restrictions on the Company. Such restrictions prohibit or limit,
among other things, the ability of the Company to change the nature of its
business, incur additional indebtedness, create liens on its assets, sell
assets, engage in mergers, consolidations or transactions with its affiliates,
make investments in or loans to certain subsidiaries or make guarantees or
certain restricted payments. The Company is restricted from declaring or making
dividend payments on its common or preferred stock. Under the Company's most
restrictive debt covenants, the Company must maintain a minimum interest
coverage ratio of 1.8 to 1 and maintain a minimum fixed charge coverage ratio of
1.05 to 1. For the twelve months ended September 30, 1997, the Company's
interest coverage ratio and fixed charge coverage ratio was 2.17 and 1.44,
respectively. 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 "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
19
<PAGE>
DEFICIENCIES OF EARNINGS TO COVER FIXED CHARGES AND FIXED CHARGES PLUS PREFERRED
STOCK DIVIDENDS
The Company's earnings are inadequate to cover fixed charges and fixed
charges plus preferred stock dividends on a pro forma basis by $55.2 million and
$98.7 million, respectively, for the year ended December 31, 1996 and $157.5
million and $194.7 million, respectively, for the nine months ended September
30, 1997. Fixed charges consist of interest expense on 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, provision for loss on
the sales of businesses and non-cash interest expense) of approximately $201.9
million for the year ended December 31, 1996 and $268.6 million for the nine
months ended September 30, 1997. Adjusted to eliminate these pro forma non-cash
charges, earnings would have exceeded fixed charges and fixed charges plus cash
preferred stock dividends, on a pro forma basis, by approximately $146.7 million
and $119.7 million, respectively, for the year ended December 31, 1996 and
$111.2 million and $78.4 million, respectively, for the nine months ended
September 30, 1997. Based on historical evidence of the Company's earnings
exceeding fixed charges and fixed charges plus cash preferred dividends after
eliminating non-cash charges, the Company believes it will continue to generate
sufficient cash flow to service its interest and dividend payments.
Additionally, the Company has historically had and continues to have access to
capital markets to refinance and extend maturities on its debt and preferred
stock. However, there can be no assurance that the Company will have access to
capital markets when such debt and preferred stock mature. Based on current
outstanding borrowings under the Company's Credit Facilities and outstanding
indebtedness under the Company's Senior Notes, there will be no required
payments until the year 2000. At that time, the first principal payment is
scheduled at $240 million and principal payments will not exceed $300 million
until the year 2006.
ACCELERATION OF CREDIT FACILITIES 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 Facilities 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 Facilities 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
Facilities. Neither the Credit Facilities nor the Senior Notes are secured by
the pledge of assets, subsidiary securities or any other security. The final
stated maturity of indebtedness under the Credit Facilities and the Senior
Notes, and Class B Subordinated Debentures, if issued, and Class D Subordinated
Debentures, if issued, is earlier than the final stated maturity of the
Preferred Stock. Any default under the documents governing the indebtedness of
the Company could have a significant adverse effect on the market value of the
Preferred Stock.
LOSSES AFTER AMORTIZATION OF INTANGIBLES AND EXCESS PURCHASE PRICE
The Company had a loss applicable to common shareholders for the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended September 30,
1997 of $67.4 million, $104.4 million and $35.5 million and $209.2 million,
respectively. Included in the loss for such periods are the amortization of
intangible assets and excess of purchase price over net assets acquired and
other in the aggregate amounts of $120.7 million, $166.5 million and $152.5
million and $98.8 million for 1994, 1995 and 1996 and for the nine months ended
September 30, 1997, respectively.
There can be no assurance that the Company will have net income applicable
to common shareholders in the future.
20
<PAGE>
SUBORDINATION OF PREFERRED STOCK AND 9.20% 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 PRIMEDIA
(other than Common Stock, Series B Preferred Stock, Series D Preferred Stock and
any preferred stock of PRIMEDIA which by its terms is on parity with or junior
to the Preferred Stock).
The 9.20% Subordinated Debentures will rank PARI PASSU with the Class B
Subordinated Debentures and Class D Subordinated Debentures, if any, but will be
subordinated to all existing and future senior indebtedness of the Company,
including the Senior Notes and the obligations of the Company under the Credit
Facilities. The Subordinated Debentures will not be guaranteed by any subsidiary
of the Company. In addition, the 9.20% Subordinated Debentures will be unsecured
obligations of PRIMEDIA. In the event of bankruptcy, liquidation or
reorganization of the Company, the assets of PRIMEDIA will be available to pay
obligations on the 9.20% Subordinated Debentures only after all Senior Notes,
obligations under the Credit Facilities and other senior indebtedness of
PRIMEDIA have been paid in full. The 9.20% Debenture Indenture will not prohibit
the incurrence by PRIMEDIA of additional indebtedness that is senior to or PARI
PASSU with the 9.20% Subordinated Debentures.
The operations of PRIMEDIA are and will be conducted through its
subsidiaries, and, therefore, PRIMEDIA is dependent on the cash flow of its
subsidiaries to meet its obligations. Because the assets of PRIMEDIA are and
will be held by operating subsidiaries, the claims of holders of the Preferred
Stock and the 9.20% 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 Facilities and Senior Note
Indentures and trade payables and advances of such subsidiaries. The amount of
pro forma senior indebtedness (including indebtedness and other current and
non-current liabilities of PRIMEDIA's subsidiaries) as of September 30, 1997 is
approximately $2,065 million. None of such indebtedness was secured.
CONTROL BY KKR
Approximately 76% of the shares of Common Stock (on a fully diluted basis)
is 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 PRIMEDIA, control the Company and have the
power to elect all of its directors and approve any action requiring stockholder
approval, including adopting amendments to PRIMEDIA's Certificate of
Incorporation and approving mergers or sales of all or substantially all of the
Company's assets.
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 began to rise around mid-year
1994 and continued to rise more dramatically in 1995 and early 1996. In
particular, the Company's average purchase price for paper increased 8.4% in
1996 over 1995. Paper price increases may have an adverse effect on the
Company's future results but the Company has in the past been able to implement
measures to offset such increases. Postage for product distribution and direct
mail solicitations is also a significant expense of the Company. The Company
uses the U.S. Postal Service for distribution of many of its products and
marketing materials. Postage costs increase periodically and can be expected to
increase in the future. No assurances can be given that the Company can pass
such cost increases through to its customers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Impact of Inflation."
21
<PAGE>
LACK OF PUBLIC MARKET
The Preferred Stock constitutes a new issue of securities with no
established trading market. In addition, because the Exchange Offer is not
conditioned upon any minimum number of shares of Old Preferred Stock being
tendered for exchange, the number of shares of New Preferred Stock issued could
be quite small, which could have an adverse effect on the liquidity of the New
Preferred Stock. Also, to the extent that shares of Old Preferred Stock are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered shares of Old Preferred Stock could be adversely affected. Therefore,
no assurance can be given as to the liquidity of the trading market for the
Preferred Stock.
CONSEQUENCES OF FAILURE TO TENDER
The shares of Old Preferred which are not exchanged for shares of New
Preferred Stock pursuant to the Exchange Offer will remain restricted securities
within the meaning of Rule 144 of the Securities Act. Accordingly, such shares
of Old Preferred Stock may be resold under limited circumstances, as discussed
in "The Exchange Offer--Consequences of Failure to Tender." The liquidity of the
Old Preferred Stock could be adversely affected by the Exchange Offer. Following
consummation of the Exchange Offer, holders of the Old Preferred Stock will have
no further registration rights under the Registration Rights Agreement.
RISKS RELATING TO A CHANGE OF CONTROL
The agreements governing the Company's indebtedness, including the 9.20%
Debenture Indenture, contain change of control provisions which, under certain
circumstances, may require the Company to repurchase such indebtedness upon a
change of control. Because of the substantial indebtedness of the Company, there
can be no assurance that the Company would have sufficient financial resources
available to repurchase all of such indebtedness in the event of a change in
control.
USE OF PROCEEDS
There will be no cash proceeds to PRIMEDIA from the Exchange Offer. Net
proceeds of the offering of the Old Preferred Stock of approximately $121.5 were
initially used to pay down borrowings under the Credit Facilities. Amounts were
subsequently reborrowed and were used to redeem 4,000,000 outstanding shares of
Senior Preferred Stock on November 3, 1997 at a redemption price of $26.45 per
share plus accrued and unpaid dividends to the redemption date and to repay
borrowings outstanding under its Bank Credit Facilities, which amounts may be
reborrowed for general corporate purposes including acquisitions.
22
<PAGE>
CAPITALIZATION
The following table sets forth, at September 30, 1997 (i) the actual cash
and cash equivalents and the consolidated capitalization of the Company, which
gives effect to the Offering and the application of the net proceeds therefrom
to repay certain borrowings under the Credit Facilities, and (ii) the pro forma
cash and cash equivalents and the consolidated capitalization of the Company
which gives effect to borrowings under the Credit Facilities which were used to
finance the Redemption on November 3, 1997. The information below should be read
in conjunction with the Company's historical consolidated financial statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
--------------------------
<S> <C> <C>
ACTUAL PRO FORMA
------------ ------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................. $ 21,693 $ 21,693
------------ ------------
------------ ------------
Long-term debt:
Borrowings under Credit Facilities ................................................. $ 1,076,833 $ 1,184,550
10 1/4% Senior Notes due 2004....................................................... 100,000 100,000
8 1/2% Senior Notes due 2006, net................................................... 298,879 298,879
Acquisition Obligation Payable(1)................................................... 55,511 55,511
------------ ------------
Total indebtedness................................................................ 1,531,223 1,638,940
Less current maturities......................................................... (6,000) (6,000)
------------ ------------
Total long-term debt.............................................................. 1,525,223 1,632,940
$2.875 Senior Exchangeable Preferred Stock............................................ 98,471 --
$11.625 Series B Exchangeable Preferred Stock......................................... 155,202 155,202
$10.00 Series D Exchangeable Preferred Stock.......................................... 194,404 194,404
$9.20 Series E Exchangeable Preferred Stock/New Preferred Stock(2).................... 121,450 121,450
Common stock subject to redemption(3)................................................. 4,234 4,234
Shareholders' equity:
Common stock and additional paid-in capital(4)...................................... 781,919 780,390
Accumulated deficit(5).............................................................. (900,256) (907,973)
Common stock in treasury, at cost................................................... (6,971) (6,971)
Cumulative foreign currency translation adjustments................................. (1,424) (1,424)
------------ ------------
Total shareholders' equity...................................................... (126,732) (135,978)
------------ ------------
Total capitalization.................................................................. $ 1,972,252 $ 1,972,252
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Represents the present value at September 30, 1997 of the principal and
interest obligations under notes payable issued in connection with the
acquisition of certain specialty consumer magazines and the DAILY RACING
FORM.
(2) Represents net proceeds to the Company after deduction of issuance costs.
(3) 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 and the
likelihood of significant resales is considered by management to be remote.
(4) Does not include 11,867,869 shares of Common Stock issuable upon exercise of
stock options, 8,725,779 of which were then exercisable as of September 30,
1997.
(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 other, deferred financing costs, the
write-offs of the unamortized balance of deferred financing costs
(associated with all previous financings), net provision for loss on sales
of businesses and restructuring and other costs in the aggregate amount of
approximately $1,170,500 at September 30, 1997 net of a non-cash income tax
benefit aggregating $155,000 through September 30, 1997.
23
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected consolidated financial information is derived from the
historical consolidated financial statements of the Company. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
------------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996
----------- ----------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Sales, net................................. $ 778,224 $ 844,748 $ 964,648 $ 1,046,329 $ 1,374,449 $ 995,051
Depreciation and amortization.............. 171,581 143,267 136,866 192,276 190,702 139,944
Other charges(1)........................... -- 2,644 15,025 50,114 -- --
Operating income (loss)(2)................. (46,230) (7,669) 10,203 (26,275) 85,901 48,784
Interest expense........................... 76,719 74,336 78,351 105,837 124,601 91,313
Income tax benefit(3)...................... 314 -- 42,100 59,600 53,300 --
Income (loss) before extraordinary charge.. (125,528) (86,496) (29,529) (75,435) 17,597 (39,701)
Extraordinary charge-extinguishment of
debt(4).................................. (19,814) -- (11,874) -- (9,553) (7,572)
Net income (loss)(2)....................... (145,342) (86,496) (41,403) (75,435) 8,044 (47,273)
Preferred stock dividends.................. 16,530 22,290 25,959 28,978 43,526 31,326
Loss applicable to common shareholders..... (161,872) (108,786) (67,362) (104,413) (35,482) (78,599)
Loss applicable to common shareholders per
common and common equivalent share(2)(5):
Loss before extraordinary charge......... $ (1.55) $ (1.18) $ (.54) $ (.91) $ (.20) $ (.55)
----------- ----------- ------------ ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------ ------------
Net loss................................. $ (1.77) $ (1.18) $ (.65) $ (.91) $ (.27) $ (.61)
----------- ----------- ------------ ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------ ------------
Weighted average common and common
equivalent shares outstanding.......... 91,317,610 92,392,189 103,642,668 115,077,498 130,007,632 128,721,459
----------- ----------- ------------ ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------ ------------
OTHER DATA:
EBITDA(6).................................. $ 125,351 $ 138,242 $ 162,094 $ 216,115 $ 276,603 $ 188,728
Capital expenditures, net.................. 12,319 11,485 14,184 23,414 28,790 18,103
Net cash provided by operating
activities............................... 16,618 27,072 64,890 64,062 150,192 63,836
Net cash used in investing activities...... (79,725) (95,669) (442,126) (318,712) (721,709) (683,338)
Net cash provided by financing
activities............................... 60,877 63,579 383,924 263,644 580,946 624,780
Deficiency of earnings to fixed
charges(7)(8)............................ (125,842) (86,496) (71,629) (135,035) (35,703) (39,701)
Deficiency of earnings to fixed charges and
preferred stock dividends(7)(8).......... (142,372) (108,786) (97,588) (164,013) (79,229) (71,027)
<CAPTION>
<S> <C>
1997
------------
OPERATING DATA:
Sales, net................................. $ 1,089,997
Depreciation and amortization.............. 125,694
Other charges(1)........................... 138,640
Operating income (loss)(2)................. (52,330)
Interest expense........................... 103,728
Income tax benefit(3)...................... 1,685
Income (loss) before extraordinary charge.. (156,520)
Extraordinary charge-extinguishment of
debt(4).................................. (15,401)
Net income (loss)(2)....................... (171,921)
Preferred stock dividends.................. 37,237
Loss applicable to common shareholders..... (209,158)
Loss applicable to common shareholders per
common and common equivalent share(2)(5):
Loss before extraordinary charge......... $ (1.50)
------------
------------
Net loss................................. $ (1.62)
------------
------------
Weighted average common and common
equivalent shares outstanding.......... 129,271,743
------------
------------
OTHER DATA:
EBITDA(6).................................. $ 212,004
Capital expenditures, net.................. 22,305
Net cash provided by operating
activities............................... 46,117
Net cash used in investing activities...... (92,903)
Net cash provided by financing
activities............................... 31,824
Deficiency of earnings to fixed
charges(7)(8)............................ (158,205)
Deficiency of earnings to fixed charges and
preferred stock dividends(7)(8).......... (195,442)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 16,562 $ 11,544 $ 18,232 $ 27,226 $ 36,655
Working capital (deficiency)(9)........... 1,189 3,605 1,338 (56,560) (44,705)
Intangible assets, gross.................. 1,276,123 1,343,482 1,656,590 1,996,564 2,649,805
Less accumulated amortization......... 383,784 504,538 602,542 762,393 896,824
----------- ----------- ------------ ------------ ------------
Intangible assets, net.................... 892,339 838,944 1,054,048 1,234,171 1,752,981
Total assets.............................. 1,197,896 1,166,502 1,589,692 1,881,416 2,552,215
Long-term debt(10)........................ 704,802 661,297 1,034,689 1,134,916 1,565,686
Exchangeable preferred stock.............. 97,171 202,453 216,229 231,606 442,729
Common stock subject to redemption........ 16,746 25,287 16,552 28,022 5,957
Shareholders' equity:
Convertible preferred stock........... 78,797 -- -- -- --
Common stock.......................... 853 947 1,053 1,259 1,283
Additional paid-in capital............ 421,926 488,541 572,940 748,194 772,642
Accumulated deficit................... (375,055) (483,841) (551,203) (655,616) (691,098)
Common stock in treasury, at cost..... -- -- -- -- --
Cumulative foreign currency
translation adjustments............. (222) (1,220) (1,324) (1,275) (1,270)
----------- ----------- ------------ ------------ ------------
Total shareholders' equity (deficiency)... $ 126,299 $ 4,427 $ 21,466 $ 92,562 $ 81,557
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
<CAPTION>
AT
SEPTEMBER 30,
1997
-------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 21,693
Working capital (deficiency)(9)........... (19,735)
Intangible assets, gross.................. 2,336,227
Less accumulated amortization......... 694,270
-------------
Intangible assets, net.................... 1,641,957
Total assets.............................. 2,404,313
Long-term debt(10)........................ 1,525,223
Exchangeable preferred stock.............. 569,527
Common stock subject to redemption........ 4,234
Shareholders' equity:
Convertible preferred stock........... --
Common stock.......................... 1,290
Additional paid-in capital............ 780,629
Accumulated deficit................... (900,256)
Common stock in treasury, at cost..... (6,971)
Cumulative foreign currency
translation adjustments............. (1,424)
-------------
Total shareholders' equity (deficiency)... $ (126,732)
-------------
-------------
</TABLE>
(FOOTNOTES ON THE FOLLOWING PAGE)
24
<PAGE>
(1) Represents provision for write-down of real estate no longer utilized in
1993, net provision for loss on the sales of businesses in 1994, 1995 and
1997 and provision for restructuring and other costs in 1995.
(2) The adoption of the Accounting Change resulted in an increase in operating
income (decrease in operating loss) and an equal decrease in net loss and
loss per common and common equivalent share of approximately $9,800 ($.09
per share), $11,800 ($.10 per share) and $2,000 ($.02 per share) for the
years ended December 31, 1994, 1995 and 1996, respectively.
(3) The income tax benefit in 1992 reflects the reversal of an overprovision for
Canadian income taxes. At December 31, 1994, 1995 and 1996, management of
the Company reviewed recent operating results for the years then ended and
projected future operating results for the years through December 31, 2002
and determined that a portion of the net deferred income tax assets at
December 31, 1994, 1995 and 1996 would likely be realized. Accordingly, the
Company recorded an income tax benefit of $42,100 in 1994, $59,600 in 1995
and $53,300 in 1996. At September 30, 1997, the Company had NOLs of
approximately $752,000 which will be available to reduce future taxable
income. In addition to the NOLs, management estimates that approximately
$783,000 of unamortized goodwill and other intangible assets will be
available as deductions from any future taxable income. For the nine months
ended September 30, 1997, the Company recorded an income tax carryback claim
of $1,685.
(4) Represents the write-off of unamortized deferred financing costs. For the
year ended December 31, 1996 and the nine months ended September 30, 1997,
amount also includes the premiums paid on the redemptions of the 10 5/8%
Senior Notes.
(5) 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 3 of the notes to the audited consolidated financial statements and
Note 9 of the notes to the unaudited condensed consolidated financial
statements for the nine months ended September 30, 1996 and 1997 included
elsewhere in this Prospectus.
(6) 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 income
(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.
This measure may not be comparable to similarly titled measures used by
other companies.
(7) The deficiency of earnings to fixed charges consists of loss before income
taxes and extraordinary charge plus fixed charges. Fixed charges consist of
interest expense on 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.
(8) Income (loss) before income taxes and extraordinary charge 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, provision for write-down of
real estate no longer utilized, net provision for loss on the sales of
businesses, restructuring and other costs and non-cash interest expense on
an acquisition obligation, distribution advance and other current liability.
These non-cash charges totaled $182,603, $157,964, $160,778, $241,536 and
$192,895 for the years ended December 31, 1992, 1993, 1994, 1995 and 1996,
respectively and $143,359 and $268,614 for the nine months ended September
30, 1996 and 1997, respectively. Adjusted to eliminate these non-cash
charges, earnings would have exceeded fixed charges and fixed charges plus
cash preferred stock dividends by approximately $56,761 and $48,616 for
1992, $71,468 and $59,968 for 1993, $89,149 and $77,649 for 1994, $106,501
and $95,001 for 1995 and $157,192 and $130,248 for 1996. Adjusted to
eliminate these non-cash charges, earnings would have exceeded fixed charges
and fixed charges plus cash preferred stock dividends by approximately
$103,658 and $84,589 and $110,409 and $77,623 for the nine months ended
September 30, 1996 and 1997, respectively.
(9) Includes current maturities of long-term debt and assets held for sale as of
December 31, 1994, 1995 and 1996 and September 30, 1997.
(10) Excludes current maturities of long-term debt.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INTRODUCTION
The following discussion of the consolidated financial condition and related
results of operations of the Company should be read in conjunction with the
Company's historical consolidated financial statements and the related notes
thereto included elsewhere in this Prospectus.
The Company organizes its businesses into three segments: specialty
magazines (specialty consumer and technical and trade magazines), education
(classroom and workplace learning) and information (consumer and business). The
specialty magazines segment has in prior periods been referred to as the
specialty media segment, but the Company believes the new name is more
reflective of the focus of the segment. Most of the Company's products are
premier brands with leadership positions in the specialty niche markets in which
such products compete.
Management believes a meaningful comparison of the results of operations for
the nine months ended September 30, 1996 and 1997 is obtained by using this
segment information. In the third quarter of 1997, the Company began presenting
results from "continuing businesses" which exclude the results of the Non-Core
Businesses ("Continuing Businesses"). The Non-Core Businesses include Krames,
Katharine Gibbs, NEW WOMAN and Intertec Mailing Services which have been
divested; Newbridge Communications, Inc. (excluding Films for the Humanities and
Sciences), for which there is an agreement in principle for sale, and THE DAILY
RACING FORM and STAGEBILL which are being held for sale. Management believes
that this presentation is the most useful way to analyze the historical trends
of the businesses.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
----------- -------------
<S> <C> <C>
Sales, net from:
Continuing Businesses:
Specialty Magazines............................................................... $ 468,177 $ 519,512
Education......................................................................... 121,097 165,769
Information....................................................................... 172,701 199,571
----------- -------------
Subtotal........................................................................ 761,975 884,852
None-Core Businesses................................................................ 233,076 205,145
----------- -------------
Total........................................................................... $ 995,051 $ 1,089,997
----------- -------------
----------- -------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
----------- -------------
Operating income (loss) from:
<S> <C> <C>
Continuing Businesses:
Specialty Magazines............................................................... $ 46,845 $ 70,393
Education......................................................................... 2,079 3,287
Information....................................................................... 17,127 16,637
Corporate......................................................................... (15,905) (19,100)
----------- -------------
Subtotal........................................................................ 50,146 71,217
None-Core Businesses................................................................ (1,362) (123,547)
----------- -------------
Total........................................................................... 48,784 (52,330)
Other income (expense):
Interest expense.................................................................. (91,313) (103,728)
Amortization of deferred financing costs.......................................... (2,784) (2,323)
Other, net........................................................................ 5,612 176
----------- -------------
Loss before income tax benefit and extraordinary charge............................... (39,701) (158,205)
Income tax benefit--carryback claim................................................... -- 1,685
----------- -------------
Loss before extraordinary charge...................................................... (39,701) (156,520)
Extraordinary charge--extinguishment of debt.......................................... (7,572) (15,401)
----------- -------------
Net loss.............................................................................. $ (47,273) $ (171,921)
----------- -------------
----------- -------------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
CONSOLIDATED RESULTS: Sales from Continuing Businesses increased 16.1% to
$884,852 in the 1997 period over 1996 sales of $761,975. Sales increased in all
segments, with the greatest percentage increase coming from the education
segment due to the 1996 acquisition of Westcott, which added $29,396.
Consolidated sales as reported, including the Non-Core Businesses, increased by
9.5% to $1,089,997 in the 1997 period over 1996 reflecting the impact of the
divestitures prior to the end of the 1997 period.
Operating income from Continuing Businesses increased by 42.0% to $71,217 in
the 1997 period over 1996 due to operating income increases in the specialty
magazines and education segments, of $23,548 and $1,208, respectively. In 1997,
the Company recorded a provision for loss on the sales of businesses of
$138,640, primarily attributable to THE DAILY RACING FORM. Consolidated
operating income, including the Non-Core Businesses and before this provision in
the 1997 period, was $86,310, up 76.9% from the year ago period. This increase
was driven by (i) a $94,946 increase in sales, which includes the impact of
acquisitions, and a $13,978 decrease in amortization of intangible assets,
excess of purchase price over net assets acquired and other, (ii) partially
offset by an 11.2% increase in marketing and selling, a 15.6% increase in
distribution, circulation and fulfillment, and a 20.7% increase in editorial
expenses. Paper costs, which in the first nine months of 1997 represented
approximately 9% of the Company's total operating costs and expenses, were
approximately 10% lower in the first nine months of 1997 versus the same period
in 1996. Paper prices have been relatively stable in recent months. Consolidated
operating loss as reported, including the Non-Core Businesses and after
deducting the provision for the loss on the sales of businesses, was $52,330 in
the 1997 period as compared to operating income of $48,784 in 1996.
Interest expense increased by $12,415, or 13.6% in the 1997 period over 1996
primarily due to the increased level of borrowings associated with acquisitions.
The increase in the level of borrowings has slowed due to the Company's focus on
smaller acquisitions.
The consolidated loss before income tax benefit and extraordinary charge
increased by $118,504 to $158,205 in the first nine months of 1997 versus 1996
due primarily to the provision for loss on the sales of
27
<PAGE>
businesses, offset by an increase in operating income before the provision. The
$7,829 increase in the extraordinary charge reflects the aggregate premium paid
of $9,537 on the redemptions of the Company's 10 5/8% Senior Notes and an
additional write-off of related deferred financing costs of $5,864.
SPECIALTY MAGAZINES: Sales from Continuing Businesses increased 11.0% to
$519,512 from $468,177 in 1996. The increase was equally attributable to (i)
internal growth, primarily at SEVENTEEN, which achieved newsstand sales of over
one million copies in August and SOAP OPERA DIGEST, which became a weekly
publication during the period and (ii) various acquisitions. Excluded from
Continuing Businesses in both periods are NEW WOMAN, STAGEBILL and Intertec
Mailing Services. Operating income from Continuing Businesses increased 50.3% to
$70,393 from $46,845 in 1996 due to the sales increases as well as the decline
in paper costs of approximately $10,000 in 1997.
EDUCATION: Sales from Continuing Businesses increased 36.9% to $165,769
from $121,097 in 1996. The increase in sales reflects acquisitions, particularly
Westcott, which the Company acquired in May 1996. Excluded from Continuing
Businesses in both periods are Krames, Katharine Gibbs and Newbridge
Communications, Inc. (excluding Films for the Humanities and Sciences).
Operating income from Continuing Businesses increased 58.1% to $3,287 from
$2,079 in 1996 due largely to acquisitions.
INFORMATION: Sales from Continuing Businesses increased 15.6% to $199,571
from $172,701 in 1996. The sales increase was primarily due to growth at the
apartment guides which was equally attributable to (i) an increase in
advertising pages and (ii) various acquisitions. Excluded from Continuing
Businesses in both periods is THE DAILY RACING FORM. Operating income from
Continuing Businesses decreased 2.9% to $16,637 from $17,127 in 1996 due largely
to an increase in amortization of intangible assets associated with
acquisitions.
NON-CORE BUSINESSES: Sales from the Non-Core Businesses declined 12.0% to
$205,145 from $233,076 in 1996. The majority of this decline resulted from the
divestitures of Krames, Katharine Gibbs and NEW WOMAN prior to the end of the
1997 period. The operating loss from the Non-Core Businesses increased to
$123,547 from $1,362 in 1996 due to the provision for loss on the sales of
businesses of $138,640 in 1997, partially offset by a reduction in the
amortization of intangible assets and excess of purchase price over net assets
acquired associated with the Non-Core Businesses.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Sales, net:
Specialty Magazines..................................................... $ 341,782 $ 452,373 $ 684,341
Education............................................................... 430,134 330,414 376,217
Information............................................................. 192,732 263,542 313,891
---------- ------------ ------------
Total................................................................... $ 964,648 $ 1,046,329 $ 1,374,449
---------- ------------ ------------
---------- ------------ ------------
Depreciation, amortization and other charges(1):
Specialty Magazines..................................................... $ 53,156 $ 56,682 $ 74,549
Education............................................................... 46,426 106,492 63,252
Information............................................................. 51,677 78,513 52,122
Corporate............................................................... 632 703 779
---------- ------------ ------------
Total................................................................... $ 151,891 $ 242,390 $ 190,702
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Operating income (loss):
Specialty Magazines..................................................... $ 15,877 $ 32,169 $ 59,693
Education............................................................... 10,590 (32,024) 15,011
Information............................................................. (2,307) (8,683) 33,473
Corporate............................................................... (13,957) (17,737) (22,276)
---------- ------------ ------------
Total................................................................... 10,203 (26,275) 85,901
Other income (expense):
Interest expense........................................................ (78,351) (105,837) (124,601)
Amortization of deferred financing and organizational costs............. (3,080) (3,135) (3,662)
Other, net.............................................................. (401) 212 6,659
---------- ------------ ------------
Loss before income tax benefit and extraordinary charge................. (71,629) (135,035) (35,703)
Income tax benefit...................................................... 42,100 59,600 53,300
---------- ------------ ------------
Income (loss) before extraordinary charge............................... (29,529) (75,435) 17,597
Extraordinary charge--extinguishment of debt............................ (11,874) -- (9,553)
---------- ------------ ------------
Net income (loss)....................................................... $ (41,403) $ (75,435) $ 8,044
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
- ------------------------
(1) Other charges includes net provision for loss on the sales of businesses in
1994 and 1995 and provision for restructuring and other costs in 1995.
1996 COMPARED TO 1995
CONSOLIDATED RESULTS: Consolidated net sales increased by $328,120 or 31.4%
to $1,374,449 in 1996 over 1995 due to internal growth in all three segments as
well as the impact of acquisitions. Specifically, the acquisitions of Cahners
Consumer Magazines ("Cahners"), Westcott and the trade magazines of Argus Inc.
("Argus") added $199,144 to net sales growth.
Consolidated operating income was $85,901 in 1996 compared to an operating
loss of $26,275 in 1995. This improvement was driven by the increase in sales,
the impact of recent acquisitions and the effect of several one-time,
principally non-cash charges totalling $68,072 in the second quarter of 1995.
The increase occurred despite an 8.4% increase in the Company's average purchase
price for paper in 1996 and the effect of the required adoption of a new method
of accounting for advertising costs (the "Accounting Change"), which PRIMEDIA
adopted on July 1, 1994. The Accounting Change had a $8,343 net positive impact
on operating income in the first six months of 1995 versus 1996, predominantly
within the education segment. In periods subsequent to June 30, 1996, the
comparative effects of the adoption of the Accounting Change are not material.
The increase in corporate expenses resulted predominantly from growth in
corporate service requirements.
Interest expense increased by $18,764 or 17.7% in 1996 over 1995 primarily
due to the increased level of borrowings associated with acquisitions.
The Company reported an income tax benefit of $53,300 in 1996 compared to
$59,600 in 1995 associated with the partial recognition of NOLs and other
deferred income tax assets. At the end of each year, the Company reviews its
recent operating results and projected future operating results and for 1996
determined that there should be sufficient future taxable income and that a
portion of the net deferred income tax assets would likely be realized. Such
future taxable income is determined principally from management's projection of
future operating results in conjunction with scheduled reductions in intangible
asset amortization expense. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. Such reductions in
taxable income could occur as the result of many external factors including but
29
<PAGE>
not limited to increased paper and postage costs and rates of interest. The
$9,553 increase in the extraordinary charge reflects the aggregate premium paid
on the redemptions of the Company's 10 5/8% Senior Notes due 2002 (the "10 5/8%
Senior Notes") and the write-off of unamortized deferred financing costs. The
Company reported consolidated net income of $8,044 in 1996 versus a consolidated
net loss of $75,435 in 1995.
SPECIALTY MAGAZINES: The specialty magazines segment's net sales increased
by $231,968 or 51.3% in 1996 over 1995 due to growth of existing properties as
well as the impact of the Cahners and Argus acquisitions. The increases at the
existing properties were primarily due to the double-digit organic revenue
growth at the specialty consumer magazines led by SEVENTEEN, SOAP OPERA DIGEST,
TRUCKIN' and CRAFTS. The full year effect of Argus, acquired in December 1995,
and Cahners, acquired in January 1996, contributed $51,459 and $95,397,
respectively, to the 1996 sales growth. Operating profit increased by $27,524 or
85.6% in 1996 over 1995. The increase was the result of an increase in net sales
partially offset by a 14.1% increase in average paper prices for magazine
operations in 1996 over 1995.
EDUCATION: The education segment's net sales increased by $45,803 or 13.9%
in 1996 over 1995. Increases at Weekly Reader Corporation ("Weekly Reader"),
Films for the Humanities and Sciences and Krames Communications Incorporated
("Krames"), and the addition of Westcott, which contributed $52,288 to the
increase in net sales, offset declines at Newbridge. At Newbridge, the book club
business remained soft, but performance indicators improved from year ago
levels. The education segment's operating profit increased to $15,011 in 1996 as
compared to an operating loss of $32,024 in 1995. This improvement is primarily
due to the one-time charges in the second quarter of 1995 for a provision for
loss associated with the sale of Newfield Publications, Inc. ("Newfield") and a
restructuring charge at Newbridge Communications Inc. Offsetting those charges,
the Accounting Change had a $8,541 net positive impact on operating profit in
the first six months of 1995 versus 1996.
INFORMATION: The information segment's net sales increased by $50,349 or
19.1% in 1996 over 1995 primarily because of double-digit organic growth at the
apartment guides as well as the impact of recent acquisitions which contributed
$17,600 to the increase in net sales. The information segment's operating profit
increased to $33,473 in 1996 as compared to an operating loss of $8,683 in 1995
due to the increase in sales and a decrease in amortization expense. Goodwill
and intangible asset amortization expense decreased by $24,277 in 1996 over 1995
primarily as a result of an adjustment to the carrying values of goodwill and
other intangible assets totalling $17,958 in the second quarter of 1995.
1995 COMPARED TO 1994
CONSOLIDATED RESULTS: Excluding the results of divested operations,
consolidated net sales increased by $249,420 or 31.3% to $1,046,329 in 1995 over
1994. This increase resulted from growth from existing operations, product
additions and acquisitions of businesses in all three segments. In 1995, the
Company divested Newfield in the education segment and PREMIERE magazine in the
specialty magazines segment. The Company's statement of consolidated operations
included the results of these businesses in 1994 but not in 1995. Consequently,
reported net sales including divested businesses increased only 8.5% from 1994
to 1995.
In the second quarter of 1995, the Company recorded several one-time,
principally non-cash, charges totalling $68,072. These included a net aggregate
provision for loss on the sales of Newfield and PREMIERE of $35,447;
restructuring and other charges of $14,667 related to a corporate restructuring
at Newbridge and the completion of manufacturing outsourcing at Daily Racing
Form, Inc., and adjustments to the carrying values of PRIMEDIA Reference
Corporation ("PRIMEDIA Reference"), goodwill and other intangible assets
totalling $17,958.
30
<PAGE>
Partially offsetting these one-time charges was the impact of the Accounting
Change, which PRIMEDIA adopted on July 1, 1994. The Accounting Change increased
operating income by approximately $2,000 more in 1995 than 1994. Including the
one-time charges and the effect of the Accounting Change, the consolidated
operating loss was $26,275 in 1995 as compared to consolidated operating profit
of $10,203 in 1994. The increase in the corporate expenses resulted
predominantly from growth in corporate service requirements.
Interest expense increased by $27,486 or 35.1% in 1995 over 1994 primarily
due to the increased level of borrowings associated with acquisitions as well as
higher short-term interest rates.
The Company recorded an income tax benefit of $59,600 in 1995 compared to
$42,100 in 1994, associated with the partial recognition of NOLs and other net
deferred income tax assets. As a result of the refinancing during the second
quarter of 1994, an extraordinary charge of $11,874 was recorded representing
the write-off of unamortized deferred financing costs related to the previous
bank financing. The consolidated net loss increased by $34,032 in 1995 over 1994
mainly due to the one-time charges.
SPECIALTY MAGAZINES: The specialty magazines segment's sales increased by
$110,591 or 32.4% in 1995 over 1994 due to a 32.0% increase in advertising
revenue and a 31.4% increase in subscription revenue including the effect of the
acquisitions of PJS Publications, Inc., the Maclean Hunter division of Rogers
Communications, Inc. and McMullen & Yee Publishing, Inc. which contributed
$40,665, $29,386 and $21,357, respectively, to the increase in net sales, offset
by the elimination of the revenues of PREMIERE. Excluding the effects of
acquisitions and divestitures, technical and trade magazine advertising pages
and rates rose 3.7% and 5.0%, respectively, and specialty consumer magazine
advertising pages and rates rose 3.2% and 3.3%, respectively, in 1995 over 1994.
Despite an average 24% increase in paper costs in addition to the Accounting
Change impact which was $2,000 less favorable in 1995 than in 1994, the
specialty magazines segment's operating profit increased by $16,292 in 1995 over
1994.
EDUCATION: Excluding the results of Newfield, the education segment's net
sales increased 17.5% over 1994, reflecting growth from product additions and
acquisitions of businesses, primarily Channel One Communications Corporation
("Channel One") which added $52,370 to the net sales growth in 1995. Reported
results, however, included Newfield's sales only in 1994, thus leading to a
reported decline in the education segment's net sales of 23.2%. The Accounting
Change favorably impacted the education segment's earnings by approximately
$4,000 more in 1995 than in 1994; however, it was offset by an increase in
goodwill, intangible and other asset amortization expenses of $15,469 and an
increase in certain one-time charges of $37,377. The education segment reported
an operating loss of $32,024 in 1995 compared to an operating profit of $10,590
in 1994.
INFORMATION: The information segment's net sales increased by $70,810 or
36.7% in 1995 over 1994 primarily as a result of product additions at business
directories, the full year effect of the acquisition of Haas and the subsequent
addition of new markets for its apartment guides. Product additions at PRIMEDIA
Directory Corporation included the INTERNATIONAL TRADE GUIDE, the U.S. CUSTOM
HOUSE GUIDE and the OFFICIAL EXPORT GUIDE, all acquired in late 1994, as well as
the Machinery Information Division directories acquired in mid-1994. These
product additions contributed approximately $7,000 to the 1995 net sales growth.
The Haas acquisition in mid-1994 resulted in approximately $27,900 of the 1995
net sales growth. Additional markets added to the Haas apartment guides in 1995
included Washington, D.C., Baltimore, MD and Detroit, MI, which contributed
approximately $8,800 to the 1995 net sales growth. The addition of the BACON'S
media relations industry directories, clipping services and mailing services in
mid-1995 added approximately $27,900 to the 1995 net sales growth. Goodwill and
intangible asset amortization expense increased by $21,889 in 1995 over 1994
principally as a result of the adjustments to goodwill and intangible asset
values at PRIMEDIA Reference. This was the primary cause for an increase in the
information segment's operating loss of $6,376 in 1995 over 1994.
31
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information regarding the Company's
EBITDA and other net cash flow items:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
EBITDA(1) from:
Continuing Businesses:
Specialty Magazines................................................................. $ 96,374 $ 113,854
Education........................................................................... 41,109 49,724
Information......................................................................... 44,834 47,986
Corporate........................................................................... (15,336) (19,256)
----------- -----------
Subtotal.......................................................................... 166,981 192,308
Non-Core Businesses................................................................... 21,747 19,696
----------- -----------
Total............................................................................. $ 188,728 $ 212,004
----------- -----------
----------- -----------
Net Cash Provided by (Used in) Operating Activities from:
Continuing Businesses:
Specialty Magazines................................................................. $ 72,488 $ 103,596
Education........................................................................... 22,038 20,541
Information......................................................................... 40,891 43,133
Corporate........................................................................... (88,738) (131,296)
----------- -----------
Subtotal.......................................................................... 46,679 35,974
Non-Core Businesses................................................................... 17,157 10,143
----------- -----------
Total............................................................................. $ 63,836 $ 46,117
----------- -----------
----------- -----------
Net Cash Provided by (Used in) Investing Activities from:
Continuing Businesses:
Specialty Magazines................................................................. $ (200,415) $ (63,654)
Education........................................................................... (432,470) (68,088)
Information......................................................................... (39,474) (47,168)
Corporate........................................................................... (877) (1,200)
----------- -----------
Subtotal.......................................................................... (673,236) (180,110)
Non-Core Businesses................................................................... (10,102) 87,207
----------- -----------
Total............................................................................. $ (683,338) $ (92,903)
----------- -----------
----------- -----------
Net Cash Provided by (Used in) Financing Activities from:
Continuing Businesses:
Specialty Magazines................................................................. $ (5,493) $ (1,876)
Education........................................................................... (1,528) (813)
Information......................................................................... (1,022) (256)
Corporate........................................................................... 634,878 35,238
----------- -----------
Subtotal.......................................................................... 626,835 32,293
Non-Core Businesses................................................................... (2,055) (469)
----------- -----------
Total............................................................................. $ 624,780 $ 31,824
----------- -----------
----------- -----------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Excess (Deficiency) of Earnings to Fixed Charges(2) from:
Continuing Businesses:
Specialty Magazines................................................................. $ 48,852 $ 68,481
Education........................................................................... 1,034 2,057
Information......................................................................... 14,732 12,076
Corporate........................................................................... (102,277) (116,583)
----------- -----------
Subtotal.......................................................................... (37,659) (33,969)
Non-Core Businesses................................................................... (2,042) (124,236)
----------- -----------
Total............................................................................. $ (39,701) $ (158,205)
----------- -----------
----------- -----------
Excess (Deficiency) of Earnings to Fixed Charges and Preferred Stock Dividends(2) from:
Continuing Businesses:
Specialty Magazines................................................................. $ 48,852 $ 68,481
Education........................................................................... 1,034 2,057
Information......................................................................... 14,732 12,076
Corporate........................................................................... (133,603) (153,820)
----------- -----------
Subtotal.......................................................................... (68,985) (71,206)
Non-Core Businesses................................................................... (2,042) (124,236)
----------- -----------
Total............................................................................. $ (71,027) $ (195,442)
----------- -----------
----------- -----------
</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 income
(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.
This measure may not be comparable to similarly titled measures used by
other companies.
(2) The deficiency of earnings to fixed charges consists of loss before income
taxes plus fixed charges. Loss before income taxes includes (i) depreciation
or 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) net provision for loss on
sales of businesses, (iv) restructuring and other costs, and (v) 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 on 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.
Consolidated working capital deficiency including current maturities of
long-term debt was $19,735 at September 30, 1997 compared to a working capital
deficiency of $44,705 at December 31, 1996. Excluding the effect of the
reclassification of net assets held for sale, consolidated working capital
deficiency including current maturities of long-term debt would have been
$58,528 at September 30, 1997 compared to $69,317 at December 31, 1996.
Consolidated working capital deficiency reflects the expensing of editorial and
product development costs when incurred and the recording of deferred revenues
as a current liability. Advertising costs are expensed when the promotional
activities occur except for certain
33
<PAGE>
direct-response advertising costs which are capitalized as other non-current
assets and amortized over the estimated period of future benefit.
EBITDA from Continuing Businesses increased 15.2% to $192,308 in the nine
months ended September 30, 1997 over 1996. The increase was attributable to the
sales increases as well as the decline in paper costs of approximately $10,000
in 1997. EBITDA from Continuing Businesses in the specialty magazines segment
increased 18.1% to $113,854 primarily due to a $10,000 decrease in paper costs,
acquisitions and organic growth in circulation and advertising revenue. EBITDA
from Continuing Businesses in the education segment increased 21.0% to $49,724.
The increase is attributable to several acquisitions, primarily Westcott, which
was acquired in May 1996 and impacted the increase by $4,424. EBITDA from
Continuing Businesses in the information segment increased 7.0% to $47,986. The
increase was primarily due to growth at the apartment guides which was equally
attributable to (i) an increase in advertising pages and (ii) various
acquisitions. EBITDA from the Non-Core Businesses declined 9.4% to $19,696 in
1997 primarily as a result of the divestitures during the period. Net cash
provided by operating activities during the nine months ended September 30,
1997, after interest payments of $113,215, was $46,117, a decrease of $17,719
over the same 1996 period, due primarily to an increase in interest payments.
Net capital expenditures were $22,305 during the 1997 period which was an
increase of $4,202 from the 1996 period. Payments for acquisitions of $182,570
(including certain immaterial purchase price adjustments relating to previous
acquisitions) were made during the first nine months of 1997.
The Company's earnings (defined as pretax income or loss from continuing
operations before extraordinary charge) are inadequate to cover fixed charges by
$39,701 and $158,205 for the nine-month periods ended September 30, 1996 and
1997, respectively. The Company's earnings are inadequate to cover fixed charges
plus preferred stock dividends by $71,027 and $195,442 for the nine-month
periods ended September 30, 1996 and 1997, respectively. Fixed charges consist
of interest expense on 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 non-cash charges (including
depreciation, amortization, provision for loss on the sales of businesses and
non-cash interest expense) of approximately $143,359 and $268,614 for the
nine-month periods ended September 30, 1996 and 1997, respectively. Adjusted to
eliminate these non-cash charges, earnings would have exceeded fixed charges by
approximately $103,658 and $110,409 for the nine-month periods ended September
30, 1996 and 1997, respectively. Adjusted to eliminate these non-cash charges,
earnings would have exceeded fixed charges plus cash preferred stock dividends
by approximately $84,589 and $77,623 for the nine-month periods ended September
30, 1996 and 1997, respectively.
34
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
EBITDA(1):
Specialty Magazines...................................................... $ 69,033 $ 88,851 $ 134,242
Education................................................................ 57,016 74,468 78,263
Information.............................................................. 49,370 69,830 85,595
Corporate................................................................ (13,325) (17,034) (21,497)
----------- ----------- -----------
Total.................................................................... $ 162,094 $ 216,115 $ 276,603
----------- ----------- -----------
----------- ----------- -----------
Net cash provided by (used in) operating activities:
Specialty Magazines...................................................... $ 62,902 $ 66,601 $ 124,719
Education................................................................ 43,314 35,963 84,541
Information.............................................................. 39,167 73,019 70,022
Corporate................................................................ (80,493) (111,521) (129,090)
----------- ----------- -----------
Total.................................................................... $ 64,890 $ 64,062 $ 150,192
----------- ----------- -----------
----------- ----------- -----------
Net cash provided by (used in) investing activities:
Specialty Magazines...................................................... $ (20,181) $ (238,731) $ (213,546)
Education................................................................ (291,501) 6,075 (439,907)
Information.............................................................. (130,110) (83,632) (66,521)
Corporate................................................................ (334) (2,424) (1,735)
----------- ----------- -----------
Total.................................................................... $ (442,126) $ (318,712) $ (721,709)
----------- ----------- -----------
----------- ----------- -----------
Net cash provided by (used in) financing activities:
Specialty Magazines...................................................... $ (8,081) $ (5,332) $ (10,372)
Education................................................................ (2,795) (727) (3,205)
Information.............................................................. 375 (2,590) (5,633)
Corporate................................................................ 394,425 272,293 600,156
----------- ----------- -----------
Total.................................................................... $ 383,924 $ 263,644 $ 580,946
----------- ----------- -----------
----------- ----------- -----------
Excess (Deficiency) of Earnings to Fixed Charges(2):
Specialty Magazines...................................................... $ 9,253 $ 26,001 $ 60,883
Education................................................................ 9,406 (33,615) 13,141
Information.............................................................. (7,735) (13,449) 30,278
Corporate................................................................ (82,553) (113,972) (140,005)
----------- ----------- -----------
Total.................................................................... $ (71,629) $ (135,035) $ (35,703)
----------- ----------- -----------
----------- ----------- -----------
Excess (Deficiency) of Earnings to Fixed Charges and Cash Preferred Stock
Dividends(2):
Specialty Magazines...................................................... $ 9,253 $ 26,001 $ 60,883
Education................................................................ 9,406 (33,615) 13,141
Information.............................................................. (7,735) (13,449) 30,278
Corporate................................................................ (108,512) (142,950) (183,531)
----------- ----------- -----------
Total.................................................................... $ (97,588) $ (164,013) $ (79,229)
----------- ----------- -----------
----------- ----------- -----------
</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 income
(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
35
<PAGE>
analysis of the Company's operating performance relative to other companies
in its industry. This measure may not be comparable to similarly titled
measures used by other companies.
(2) The deficiency of earnings to fixed charges consists of loss before income
taxes plus fixed charges. Loss before income taxes includes (i) depreciation
or 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) net provision for loss on
sales of businesses, (iv) restructuring and other costs, and (v) 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 on 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.
1996 COMPARED TO 1995
Consolidated EBITDA increased by $60,488 or 28% in the year ended December
31, 1996 over 1995 mainly as a result of growth from existing operations, new
product additions and acquisitions of businesses. The net cash provided by
operating activities during the year ended December 31, 1996, after interest
payments of $111,752, was $150,192, an increase of $86,130 over 1995 resulting
mainly from EBITDA growth. Capital expenditures, net of gross proceeds from
sales of assets, were $28,790 during 1996 as compared to $23,414 for 1995. These
expenditures included data processing equipment, televisions, videocassette
recorders, satellite dishes, furniture and leasehold improvements and were
financed with net cash provided from operations. Payments of $700,990 (including
certain immaterial purchase price adjustments relating to previous acquisitions)
were made during the year ended December 31, 1996 for the acquisitions described
in Note 4 to the Company's December 31, 1996 consolidated financial statements.
Net cash used in investing activities increased as a result of increased
acquisition activities, substantially all of which were financed with borrowings
under the then existing credit agreements and funds from operations.
The Company's earnings (defined as pretax income or loss from continuing
operations before extraordinary charge) were inadequate to cover fixed charges
and fixed charges plus preferred stock dividends by $135,035 and $164,013 and
$35,703 and $79,229 for 1995 and 1996, respectively. Fixed charges consist of
interest expense on 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 non-cash charges (including depreciation,
amortization, provision for loss on the sales of businesses and non-cash
interest expense) of approximately $241,536 and $192,895 for the years ended
December 31, 1995 and 1996, respectively. Adjusted to eliminate these non-cash
charges, earnings would have exceeded fixed charges and fixed charges plus cash
preferred stock dividends by approximately $106,501 and $95,001 and $157,192 and
$130,248 for the years ended December 31, 1995 and 1996, respectively.
1995 COMPARED TO 1994
Consolidated EBITDA increased by $54,021 or 33.3% in the year ended December
31, 1995 over 1994 mainly as a result of growth from existing operations, new
product additions, acquisitions of businesses and the Accounting Change, which
PRIMEDIA adopted on July 1, 1994. The net cash provided by operating activities
during the year ended December 31, 1995, after interest payments of $102,040,
was $64,062. Net cash provided by operating activities declined by $828 during
the year ended December 31, 1995 from 1994 due primarily to the EBITDA growth
offset by higher acquisition related interest payments and growth in inventories
and prepaid expenses. Capital expenditures, net of gross proceeds from sales of
assets, were $23,414 during 1995 as compared to $14,184 for 1994. These
expenditures included data processing equipment, televisions, videocassette
recorders, satellite dishes, furniture and leasehold improvements and were
financed with net cash provided by operations. Payments of $353,954 (including
certain immaterial
36
<PAGE>
purchase price adjustments relating to previous acquisitions) were made during
the year ended December 31, 1995 for the acquisitions described in Note 4 to the
Company's December 31, 1996 consolidated financial statements. Net cash used in
investing activities decreased as a result of the proceeds from the sale of
Newfield and PREMIERE and the lower cost of the acquisitions in 1995 as compared
to the acquisitions in 1994, all of which were financed with borrowings under
existing credit facilities.
The Company's earnings (defined as pretax income or loss from continuing
operations before extraordinary charge) were inadequate to cover fixed charges
and fixed charges plus preferred stock dividends by $71,629 and $97,588 and
$135,035 and $164,013 for 1994 and 1995, respectively. Fixed charges consist of
interest expense on 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 non-cash charges (including depreciation,
amortization, provision for loss on the sales of businesses and non-cash
interest expense) of approximately $160,778 and $241,536 for 1994 and 1995,
respectively. Adjusted to eliminate these non-cash charges, earnings would have
exceeded fixed charges and fixed charges plus cash preferred stock dividends by
approximately $89,149 and $77,649 and $106,501 and $95,001 for 1994 and 1995,
respectively.
NET OPERATING LOSS CARRYFORWARDS
At September 30, 1997, the Company had NOLs of approximately $752,000 which
will be available to reduce future taxable income. In addition, management
estimates that approximately $783,000 of unamortized goodwill and other
intangible assets will be available as deductions from any future taxable
income.
FINANCING ARRANGEMENTS
In January 1997, the Company purchased, in aggregate, $20,850 of the 10 5/8%
Senior Notes at a weighted average price of 105%, plus accrued and unpaid
interest from various brokers on the open market. On May 1, 1997, the Company
redeemed the $212,400 remaining principal amount of the 10 5/8% Senior Notes at
104% plus accrued and unpaid interest. The aggregate premium paid and the
write-off of related deferred financing costs are classified as an extraordinary
charge and are recorded at an aggregate value of $15,401 on the accompanying
statement of condensed consolidated operations for the nine-month period ended
September 30, 1997.
The write-off of the unamortized deferred financing costs of $7,572 related
to the Company's May 1996 bank debt refinancing has been reclassified as an
extraordinary charge on the accompanying statement of condensed consolidated
operations for the nine-month period ended September 30, 1996 to conform to the
1997 presentation.
On April 21, 1997, the Company entered into a new 364-day credit facility
with The Bank of New York, Bankers Trust Company, The Bank of Nova Scotia and
The Chase Manhattan Bank as agents (the "New Credit Facility") which expires
April 20, 1998. Under the terms of the New Credit Facility, the Company has
commitments of $150,000 which can be borrowed in the form of revolving loans.
The proceeds of all revolving loans under the New Credit Facility can be
used for general corporate and working capital purposes of the Company and its
subsidiaries, including, without limitation, the financing of permitted
acquisitions.
The amounts borrowed pursuant to the New Credit Facility bear interest at
rates per annum identical to those in the bank credit facilities at the
Company's option as follows: (i) the higher of (a) the Federal Funds Effective
Rate plus 1/2% and (b) the prime lending rate as in effect from time to time
(the "Base Rate"); plus in each case, an applicable margin of up to 1/8 of 1% as
specified in the New Credit Facility or (ii) the Eurodollar Rate plus an
applicable margin ranging from 1/2% to 1 1/2% as specified in the New Credit
Facility.
37
<PAGE>
Under the New Credit Facility, the Company has agreed to pay commitment fees
equal to 1/8 of 1% per annum on the daily average aggregate unutilized revolving
loan commitment.
The covenants in the New Credit Facility are identical to those in the Bank
Credit Facilities and, among other things, limit the ability of the Company to
change the nature of its businesses, incur certain indebtedness, create liens,
sell assets, engage in mergers, consolidations or transactions with affiliates,
make investments in or loans to certain subsidiaries, make guarantees and make
certain restricted payments. The Company is also prohibited from declaring or
making dividend payments on the common stock in excess of $25,000 per annum,
unless the fixed charge coverage ratio, interest coverage ratio and leverage
ratio are at certain levels as specified in the New Credit Facility.
As under the Bank Credit Facilities, borrowings under the New Credit
Facility are guaranteed by each of the domestic wholly-owned subsidiaries of the
Company. Such guarantees are full, unconditional and joint and several. The
Company's foreign subsidiaries are not guarantors of the above indebtedness. The
total assets, revenues, income or equity of such foreign subsidiaries, both
individually and on a combined basis, are inconsequential in relation to the
total assets, revenue, income or equity of the Company.
The Company had eight interest rate swap agreements in effect as of
September 10, 1997 with an aggregate notional amount of $800,000. Under these
swap agreements, the Company receives a floating rate of interest based on
three-month LIBOR, which resets quarterly, and pays a fixed rate of interest,
each quarter, for the term of the agreements. As of September 10, 1997, the
weighted average variable rate and weighted average fixed rate were 5.75% and
6.01%, respectively. In addition, in July 1997, the Company entered into four,
three-year and two, four-year interest rate swap agreements, with an aggregate
notional amount of $600,000. Under these new swap agreements, which commence on
January 2, 1998, the Company receives a floating rate of interest based on
three-month LIBOR, which resets quarterly, and the Company pays a fixed rate of
interest, each quarter, for the terms of the respective agreements. The weighted
average fixed rate of interest under these agreements is 6.33%.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to its interest rate swap and cap agreements. Credit risk is
limited by entering into such agreements with primary dealers only; therefore,
the Company does not anticipate that nonperformance by counterparties will
occur. Notwithstanding this, the Company's treasury department monitors
counterparty credit ratings at least quarterly through reviewing independent
credit agency reports. Both current and potential exposure are evaluated, as
necessary, by obtaining replacement cost information from alternative dealers.
Potential loss to the Company from credit risk on these agreements is limited to
amounts receivable, if any. The Company enters into these agreements solely to
hedge its interest rate risk.
Under the Credit Facilities, the Company has total commitments of $1,550,000
and can borrow up to $1,650,000 in the aggregate. As of September 10, 1997,
aggregate borrowings under the Credit Facilities were $1,197,014. As of
September 10, 1997, the amounts borrowed under the Credit Facilities bore
interest at a weighted average variable interest rate of 7.19%. Also, at
September 30, 1997, PRIMEDIA had outstanding $100,000 of 10 1/4% Senior Notes,
$300,000 of 8 1/2% Senior Notes, 4,000,000 shares of Senior Preferred Stock,
1,576,036 shares of $11.625 Series B Preferred Stock, 2,000,000 shares of Series
D Preferred Stock and 1,250,000 shares of Series E Preferred Stock. Before May
1, 1998, dividends or interest, as the case may be, on the Series B Preferred
Stock or the Class B Subordinated Debentures may be paid in cash or by issuing
additional shares of the Series B Preferred Stock or additional Class B
Subordinated Debentures, as the case may be. On or after May 1, 1998, such
dividends or interest must be paid in cash. The Company has been paying such
dividends in cash since May 1, 1997. See "Description of Capital Stock of the
Company."
The above indebtedness, among other things, limits the ability of the
Company to change the nature of its businesses, incur indebtedness, create
liens, sell assets, engage in mergers, consolidations or transactions with
affiliates, make investments in or loans to certain subsidiaries, issue
guarantees and make certain restricted payments. The Company is restricted from
declaring or making dividend payments on its
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common and preferred stock. Under the Company's most restrictive debt covenants,
the Company must maintain a minimum interest coverage ratio of 1.8 to 1 and a
minimum fixed charge coverage ratio of 1.05 to 1 and its maximum allowable
leverage ratio is 6.0 to 1. The Company believes it is in compliance with the
financial and operating covenants of its principal financing arrangements.
The aggregate mandatory reductions of the commitments under the Credit
Facilities are $150,000 in 1998, $90,000 in 1999, $280,000 per year in 2000
through 2003 with a final reduction or paydown of $190,000 in 2004. The 10 1/4%
Senior Notes mature in June 2004 and the 8 1/2% Senior Notes mature in February
2006. The per annum principal and interest payments relating to an acquisition
obligation are scheduled to be $6,000, $14,333, $21,167, $19,167, and $8,833 to
be made in semi-annual installments in 1997 through 2001, respectively. The
Company's aggregate lease obligations for 1997, 1998 and 1999 are expected to be
approximately $35,000, $32,000 and $28,000, respectively. The Company believes
its liquidity, capital resources and cash flow are sufficient to fund planned
capital expenditures, working capital requirements, interest and principal
payments on its debt, the payment of preferred stock dividends and other
anticipated expenditures for the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 becomes effective for the Company's consolidated financial
statements beginning in the fourth quarter of 1997. SFAS No. 128 will eliminate
disclosure of primary earnings per share, which includes the dilutive effect of
stock options, warrants and other convertible securities ("Common Stock
Equivalents"), and instead requires reporting of "basic" earnings per share,
which excludes Common Stock Equivalents. Additionally, SFAS No. 128 changes the
methodology for calculating fully dilutive earnings per share. In the opinion of
the Company's management, it is not anticipated that the adoption of this new
accounting standard will have a material effect on the reported earnings per
share of the Company.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 becomes effective for the Company's
consolidated financial statements beginning in the fourth quarter of 1997. SFAS
No. 129 requires certain disclosures regarding outstanding securities, preferred
stock and redeemable stock. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which become effective for the
Company's 1998 consolidated financial statements. SFAS No. 130 requires the
disclosure of comprehensive income, defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources, in the Company's consolidated financial
statements. SFAS No. 131 requires that a public business enterprise report
certain financial and descriptive information about its reportable operating
segments. In the opinion of the Company's management, it is not anticipated that
the adoption of these new accounting standards will have a material effect on
the consolidated financial statements of the Company.
RECENT DEVELOPMENTS
On November 3, 1997, the Company redeemed all 4,000,000 outstanding shares
of $2.875 Senior Exchangeable Preferred Stock at a price of $26.45 per share,
plus accrued and unpaid dividends, aggregating $105,864.
On November 17, 1997, the Company completed a product-line acquisition in
the technical and trade magazines group.
On November 18, 1997, the Company changed its name to PRIMEDIA Inc. to
better reflect the "prime" positioning the Company has in six areas of
specialized "media." On November 18, 1997, the Company's New York Stock Exchange
symbol was changed from KCC to PRM.
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On November 28, 1997, the Company entered into an agreement to acquire a
leading provider of training products for the insurance industry and on December
19, 1997, the acquisition was consummated.
On January 8, 1998, the Company entered into a Stock Purchase Agreement
pursuant to which it will acquire the Cowles Enthusiast Media and Cowles
Business Media divisions of Cowles Media Company from McClatchy for
approximately $200,000 (including assumed liabilities). The transaction is
subject to the completion of McClatchy's purchase of Cowles Media Company, which
is expected to close by March 31, 1998.
IMPACT OF INFLATION
The impact of inflation was immaterial during 1996 and 1997 with the
exception of paper prices in early 1996. Paper prices declined around mid-year
1996 and continued that trend through the first six months of 1997. Moderate
paper price increases occurred in July 1997 for most of the grades of paper used
by the Company. In the first nine months of 1997, paper costs represented
approximately 9% of the Company's total operating costs and expenses. Postage
for product distribution and direct mail solicitations is also a significant
expense of the Company. The Company uses the U.S. Postal Service for
distribution of many of its products and marketing materials. Postage costs
increase periodically and can be expected to increase in the future. In the
past, the effects of inflation on operating expenses have substantially been
offset by PRIMEDIA's ability to increase selling prices. No assurances can be
given that the Company can pass such 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.
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BUSINESS
GENERAL
PRIMEDIA is the authoritative source for specialized information targeted to
specific high growth segments in the specialty media, education, and business
information markets. Most of PRIMEDIA's products are premier brands with
leadership positions in their specialty niche markets: specialty media (E.G.,
SEVENTEEN, SOAP OPERA DIGEST, LOW RIDER, SEW NEWS and TELEPHONY); education
(E.G., CHANNEL ONE NEWS, WEEKLY READER and WESTCOTT COMMUNICATIONS); and
information (E.G., APARTMENT GUIDE, WARD'S, THE WORLD ALMANAC and BACON'S).
The Company has achieved substantial growth through the development of its
franchises, combined with its operating expertise and successful acquisition
strategy. From 1991 through 1996, net sales have grown at a compound annual rate
of 19% to $1,374 million. Operating income in 1996 was $86 million compared to a
net operating loss of $37 million in 1991 (after deductions for amortization and
depreciation of $191 million in 1996 and $142 million in 1991).
The Company had net income (loss) of ($41.4) million, ($75.4) million and
$8.0 million for the years ended December 31, 1994, 1995 and 1996, respectively,
and ($171.9) million for the nine months ended September 30, 1997. The Company's
deficiency of earnings to fixed charges was $71.6 million, $135.0 million and
$35.7 million for the years ended December 31, 1994, 1995 and 1996,
respectively, and $158.2 million for the nine months ended September 30, 1997.
The Company's deficiency of earnings to fixed charges and preferred stock
dividends was $97.6 million, $164.0 million and $79.2 million for the years
ended December 31, 1994, 1995 and 1996, respectively, and $195.4 million for the
nine months ended September 30, 1997. The Company's pro forma deficiency of
earnings to fixed charges and earnings to fixed charges plus preferred stock
dividends was $55.2 million and $98.7 million, respectively, for the year ended
December 31, 1996. The Company's pro forma deficiency of earnings to fixed
charges and earnings to fixed charges plus preferred stock dividends was $157.5
million and $194.7 million, respectively, for the nine months ended September
30, 1997.
Approximately 56% of PRIMEDIA'S publications are controlled circulation and
the remaining 44% are paid circulation. For the nine months ended September 30,
1997, PRIMEDIA's controlled circulation publications generated approximately 45%
of publication advertising revenue and 5% of circulation revenue and the paid
circulation publications generated approximately 55% of publication advertising
revenue and 95% of circulation revenue.
GROWTH STRATEGY
PRIMEDIA's strategy is to address growing needs in today's information
economy. Technology has created a flood of information. Consequently, management
believes the key role of the media is shifting from making information broadly
available across all audiences to sifting out and qualifying information for the
benefit of specific audiences. The Company's products are authoritative
information sources meeting customers' particular needs in the most beneficial
formats--print, electronic, and multimedia. Its pursuit of this strategy in its
targeted markets has enabled PRIMEDIA to achieve an average market share across
all products of 59%, with 83% ranking number one or two in their markets.
PRIMEDIA provides authoritative information in six areas that show superior
growth: specialty consumer magazines and technical and trade magazines in the
specialty media segment; classroom learning and workplace learning in the
education segment; and consumer directories and business directories in the
information segment. In each of these six areas, the Company offers
authoritative information products that have a branded presence and leading
market positions.
The Company is taking advantage of fundamental growth trends in these six
markets. The Company's specialty media products take advantage of trends in the
specialty consumer market where advertising growth has outpaced general interest
magazine, broadcast television, radio and newspaper advertising
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growth since 1989. In classroom and workplace learning, PRIMEDIA is building on
rising elementary and secondary school enrollments, increased spending on
supplementary educational materials and the rapid growth in outsourced workplace
education. The Company's consumer and business directories are capitalizing on
the trend towards targeted marketing and away from general interest sources such
as newspapers and the increased spending by businesses for information.
The Company seeks to maximize its operating performance by capitalizing on
its leading position in each of these growing markets. Each of PRIMEDIA's six
growth vehicles has opportunities for expansion through both internal organic
development and product line acquisitions. Organic growth results from both
market expansion and product innovation in conventional and new media formats.
Growth through product line acquisition is made possible by the constant
availability of leading brands for sale in the myriad of niche markets in
PRIMEDIA's six growth areas. To support this aspect of growth, the Company has
successfully developed a selective and disciplined process of identifying,
evaluating and integrating acquired companies. The primary source of funds for
these product line acquisitions is the cash generated by the Company's
operations, which by their nature have high operating margins and low capital
requirements. Net capital expenditures were $23 million and $29 million, or 2.2%
and 2.1% of net sales, in 1995 and 1996, respectively. Additionally, cash
available for reinvestment is amplified because the Company pays virtually no
income taxes largely as a result of having structured most of its acquisitions
to create tax-deductible amortization of intangible assets which results in net
operating losses.
SPECIALTY MEDIA
The specialty media segment consists of 66 specialty consumer magazines and
66 technical and trade magazines. In 1996, 62% of the Company's specialty
consumer magazines and 50% of its technical and trade magazines were ranked
number one in their respective markets. Some of the Company's specialty consumer
magazines include SOAP OPERA DIGEST, SEVENTEEN, NEW YORK, CHICAGO, LOW RIDER and
SEW NEWS, while leading technical and trade publications include TELEPHONY,
FLEET OWNER and NATIONAL REAL ESTATE INVESTOR. Advertising in specialty consumer
magazines grew at a 9.5% compound annual growth rate between 1991 and 1996,
outpacing advertising growth in general interest magazines, radio, broadcast
television and newspapers.
SPECIALTY CONSUMER MAGAZINES
The Company's specialty consumer magazines include SOAP OPERA DIGEST, SOAP
OPERA WEEKLY, SEVENTEEN, AMERICAN BABY, over 30 automotive magazines and
numerous bridal, sewing, crafts and other titles. The principal sources for
specialty consumer magazines' net sales are advertising and circulation. In the
year ended December 31, 1996, approximately 54% of the specialty consumer
magazines' net sales were from advertising, 41% were from circulation and 5%
were from other sources.
SOAP OPERA DIGEST and SOAP OPERA WEEKLY are the leading publications
covering soap operas aired on network television. SOAP OPERA DIGEST, which
focuses on synopsis of episodes, was in 1996 a bi-weekly publication with
average circulation of 1.4 million per week or 36 million copies per year. In
April 1997, SOAP OPERA DIGEST became a weekly publication. SOAP OPERA WEEKLY,
which reports primarily on soap opera news, had average 1996 circulation of
500,000 per week or 26 million copies per year. Both publications 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, SOAP OPERA UPDATE, SOAPS IN DEPTH and SOAP
OPERA NEWS, all of which have substantially lower circulation. SOAP OPERA DIGEST
On-Line, launched in February 1996, has become one of the most utilized magazine
sites on America Online.
SEVENTEEN is the leading fashion and beauty magazine in the U.S. based on
total circulation, with fashion, beauty, boys, talent and lifestyle editorial
targeted to girls aged 12 to 19. In 1996, SEVENTEEN had average monthly
circulation of 2.4 million, an increase of over 250,000 readers over the prior
year. The
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August 1997 Back to School issue sold over one million copies on the newsstand,
with total sales of 2.8 million. SEVENTEEN's principal competitor is YM.
SEVENTEEN competes for circulation based on the nature and quality of its
editorial.
AMERICAN BABY, a baby care publication distributed monthly to approximately
1.4 million expectant and new parents in 1996, contains articles on all aspects
of pregnancy and baby care. AMERICAN BABY 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 offers several ancillary products including sampling
and couponing programs and a cable television show.
The Company's other specialty consumer magazines include AUTOMOBILE, which
caters to the high-end automotive market, MODERN BRIDE, a guide to bridal
fashions, home furnishings and honeymoons, the city magazines NEW YORK and
CHICAGO, LOW RIDER, the automotive magazine with the highest newsstand
circulation in the United States, SEW NEWS, the premier sewing title, and DOG
WORLD, the leading publication for dog breeders. The Company's automotive titles
are primarily newsstand driven, the sewing and crafts titles are primarily sold
by subscription, and the other titles have significant sales both by
subscription and on the newsstand. Subscriptions are obtained using printed
advertisements, direct mail, clearinghouses and subscription cards in each
magazine.
Readers value specialty consumer magazines for their editorial content and
also rely on them as a catalog of products in the relevant topic area. This
catalog aspect makes the specialty consumer magazines an important media buy for
advertisers. Advertising sales for the Company's specialty consumer magazines
are generated by a combination of in-house staff and outside advertising firms.
The magazines compete for advertising on the basis of circulation and the niche
markets they serve. Each of the Company's specialty consumer magazines faces
competition in its subject area from a variety of publishers, and competes for
readers on the basis of high quality, targeted editorial, which is provided by
in-house writers and freelance authors.
TECHNICAL AND TRADE MAGAZINES
The Company publishes 66 technical and trade magazines that provide vital
information to professionals in fields such as telecommunications (TELEPHONY and
CELLULAR BUSINESS), agriculture (SOYBEAN DIGEST), transportation (FLEET OWNER)
and real estate (NATIONAL REAL ESTATE INVESTOR). In 1996, 33 of these
publications ranked number one in the fields they serve based on advertising
pages. These magazines are distributed primarily on a "controlled circulation"
basis to members of a targeted industry group and provide career and
business-enhancing technical and tutorial editorial content. Capitalizing on the
centralized circulation, fulfillment, production and other back office services,
new titles can be spun-off from existing titles or acquired and integrated.
During 1996, approximately 83% of the net sales of the technical and trade
titles were generated from advertising. Because each of the technical and trade
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 advertising rates,
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 in-house writers and
freelance authors, well-known in their specific industry niches.
In addition to its technical and trade magazines, the Company sponsors
seminars and trade shows, including LIGHTING DIMENSIONS INTERNATIONAL,
INTERNATIONAL WIRELESS COMMUNICATIONS EXPOSITION and THE SATELLITE EXPOSITIONS
CONFERENCE, serving the advertisers and readers of the corresponding
publications.
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During 1996, the specialty media segment also included NEW WOMAN magazine.
See "--General" and "--Non-Core Businesses Being Sold."
EDUCATION
The Company is a leading provider of supplemental educational materials and
programming in the United States, targeting both classroom and workplace
learning. PRIMEDIA's best-known brands in classroom learning include CHANNEL ONE
and WEEKLY READER, and in workplace learning, WESTCOTT COMMUNICATIONS. Classroom
learning takes advantage of the growth in spending on supplementary educational
materials, up 44% from 1991 to 1995, and the projected increases in elementary
and secondary school enrollments over the next decade (in particular, high
school enrollments are expected to rise 17% between 1995 and 2005). Workplace
learning focuses on the $60 billion training market of which the outsourced
segment is the fastest growing portion, rising 49% between 1991 and 1996.
CLASSROOM LEARNING
The Company operates CHANNEL ONE, WEEKLY READER and FILMS FOR THE HUMANITIES
AND SCIENCES.
CHANNEL ONE'S news program, CHANNEL ONE NEWS, is the only daily news program
targeted to secondary school students. CHANNEL ONE NEWS broadcasts every school
day via satellite to over eight million students in approximately 12,000
secondary schools in the United States. Established in 1990, CHANNEL ONE
pioneered the delivery of world events and educational programming into
classrooms via satellite. Reaching 40% of the secondary students in the United
States, its award-winning daily news broadcast reaches more students than any
other electronically delivered educational product. CHANNEL ONE NEWS has more
teen viewers than the news programs of ABC, CBS, NBC and CNN combined.
Schools sign up for CHANNEL ONE NEWS under a three-year contract pursuant to
which they agree to show CHANNEL ONE NEWS, in its entirety, at least 90% of all
school days. CHANNEL ONE provides to schools a turnkey system of video cassette
recorders and networked televisions. These products and services are provided to
schools at no charge; sales are generated by two minutes of advertising shown
during the 12-minute daily newscast. All school contracts have come up for
renewal and approximately 99% have been renewed.
CHANNEL ONE NEWS is produced at the Hacienda, CHANNEL ONE'S Los Angeles
studio, using staff anchors and correspondents who report from U.S. and
international locations. CHANNEL ONE has a library of over 1,350 broadcasts
including approximately 190 single subject series, 45 of which have been
released as educational videos under the Hacienda
Productions-Registered Trademark- trademark.
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 over eight million
teenagers each school day. For 1996, approximately 65% of CHANNEL ONE'S
advertising net sales were from contracts having terms of three or more years.
The top five advertisers in 1996 by dollars were PepsiCo, M&M Mars, Nintendo,
Quaker Oats and Reebok, which together accounted for approximately 62% of
advertising net sales, and all of which are under contracts expiring on dates
between 1997 and 2000.
In addition, CHANNEL ONE'S THE CLASSROOM CHANNEL offers a range of
instructional programming to enhance the schools' curriculum. THE CLASSROOM
CHANNEL offers an average of 90 minutes of daily programming at no charge to
schools.
WEEKLY READER is the best-known and highest-circulation student newspaper in
the United States, with over 6.8 million subscriptions for elementary school
students alone. WEEKLY READER and its related products are sold in approximately
70% of all elementary schools and 59% of all secondary schools, and for the
1996-1997 school year had a 55% share of the elementary school market and a 38%
share of the secondary school market.
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Eight separate editions of WEEKLY READER, each consisting of 26 issues per
year, are distributed to elementary school students. Each edition is written and
designed for a particular reading and comprehension level 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. Other titles produced and
distributed by WEEKLY READER include SCIENCE SPIN, READ, CURRENT EVENTS, CURRENT
SCIENCE and CURRENT HEALTH. Editorial materials for these publications are
generated by in-house writers and freelance authors. The Company's largest
competitor in these markets is Scholastic Corporation. WEEKLY READER generally
competes on the basis of editorial quality, content and price.
FILMS FOR THE HUMANITIES AND SCIENCES ("FILMS") is the exclusive distributor
of approximately 6,500 educational videos as well as videodiscs, CD-ROMs and
related products that are sold primarily by direct mail to teachers, instructors
and librarians serving grades K to 12 and college markets. FILMS is the largest
distributor of such products to colleges and high schools and competes on the
basis of quality and breadth of the subject matter it markets.
WORKPLACE LEARNING
WESTCOTT, acquired by the Company in June 1996, is a leading provider of
high quality workplace educational programming. WESTCOTT has approximately
15,000 corporate and institutional subscribers and provides workplace learning
to approximately 2.0 million professionals in the healthcare, automotive,
financial services, government, public service and corporate fields. The
Company's production capabilities enable it to design and produce annually over
3,600 hours of educational content targeted to over 20 different disciplines,
generally delivered via satellite and video cassette.
The Company's leading products include its Executive Education Network
("EXEN") and five health care product lines. EXEN delivers executive education
courses taught by professors from leading business schools including Harvard
University, the University of Texas and the University of Southern California to
corporate and professional clients nationwide. Participants in EXEN interact on
a real-time basis using one-way video, two-way audio and data response keypads.
In the health care field, the Company offers a variety of live programming,
telecourses and other video products, including graduate degree courses, in-
service training and accredited continuing education programming, designed to
reach multiple target audiences within the hospital setting. In addition, the
Company's Interactive Distance Training Network provides customized interactive
programming for corporate, professional and government clients, including Intel,
Ernst & Young and Glaxo. In April 1997 Westcott acquired QWIZ, a software
applications testing and training provider with operations in the United States
and United Kingdom.
WESTCOTT does not have any multi-industry competitors in the workplace
learning market. The Company competes with a number of businesses and
governmental agencies that provide videotaped training material, consulting
services and instruction at seminars, trade shows and conventions, or certain
television programming.
During 1996, the education segment also included KRAMES COMMUNICATIONS, the
KATHARINE GIBBS SCHOOLS and NEWBRIDGE COMMUNICATIONS. See "--General" and
"--Non-Core Businesses Being Sold."
INFORMATION
The Company produces over 140 highly targeted consumer and business
directories, most of which hold dominant positions in their niche markets. The
Company's premier consumer directories include APARTMENT GUIDE, THE WORLD
ALMANAC and such specialty reference products as FACTS ON FILE NEWS SERVICE
which is used by public and institutional libraries. The Company's leading
business directories include NELSON'S for financial professionals and BACON'S
for public relations professionals.
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Consumer directories take advantage of the trend toward more targeted
advertising. From 1990 to 1995, organic advertising revenue growth at PRIMEDIA's
consumer guides has more than tripled growth of newspaper classified
advertising, the medium with which they most directly compete. Business
directories capitalize on the growth in business spending on information which
has increased 8% on a compound annual basis, or 123% from $10.2 billion to $22.7
billion, between 1985 and 1995.
CONSUMER DIRECTORIES
The Company publishes over 70 consumer directories and specialized reference
products. These products are distributed nationally in retail outlets and are
sold to public and institutional libraries. The Company publishes and
distributes consumer guides in three categories: rental apartments, new homes
and computer shopping. The Company's leading reference products include THE
WORLD ALMANAC, FACTS ON FILE NEWS SERVICE and the GARETH STEVENS line of
juvenile reference works.
The Company is the leading publisher of rental apartment guides in the
United States with 62 local versions of its apartment guide directory product,
each of which is published no less than monthly and provides informational
listings about featured apartment communities. These listings are paid for by
apartment community managers, who need to fill vacant apartments, and who
represent 100% of the apartment guide net sales. During 1997 the Company has
acquired apartment guides in Nashville, Memphis, Little Rock and Dayton. The
Company is the dominant information provider in apartment guides. The Company's
only major competitor, FOR RENT, is present in 33 of the Company's markets. In
those markets, on average, the Company captured 51% of total 1996 advertising
pages, with FOR RENT capturing 41% of such advertising pages.
In 1996, the Company added new types of consumer directories to its
portfolio with the acquisition of new homes and computer shopping guides. In
1996, the Company acquired new homes guides in Philadelphia, New Jersey,
Raleigh-Durham and Chapel Hill, North Carolina and Atlanta. In November 1996,
the Company acquired MICROTIMES, distributed in Northern and Southern
California. MICROTIMES provides consumers with information on computer products
through paid listings, and also contains informative articles reviewing products
for both the business and home computer shopper.
The Company's DistribuTech Division is the nation's largest distributor of
free publications, including its own consumer directories and over 600 other
titles. DistribuTech manages distribution of free publications to over 19,000
grocery, convenience and drug stores in 62 U.S. cities, as well as universities,
military bases and major employers. The majority of these locations are operated
under exclusive distribution agreements. The Company's consumer directories
typically are displayed in free standing, multi-pocket racks. DistribuTech
generates substantial revenues by leasing additional distribution rack pockets
to other publications that it also distributes. DistribuTech competes on the
basis of price paid to the retail locations and service on the rack program.
The Company has established web sites in all three consumer directory
groups. The Company's WWW.APTGUIDES.COM is the most comprehensive web site in
the multi-family dwelling industry, with over 12,000 communities included in its
on-line database.
THE WORLD ALMANAC is the leading almanac in the English language ranked by
unit sales and data content with over 1.3 million copies of the 1997 edition
sold as of June 30, 1997. The Company also publishes THE WORLD ALMANAC FOR KIDS,
which in its second annual edition sold approximately 300,000 copies. THE WORLD
ALMANAC licenses its content for use on five CD-ROM products and four on-line
services. The Company's World Almanac Education Division sells reference books
to the school and library market by catalog. FACTS ON FILE NEWS SERVICE
publishes subscription products that are also sold to schools and libraries. The
flagship product, WORLD NEWS DIGEST, published weekly, is available in print,
CD-ROM and on-line formats, and has a subscriber base of approximately 7,000.
GARETH STEVENS, a publisher and distributor of juvenile reference works and a
distributor of multi-media products, was acquired by the Company in February
1997. GARETH STEVENS has a title list of approximately 800 titles and its market
focus is
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North America's primary and secondary school libraries and public libraries.
FUNK & WAGNALLS' NEW ENCYCLOPEDIA licenses its editorial content, for electronic
delivery, to Microsoft Corporation as the textual basis for Microsoft's ENCARTA
CD-ROM product and to The Learning Company for inclusion in the INFOPEDIA CD-ROM
as well as to three other on-line services. The Company experiences competition
for its reference products from other print and electronic products from a
variety of publishers.
BUSINESS DIRECTORIES
The Company publishes over 70 specialized directories, as well as ancillary
products derived from its databases. The Company's business directories target
the financial services, public relations, transportation, musical performance,
credit and collection, construction and global trade industries. The databases
are compiled by an in-house editorial staff, marketed directly to subscribers
and advertisers primarily by an in-house sales staff and distributed
predominantly on a paid subscription basis. NELSON'S is a premier brand name in
the institutional investment industry, providing specialized investment research
and management information through products such as INSTITUTIONAL MARKETPLACE
FOR WINDOWS. The Company's Bacon's Information, Inc. unit publishes MEDIASOURCE,
a CD-ROM directory for public relations and media professionals, as well as
print directories including BACON'S INTERNATIONAL MEDIA DIRECTORY and BACON'S
BUSINESS MEDIA DIRECTORY. To complement its public relations directories, the
Company operates a periodicals clipping service.
In January 1997 the Company acquired INTELLICHOICE, which provides
comprehensive cost ownership analysis information for cars and trucks sold in
the United States. This information is sold to insurance companies, car
manufacturers, municipalities, libraries and directly to consumers in print,
CD-ROM and on-line formats. WARD'S AUTOMOTIVE REPORTS is recognized as the
authoritative source for industry-wide statistics on automotive production and
sales. In addition, the Company publishes, in print and electronic formats, used
vehicle valuation information. Titles include MARKET REPORTS, MARINE BLUE BOOK
and AIRCRAFT BLUEBOOK. Other databases include THE ELECTRONICS SOURCE BOOK,
AC-U-KWIK, WATERWAY GUIDES and equipment servicing information and manuals.
Most of the business directories published by the Company have no
competition, and where competition does exist, in most cases the Company's
publication is dominant. Competition, where present, is on the basis of price
and quality of data. Management believes that the comprehensiveness and quality
of its data and the specialized focus of its publications have prevented others
from launching competing publications or competing effectively.
During 1996, the information segment also included the DAILY RACING FORM
group. See "--General" and "-- Non-Core Businesses Being Sold."
NEW PRODUCTS AND NEW MEDIA
In 1997, the Company will launch over 50 new products in print, electronic
and multi-media formats, including SEVENTEEN'S COLLEGE ZONE, HORTICULTURE'S
GARDEN STYLE, the trade title WEARABLES BUSINESS and numerous workplace learning
CD-ROMs produced by Westcott. The Company has over 50 web sites, all of which
can be accessed directly as well as via WWW.KIII.COM. New web sites in 1997
include MODERN BRIDE'S web site (WWW.MODERNBRIDE.COM), Intellichoice's web site
(WWW.INTELLICHOICE.COM), and Bacon's web site (WWW.BACONSINFO.COM). The
Company's nationally distributed television programs include CHANNEL ONE'S
ONEZONE, which appears on public television stations nationwide, the SOAP OPERA
DIGEST AWARDS, which appear on network television, and AMERICAN BABY'S THE
HEALTHY KIDS SHOW, which appears on the Family Channel.
NON-CORE BUSINESSES BEING SOLD
As part of its strategy to focus on areas of its business that have the
greatest potential for growth, the Company is in the process of divesting
certain businesses that do not fit within its growth vehicles. The
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Non-Core Businesses are: the DAILY RACING FORM group, which includes a national
daily newspaper covering thoroughbred horseracing and PRO FOOTBALL WEEKLY;
KRAMES COMMUNICATIONS, a leading publisher of patient information sold to
healthcare providers for distribution to patients and other healthcare users;
the KATHARINE GIBBS SCHOOLS, a chain of seven business schools; NEWBRIDGE
COMMUNICATIONS, an operator of book clubs for professionals and educational
continuity programs; NEW WOMAN magazine, a guide for personal relationships and
careers; STAGEBILL, a performing arts magazine. The Company has completed the
sales of KRAMES, KATHARINE GIBBS, NEW WOMAN, and INTERTEC MAILING SERVICES.
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. Electronic and video products
generally are created and mastered in-house; with the exception of WESTCOTT
COMMUNICATIONS and FILMS which produce video products in-house, all other
production and duplication of electronic and video products is performed by
third party vendors.
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 if at some point in the
future paper is in limited supply, the existing arrangements providing for the
supply of paper will be adequate. The Company was able to meet its paper
requirements during 1996. In 1996, approximately 37% and 22% of the Company's
paper purchases were 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 U.S. Postal
Service directly by the printer. Other products are sent from warehouses and
other facilities operated by the Company.
COMPANY ORGANIZATION
PRIMEDIA was incorporated on November 22, 1991 in the State of Delaware. The
principal executive office of the Company is located at 745 Fifth Avenue, New
York, New York 10151, telephone number (212) 745-0100.
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MANAGEMENT
The following table sets forth the name, age as of October 15, 1997 and
position of the senior management and directors of PRIMEDIA:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
William F. Reilly.................................... 59 Chairman of the Board and Chief Executive Officer and
Director
Charles G. McCurdy................................... 42 President and Director
Beverly C. Chell..................................... 55 Vice Chairman, General Counsel, Secretary and
Director
Meyer Feldberg....................................... 55 Director
Perry Golkin......................................... 44 Director
Henry R. Kravis...................................... 53 Director
George R. Roberts.................................... 54 Director
Michael T. Tokarz.................................... 47 Director
Jack L. Farnsworth................................... 51 Executive Vice President
George Philips....................................... 66 Vice President
Michaelanne C. Discepolo............................. 44 Vice President
Douglas B. Smith..................................... 37 Vice President and Treasurer
Curtis A. Thompson................................... 46 Vice President and Controller
</TABLE>
Mr. Reilly is Chairman of the Board, Chief Executive Officer and a Director
of PRIMEDIA and has served in such capacities since November 1991. Mr. Reilly is
also a director of FMC Corporation.
Mr. McCurdy is President and a Director of PRIMEDIA and has served in such
capacities since November 1991 and was also Treasurer from 1991 to August 1993.
Ms. Chell is Vice Chairman, General Counsel, Secretary and a Director of
PRIMEDIA. Ms. Chell has served as Vice Chairman, General Counsel and Secretary
since November 1991 and as a Director since March 1992.
Professor Feldberg is Professor and Dean of the Columbia University Graduate
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.
Mr. Golkin became a Director of PRIMEDIA in November 1991. He is a General
Partner 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. He is also a director of Walter Industries, Inc.
Mr. Kravis became a Director of PRIMEDIA in November 1991. He is a Founding
Partner of 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 director of Amphenol
Corporation, 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., KSL
Recreation Group, Inc., Merit Behavioral Care Corporation,
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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. Roberts became a Director of PRIMEDIA in March 1992. He is a Founding
Partner of 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 director of Amphenol
Corporation, AutoZone, Inc., Borden Inc., Bruno's, Inc., Evenflo & Spalding
Holdings Corporation, Flagstar Companies Inc., Flagstar Corporation, IDEX
Corporation, KinderCare Learning Centers, Inc., KSL Recreation Group, 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.
Mr. Tokarz became a Director of PRIMEDIA in November 1991. He is a General
Partner 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,
Safeway, Inc. and Walter Industries, Inc.
Mr. Farnsworth has been Executive Vice President of PRIMEDIA since May 1997,
Vice President of PRIMEDIA since May 1992, President of PRIMEDIA Information
Group since May 1992 and President of Westcott Communications, Inc. since June
1996.
Mr. Philips has been a Vice President of PRIMEDIA 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.
Ms. Discepolo is a Vice President of PRIMEDIA and has served in such
capacity since January 1993. She joined the Company in March 1991 as Director of
Human Resources.
Mr. Smith has been a Vice President of PRIMEDIA since May 1997 and Treasurer
of PRIMEDIA since August 1993. Prior to that time 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 PRIMEDIA.
Mr. Thompson is Vice President and Controller of PRIMEDIA and has served in
such capacities since November 1991.
Messrs. Kravis and Roberts are first cousins.
The By-Laws of PRIMEDIA provide for a Board of Directors of at least one but
not more than 15 directors. In accordance with the By-Laws, the Board of
Directors has fixed the number of directors at eight. Officers serve at the
discretion of the Board of Directors.
Messrs. Reilly, Kravis, Tokarz and Golkin comprise the Executive Committee
of the Board of Directors and Messrs. Kravis, Tokarz and Golkin comprise the
Compensation Committee of the Board of Directors. The Audit Committee, which
reviews the scope and results of audit and non-audit services performed by the
Company's independent accountants, consists solely of Professor Feldberg.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Preferred Stock was sold by PRIMEDIA on September 26, 1997 (the
"Closing Date") to the Placement Agents, pursuant to the Placement Agreement.
The Placement Agents subsequently sold 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 Placement
Agreement, PRIMEDIA and the Placement Agents entered into the Registration
Rights Agreement on September 26, 1997. Pursuant to the Registration Rights
Agreement, PRIMEDIA agreed to file with the SEC a registration statement under
the Securities Act with respect to the Exchange Offer following the Closing
Date, (ii) to use its reasonable best efforts to cause such registration
statement to become effective under the Securities Act at the earliest possible
time thereafter, but in no event later than 180 days after the Closing Date, and
(iii) upon effectiveness of the registration statement, to commence the Exchange
Offer. 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 PRIMEDIA's obligations under the
Registration Rights Agreement and the Placement 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 Offer, holders of shares of Preferred Stock will not have any further
registration rights 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 Preferred Stock could be
adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, PRIMEDIA will accept any and all shares of Old
Preferred Stock validly tendered and not withdrawn prior to the Expiration Date.
PRIMEDIA will issue one share of New Preferred Stock in exchange for each share
of Old Preferred Stock, accepted in the Exchange Offer. Holders may tender some
or all of their shares of Old Preferred Stock pursuant to the Exchange Offer.
The form and terms of the New Preferred Stock are the same as the form and
terms of the Old Preferred Stock except that the shares of 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, 1,250,000 shares of Old Preferred Stock
were outstanding. Solely for reasons of administration (and for no other
purpose), PRIMEDIA has fixed the close of business on January 16, 1998 as the
record date for the Exchange Offer 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 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 Preferred Stock may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders of
the Old Preferred Stock entitled to participate in the Exchange Offer.
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 Exchange Offer.
PRIMEDIA intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
PRIMEDIA shall be deemed to have accepted validly tendered shares of Old
Preferred Stock when, as and if PRIMEDIA 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 Preferred Stock for the purposes of receiving the
New Preferred Stock from PRIMEDIA.
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If any tendered 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 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 shares of Old Preferred Stock in the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of shares of Old Preferred Stock pursuant to the Exchange Offer.
PRIMEDIA will pay all charges and expenses, other than certain applicable taxes,
in connection with the Exchange Offer. See "--Fees and Expenses."
Each broker-dealer that receives New Preferred Stock for its own account in
exchange for Old Preferred Stock, where such New Preferred Stock was acquired by
such broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such New Preferred Stock. See "Plan of Distribution."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
February 17, 1998, unless PRIMEDIA, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. The Company will not extend the
Exchange Offer beyond March 29, 1998.
In order to extend the Exchange Offer, PRIMEDIA 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.
PRIMEDIA reserves the right, (i) to delay accepting any shares of Old
Preferred Stock, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "--Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer, 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 Offer 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 Offer is amended
in a manner determined by PRIMEDIA to constitute a material change, PRIMEDIA
will promptly disclose such amendments by means of a prospectus supplement that
will be distributed to the registered holder of the Old Preferred Stock, and
PRIMEDIA will extend the Exchange Offer 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 Offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which PRIMEDIA may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, PRIMEDIA 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 name appears on a security listing as
the owner of the Old Preferred Stock) of shares of Old Preferred Stock may
tender such shares of Old Preferred Stock in the Exchange Offer. To tender in
the Exchange Offer a holder must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the shares of Old Preferred
Stock and any other required documents, to
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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
PRIMEDIA 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 SHARES OF OLD PREFERRED STOCK AND THE 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 OR SHARES OF OLD PREFERRED STOCK
SHOULD BE SENT TO PRIMEDIA. 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 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 shares of Old Preferred Stock by causing such book-entry transfer
facility to transfer such shares of Old Preferred Stock into the Exchange
Agent's account with respect to the shares of Old Preferred Stock in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of 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 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 the 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 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 "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 any shares of Old Preferred Stock listed therein, such 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 shares of Old Preferred Stock.
If the 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
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a fiduciary or representative capacity, such persons should so indicate when
signing, and evidence satisfactory to PRIMEDIA 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 shares of Old Preferred Stock
will be determined by PRIMEDIA in its sole discretion, which determination will
be final and binding. PRIMEDIA reserves the absolute right to reject any and all
shares of Old Preferred Stock not properly tendered or any shares of Old
Preferred Stock PRIMEDIA's acceptance of which would, in the opinion of counsel
for PRIMEDIA, be unlawful. PRIMEDIA also reserves the right to waive any
defects, irregularities or conditions of tender as to particular shares of Old
Preferred Stock. PRIMEDIA's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of the shares of Old Preferred Stock must be cured
within such time as PRIMEDIA shall determine. Although PRIMEDIA intends to
notify holders of defects or irregularities with respect to tenders of the
shares of Old Preferred Stock, neither PRIMEDIA, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of 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 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 Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering, each registered holder will represent to PRIMEDIA that, among
other things, (i) the New Preferred Stock to be acquired by the holder and any
beneficial owner(s) of the Old Preferred Stock ("Beneficial Owner(s)") in
connection with the Exchange Offer 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
Preferred Stock, (iii) the holder and each Beneficial Owner acknowledge and
agree that any person participating in the Exchange Offer for the purpose of
distributing 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 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
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 PRIMEDIA except as otherwise disclosed
to PRIMEDIA in writing.
Each broker-dealer who holds Old Preferred Stock acquired for its own
account as a result of market-making activities or other trading activities and
who receives New Preferred Stock in the Exchange Offer may be a statutory
underwriter and must acknowledge that it will deliver a prospectus in connection
with any resale of such New Preferred Stock. By so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Preferred Stock received in
exchange for Old Preferred Stock where such Old Preferred Stock was acquired by
such broker-dealer as a result of market-making activities or other trading
activities. PRIMEDIA will, for a period of 90 days after the Expiration Date,
make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their shares of Old Preferred Stock and (i) whose
shares of Old Preferred Stock are not immediately available, or (ii) who cannot
deliver their shares of Old Preferred Stock, the 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 shares of Old
Preferred Stock and the number of shares of Old Preferred Stock being tendered,
stating that the tender is being made thereby and guaranteeing that, within
three business days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the shares of
Old Preferred Stock (or a confirmation of book-entry transfer of such shares of
Old Preferred Stock into the Exchange Agent's account at the book-entry transfer
facility) and any other documents required by the 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 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 three
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 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 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 Offer.
To withdraw a tender of shares of Old Preferred Stock in the Exchange Offer,
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 shares of Old Preferred Stock to be withdrawn (the "Depositor"),
(ii) identify 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 shares of Old Preferred Stock were tendered (including any
required signature guarantees). If 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 shares of Old Preferred
Stock or otherwise comply with the book-entry facility procedure. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by PRIMEDIA in its sole discretion, which
determination shall be final and binding on all parties. Any shares of Old
Preferred Stock so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no shares of New Preferred Stock will be
issued with respect thereto unless the shares of Old Preferred Stock so
withdrawn are validly retendered. Properly withdrawn 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 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
Offer, or which have been validly withdrawn, will be returned as soon as
practicable to the holder thereof without cost to such holder.
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CONDITIONS OF THE EXCHANGE OFFERS
Notwithstanding any other term of the Exchange Offer, PRIMEDIA shall not be
required to accept for exchange, or exchange shares of New Preferred Stock for,
any shares of Old Preferred Stock, and may terminate the Exchange Offer as
provided herein before the acceptance of such 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 Offer
which, in the sole judgment of PRIMEDIA, might materially impair the ability
of PRIMEDIA to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to PRIMEDIA, or any material
adverse development has occurred in any existing action or proceeding with
respect to PRIMEDIA or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of PRIMEDIA or any of its subsidiaries has
occurred which, in the sole judgment of PRIMEDIA, might materially impair
the ability of PRIMEDIA to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to PRIMEDIA; or
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of PRIMEDIA, might materially impair
the ability of PRIMEDIA to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to PRIMEDIA; or
(d) any governmental approval has not been obtained, which approval
PRIMEDIA shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If PRIMEDIA determines in its sole discretion that any of the conditions are
not satisfied, PRIMEDIA may (i) refuse to accept any shares of Old Preferred
Stock and return all tendered shares of Old Preferred Stock to the tendering
holders, (ii) extend the Exchange Offer and retain all shares of Old Preferred
Stock tendered prior to the Expiration Date, subject, however, to the rights of
holders to withdraw such shares of Old Preferred Stock (see "--Withdrawal of
Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all validly tendered shares of Old Preferred Stock
which have not been withdrawn. If such determination or waiver constitutes a
material change to the Exchange Offer, PRIMEDIA will promptly disclose such
determination or waiver by means of a prospectus supplement that will be
distributed to the registered holders, and PRIMEDIA will extend the Exchange
Offer 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 Offer 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
Offer. Questions and requests for assistance, request for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<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 Receive and Deliver Window
New York, NY 10286-1248 CONFIRM FACSIMILE BY New York, NY 10286
TELEPHONE:
(For Confirmation Only)
(800) 507-9357
</TABLE>
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by PRIMEDIA. 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
PRIMEDIA and its affiliates.
PRIMEDIA has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the Exchange Offer. PRIMEDIA, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by PRIMEDIA 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.
PRIMEDIA will pay all transfer taxes, if any, applicable to the exchange of
the Old Preferred Stock pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of the Old Preferred Stock
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxpayers
or exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The shares of Old Preferred Stock which are not exchanged for shares of New
Preferred Stock pursuant to the Exchange Offer will remain restricted securities
within the meaning of Rule 144 of the Securities Act. Accordingly, such shares
of Old Preferred Stock may be resold only (i) to PRIMEDIA, its subsidiaries or
the Placement Agents, (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 PRIMEDIA 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 PRIMEDIA) and if such
transfer is in respect of an aggregate liquidation preference of securities at
the time of transfer of less than $100,000 an opinion of counsel acceptable to
PRIMEDIA that such transfer is in compliance with the Securities Act, (iv)
outside the United States in an offshore transaction in compliance with Rule 904
of Regulation S 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 Preferred Stock could be adversely
affected by the Exchange Offer. Following the consummation of the Exchange
Offer, holders of the Old Preferred Stock will have no further registration
rights under the Registration Rights Agreement.
ACCOUNTING TREATMENT
The carrying value of the Old Preferred Stock is not expected to be
materially different from the fair value of the New Preferred Stock at the time
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer associated with the New Preferred
Stock will be reported as a reduction in the carrying value of the New Preferred
Stock. 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.
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RESALES OF THE NEW PREFERRED STOCK
With respect to resales of 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 PRIMEDIA for its exchange offer of
the Series B Preferred Stock, PRIMEDIA believes that a holder (other than a
person that is an "affiliate" of PRIMEDIA within the meaning of Rule 405 under
the Securities Act) who exchanges shares of Old Preferred Stock for 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
Preferred Stock, will be allowed to resell the New Preferred Stock to the public
without further registration under the Securities Act and without delivering to
the purchasers of the New Preferred Stock a prospectus that satisfies the
requirements of Section 10 thereof. However, if any holder acquires shares of
New Preferred Stock in the Exchange Offer for the purpose of distributing or
participating in a distribution of 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. Each broker-dealer that
receives New Preferred Stock for its own account in exchange for Old Preferred
Stock, where such Old Preferred Stock were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Preferred Stock. See "Plan of Distribution."
As contemplated by the above no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
PRIMEDIA in the Letter of Transmittal that (i) the holder is not an "affiliate"
of PRIMEDIA within the meaning of Rule 405 of the Securities Act, (ii) the
shares of New Preferred Stock are to be acquired by the holder in the ordinary
course of business, (iii) the holder is not engaging and does not intend to
engage, in the distribution of the New Preferred Stock, and (iv) the holder
acknowledges that if such holder participates in such Exchange Offer for the
purpose of distributing 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 Preferred Stock and cannot rely on
the above no-action letter; however, holders of the New Preferred Stock will
have no registration rights under the Registration Rights Agreement.
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DESCRIPTION OF PREFERRED STOCK AND 9.20% 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 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. Set forth herein is a summary of the material terms of the
Preferred Stock and the 9.20% Subordinated Debentures. Such summary 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 9.20% Debenture Indenture (which relates
to both the Old Subordinated Debentures and the New Subordinated Debentures)
relating thereto.
THE PREFERRED STOCK
GENERAL
1,250,000 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 for issuance 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 PRIMEDIA
(other than Common Stock of PRIMEDIA, the Series B Preferred Stock, the Series D
Preferred Stock and any preferred stock of PRIMEDIA which by its terms is on
parity with or junior to the Preferred Stock). In addition, creditors and
stockholders of PRIMEDIA's subsidiaries also have priority over the Preferred
Stock with respect to claims on the assets of such subsidiaries. See "Risk
Factors--Subordination of Preferred Stock and 9.20% 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 and each other
class of capital stock or series of preferred stock established by the board of
directors of PRIMEDIA 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, the Series D Preferred Stock and each other series of preferred
stock established by the board of directors of PRIMEDIA, 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
(collectively, "Future Parity Securities" and together with the Series B
Preferred Stock and the Series D Preferred Stock, the "Parity Securities"); and
(iii) junior to each other class of capital stock or series of preferred stock
established by the board of directors which expressly provides that it ranks
senior to the Preferred Stock. The Certificate of Designations for the Preferred
Stock provides that, without the affirmative vote or consent of at least a
majority of the then outstanding shares of Preferred Stock, voting together with
the holders of any other then outstanding shares of Parity Securities entitled
to vote thereon,
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the Company will not issue any other series of preferred stock the terms of
which specifically provide that such series will rank senior to the Series B
Preferred Stock, the Series D Preferred Stock and the Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to as "Senior Securities"), subject to certain
exceptions. See "--Limitation on Issuance of Senior Preferred Stock." The
Preferred Stock is subject to the future issuance of Junior Securities, Parity
Securities and Senior Securities. As of September 10, 1997, 1,576,036 shares of
the Series B Preferred Stock ($157,603,600 aggregate liquidation preference),
which include dividends paid in kind from time to time thereon to such date,
have been issued and are outstanding and 2,000,000 shares of the Series D
Preferred Stock ($200,000,000 aggregate liquidation preference), have been
issued and are outstanding. See "Description of Capital Stock of the Company."
DIVIDENDS
Holders of Preferred Stock are entitled to receive, when, as and if declared
by the board of directors of PRIMEDIA, out of funds legally available therefor,
dividends in cash on the Preferred Stock, at an annual amount equal to $9.20 per
share. 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 New Preferred Stock is exchanged for the Old Preferred Stock.
Dividends on the New Preferred Stock will accrue and 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 February 1, 1998. 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
Prior to November 1, 2002, the Preferred Stock may be redeemed (subject to
contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) at the Company's option, in whole or in part, at
any time or from time to time, at a redemption price equal to the amount of the
aggregate liquidation preference of such Preferred Stock plus an amount equal to
the sum of all accrued and unpaid dividends (including an amount equal to a
prorated dividend from the last payment date to the redemption date) plus the
Applicable Preferred Stock Make-Whole Premium thereon at the time of redemption.
The following definitions are used to determine the Applicable Preferred
Stock Make-Whole Premium:
'Applicable Preferred Stock Make-Whole Premium' means, with respect to a
share of Preferred Stock at any time, the greater of (i) 1.0% of the the
aggregate liquidation preference of such share of Preferred Stock at such time
and (ii) the excess of (A) the present value at such time of the aggregate
liquidation preference plus all dividends accrued and unpaid on such share of
Preferred Stock, computed using a discount rate equal to the Treasury Rate plus
75 basis points, over (B) the aggregate liquidation preference of such share of
Preferred Stock at such time.
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"Average Life to Redemption" means, as of the date of determination, with
respect to any preferred security, the number of years (including any portion
thereof) remaining to the mandatory redemption date thereof.
'Treasury Rate' means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for repayment or, in the case of defeasance, prior to the date of deposit (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 to Redemption of the Preferred Stock; PROVIDED, HOWEVER, that if the
Average Life to Redemption of the Preferred Stock 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.
At any time on or after November 1, 2002, the Preferred Stock may be
redeemed (subject to contractual and other restrictions with respect thereto and
to the legal availability of funds therefor), in whole or in part, at the option
of PRIMEDIA, at the redemption prices per share 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):
<TABLE>
<CAPTION>
REDEMPTION
PRICE PER
YEAR SHARE
- ---------------------------------------------------------- --------------
<S> <C>
2002...................................................... $ 104.60
2003...................................................... 102.30
2004 and thereafter....................................... 100.00
</TABLE>
In addition, up to $60 million of the aggregate liquidation preference of
the Preferred Stock may be redeemed at the option of PRIMEDIA at any time prior
to November 1, 2000 at a price per share of $109, plus accrued and unpaid
dividends to the redemption date, 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 PRIMEDIA 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 PRIMEDIA. The Credit Facilities and the Senior Note Indentures
restrict the ability of PRIMEDIA to redeem the Preferred Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financing Arrangements."
MANDATORY REDEMPTION
On November 1, 2009, PRIMEDIA 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 PRIMEDIA 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. PRIMEDIA 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
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the status of authorized but unissued shares of preferred stock of PRIMEDIA
undesignated as to series and may with any and all other authorized but unissued
shares of preferred stock of PRIMEDIA be designated or redesignated and issued
or reissued, as the case may be, as part of any series of preferred stock of
PRIMEDIA, except that such shares may not be reissued or sold as shares of
Preferred Stock.
EXCHANGE
PRIMEDIA may, at its option, on any scheduled dividend payment date,
exchange the Preferred Stock, in whole but not in part, for the 9.20%
Subordinated Debentures. See "--The 9.20% Subordinated Debentures" below for the
terms of the 9.20% Subordinated Debentures. Holders of Preferred Stock so
exchanged will be entitled to receive the principal amount of 9.20% 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 prorated dividend from the last
dividend payment date to the exchange date). The 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 PRIMEDIA shall cease and the person or persons entitled
to receive the 9.20% Subordinated Debentures issuable upon exchange shall be
treated as the registered holder or holders of such 9.20% 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 9.20% 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
PRIMEDIA's payment of dividends on, redemption of or exchange of 9.20%
Subordinated Debentures for, the Preferred Stock (i) PRIMEDIA is insolvent or
rendered insolvent by reason thereof, (ii) PRIMEDIA is engaged in a business or
transaction for which the Company's remaining assets constitute unreasonably
small capital or (iii) PRIMEDIA 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 voided 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
PRIMEDIA. The measure of insolvency for purposes of the foregoing will vary
depending on the law of the jurisdiction which is being applied. Generally
PRIMEDIA would be considered insolvent if the sum of its debts, including
contingent liabilities, were greater than the fair saleable value 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 Credit Facilities and the Senior Note Indentures restrict PRIMEDIA's
ability to exchange the Preferred Stock for the 9.20% Subordinated Debentures.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
PRIMEDIA, holders of Preferred Stock will be entitled to be paid out of the
assets of PRIMEDIA 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 PRIMEDIA, 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 PRIMEDIA in
proportion to the full liquidation preference to which each is entitled. After
payment of the full amount of
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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 PRIMEDIA. 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 PRIMEDIA
nor the consolidation or merger of PRIMEDIA with one or more corporations shall
be deemed to be a liquidation, dissolution or winding-up of PRIMEDIA.
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, PRIMEDIA 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
PRIMEDIA solely because the liquidation preference of the Preferred Stock will
exceed its par value. Consequently, there will be no restriction upon the
surplus of PRIMEDIA 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 PRIMEDIA, solely by reason of
the fact that such dividend would reduce the surplus of PRIMEDIA 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 PRIMEDIA 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 will be 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.
LIMITATION ON ISSUANCE OF SENIOR PREFERRED STOCK
The Certificates of Designations for the Preferred Stock provide that,
without the affirmative vote or consent of the holders of at least a majority of
the then outstanding shares of Preferred Stock, voting together with the holders
of any other then outstanding shares of Parity Securities entitled to vote
thereon, the Company will not issue any other Senior Security; PROVIDED that the
Company does not need the approval of such holders to issue shares of Senior
Securities the proceeds of which are used to redeem or repurchase all shares of
the then outstanding Preferred Stock and any other Parity Securities entitled to
vote thereon.
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,
PRIMEDIA 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
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Stock and Series D Preferred Stock, together with any outstanding shares of
Future Parity Securities entitled to vote thereon, voting as one class, unless
(i) PRIMEDIA shall be the continuing person, or the person (if other than the
Company) formed by such consolidation or into which PRIMEDIA is merged or to
which the properties and assets of PRIMEDIA 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 PRIMEDIA and additional
paid-in capital plus retained earnings (or minus accumulated deficit) of
PRIMEDIA 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 PRIMEDIA and the person with which PRIMEDIA is merging or
consolidating or to which PRIMEDIA 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 PRIMEDIA and the person with which PRIMEDIA is merging or
consolidating or to which PRIMEDIA 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,
PRIMEDIA 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.
The description above includes a phrase relating to the merger,
consolidation or transfer of "all or substantially all" of the assets of the
Company. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law.
TRANSFER AGENT AND REGISTRAR
The Bank of New York is the transfer agent and registrar for the Preferred
Stock.
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THE 9.20% SUBORDINATED DEBENTURES
GENERAL
The 9.20% Subordinated Debentures will, if and when issued, be issued under
the 9.20% Debenture Indenture, to be dated as of the date of first issuance (the
"Exchange Date") of the 9.20% Subordinated Debentures, between PRIMEDIA and The
Bank of New York (the "Subordinated Debenture Trustee"). The terms of the 9.20%
Subordinated Debentures include those stated in the 9.20% Debenture Indenture
and those made part of the 9.20% Debenture Indenture by reference to the Trust
Indenture Act. The 9.20% Subordinated Debentures are subject to all such terms,
and holders of the 9.20% Subordinated Debentures are referred to the 9.20%
Debenture Indenture and the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") for a statement thereof. Set forth herein is a summary of the
material terms of the 9.20% Subordinated Debentures. Such summary does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the 9.20% Debenture, a copy of the proposed form of which is filed
as an exhibit to the Registration Statement of which this Propectus is a part.
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." Other capitalized terms used in this
summary but not defined in this Prospectus shall have the meanings given to them
in the 9.20% Debenture Indenture.
The 9.20% Subordinated Debentures will be issued in registered form, without
coupons, only in principal amounts of $1,000 and integral multiples thereof. The
9.20% Subordinated Debentures will represent general unsecured obligations of
PRIMEDIA, and holders of the 9.20% Subordinated Debentures will rank junior in
right of payment to holders of Senior Indebtedness. The 9.20% Subordinated
Debentures are limited in aggregate principal amount to $125,000,000.
Each 9.20% Subordinated Debenture will mature on November 1, 2009 and will
bear interest from the date of issuance at the rate of 9.20% 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 9.20% 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 9.20% Subordinated
Debentures will be payable both as to principal and interest at the office or
agency of PRIMEDIA maintained for such purpose within or without the City of New
York, or, at the option of PRIMEDIA, payment of interest may be made by check
mailed to the holders of the 9.20% Subordinated Debentures at their respective
addresses set forth in the register of holders of the 9.20% Subordinated
Debentures. Until otherwise designated by PRIMEDIA, the office maintained by
PRIMEDIA for such purpose shall be the office of the Subordinated Debenture
Trustee.
RANKING
The right to payment of principal and interest on the 9.20% 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 Facilities,
and the Senior Note Indentures, created, assumed, incurred or guaranteed by
PRIMEDIA (and all renewals, extensions and refundings thereof), unless by its
terms such Indebtedness is not senior to the 9.20% Subordinated Debentures.
Senior Indebtedness does not include any Indebtedness of PRIMEDIA to any of its
subsidiaries or trade indebtedness.
Substantially all of the operations of PRIMEDIA 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 PRIMEDIA, including holders of the 9.20% Subordinated
Debentures, even though such obligations do not constitute Senior Indebtedness.
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The amount of pro forma senior indebtedness (including indebtedness and
other current and non-current liabilities of PRIMEDIA's subsidiaries) as of
September 30, 1997 was approximately $2,065 million. None of such indebtedness
was secured. See "Risk Factors--Subordination of Preferred Stock and 9.20%
Subordinated Debentures; Holding Company Structure."
The 9.20% Debenture Indenture provides that no payment of principal of or
interest on the 9.20% Subordinated Debentures, whether pursuant to the terms of
the 9.20% 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 9.20% 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
9.20% 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 9.20% Subordinated Debentures.
OPTIONAL REDEMPTION
Prior to November 1, 2002, the 9.20% Subordinated Debentures will be
redeemable at the Company's option, in whole or in part, at any time or from
time to time, at a redemption price (expressed as a percentage of principal
amount) equal to the sum of the principal amount of such 9.20% Subordinated
Debentures plus the Applicable Debenture Make-Whole Premium thereon at the time
of redemption (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
The following definitions are used to determine the Applicable Debenture
Make-Whole Premium:
'Applicable Debenture Make-Whole Premium' means, with respect to a 9.20%
Subordinated Debenture at any time, the greater of (i) 1.0% of the principal
amount of such 9.20% Subordinated Debenture at such time and (ii) the excess of
(A) the present value at such time of the principal amount plus all interest
payments due on such 9.20% Subordinated Debenture, computed using a discount
rate equal to the Treasury Rate plus 75 basis points, over (B) the principal
amount of such 9.20% Subordinated Debentures at such time.
'Treasury Rate' means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for repayment (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 to Stated Maturity of the 9.20% Subordinated Debentures,
PROVIDED, HOWEVER, that if the average life to Stated Maturity of the 9.20%
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.
On or after November 1, 2002, the 9.20% Subordinated Debentures will be
subject to redemption at the option of PRIMEDIA, 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
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unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning November 1 of the years indicated below.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- -----------
<S> <C>
2002.......................................................... 104.60%
2003.......................................................... 102.30
2004 and thereafter........................................... 100.00
</TABLE>
In addition, at any time prior to November 1, 2000, up to $60 million of the
9.20% Subordinated Debentures may be redeemed at a redemption price of 109% 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 Facilities and the Senior Note Indentures restrict the redemption
or prepayment of the 9.20% 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 9.20% 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 9.20% 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 9.20% Debenture Indenture
there will also be a Change of Control under the Class B Debenture Indenture,
the Class D 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 Notes, Class B Subordinated Debentures, Class D
Subordinated Debentures or 9.20% Subordinated Debentures indebtedness under the
Credit Facilities will be accelerated. Within the later of 40 days following any
Change of Control and the date that the conditions set forth in the penultimate
sentence are satisfied, PRIMEDIA 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 9.20% Debenture Indenture and that all 9.20%
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 9.20% Subordinated Debentures not tendered will
continue to accrue interest; (4) that, unless PRIMEDIA defaults in the payment
of the Change of Control Payment, all 9.20% 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
9.20% Subordinated Debentures purchased pursuant to a Change of Control Offer
will be required to surrender the 9.20% Subordinated Debentures, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the 9.20%
Subordinated Debenture completed, to the Paying Agent (as defined in the 9.20%
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 9.20% Subordinated Debentures delivered for purchase, and a
statement that such holder is withdrawing his election to have such 9.20%
Subordinated Debentures purchased; and (7) that holders whose 9.20% Subordinated
Debentures are being purchased only in part may be issued new 9.20% Subordinated
Debentures equal in principal amount to the unpurchased portion of the 9.20%
Subordinated Debentures surrendered; PROVIDED that each 9.20% Subordinated
Debenture purchased and each such new 9.20% Subordinated Debenture issued by
PRIMEDIA will be in a principal amount of $1,000 or integral multiples thereof.
Notwithstanding the occurrence of a Change of Control, PRIMEDIA shall not be
required to repurchase the 9.20% Subordinated Debentures unless it shall have
either repaid all outstanding Senior Indebtedness or obtained the requisite
consents, if any, under all
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agreements governing all such outstanding Senior Indebtedness, to permit the
repurchase of the 9.20% Subordinated Debentures. If any fee is paid to the
holders of Senior Indebtedness in connection with obtaining their consent to the
repurchase of the 9.20% Subordinated Debentures, PRIMEDIA shall pay the holders
of the 9.20% Subordinated Debentures a fee equal to the principal amount of the
9.20% 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, PRIMEDIA will, to the extent lawful,
(1) accept for payment 9.20% 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 9.20%
Subordinated Debentures or portions thereof so tendered and (3) deliver or cause
to be delivered to the Subordinated Debenture Trustee, 9.20% Subordinated
Debentures so accepted together with an officers' certificate stating the 9.20%
Subordinated Debentures or portions thereof tendered to PRIMEDIA. The Paying
Agent shall promptly mail to each holder of 9.20% Subordinated Debentures so
accepted, payment in an amount equal to the purchase price for such 9.20%
Subordinated Debentures, and the Subordinated Debenture Trustee shall promptly
authenticate and mail to such holder a new 9.20% Subordinated Debenture equal in
principal amount to any unpurchased portion of the 9.20% Subordinated Debentures
surrendered; PROVIDED that each such new 9.20% Subordinated Debenture shall be
in a principal amount of $1,000 or integral multiples thereof. PRIMEDIA 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 9.20% Subordinated Debentures will be
redeemable, at the option of PRIMEDIA, 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 9.20% 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 Change of Control Premium.
"Applicable Change of Control Premium" with respect to a 9.20% Subordinated
Debenture is defined as the greater of (i) 1.0% of the then outstanding
principal amount of such 9.20% Subordinated Debenture and (ii) the excess of (A)
the present value of the required interest and principal payments due on such
9.20% Subordinated Debenture, computed using a discount rate equal to the
Treasury Rate plus 75 basis points, over (B) the then outstanding principal
amount of such 9.20% Subordinated Debenture.
SELECTION AND NOTICE
If less than all of the 9.20% Subordinated Debentures are to be redeemed at
any time, selection of the 9.20% 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 9.20%
Subordinated Debentures are listed or, if the 9.20% 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 9.20% 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 9.20% Subordinated Debentures to be redeemed at its registered
address. If any 9.20% Subordinated Debenture is to be redeemed in part only, the
notice of redemption that relates to such 9.20% Subordinated Debenture shall
state the portion of the principal amount thereof to be redeemed. A new 9.20%
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 9.20% Subordinated Debenture. On and after the redemption date,
interest ceases to accrue on 9.20% Subordinated Debentures or portions of them
called for redemption.
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CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. PRIMEDIA 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 PRIMEDIA's or any of its
Restricted Subsidiaries' Capital Stock or other Equity Interests (other than (A)
dividends or distributions payable in Equity Interests of PRIMEDIA or such
Restricted Subsidiary or (B) dividends or distributions payable to PRIMEDIA or
any of its Restricted Subsidiaries) or (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of PRIMEDIA or any Restricted
Subsidiary (other than any such Equity Interests owned by PRIMEDIA 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 9.20% Debenture
Indenture shall have occurred and be continuing or will occur as a consequence
thereof.
"Restricted Subsidiary" for purposes of the 9.20% Debenture Indenture, means
a Subsidiary of PRIMEDIA 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 9.20% Debenture Indenture,
means (i) any Subsidiary of PRIMEDIA 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 PRIMEDIA (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 PRIMEDIA 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 PRIMEDIA or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary.
TRANSACTIONS WITH AFFILIATES. Neither PRIMEDIA 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 PRIMEDIA or
any of its Restricted Subsidiaries or (ii) any Affiliate of PRIMEDIA or any of
its Restricted Subsidiaries (each an "Affiliate Transaction"), except on terms
that are no less favorable to PRIMEDIA 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 PRIMEDIA or any of its Restricted Subsidiaries
shall be deemed to be on terms that are no less favorable to PRIMEDIA 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) PRIMEDIA 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 PRIMEDIA or such Restricted Subsidiary from a financial
point of view or (b) a disinterested majority of the Board of Directors of
PRIMEDIA 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 PRIMEDIA 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 PRIMEDIA and its Subsidiaries, (iii) the payment of reasonable and
customary regular fees to directors of PRIMEDIA and its Subsidiaries who are not
employees of PRIMEDIA or its Restricted Subsidiaries, (iv) loans to officers,
directors and employees of PRIMEDIA and its Subsidiaries for business or
personal purposes and other loans and advances to such officers, directors and
employees for travel, entertainment, moving and
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other relocation expenses made in the ordinary course of business of PRIMEDIA
and its Subsidiaries, (v) any Restricted Payments not prohibited by the
RESTRICTED PAYMENTS covenant in the Senior Note Indentures, Series B Debenture
Indenture or the Series D 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 PRIMEDIA and its
Restricted Subsidiaries or (vii) allocation of corporate overhead to
Unrestricted Subsidiaries on a basis no less favorable to PRIMEDIA than such
allocations to Restricted Subsidiaries.
MERGER, CONSOLIDATION, OR SALE OF ASSETS. PRIMEDIA 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) PRIMEDIA shall be the continuing person, or the person (if other
than PRIMEDIA) formed by such consolidation or into which PRIMEDIA is merged or
to which the properties and assets of PRIMEDIA 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 PRIMEDIA under the 9.20% Subordinated Debentures and the 9.20%
Debenture Indenture; (ii) immediately after giving effect to such transaction,
no Default and no Event of Default under the 9.20% 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 PRIMEDIA
immediately prior to such transaction. "Consolidated Net Worth" means, for
purposes of the 9.20% 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 September 22, 1997 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 9.20% 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 9.20% 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
9.20% Subordinated Debentures.
EVENTS OF DEFAULT AND REMEDIES THEREOF
The 9.20% Debenture Indenture will provide that each of the following will
constitute an "Event of Default" with respect to the 9.20% Subordinated
Debentures: (i) the failure to make any payment of interest on any of the 9.20%
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 PRIMEDIA by the holders of at least 51% in
principal amount of the 9.20% 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 9.20% 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 PRIMEDIA to comply with any of its other agreements in the 9.20%
Debenture Indenture or the 9.20% 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
9.20% 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 PRIMEDIA or any of its Restricted
Subsidiaries (or the payment of which is
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guaranteed by PRIMEDIA 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, 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 9.20% 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 9.20% 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 9.20% Subordinated Debentures.
If an Event of Default (other than an Event of Default with respect to
PRIMEDIA 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 9.20% Subordinated Debentures then outstanding, by
written notice to PRIMEDIA and to the agents under the Credit Facilities and the
trustees under the Senior Note Indentures (and to the Subordinated Debenture
Trustee if such notice is given by the holders of 9.20% Subordinated Debentures)
may, and the Subordinated Debenture Trustee at the request of such holders of
9.20% Subordinated Debentures shall, declare all unpaid principal of, premium,
if any, and accrued interest on the 9.20% Subordinated Debentures to be due and
payable upon the first to occur of an acceleration under any of the Credit
Facilities or any of the Senior Notes or 15 business days after the receipt by
PRIMEDIA, 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 PRIMEDIA, all unpaid principal of, premium, if any, and accrued interest on
the 9.20% 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 9.20% Subordinated Debentures by written
notice to the Subordinated Debenture Trustee may rescind an acceleration and its
consequences upon conditions provided in the 9.20% Debenture Indenture. Subject
to certain restrictions set forth in the 9.20% Debenture Indenture, the holders
of at least 51% in principal amount of the outstanding 9.20% 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 9.20% Subordinated
Debentures), except a continuing Default or Event of Default in the payment of
principal of, premium, if any, or interest on, such 9.20% Subordinated
Debentures (including, without limitation, pursuant to any mandatory or optional
redemption obligation under the 9.20% 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 9.20% Subordinated Debentures may not pursue any
remedy with respect to the 9.20% Debenture Indenture or the 9.20% 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 9.20% 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 9.20% Subordinated Debentures do not give the
Subordinated Debenture Trustee a direction which is inconsistent with the
request.
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PRIMEDIA is required to deliver to the Subordinated Debenture Trustee
annually a statement regarding compliance with the Class E Debenture Indenture
and PRIMEDIA 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 PRIMEDIA, as
such, shall have any liability for any obligations of PRIMEDIA under the 9.20%
Subordinated Debentures or the 9.20% Debenture Indenture or for any claim based
on, in respect of, or by reason of, such obligations of their creations. Each
holder of the 9.20% Subordinated Debentures by accepting a 9.20% Subordinated
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the 9.20% 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 9.20% DEBENTURE INDENTURE AND THE 9.20%
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 9.20% Subordinated Debentures or the date of
redemption of all the outstanding 9.20% 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 9.20% Subordinated
Debentures and all interest due thereon to maturity or redemption, and if such
deposit does not violate the subordination provisions of the 9.20% Debenture
Indenture, the 9.20% Debenture Indenture shall cease to be of further effect as
to all outstanding 9.20% Subordinated Debentures (except, among other things, as
to (i) remaining rights of registration of transfer, substitution and exchange
of 9.20% Subordinated Debentures, (ii) rights of holders to receive payment of
principal of and interest on the 9.20% Subordinated Debentures, and (iii) the
rights, obligations and immunities of the Subordinated Debenture Trustee).
The Credit Facilities and the Senior Note Indentures restrict PRIMEDIA from
defeasing the 9.20% Subordinated Debentures.
TRANSFER AND EXCHANGE
A holder may transfer or exchange 9.20% Subordinated Debentures in
accordance with the 9.20% 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
9.20% Debenture Indenture. PRIMEDIA is not required to transfer or exchange any
9.20% Subordinated Debentures selected for redemption. Also, PRIMEDIA is not
required to transfer or exchange any 9.20% Subordinated Debentures for a period
of 15 days before a selection of 9.20% Subordinated Debentures to be redeemed.
The registered holder of a 9.20% Subordinated Debenture will be treated as
its owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the 9.20% Debenture
Indenture or the 9.20% Subordinated Debentures may be amended or supplemented
with the written consent of the holders of at least 51% in principal amount of
the 9.20% Subordinated Debentures then outstanding (including
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consents obtained in connection with a tender offer or exchange offer for 9.20%
Subordinated Debentures), and any existing default under or compliance with any
provision of the 9.20% Debenture Indenture or the 9.20% Subordinated Debentures
may be waived with the consent of the holders of 51% in principal amount of the
then outstanding 9.20% Subordinated Debentures (including waivers obtained in
connection with a tender offer or exchange offer for 9.20% Subordinated
Debentures).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any 9.20% Subordinated Debentures held by a non-consenting
holder of 9.20% Subordinated Debentures) (i) reduce the principal amount of
9.20% Subordinated Debentures whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any 9.20% Subordinated Debenture or alter the provisions with respect to the
redemption price in connection with repurchases of 9.20% Subordinated Debentures
upon a Change of Control or otherwise, (iii) reduce the rate of or change the
time for payments of interest on any 9.20% Subordinated Debenture, (iv) waive a
Default or Event of Default in the payment of the principal of, or premium, if
any, or interest on 9.20% Subordinated Debentures or that resulted from a
failure to comply with the CHANGE OF CONTROL covenant (except a rescission of
acceleration of the 9.20% Subordinated Debentures by the holders of at least 51%
in aggregate principal amount of the 9.20% Subordinated Debentures), (v) make
any 9.20% Subordinated Debenture payable in money other than that stated in the
9.20% Debenture Indenture, (vi) make any change in the subordination provisions
of the 9.20% Debenture Indenture that adversely affects the rights of any 9.20%
Subordinated Debenture holder, (vii) make any change in the provisions of the
9.20% Debenture Indenture relating to waivers of past defaults or the rights of
holders of 9.20% Subordinated Debentures to receive payments of principal of or
interest on the 9.20% Subordinated Debentures, (viii) waive a redemption payment
with respect to any 9.20% Subordinated Debenture or (ix) make any change in the
foregoing.
Notwithstanding the foregoing, without the consent of any holder of the
9.20% Subordinated Debentures, PRIMEDIA and the Subordinated Debenture Trustee
may amend or supplement the 9.20% Debenture Indenture or 9.20% Subordinated
Debentures to cure any ambiguity, defect or inconsistency, to provide for
uncertificated 9.20% Subordinated Debentures in addition to or in place of
certificated 9.20% Subordinated Debentures, to provide for the assumption of
PRIMEDIA's obligations to holders of the 9.20% 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 9.20% Subordinated
Debentures or that does not adversely affect the legal rights under the 9.20%
Debenture Indenture of any such holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the 9.20%
Debenture Indenture under the Trust Indenture Act.
CONCERNING THE SUBORDINATED DEBENTURE TRUSTEE
The 9.20% Debenture Indenture contains certain limitations on the rights of
the Subordinated Debenture Trustee, should it become a creditor of PRIMEDIA, 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 9.20%
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. The 9.20%
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 9.20% Debenture Indenture at the request of any of the holders of the
9.20% Subordinated Debentures, unless they shall
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have offered to the Subordinated Debenture Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
The Bank of New York is the trustee under the indenture relating to the
8 1/2% Senior Notes and the Class D Debenture Indenture and a lender and an
agent under the Credit Facilities.
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 & Co.
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 9.20% Debenture
Indenture. Reference is made to the 9.20% 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 PRIMEDIA and (B) the total voting power of
the then outstanding voting stock of PRIMEDIA 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 PRIMEDIA's Board of
Directors (together with any new directors whose election by PRIMEDIA's Board of
Directors or whose nomination for election by PRIMEDIA'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.
"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.
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"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 9.20% 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 Class E
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 PRIMEDIA and its Restricted Subsidiaries, such Indebtedness shall exclude the
Indebtedness of any Unrestricted Subsidiary of PRIMEDIA 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 PRIMEDIA's Common Stock (or any other class of common stock
hereinafter duly authorized by PRIMEDIA) pursuant to a 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.
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"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 Offering Memorandum may obtain a copy of the 9.20%
Debenture Indenture without charge by writing to: PRIMEDIA Communications
Corporation, 745 Fifth Avenue, New York, NY 10151, Attention: Beverly C. Chell,
Esq.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Certificate of Incorporation of PRIMEDIA 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 PRIMEDIA, 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 PRIMEDIA'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 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 September
10, 1997, 1,576,036 of such shares were issued and outstanding, which include
paid in kind dividends as of such date. Pursuant to the Certificate of
Designations for the Series D Preferred Stock, two million shares of Series D
Preferred Stock, liquidation preference $100 per share, have been authorized for
issuance. Of these authorized shares, all have been issued and are outstanding.
THE COMMON STOCK
As of September 10, 1997, 129,454,940 shares of Common Stock were issued and
outstanding, and 12,404,969 shares were issuable upon exercise of outstanding
options, 9,187,269 of which were exercisable as of September 10, 1997 (which
options, if exercised in full, would generate aggregate proceeds to the Company
of $51,666,850).
Each share of Common Stock is entitled to one vote at all meetings of
stockholders of PRIMEDIA 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 PRIMEDIA 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 PRIMEDIA, any assets remaining after provision for payment of
creditors and holders of preferred stock would be distributed PRO RATA among
holders of Common Stock. PRIMEDIA 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-Ill's obligations with respect to any then outstanding class or series of
its preferred stock. In addition, PRIMEDIA is restricted by the terms of the
Credit Facilities and public debt instruments 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 PRIMEDIA's capital stock.
The Certificate of Incorporation of the Company provides that, except as
provided by the DGCL, directors of the Company shall not be personally liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duties as a director. That provision does not exonerate the directors from
liability under federal securities laws, and has no effect on any non-monetary
remedies that may be available to the Company or its stockholders. The By-Laws
of the Company provide for indemnification of the officers and directors of the
Company to the full extent permitted by applicable law.
The Company's By-Laws provide for additional notice requirements for
stockholder nominations and proposals at annual or special meetings of the
Company. At annual meetings, stockholders will be entitled
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to submit nominations for directors or other proposals only upon written notice
to the Company not less than 60 days, nor more than 90 days, prior to the annual
meeting.
SECTION 203 OF THE DELAWARE LAW
Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the board and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder. A "business combination" includes
mergers, asset sales, and other transactions resulting in a financial benefit to
the stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
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 PRIMEDIA.
All outstanding shares of Series B Preferred Stock are fully paid and
nonassessable. As of September 10, 1997, 1,576,036 shares of the Series B
Preferred Stock ($157.6 million 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 PARI PASSU with the
Series D Preferred Stock and Preferred Stock issued hereby and senior to the
Common Stock. The Company intends to amend the Certificate of Designations
relating to the Series B Preferred Stock to provide that, without the
affirmative vote of at least a majority of the then outstanding shares of Series
B Preferred Stock, voting together with the holders of any other then
outstanding shares of Parity Securities entitled to vote thereon, the Company
will not issue any other Senior Securities; PROVIDED that the Company does not
need the approval of such holders to issue shares of Senior Securities the
proceeds of which are used to redeem or repurchase all shares of the then
outstanding Series B Preferred Stock and any other Parity Securities entitled to
vote thereon.
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
PRIMEDIA, be paid in cash or by issuing fully paid and nonassessable shares of
Series B Preferred Stock with 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 cash or additional
shares of Series B Preferred Stock.
OPTIONAL REDEMPTION. PRIMEDIA 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 105.8% of liquidation value for the
twelve months commencing February 1, 1998 to 100.0% 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). The Credit Facilities, the
Senior Note Indentures and the Exchange Debenture Indenture restrict the ability
of PRIMEDIA to redeem the Series B Preferred Stock.
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
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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 PRIMEDIA 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
PRIMEDIA have consented to or granted a waiver with respect thereto, PRIMEDIA
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) PRIMEDIA shall be the continuing person, or the person
(if other than PRIMEDIA) formed by such consolidation or into which PRIMEDIA is
merged or to which the properties and assets of PRIMEDIA 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 PRIMEDIA (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. PRIMEDIA 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 Class B 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). The Credit Facilities, the indenture
relating to 10 1/4% Senior Notes and the Exchange Debenture Indenture restrict
the ability of PRIMEDIA to exchange the Series B Preferred Stock for the Class B
Preferred Stock.
THE SERIES D PREFERRED STOCK
The holders of Series D Preferred Stock have no preemptive rights or
cumulative voting rights and are not subject to future assessments by PRIMEDIA.
All outstanding shares of Series D Preferred Stock are fully paid and
nonassessable. The Series D Preferred Stock has an aggregate liquidation
preference of $200,000,000.
RANK. The Series D Preferred Stock, with respect to dividend rights and
rights on liquidation, winding up and dissolution, ranks PARI PASSU with the
Series B Preferred Stock and the Preferred Stock issued hereby and senior to the
Common Stock. The Company intends to amend the Certificate of Designations
relating to the Series D Preferred Stock to provide that, without the
affirmative vote of at least a majority of the then outstanding shares of Series
D Preferred Stock, voting together with the
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holders of any other then outstanding shares of Parity Securities entitled to
vote thereon, the Company will not issue any other Senior Securities; PROVIDED
that the Company does not need the approval of such holders to issue shares of
Senior Securities the proceeds of which are used to redeem or repurchase all
shares of the then outstanding Series D Preferred Stock and any other Parity
Securities entitled to vote thereon.
DIVIDENDS. The holders of the shares of Series D 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 10%.
Such dividends are payable quarterly in arrears on each February 1, May 1,
August 1 and November 1. Dividends on shares of the Series D 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. PRIMEDIA may, at its option, redeem at any time on or
after February 1, 2001, from any source of funds legally available therefor, in
whole or in part, any or all of the shares of Series D Preferred Stock at
redemption prices declining ratably from 105.0% of liquidation value for the
twelve months commencing February 1, 2001 to 100.0% on and after February 1,
2006, 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). The Credit Facilities, the
Senior Note Indentures and the Exchange Debenture Indenture restrict the ability
to redeem the Series D Preferred Stock.
In addition, up to $100,000,000 of the Series D Preferred Stock may be
redeemed at any time on or before February 1, 1999 at a price of 110.0%, plus
accrued and unpaid dividends out of the net proceeds of one or more public
equity offerings of Common Stock, provided such redemption occurs within 180
days of such equity public offering.
MANDATORY REDEMPTION. The Series D 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 February 1, 2008 at a price
equal to the liquidation preference thereof plus all accumulated dividends to
the date of redemption.
VOTING RIGHTS. Holders of the Series D 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 D Preferred Stock.
Such Certificate of Designations provides that in the event that dividends on
the Series D Preferred Stock are in arrears and unpaid for six consecutive
quarterly periods, the Board of Directors of PRIMEDIA will be increased by two
directors and the holders of the majority of the Series D 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 Series D Preferred Stock are paid in full.
Unless the requisite holders of any senior security or any indebtedness of
PRIMEDIA have consented to or granted a waiver with respect thereto, PRIMEDIA
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 D Preferred Stock and Series E
Preferred Stock offered hereby (together with any outstanding shares of Future
Parity Securities entitled to vote thereon), voting together as one class,
unless (i) PRIMEDIA shall be the continuing person, or the person (if other than
PRIMEDIA) formed by such consolidation or into which PRIMEDIA is merged or to
which the properties and assets of PRIMEDIA 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 D 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 D Preferred Stock had immediately prior to such
transaction and (ii) immediately after giving effect to such
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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
PRIMEDIA (as defined in its Certificate of Incorporation) immediately prior to
such transaction and (b) the Consolidated Net Worth of the Company on January
24, 1996.
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 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.
EXCHANGE. PRIMEDIA may, at its option, out of any source of funds legally
available therefor, on any scheduled dividend payment date, issue Class D
Subordinated Debentures in exchange for the Series D Preferred Stock, in whole
but not in part provided that the Senior Preferred Stock is no longer
outstanding on the exchange date. Holders of Series D Preferred Stock so
exchanged will be entitled to receive the principal amount of Class D
Subordinated Debentures equal to $100 for each $100 of liquidation preference of
Series D 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 Credit Facilities, the
indenture relating to the 10 1/4% Senior Notes and the Exchange Debenture
Indenture restrict the ability of PRIMEDIA to exchange the Series D Preferred
Stock for Class D Subordinated Debentures.
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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 September 10, 1997 by (i) each beneficial
owner of more than five percent of the Company's outstanding Common Stock, (ii)
each of the Company's directors, (iii) certain of the Company's executive
officers named in the table under "Management" and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME OWNED(1) PERCENTAGE
- --------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
KKR Associates(3)
9 West 57th Street
New York, New York 10019............................................................. 106,886,265 82.6%
William F. Reilly(2)(4)................................................................ 4,591,653 3.5
Charles G. McCurdy(2)(5)............................................................... 2,366,612 1.8
Beverly C. Chell(2).................................................................... 2,036,357 1.6
Jack L. Farnsworth(2).................................................................. 340,300 *
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 (13 persons)........................... 9,744,597 7.1
</TABLE>
- ------------------------
(1) For purposes of this table, a person or group of persons 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, 3,042,960, 1,949,798, 1,622,484 and 266,800
for Messrs. Reilly and McCurdy, Ms. Chell, and Mr. Farnsworth, respectively,
consist of options which were either exercisable on September 10, 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 possesses sole voting and investment power. Messrs. Kravis,
Roberts, Tokarz and Golkin (directors of PRIMEDIA) 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.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Simpson Thacher & Bartlett, tax counsel to the Company,
the following are the material federal income tax consequences of the purchase,
ownership and disposition of the Preferred Stock and the 9.20% Subordinated
Debentures. Except where noted, it deals only with Preferred Stock and 9.20%
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, tax-exempt entities, life insurance
companies, persons holding Preferred Stock and 9.20% 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. The discussion
assumes that the 9.20% Subordinated Debentures will be treated as debt for
United States federal income tax purposes. However, no assurance can be given in
this regard since the characterization of the 9.20% Subordinated Debentures will
be determined based on the facts in existence at the time they are issued, so
that they might constitute equity for United States federal income tax purposes
in which case the consequences described below would differ. 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, SERIES E PREFERRED STOCK OR CLASS E SUBORDINATED DEBENTURES.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, a "United States Holder" means a holder that is (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, or (iv) a trust which
is subject to the supervision of a court within the United States and the
control of a United States person as described in section 7701(a)(30) of the
Code. 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
that 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, mid-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
(although as described above distributions on the Stock
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may not qualify as dividends). There are, however, many exceptions and
restrictions relating to the availability of such dividends-received deduction.
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,
as recently modified, requires that, in order to be eligible for the dividends-
received deduction, a corporate United States Holder must generally hold the
shares of Stock for a 46-day minimum holding period during the 90 day period
beginning on the date which is 45 days before the date on which such share
becomes ex-dividend with respect to such dividend. 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 Stock.
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 includes any amount treated as a dividend in the
case of a redemption that is non-pro rata as to all stockholders or in partial
liquidation of the Company or treated as a dividend because the holding of
options was deemed to be stock ownership under the constructive stock ownership
rules of Section 318(a)(4) of the Code, 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 from the sale or exchange of the stock
and under recently enacted legislation, will be recognized at the time when the
extraordinary dividend is paid. 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.
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 the adjusted current earnings of the corporation
(as defined in Section 56 of the
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Code) over the alternative minimum taxable income (determined without regard to
the adjustments for determining adjusted current earnings 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 optional rights of
redemption by the Company at prices 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 9.20% Subordinated Debentures--Original
Issue Discount") if, based on all of the facts and circumstances, the optional
redemptions are 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 redemptions are more than likely not to
occur, constructive dividend treatment will not result if the redemption premium
does not exceed a de minimis amount or is in the nature of a penalty for
premature redemption. The Company intends to take the position that the
existence of the Company's optional redemption rights does not result in a
constructive distribution to the United States Holders.
REDEMPTION AND EXCHANGE FOR 9.20% SUBORDINATED DEBENTURES
As discussed above, this discussion assumes that the 9.20% Subordinated
Debentures are treated as debt for United States federal income tax purposes. A
redemption of shares of the Preferred Stock for cash or an exchange of the
Preferred Stock for 9.20% Subordinated Debentures (or 9.20% 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. If the United States Holder owns
stock of the Company, actually or constructively following a redemption or
exchange, the United States Holder's tax consequences could differ, and the
entire redemption or exchange proceeds could be taxable as a dividend.
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
9.20% Subordinated Debentures, the amount realized on receipt of the 9.20%
Subordinated Debenture would be equal to the "issue price" of the 9.20%
Subordinated Debenture. Thus, the amount realized on the exchange will be equal
to the issue price of the 9.20% Subordinated Debentures plus any cash received
on the exchange (other than cash received with respect to declared dividends).
The issue price of a 9.20% Subordinated Debenture would be equal to (i) its fair
market value as of the exchange date if the 9.20% 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 Preferred Stock is
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traded on an established securities market during the 60 day period ending 30
days after the exchange date but the Subordinated Debentures are not. If neither
the Preferred Stock nor the 9.20% Subordinated Debentures are so traded, the
issue price of the 9.20% 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 9.20%
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
9.20% 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 9.20% Subordinated
Debentures, discounted at the applicable federal rate. It cannot be determined
at the present time whether the Preferred Stock or the 9.20% Subordinated
Debentures will be, at the relevant time, traded on an established securities
market within the meaning of the OID Regulations.
Depending upon a United States Holder's particular circumstances, the tax
consequences of holding 9.20% 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 9.20% Subordinated Debentures may
be issued with OID.
PAYMENTS OF INTEREST ON 9.20% SUBORDINATED DEBENTURES
Except as set forth below, interest on a 9.20% Subordinated Debenture will
generally be taxable to a United States Holder as ordinary income.
ORIGINAL ISSUE DISCOUNT
9.20% 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 9.20%
Subordinated Debentures issued with OID will be subject to special tax
accounting rules, as described in greater detail below. Holders of 9.20%
Subordinated Debentures issued with OID 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 9.20% Subordinated
Debentures generally will not be required to include separately in income cash
payments received on 9.20% Subordinated Debentures issued with OID to the extent
such payments do not constitute qualified stated interest (as defined below).
Subordinated Debentures issued with OID will be referred to as "Original Issue
Discount Debentures." If any 9.20% 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 9.20% SUBORDINATED DEBENTURES.
A 9.20% Subordinated Debenture with an "issue price" (determined as
explained above--see "Redemption and Exchange for 9.20% Subordinated
Debentures") that is less than its stated redemption price at maturity (the sum
of all payments to be made on the 9.20% 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 9.20% Subordinated Debentures, (i) all interest payments on
any 9.20% Subordinated Debenture issued will be qualified stated interest, (ii)
the stated redemption price at maturity of any 9.20% Subordinated Debenture will
be equal to its principal amount and (iii) any 9.20% 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 9.20% 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 9.20% Subordinated Debentures are
made in proportion to the stated principal amount of the 9.20% Subordinated
Debenture. Any amount of de minimis OID that has been included in income will
generally be treated as capital gain.
The 9.20% 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 options 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 9.20%
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 9.20% Subordinated Debenture, and may not be revoked without the consent of
the Internal Revenue Service (the "IRS").
MARKET DISCOUNT ON RESALE OF 9.20% SUBORDINATED DEBENTURES
If a United States Holder purchases a 9.20% 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 the difference will
be treated as "market discount" for federal income tax purposes, unless such
difference is less than a specified
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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 9.20% 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 9.20%
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
9.20% 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 9.20% 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 9.20% Subordinated
Debenture, unless the United States Holder elects to accrue on a constant
interest method. A United States Holder of a 9.20% 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 9.20% Subordinated Debenture that is
issued with OID 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 9.20% Subordinated
Debenture after the purchase date other than payments of qualified stated
interest will be considered to have purchased such 9.20% 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 9.20% 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 9.20% Subordinated
Debentures or at the time a subsequent United States Holder purchases 9.20%
Subordinated Debentures, the United States Holder's tax basis in any such 9.20%
Subordinated Debenture exceeds the sum of all amounts payable on the 9.20%
Subordinated Debenture 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 9.20% Subordinated Debenture 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 9.20% Subordinated Debenture. Bond premium on
a 9.20% 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 9.20% Subordinated Debenture. 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.
Proposed Treasury regulations issued on June 27, 1996 would clarify the
treatment of bond premium. Among the provisions contained in the proposed
regulations is a provision that generally provides that premium may be amortized
to offset interest income only as a United States Holder takes the qualified
stated interest into account under the holder's regular accounting method.
Moreover, the proposed Treasury regulations generally provide that in the case
of instruments that provide for alternative payment schedules, bond premium is
calculated by assuming that both the issuer and the holder will exercise or not
exercise options in a manner that maximizes the holder's yield. If adopted, the
regulations would be effective for debt instruments acquired on or after the
date 60 days after the date final regulations are published in the Federal
Register. However, if a United States Holder elects to amortize bond premium
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for the taxable year containing such effective date, the proposed Treasury
regulations would apply to all the United States Holder's debt instruments held
on or after the first day of that taxable year.
REDEMPTION, SALE OR EXCHANGE OF 9.20% SUBORDINATED DEBENTURES
The adjusted tax basis of a United States Holder who received 9.20%
Subordinated Debentures in exchange for Preferred Stock will, in general, be
equal to the issue price of such 9.20% 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 9.20%
Subordinated Debentures other than qualified stated interest. Upon the
redemption, sale, exchange or retirement of a 9.20% 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 9.20% Subordinated Debenture. Such gain or loss will
be capital gain or loss. Under recently enacted legislation, capital gains of
individuals derived in respect of capital assets held for more than one year are
eligible for reduced rates of taxation which may vary depending upon the holding
period of such capital assets. Prospective investors should consult their own
tax advisors with respect to the tax consequences of the new legislation. 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 would 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 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 9.20% Subordinated Debentures and
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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.
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) the Company will withhold United
States federal income tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty on distributions paid to a Non-United States
Holder of Preferred Stock. 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 currently
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. Such proposed regulations are proposed to be effective
for payments made after December 31, 1998. 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 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 9.20% 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 9.20% 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 9.20% Subordinated Debenture is described in section
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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 9.20% Subordinated Debenture, or a financial institution holding the
9.20% 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 certification may be
made on an Internal Revenue Service Form W-8 (or successor form)) or (2) a
financial institution holding the 9.20% 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. Under
proposed Treasury regulations not currently in effect, the statement requirement
referred to in (a) (iv) above may be satisfied with other documentary evidence
for interests paid after December 31, 1998 with respect to an offshore account
or through certain foreign intermediaries.
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 9.20% Subordinated
Debenture provides the Company or its paying agent, as the case may be, with a
properly executed (1) IRS Form 1001 (or successor form) claiming an exemption
from withholding under the benefit of an applicable tax treaty or (2) IRS Form
4224 (or successor form) stating that interest paid on the 9.20% 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 9.20%
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 9.20%
Subordinated Debenture will be included in such foreign corporation's earnings
and profits.
SALE, EXCHANGE, REDEMPTION OR OTHER DISPOSITION OF 9.20% 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 9.20% Subordinated Debentures or Preferred
Stock, including an exchange of Preferred Stock for 9.20% 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 9.20% 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 believes that it has not been, is not and will
not become a "U.S. real property holding corporation" for United States federal
income tax purposes.
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.
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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 source 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 9.20% 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 9.20% 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
9.20% 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 9.20%
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 9.20% 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 9.20% 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 9.20%
Subordinated Debenture or Preferred Stock paid to the beneficial owner of a
9.20% 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 9.20% Subordinated Debenture or Preferred
Stock will be subject to both backup withholding and information reporting
unless the beneficial owner provides the statement
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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 OFFER
The exchange of Old Preferred Stock for New Preferred Stock will not
constitute a taxable transaction to Holders for federal income tax purposes.
Consequently, no gain or loss will be recognized by Holders upon receipt of the
New Preferred Stock, the holding period of the New Preferred Stock will include
the holding period of the Old Preferred Stock and the basis of the New Preferred
Stock will be the same as the basis of the Old Preferred Stock immediately
before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OLD PREFERRED STOCK FOR
NEW PREFERRED STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Preferred Stock for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Preferred Stock. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Preferred Stock received in
exchange for Old Preferred Stock where such Old Preferred Stock were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that for a period of 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale.
The Company will no receive any proceeds from any sale of New Preferred
Stock by broker-dealers. New Preferred Stock received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Preferred Stock or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or purchasers of any such New
Preferred Stock. Any broker-dealer that resells New Preferred Stock that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Preferred Stock may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Preferred Stock and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer and will indemnify the holders of the Preferred Stock (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality under state law of the New Preferred Stock and the New
Subordinated Debentures and certain tax matters 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 of PRIMEDIA Inc. (formerly known as
K-III Communications Corporation) and subsidiaries as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996
included in this Prospectus and the related financial statement schedules
included elsewhere in the registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Westcott Communications, Inc.
appearing in PRIMEDIA Inc.'s (formerly known as K-III Communications
Corporation) Current Report (Form 8-K) dated June 14, 1996 for the years ended
December 31, 1995 and 1994, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon the authority of such firm as experts in
accounting and auditing.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma statement of consolidated operations for the year
ended December 31, 1996 gives effect to the following transactions and events as
if they had occurred on January 1, 1996: (i) the acquisition of the common stock
of Westcott Communications, Inc. ("Westcott") which occurred on May 30, 1996 as
described on the Company's Current Report on Form 8-K dated June 14, 1996
incorporated by reference into this Prospectus (referred to as the "Acquired
Business") and (ii) the offering of the Old Preferred Stock (the "Offering") and
the redemption of the Senior Preferred Stock (the "Redemption"). The unaudited
pro forma statement of consolidated operations for the nine months ended
September 30, 1997 gives effect to the Offering and Redemption as if they had
occurred on January 1, 1996. The adjustments to reflect the acquisition of the
Acquired Business and the Offering and Redemption are hereinafter referred to as
the "Pro Forma Adjustments." The unaudited pro forma consolidated balance sheet
as of September 30, 1997 gives effect to the Redemption as if it had occurred on
September 30, 1997.
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 balance sheet and 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 FINANCIAL
POSITION OR CONSOLIDATED RESULTS OF OPERATIONS HAD THE TRANSACTIONS BEEN
CONSUMMATED ON THE DATES ASSUMED AND DO NOT PROJECT THE COMPANY'S CONSOLIDATED
FINANCIAL POSITION OR 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 included elsewhere in this
Prospectus.
P-1
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------
OFFERING/ PRO FORMA
HISTORICAL REDEMPTION(1) CONSOLIDATED
------------ --------------- --------------
<S> <C> <C> <C>
Sales, net:
Specialty Magazines............................................... $ 553,409 $ $ 553,409
Education......................................................... 289,702 289,702
Information....................................................... 246,886 246,886
------------ --------------
Total sales, net.................................................... 1,089,997 1,089,997
Operating costs and expenses:
Cost of goods sold................................................ 247,298 247,298
Marketing and selling............................................. 204,514 204,514
Distribution, circulation and fulfillment......................... 195,910 195,910
Editorial......................................................... 90,300 90,300
Other general expenses............................................ 120,715 120,715
Corporate administrative expenses................................. 19,256 19,256
Depreciation and amortization of prepublication costs, property
and equipment................................................... 26,910 26,910
Provision for loss on the sales of businesses, net and other...... 138,640 138,640
Amortization of intangible assets, excess of purchase price over
net assets acquired and other................................... 98,784 98,784
------------ --------------
Operating loss...................................................... (52,330) (52,330)
Other income (expense):
Interest expense.................................................. (103,728) 742 (102,986)
Amortization of deferred financing costs.......................... (2,323) (2,323)
Other, net........................................................ 176 176
------------ ----- --------------
Income (loss) before income tax benefit and extraordinary
charge(3)......................................................... (158,205) 742 (157,463)
Income tax benefit--carryback claim................................. 1,685 1,685
------------ ----- --------------
Income (loss) before extraordinary charge........................... (156,520) 742 (155,778)
Extraordinary charge--extinguishment of debt........................ (15,401) (15,401)
------------ ----- --------------
Net income (loss)................................................... (171,921) 742 (171,179)
Preferred stock dividends:
Non-cash.......................................................... (4,451) (4,451)
Cash.............................................................. (32,786) (32,786)
------------ ----- --------------
Income (loss) applicable to common shareholders..................... $ (209,158) $ 742 $ (208,416)
------------ ----- --------------
------------ ----- --------------
Pro forma loss applicable to common shareholders per common
share(4):
Loss before extraordinary charge.................................. $ (1.49)
Extraordinary charge.............................................. (.12)
--------------
Net loss.......................................................... $ (1.61)
--------------
--------------
Pro forma weighted average common shares outstanding(4)............. 129,271,743
--------------
--------------
Deficiency of earnings to fixed charges(3).......................... $ (157,463)
--------------
--------------
Deficiency of earnings to fixed charges and preferred stock
dividends(3)...................................................... $ (194,700)
--------------
--------------
</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, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------
ACQUIRED OFFERING/ PRO FORMA
HISTORICAL BUSINESS(2) REDEMPTION(1) CONSOLIDATED
------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Sales, net:
Specialty Magazines................................ $ 684,341 $ $ $ 684,341
Education.......................................... 376,217 39,481 415,698
Information........................................ 313,891 313,891
------------- ----------- --------------
Total sales, net..................................... 1,374,449 39,481 1,413,930
Operating costs and expenses:
Cost of goods sold................................. 337,065 8,152 345,217
Marketing and selling.............................. 249,301 11,052 260,353
Distribution, circulation and fulfillment.......... 230,533 5,965 236,498
Editorial.......................................... 104,484 1,851 106,335
Other general expenses............................. 154,966 11,458 166,424
Corporate administrative expenses.................. 21,497 21,497
Depreciation and amortization of prepublication
costs, property and equipment.................... 38,233 1,582 39,815
Amortization of intangible assets, excess of
purchase price over net assets acquired and
other............................................ 152,469 7,429 159,898
------------- ----------- --------------
Operating income (loss).............................. 85,901 (8,008) 77,893
Other income (expense):
Interest expense................................... (124,601) (12,482) 972 (136,111)
Amortization of deferred financing costs........... (3,662) (3,662)
Other, net......................................... 6,659 6,659
------------- ----------- ------------- --------------
Income (loss) before income tax benefit and
extraordinary charge(3)............................ (35,703) (20,490) 972 (55,221)
Income tax benefit................................... 53,300 53,300
------------- ----------- ------------- --------------
Income (loss) before extraordinary charge............ 17,597 (20,490) 972 (1,921)
Extraordinary charge--extinguishment of debt......... (9,553) (9,553)
------------- ----------- ------------- --------------
Net income (loss).................................... 8,044 (20,490) 972 (11,474)
Preferred stock dividends:
Non-cash........................................... (16,582) (16,582)
Cash............................................... (26,944) (26,944)
------------- ----------- ------------- --------------
Income (loss) applicable to common shareholders...... $ (35,482) $ (20,490) $ 972 $ (55,000)
------------- ----------- ------------- --------------
------------- ----------- ------------- --------------
Pro forma loss applicable to common shareholders per
common and common equivalent share (4):
Loss before extraordinary charge................... $ (.35)
Extraordinary charge............................... (.07)
--------------
Net loss........................................... $ (.42)
--------------
--------------
</TABLE>
P-3
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C> <C> <C>
Pro forma weighted average common and
common equivalent shares
outstanding(4)........................... 130,007,632
-----------
-----------
Deficiency of earnings to fixed
charges(3)................................. $ (55,221)
-----------
-----------
Deficiency of earnings to fixed charges and
preferred stock dividends(3)............. $ (98,747)
-----------
-----------
</TABLE>
See notes to unaudited pro forma consolidated financial data.
P-4
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-------------
OFFERING/
HISTORICAL REDEMPTION(1) PRO FORMA
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 21,693 $ $ 21,693
Accounts receivable, net............................................ 211,258 211,258
Inventories, net.................................................... 28,809 28,809
Net assets held for sale............................................ 65,008 65,008
Prepaid expenses and other.......................................... 55,940 55,940
------------ ------------
Total current assets.............................................. 382,708 382,708
Property and equipment, net........................................... 99,062 99,062
Other intangible assets, net.......................................... 649,371 649,371
Excess of purchase price over net assets acquired, net................ 992,586 992,586
Deferred income tax asset, net........................................ 176,200 176,200
Other non-current assets.............................................. 104,386 104,386
------------ ------------
$ 2,404,313 $ 2,404,313
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable.................................................... $ 67,365 $ $ 67,365
Accrued interest payable............................................ 9,667 9,667
Accrued expenses and other.......................................... 161,831 161,831
Deferred revenues................................................... 157,580 157,580
Current maturities of long-term debt................................ 6,000 6,000
------------ ------------
Total current liabilities......................................... 402,443 402,443
------------ ------------
Long-term debt........................................................ 1,525,223 107,717 1,632,940
------------ ------------- ------------
Other non-current liabilities......................................... 29,618 29,618
------------ ------------
Exchangeable preferred stock.......................................... 569,527 (98,471) 471,056
------------ ------------- ------------
Common stock subject to redemption.................................... 4,234 4,234
------------ ------------
Shareholders' deficiency:
Common stock........................................................ 1,290 1,290
Additional paid-in capital.......................................... 780,629 (1,529) 779,100
Accumulated deficit................................................. (900,256) (7,717) (907,973)
Common stock in treasury, at cost................................... (6,971) (6,971)
Cumulative foreign currency translation adjustments................. (1,424) (1,424)
------------ ------------- ------------
Total shareholders' deficiency.................................... (126,732) (9,246) (135,978)
------------ ------------- ------------
$ 2,404,313 $ -- $ 2,404,313
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
See notes to unaudited pro forma consolidated financial data.
P-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(1) Reflects the Redemption which ocurred on November 3, 1997 through increased
borrowings under the Credit Facilities. The proceeds from the Offering which
occurred on September 22, 1997 were initially used to pay down borrowings
under the Credit Facilities and were subsequently reborrowed to finance the
Redemption. The adjustments to interest expense reflect the net reduction in
long-term debt and interest expense as a result of the reduced level of
borrowings under the Credit Facilities from the application of the remainder
of the net proceeds from the Offering of approximately $13,700. Amounts
repaid under the Credit Facilities may be reborrowed for general corporate
purposes, including acquisitions. The reduction in total shareholders'
equity reflects the difference between the carrying value and redemption
value of the Senior Preferred Stock and the payment of accrued but unpaid
dividends upon Redemption.
(2) Reflects the operating results of Westcott as if it was acquired on January
1, 1996. The pro forma interest expense adjustment reflects the additional
borrowings to finance the acquisition at an assumed weighted average rate of
7.08% for the year ended December 31, 1996.
(3) Income (loss) before income taxes and extraordinary charge 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, provision for loss on the
sales of business, non-cash interest expense on an acquisition obligation,
distribution advance and other current liability. These pro forma non-cash
charges totaled approximately $268,614 for the nine months ended September
30, 1997 and $201,906 for the year ended December 31, 1996. Adjusted to
eliminate such pro forma non-cash charges, earnings would have exceeded
fixed charges and fixed charges plus cash preferred stock dividends by
approximately $111,151 and $78,365 for the nine months ended September 30,
1997, respectively, and $146,685 and $119,741 for the year ended December
31, 1996, respectively.
(4) Pro forma loss applicable to common shareholders per common and common
equivalent share for the nine months ended September 30, 1997 and the year
ended December 31, 1996 was computed using the weighted average number of
common and common equivalent shares outstanding during the respective
period. The weighted average number of common and common equivalent shares
outstanding includes incremental shares for nonqualified options granted to
purchase Common Stock. Such incremental shares were determined utilizing the
treasury stock method. Pro forma loss applicable to common shareholders per
common and common equivalent share assuming full dilution is not presented
because it is antidilutive.
P-6
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
Condensed Statements of Consolidated Operations (unaudited) for the Nine Months Ended
September 30, 1996 and 1997........................................................ F-2
Condensed Consolidated Balance Sheet (unaudited) as of September 30, 1997............ F-3
Condensed Statements of Consolidated Cash Flows (unaudited) for the Nine Months Ended
September 30, 1996 and 1997........................................................ F-4
Notes to Condensed Consolidated Financial Statements (unaudited)..................... F-5
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND
1996
Report of Independent Auditors--Deloitte & Touche LLP................................ F-12
Statements of Consolidated Operations for the Years Ended
December 31, 1994, 1995 and 1996................................................... F-13
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... F-14
Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996................................................... F-15
Statements of Consolidated Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996................................................... F-17
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1994, 1995 and 1996................................................... F-18
</TABLE>
F-1
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Sales, net:
Specialty Magazines.............................................................. $ 505,090 $ 553,409
Education........................................................................ 268,277 289,702
Information...................................................................... 221,684 246,886
------------- -------------
Total sales, net................................................................... 995,051 1,089,997
Operating costs and expenses:
Cost of goods sold............................................................... 250,806 247,298
Marketing and selling............................................................ 183,937 204,514
Distribution, circulation and fulfillment........................................ 169,444 195,910
Editorial........................................................................ 74,804 90,300
Other general expenses........................................................... 111,996 120,715
Corporate administrative expenses................................................ 15,336 19,256
Depreciation and amortization of prepublication costs, property and equipment.... 27,182 26,910
Provision for loss on the sales of businesses, net and other..................... -- 138,640
Amortization of intangible assets, excess of purchase price over net assets
acquired and other............................................................. 112,762 98,784
------------- -------------
Operating income (loss)............................................................ 48,784 (52,330)
Other income (expense):
Interest expense................................................................. (91,313) (103,728)
Amortization of deferred financing costs......................................... (2,784) (2,323)
Other, net....................................................................... 5,612 176
------------- -------------
Loss before income tax benefit and extraordinary charge............................ (39,701) (158,205)
Income tax benefit--carryback claim................................................ -- 1,685
------------- -------------
Loss before extraordinary charge................................................... (39,701) (156,520)
Extraordinary charge--extinguishment of debt....................................... (7,572) (15,401)
------------- -------------
Net loss........................................................................... (47,273) (171,921)
Preferred stock dividends:
Non-cash......................................................................... (12,257) (4,451)
Cash............................................................................. (19,069) (32,786)
------------- -------------
Loss applicable to common shareholders............................................. $ (78,599) $ (209,158)
------------- -------------
------------- -------------
Loss applicable to common shareholders per common share:
Loss before extraordinary charge................................................... $ (.55) $ (1.50)
Extraordinary charge............................................................... (.06) (.12)
------------- -------------
Net loss........................................................................... $ (.61) $ (1.62)
------------- -------------
------------- -------------
Weighted average common shares outstanding......................................... 128,721,459 129,271,743
------------- -------------
------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS,
EXCEPT
PER SHARE AMOUNTS)
--------------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 21,693
Accounts receivable, net............................................................ 211,258
Inventories, net.................................................................... 28,809
Net assets held for sale............................................................ 65,008
Prepaid expenses and other.......................................................... 55,940
-----------
Total current assets.............................................................. 382,708
Property and equipment, net........................................................... 99,062
Other intangible assets, net.......................................................... 649,371
Excess of purchase price over net assets acquired, net................................ 992,586
Deferred income tax asset, net........................................................ 176,200
Other non-current assets.............................................................. 104,386
-----------
$ 2,404,313
-----------
-----------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable.................................................................... $ 67,365
Accrued interest payable............................................................ 9,667
Accrued expenses and other.......................................................... 161,831
Deferred revenues................................................................... 157,580
Current maturities of long-term debt................................................ 6,000
-----------
Total current liabilities......................................................... 402,443
-----------
Long-term debt........................................................................ 1,525,223
-----------
Other non-current liabilities......................................................... 29,618
-----------
Exchangeable preferred stock.......................................................... 569,527
-----------
Common stock subject to redemption ($.01 par value, 413,750 shares outstanding)....... 4,234
-----------
Shareholders' deficiency:
Common stock ($.01 par value, 129,002,389 shares outstanding)....................... 1,290
Additional paid-in capital.......................................................... 780,629
Accumulated deficit................................................................. (900,256)
Common stock in treasury, at cost (569,100 shares).................................. (6,971)
Cumulative foreign currency translation adjustments................................. (1,424)
-----------
Total shareholders' deficiency.................................................... (126,732)
-----------
$ 2,404,313
-----------
-----------
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
<S> <C> <C>
1996 1997
----------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................................................................. $ (47,273) $ (171,921)
Adjustments to reconcile net loss to net cash provided by operating activities:
Extraordinary charge--extinguishment of debt........................................ 7,572 15,401
Depreciation, amortization and other................................................ 142,728 128,017
Provision for loss on the sales of businesses, net and other........................ -- 138,640
Accretion of discount on acquisition obligation, distribution advance and other..... 3,631 4,957
Other, net.......................................................................... (5,258) (21)
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable, net.......................................................... (28,170) (9,798)
Inventories, net.................................................................. 20,971 4,474
Prepaid expenses and other........................................................ (6,423) (14,619)
Increase (Decrease) in:
Accounts payable.................................................................. (17,477) (26,956)
Accrued interest payable.......................................................... 15,645 (12,483)
Accrued expenses and other........................................................ (24,744) (14,232)
Deferred revenues................................................................. 3,393 8,672
Other non-current liabilities..................................................... (759) (4,014)
----------- ----------
Net cash provided by operating activities......................................... 63,836 46,117
----------- ----------
INVESTING ACTIVITIES:
Additions to property, equipment and other, net....................................... (18,103) (22,305)
Proceeds from sales of businesses and other........................................... 5,788 111,972
Payments for businesses acquired...................................................... (671,023) (182,570)
----------- ----------
Net cash used in investing activities............................................. (683,338) (92,903)
----------- ----------
FINANCING ACTIVITIES:
Borrowings under credit agreements.................................................... 1,685,910 739,031
Repayments of borrowings under credit agreements...................................... (1,218,800) (547,200)
Repayment of Chase Term Loan.......................................................... (150,000) --
Repayment of BONY Term Loan........................................................... (150,000) --
Proceeds from issuance of 8 1/2% Senior Notes, net of discount........................ 298,734 --
Repayment of acquisition obligation................................................... (3,000) (3,000)
Proceeds from issuance of common stock, net of redemptions............................ 2,951 6,362
Proceeds from the issuance of Series C (exchanged into Series D)
Preferred Stock, net of issuance costs.............................................. 193,720 --
Proceeds from the issuance of Series E Preferred Stock, net of issuance costs......... -- 121,450
Redemptions of 10 5/8% Senior Notes................................................... -- (242,787)
Purchases of common stock for the treasury............................................ -- (6,971)
Dividends paid to preferred shareholders.............................................. (19,069) (32,786)
Deferred financing costs paid......................................................... (14,926) (1,821)
Other................................................................................. (740) (454)
----------- ----------
Net cash provided by financing activities......................................... 624,780 31,824
----------- ----------
Increase (decrease) in cash and cash equivalents........................................ 5,278 (14,962)
Cash and cash equivalents, beginning of period.......................................... 27,226 36,655
----------- ----------
Cash and cash equivalents, end of period................................................ $ 32,504 $ 21,693
----------- ----------
----------- ----------
Supplemental information:
Cash interest paid.................................................................... $ 73,420 $ 113,215
----------- ----------
----------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
PRIMEDIA Inc., together with its subsidiaries, is collectively referred to
as "PRIMEDIA" or the "Company". In the opinion of the Company's management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to the prior year financial statements to conform to the
classifications used in the current period. The operating results for the
nine-month periods ended September 30 are not necessarily indicative of the
results that may be expected for a full year.
The Company's operations have been organized into three business segments:
specialty magazines, education and information. The specialty magazines segment
has in prior periods been referred to as the specialty media segment, but the
Company believes that the term specialty magazines is more reflective of the
focus of the segment.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 becomes effective for the Company's consolidated financial
statements beginning in the fourth quarter of 1997. SFAS No. 128 will eliminate
disclosure of primary earnings per share, which includes the dilutive effect of
stock options, warrants and other convertible securities ("Common Stock
Equivalents"), and instead requires reporting of "basic" earnings per share,
which excludes Common Stock Equivalents. Additionally, SFAS No. 128 changes the
methodology for calculating fully dilutive earnings per share. In the opinion of
the Company's management, it is not anticipated that the adoption of this new
accounting standard will have a material effect on the reported earnings per
share of the Company.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure". SFAS No. 129 becomes effective for the Company's
consolidated financial statements beginning in the fourth quarter of 1997. SFAS
No. 129 requires certain disclosures regarding outstanding securities, preferred
stock and redeemable stock. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which become effective for the
Company's 1998 consolidated financial statements. SFAS No. 130 requires the
disclosure of comprehensive income, defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources in the Company's consolidated financial
statements. SFAS No. 131 requires that a public business enterprise report
certain financial and descriptive information about its reportable operating
segments. In the opinion of the Company's management, it is not anticipated that
the adoption of these new accounting standards will have a material effect on
the consolidated financial statements of the Company.
2. ACQUISITIONS
During the nine-month period ended September 30, 1997, the Company completed
several acquisitions which were financed through borrowings under the Company's
credit agreements. Cash payments for these acquisitions on an aggregate basis
was $182,570 (net of liabilities assumed of approximately $33,540) and includes
certain immaterial purchase price adjustments related to prior year
acquisitions. The excess purchase price over net assets acquired was
approximately $113,137.
F-5
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. ACQUISITIONS (CONTINUED)
The preliminary purchase cost allocations for the 1997 acquisitions are
subject to adjustment when additional information concerning asset and liability
valuations is obtained. The final asset and liability fair values may differ
from those set forth in the accompanying condensed consolidated balance sheet at
September 30, 1997; however, the changes are not expected to have a material
effect on the consolidated financial statements of the Company.
These acquisitions have all been accounted for by the purchase method. The
financial statements include the operating results of these acquisitions
subsequent to their respective dates of acquisition. If the foregoing
acquisitions had occurred on January 1, 1996, they would not have had a material
impact on the results of operations for the nine-month periods ended September
30, 1996 and 1997.
3. NET ASSETS HELD FOR SALE AND DIVESTITURES
In September 1996, the Company decided to divest Katharine Gibbs Schools,
Inc. ("Katharine Gibbs"). On May 30, 1997, the Company sold Katharine Gibbs
pursuant to a stock purchase agreement and received a portion of the purchase
price. The operating results of Katharine Gibbs prior to the divestiture are not
material to the consolidated operations of the Company and are included in the
accompanying statements of condensed consolidated operations for the nine-month
period ended September 30, 1996 and through the date of divestiture for the
nine-month period ended September 30, 1997.
On March 11, 1997, the Company announced its intention to divest the
following four non-core business units: THE DAILY RACING FORM, Newbridge
Communications, Inc. (excluding Films for the Humanities and Sciences), NEW
WOMAN magazine and Krames Communications Incorporated ("Krames"). Subsequently,
the Company decided to sell STAGEBILL and Intertec Mailing Services. These
planned divestitures are part of the Company's plan to focus on six key growth
vehicles in markets that have dynamic growth opportunities.
During the third quarter, the Company completed the sale of the outstanding
stock of Krames, certain net assets of NEW WOMAN magazine and the net assets of
Intertec Mailing Services. The operating results of these divestitures prior to
their sale were not material to the consolidated operations of the Company and
are included in the accompanying statements of condensed consolidated operations
for the nine-month periods ended September 30, 1996 and 1997.
The remaining planned divestitures, Newbridge Communications, Inc.
(excluding Films for the Humanities and Sciences), THE DAILY RACING FORM and
STAGEBILL are expected to be completed and have been classified under the
caption net assets held for sale and are recorded at their aggregate carrying
value of $65,008 on the accompanying condensed consolidated balance sheet at
September 30, 1997.
Katharine Gibbs, Newbridge Communications, Inc. (excluding Films for the
Humanities and Sciences), THE DAILY RACING FORM, STAGEBILL, Krames, NEW WOMAN
magazine and Intertec Mailing Services are collectively referred to as the
Non-Core Businesses ("Non-Core Businesses"). The Company recorded a provision
aggregating $138,640 for the reduction of the carrying values of the Non-Core
Businesses to the estimated realizable value of the net assets of such
businesses. The operating results of the Non-Core Businesses are included in the
accompanying statements of condensed consolidated operations for the
F-6
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. NET ASSETS HELD FOR SALE AND DIVESTITURES (CONTINUED)
nine-month periods ended September 30, 1996 and 1997. Total sales for the
Non-Core Businesses were $233,076 and $205,145 for the nine-month periods ended
September 30, 1996 and 1997, respectively. Excluding the provision for the
reduction of the carrying values, operating income (loss) for the Non-Core
Businesses was $(1,362) and $15,093 for the nine-month periods ended September
30, 1996 and 1997 respectively.
4. PRIVATE OFFERING
On September 26, 1997, the Company completed a private offering of 1,250,000
shares of $9.20 Series E Exchangeable Preferred Stock ("Series E Preferred
Stock") at $100 per share, all of which are issued and outstanding at September
30, 1997. Annual dividends of $9.20 per share on the Series E Preferred Stock
are cumulative and payable quarterly, in cash, commencing February 1, 1998.
Prior to November 1, 2002, the Series E Preferred Stock may be redeemed in whole
or in part, at the option of the Company, at a redemption price equal to the sum
of the aggregate liquidation preference plus accrued and unpaid dividends to the
redemption date and the applicable make-whole premium as defined in the private
offering prospectus. On or after November 1, 2002, the Series E Preferred Stock
may be redeemed in whole or in part, at the option of the Company, at specified
redemption prices plus accrued and unpaid dividends. The Company is required to
redeem the Series E Preferred Stock on November 1, 2009 at a redemption price
equal to the liquidation preference of $100 per share, plus accrued and unpaid
dividends. The Series E Preferred Stock is exchangeable, in whole but not in
part, at the option of the Company, on any scheduled dividend payment date into
9.20% Class E Subordinated Debentures. The Series E Preferred Stock is recorded
on the accompanying condensed consolidated balance sheet at the aggregate
redemption value (net of unamortized issuance costs) of $121,450 at September
30, 1997. Net proceeds from this private offering were used to pay down
borrowings under the bank credit facilities. (See Note 10 -- Subsequent Events).
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Finished Goods............................................................. $ 13,293
Work in Process............................................................ 3,053
Raw Materials.............................................................. 15,230
-------------
31,576
Less allowance for obsolescence............................................ 2,767
-------------
$ 28,809
-------------
-------------
</TABLE>
F-7
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Borrowings under bank credit facilities............................................................ $ 1,076,833
8 1/2% Senior Notes due 2006, net.................................................................. 298,879
10 1/4% Senior Notes due 2004...................................................................... 100,000
10 5/8% Senior Notes due 2002...................................................................... --
-------------
Total.............................................................................................. 1,475,712
Acquisition obligation payable..................................................................... 55,511
-------------
1,531,223
Less current portion............................................................................... 6,000
-------------
$ 1,525,223
-------------
-------------
</TABLE>
In January 1997, the Company purchased, in aggregate, $20,850 of the 10 5/8%
Senior Notes at a weighted average price of 105%, plus accrued and unpaid
interest from various brokers on the open market. On May 1, 1997, the Company
redeemed the $212,400 remaining principal amount of the 10 5/8% Senior Notes at
104% plus accrued and unpaid interest. The aggregate premium paid and the
write-off of related deferred financing costs are classified as an extraordinary
charge and are recorded at an aggregate value of $15,401 on the accompanying
statement of condensed consolidated operations for the nine-month period ended
September 30, 1997.
The write-off of the unamortized deferred financing costs of $7,572 related
to the Company's May 1996 bank debt refinancing has been reclassified as an
extraordinary charge on the accompanying statement of condensed consolidated
operations for the nine-month period ended September 30, 1996 to conform to the
1997 presentation.
On April 21, 1997, the Company entered into a new 364-day credit facility
with the Bank of New York, Bankers Trust Company, The Bank of Nova Scotia and
The Chase Manhattan Bank as agents (the "New Credit Facility") which expires
April 20, 1998. Under the terms of the New Credit Facility, the Company has
commitments of $150,000 which can be borrowed in the form of revolving loans.
The proceeds of all revolving loans under the New Credit Facility can be
used for general corporate and working capital purposes of the Company and its
subsidiaries, including, without limitation, the financing of permitted
acquisitions.
The amounts borrowed pursuant to the New Credit Facility bear interest at
rates per annum identical to those in the bank credit facilities at the
Company's option as follows: (i) the higher of (a) the Federal Funds Effective
Rate plus 1/2% and (b) the prime lending rate as in effect from time to time
(the "Base Rate"), plus in each case, an applicable margin of up to 1/8 of 1% as
specified in the New Credit Facility or (ii) the Eurodollar Rate plus an
applicable margin ranging from 1/2% to 1 1/2% as specified in the New Credit
Facility.
F-8
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT (CONTINUED)
Under the New Credit Facility, the Company has agreed to pay commitment fees
equal to 1/8 of 1% per annum on the daily average aggregate unutilized revolving
loan commitment.
The covenants in the New Credit Facility are identical to those in the bank
credit facilities and, among other things, limit the ability of the Company to
change the nature of its businesses, incur certain indebtedness, create liens,
sell assets, engage in mergers, consolidations or transactions with affiliates,
make investments in or loans to certain subsidiaries, make guarantees and make
certain restricted payments. The Company is also prohibited from declaring or
making dividend payments on the common stock in excess of $25,000 per annum,
unless the fixed charge coverage ratio, interest coverage ratio and leverage
ratio are at certain levels as specified in the New Credit Facility.
As under the bank credit facilities, borrowings under the New Credit
Facility are guaranteed by each of the domestic wholly-owned subsidiaries of the
Company. Such guarantees are full, unconditional and joint and several. The
Company's foreign subsidiaries are not guarantors of the above indebtedness. The
total assets, revenues, income or equity of such foreign subsidiaries, both
individually and on a combined basis, are inconsequential in relation to the
total assets, revenues, income or equity of the Company.
In May 1997, the Company, through its bank credit facilities, solicited
commitments of $150,000 under the Tranche B Revolving Loan Facility ("Tranche B
Facility"). The Company has the right to solicit additional commitments of up to
$100,000 under the Tranche B Facility. As of September 30, 1997, $150,000 was
outstanding under the Tranche B Facility.
The commitments under the Tranche B Facility are subject to mandatory
reductions semi-annually on June 30 and December 31 with the first reduction on
June 30, 1999 and the final reduction on June 30, 2004. The mandatory reductions
for the Tranche B Facility loan commitments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1999........................................................................ $ 15,000
2000........................................................................ 30,000
2001........................................................................ 30,000
2002........................................................................ 30,000
2003........................................................................ 30,000
2004........................................................................ 15,000
------------
$ 150,000
------------
------------
</TABLE>
In July 1997, the Company repaid the $80,000 outstanding borrowings under
the New Credit Facility and subsequently borrowed an equivalent amount under the
bank credit facilities.
In July 1997, the Company entered into four, three-year and two, four-year
interest rate swap agreements, with an aggregate notional amount of $600,000.
Under these new swap agreements, which commence on January 2, 1998, the Company
receives a floating rate of interest based on three-month
F-9
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT (CONTINUED)
LIBOR, which resets quarterly, and the Company pays a fixed rate of interest,
each quarter, for the terms of the respective agreements. The weighted average
fixed rate of interest under these agreements is 6.33%.
7. EXCHANGEABLE PREFERRED STOCK
Exchangeable Preferred Stock consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
$2.875 Senior Exchangeable Preferred Stock......................................................... $ 98,471
$11.625 Series B Exchangeable Preferred Stock...................................................... 155,202
$10.00 Series D Exchangeable Preferred Stock....................................................... 194,404
$9.20 Series E Exchangeable Preferred Stock........................................................ 121,450
-------------
$ 569,527
-------------
-------------
</TABLE>
$2.875 SENIOR EXCHANGEABLE PREFERRED STOCK
The Company authorized 4,000,000 shares of $.01 par value Senior Preferred
Stock, all of which was issued and outstanding at September 30, 1997. The
liquidation and redemption value at September 30, 1997 was $100,000. In
September 1997, the Company gave notice to call all outstanding shares of the
Senior Preferred Stock effective November 3, 1997 (See Note 10 -- Subsequent
Events).
$11.625 SERIES B EXCHANGEABLE PREFERRED STOCK
The Company authorized 2,000,000 shares of $.01 par value Series B Preferred
Stock, 1,576,036 shares of which were issued and outstanding at September 30,
1997. The liquidation and redemption value at September 30, 1997 was $157,604.
Commencing in the second quarter of 1997, the Company elected to satisfy its
Series B Exchangeable Preferred Stock dividend requirements in cash.
$10.00 SERIES D EXCHANGEABLE PREFERRED STOCK
The Company authorized 2,000,000 shares of $.01 par value Series D Preferred
Stock, all of which was issued and outstanding at September 30, 1997. The
liquidation and redemption value at September 30, 1997 was $200,000.
$9.20 SERIES E EXCHANGEABLE PREFERRED STOCK
The Company authorized 1,250,000 shares of $.01 par value Series E Preferred
Stock, all of which was issued and outstanding at September 30, 1997. The
liquidation and redemption value at September 30, 1997 was $125,000. (See Note 4
- -- Private Offering).
F-10
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. COMMON STOCK
On September 9, 1997, the Board of Directors authorized the Company to
purchase up to $15,000 of its outstanding common shares for cash from time to
time on the open market and through privately negotiated transactions (the
"Repurchase Program"). In September 1997, in accordance with the Repurchase
Program, the Company purchased 46,100 shares of its outstanding common stock
which was recorded at a cost (including commissions) of $549 and classified as
common stock in treasury on the condensed consolidated balance sheet at
September 30, 1997.
On September 16, 1997, the Company purchased a block of 523,000 shares of
the Company's common stock at a price of $12 1/4 per share. The shares were
purchased in the open market through the New York Stock Exchange. The purchase
of these shares was not part of the Repurchase Program. The shares are
classified as common stock in treasury and are recorded at a cost (including
commissions) of $6,422 on the condensed consolidated balance sheet at September
30, 1997.
9. LOSS PER COMMON SHARE
Loss per common share for the nine-month periods ended September 30, 1996
and 1997 was computed using the weighted average number of common stock shares
outstanding during each period. The effect of the assumed exercise of
non-qualified stock options is not included because the effect is anti-dilutive.
Loss per common share assuming full dilution is not presented because such
calculation is antidilutive.
10. SUBSEQUENT EVENTS
On November 3, 1997, the Company redeemed all 4,000,000 outstanding shares
of $2.875 Senior Exchangeable Preferred Stock at a price of $26.45 per share,
plus accrued and unpaid dividends, aggregating $105,864.
On November 17, 1997, the Company completed a product-line acquisition in
the technical and trade magazines group.
On November 18, 1997, the Company changed its name to PRIMEDIA Inc. to
better reflect the "prime" positioning the Company has in six areas of
specialized "media." On November 18, 1997, the Company's New York Stock Exchange
symbol was changed from KCC to PRM.
On November 28, 1997, the Company entered into an agreement to acquire a
leading provider of training products for the insurance industry and on December
19, 1997, the acquisition was consummated.
On January 8, 1998, the Company entered into a Stock Purchase Agreement
pursuant to which it will acquire the Cowles Enthusiast Media and Cowles
Business Media divisions of Cowles Media Company from McClatchy Newspapers Inc.
("McClatchy") for approximately $200,000 (including assumed liabilities). The
transaction is subject to the completion of McClatchy's purchase of Cowles Media
Company, which is expected to close by March 31, 1998.
F-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
PRIMEDIA Inc.
New York, New York:
We have audited the accompanying consolidated balance sheets of PRIMEDIA
Inc. (formerly known as K-III Communications Corporation) and subsidiaries as of
December 31, 1995 and 1996, and the related statements of consolidated
operations, shareholders' equity and consolidated cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and subsidiaries at
December 31, 1995 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for advertising costs to conform with Statement
of Position 93-7--"Reporting on Advertising Costs" of the American Institute of
Certified Public Accountants in 1994.
DELOITTE & TOUCHE LLP
New York, New York
January 29, 1997
(November 28, 1997 as to Note 26)
F-12
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
NOTES 1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales, net:
Specialty Magazines................................... $ 341,782 $ 452,373 $ 684,341
Education............................................. 430,134 330,414 376,217
Information........................................... 192,732 263,542 313,891
-------------- -------------- --------------
Total sales, net........................................ 964,648 1,046,329 1,374,449
Operating costs and expenses:
Cost of goods sold.................................... 206,390 251,347 337,065
Marketing and selling................................. 197,379 177,167 249,301
Distribution, circulation and fulfillment............. 180,962 188,147 230,533
Editorial............................................. 64,235 73,703 104,484
Other general expenses................................ 140,263 122,816 154,966
Corporate administrative expenses..................... 13,325 17,034 21,497
Depreciation and amortization of prepublication costs,
property and equipment.............................. 11 16,190 25,761 38,233
Provision for loss on the sales of businesses, net.... 6 15,025 35,447 --
Restructuring and other costs......................... 7 -- 14,667 --
Amortization of intangible assets, excess of purchase
price over net assets acquired and other............ 8, 12 120,676 166,515 152,469
-------------- -------------- --------------
Operating income (loss)................................. 10,203 (26,275) 85,901
Other income (expense):
Interest expense...................................... (78,351) (105,837) (124,601)
Amortization of deferred financing and organizational
costs............................................... 13 (3,080) (3,135) (3,662)
Other, net............................................ 6 (401) 212 6,659
-------------- -------------- --------------
Loss before income tax benefit and extraordinary
charge................................................ (71,629) (135,035) (35,703)
Income tax benefit...................................... 16 42,100 59,600 53,300
-------------- -------------- --------------
Income (loss) before extraordinary charge............... (29,529) (75,435) 17,597
Extraordinary charge--extinguishment of debt............ (11,874) -- (9,553)
-------------- -------------- --------------
Net income (loss)....................................... (41,403) (75,435) 8,044
Preferred stock dividends:
Non-cash.............................................. (14,459) (17,478) (16,582)
Cash.................................................. (11,500) (11,500) (26,944)
-------------- -------------- --------------
Loss applicable to common shareholders.................. $ (67,362) $ (104,413) $ (35,482)
-------------- -------------- --------------
-------------- -------------- --------------
Loss applicable to common shareholders per common and
common equivalent share: 3
Loss before extraordinary charge...................... $ (.54) $ (.91) $ (.20)
Extraordinary charge.................................. (.11) -- (.07)
-------------- -------------- --------------
Net income (loss)..................................... $ (.65) $ (.91) $ (.27)
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average common and common equivalent shares
outstanding........................................... 3 103,642,668 115,077,498 130,007,632
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
NOTES 1995 1996
------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 27,226 $ 36,655
Accounts receivable, net.............................................. 9 173,771 233,603
Inventories, net...................................................... 10 70,844 52,743
Net assets held for sale.............................................. 5 5,253 18,684
Prepaid expenses and other............................................ 26,732 34,834
------------ ------------
Total current assets.............................................. 303,826 376,519
Property and equipment, net............................................. 11 112,013 122,823
Other intangible assets, net............................................ 12 699,617 781,316
Excess of purchase price over net assets acquired, net.................. 12 534,554 971,665
Deferred income tax asset, net.......................................... 16 113,800 176,200
Other non-current assets................................................ 13 117,606 123,692
------------ ------------
$ 1,881,416 $ 2,552,215
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 90,414 $ 107,258
Accrued interest payable.............................................. 9,326 22,150
Accrued expenses and other............................................ 14 125,967 140,959
Deferred revenues..................................................... 128,679 144,857
Current maturities of long-term debt.................................. 15 6,000 6,000
------------ ------------
Total current liabilities......................................... 360,386 421,224
------------ ------------
Long-term debt.......................................................... 15, 26 1,134,916 1,565,686
------------ ------------
Other non-current liabilities........................................... 33,924 35,062
------------ ------------
Commitments and contingencies 22
Exchangeable preferred stock (aggregated liquidation and redemption
values of $236,571 and $453,153 at December 31, 1995 and 1996,
respectively)......................................................... 17 231,606 442,729
------------ ------------
Common stock subject to redemption ($.01 par value, 2,406,513 shares and
643,310 shares outstanding at December 31, 1995 and 1996,
respectively)......................................................... 18 28,022 5,957
------------ ------------
Shareholders' equity:
Common stock ($.01 par value, 250,000,000 shares authorized;
125,921,221 shares and 128,349,045 shares outstanding at December
31, 1995 and 1996, respectively).................................... 18 1,259 1,283
Additional paid-in capital............................................ 18 748,194 772,642
Accumulated deficit................................................... 19 (655,616) (691,098)
Cumulative foreign currency translation adjustments................... (1,275) (1,270)
------------ ------------
Total shareholders' equity........................................ 92,562 81,557
------------ ------------
$ 1,881,416 $ 2,552,215
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1994.................................................................
Issuances of common stock, net of issuance costs...........................................
Expiration of redemption feature on common stock subject to redemption.....................
$11.625 Series B Exchangeable Preferred Stock-dividends in kind............................
$2.875 Senior Exchangeable Preferred Stock--cash dividends.................................
Old Preferred Stock--dividends in kind.....................................................
Accretion of differences between carrying value and redemption value of:
$2.875 Senior Exchangeable Preferred Stock.............................................
$11.625 Series B Exchangeable Preferred Stock..........................................
Cumulative foreign currency translation adjustments........................................
Net loss...................................................................................
Balance at December 31, 1994...............................................................
Issuances of common stock, net of issuance costs...........................................
Expiration of redemption feature on common stock subject to redemption.....................
$11.625 Series B Exchangeable Preferred Stock--dividends in kind...........................
$2.875 Senior Exchangeable Preferred Stock--cash dividends.................................
Old Preferred Stock--dividends in kind.....................................................
Accretion of differences between carrying value and redemption value of:
$2.875 Senior Exchangeable Preferred Stock.............................................
$11.625 Series B Exchangeable Preferred Stock..........................................
Common stock subject to redemption.....................................................
Cumulative foreign currency translation adjustments........................................
Net loss...................................................................................
Balance at December 31, 1995...............................................................
Issuances of common stock, net of issuance costs...........................................
Expiration of redemption feature on common stock subject to redemption.....................
$11.625 Series B Exchangeable Preferred Stock--dividends in kind...........................
$2.875 Senior Exchangeable Preferred Stock--cash dividends.................................
$10.00 Series D Exchangeable Preferred Stock--cash dividends...............................
Reduction (accretion) of differences between carrying value and redemption value of:
$2.875 Senior Exchangeable Preferred Stock.............................................
$11.625 Series B Exchangeable Preferred Stock..........................................
$10.00 Series D Exchangeable Preferred Stock...........................................
Common stock subject to redemption.....................................................
Cumulative foreign currency translation adjustments........................................
Net income.................................................................................
Balance at December 31, 1996...............................................................
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
- ------------------------ PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS TOTAL
- ------------- --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
94,705,557 $ 947 $ 488,541 $ (483,841) $ (1,220) $ 4,427
9,381,250 94 74,956 75,050
1,251,002 12 10,033 10,045
(13,185) (13,185)
(11,500) (11,500)
(1,274) (1,274)
(273) (273)
(317) (317)
(104) (104)
(41,403) (41,403)
- ------------- --------- ---------- ------------ ----------- -----------
105,337,809 1,053 572,940 (551,203) (1,324) 21,466
20,435,782 204 184,964 185,168
147,630 2 807 809
(14,787) (14,787)
(11,500) (11,500)
(2,691) (2,691)
(273) (273)
(317) (317)
(9,927) (9,927)
49 49
(75,435) (75,435)
- ------------- --------- ---------- ------------ ----------- -----------
125,921,221 1,259 748,194 (655,616) (1,275) 92,562
681,890 7 3,440 3,447
1,745,934 17 21,213 21,230
(16,582) (16,582)
(11,500) (11,500)
(15,444) (15,444)
(273) (273)
(317) (317)
(500) (500)
885 885
5 5
8,044 8,044
- ------------- --------- ---------- ------------ ----------- -----------
128,349,045 $ 1,283 $ 772,642 $ (691,098) $ (1,270) $ 81,557
- ------------- --------- ---------- ------------ ----------- -----------
- ------------- --------- ---------- ------------ ----------- -----------
</TABLE>
F-16
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1994 1995 1996
---------- --------- ----------
OPERATING ACTIVITIES:
Net income (loss)........................................................... $ (41,403) $ (75,435) $ 8,044
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, amortization and other...................................... 139,946 195,411 194,364
Provision for loss on the sales of businesses, net........................ 15,025 35,447 --
Accretion of discount on acquisition obligation, distribution advance and
other................................................................... 9,617 8,147 6,398
Extraordinary charge-extinguishment of debt............................... 11,874 -- 9,553
Income tax benefit........................................................ (42,100) (59,600) (53,300)
Other, net................................................................ 177 (122) (6,213)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net.................................................. (2,510) (2,525) (24,692)
Inventories, net.......................................................... 1,329 (23,630) 24,531
Prepaid expenses and other................................................ (14,367) (13,127) (598)
Increase (decrease) in:
Accounts payable.......................................................... 5,971 6,742 5,807
Accrued interest payable.................................................. 877 1,131 12,824
Accrued expenses and other................................................ (13,492) (26,857) (12,674)
Deferred revenues......................................................... (4,984) 16,971 (11,201)
Other non-current liabilities............................................. (1,070) 1,509 (2,651)
---------- --------- ----------
Net cash provided by operating activities................................. 64,890 64,062 150,192
---------- --------- ----------
INVESTING ACTIVITIES:
Additions to property, equipment and other, net............................. (14,184) (23,414) (28,790)
Proceeds from sales of businesses........................................... -- 58,656 8,071
Payments for businesses acquired............................................ (427,942) (353,954) (700,990)
---------- --------- ----------
Net cash used in investing activities..................................... (442,126) (318,712) (721,709)
---------- --------- ----------
FINANCING ACTIVITIES:
Borrowings under credit agreements.......................................... 766,329 622,459 1,683,787
Repayments of borrowings under credit agreements............................ (678,800) (522,500) (1,384,800)
Proceeds from issuance of 8 1/2% Senior Notes, net of discount.............. -- -- 298,734
Payments of acquisition obligation.......................................... (6,000) (6,000) (6,000)
Payments of floating rate indebtedness...................................... -- -- (150,000)
Proceeds from issuance of common stock, net of redemptions.................. 76,360 187,520 3,498
Proceeds from issuance of 10 1/4% Senior Notes.............................. 100,000 -- --
Borrowings under BONY Term Loan............................................. 150,000 -- --
Proceeds from issuance of Old Preferred Stock............................... 75,050 50,000 --
Proceeds from issuance of Series C (exchanged into Series D) Preferred
Stock, net of issuance costs.............................................. -- -- 193,451
Redemption of Old Preferred Stock........................................... (76,324) (52,691) --
Purchases of 10 5/8% Senior Notes........................................... -- -- (17,655)
Dividends paid to preferred shareholders.................................... (11,500) (11,500) (26,944)
Deferred financing costs paid............................................... (10,842) (3,204) (13,132)
Other....................................................................... (349) (440) 7
---------- --------- ----------
Net cash provided by financing activities................................. 383,924 263,644 580,946
---------- --------- ----------
Increase in cash and cash equivalents......................................... 6,688 8,994 9,429
Cash and cash equivalents, beginning of period................................ 11,544 18,232 27,226
---------- --------- ----------
Cash and cash equivalents, end of period...................................... $ 18,232 $ 27,226 $ 36,655
---------- --------- ----------
---------- --------- ----------
SUPPLEMENTAL INFORMATION:
Businesses acquired:
Fair value of assets acquired............................................. $ 517,412 $ 429,810 $ 779,192
Liabilities assumed....................................................... 89,470 75,856 78,202
---------- --------- ----------
Cash paid for businesses acquired......................................... $ 427,942 $ 353,954 $ 700,990
---------- --------- ----------
---------- --------- ----------
Interest paid............................................................... $ 71,395 $ 102,040 $ 111,752
---------- --------- ----------
---------- --------- ----------
Non-cash investing and financing activities:
Asset acquired under a capital lease obligation........................... $ -- $ 11,738 $ --
---------- --------- ----------
---------- --------- ----------
Preferred stock dividends in kind......................................... $ 14,459 $ 17,478 $ 16,582
---------- --------- ----------
---------- --------- ----------
Accretion in carrying value of preferred stock............................ $ 590 $ 590 $ 1,090
---------- --------- ----------
---------- --------- ----------
Accretion (reduction) in carrying value of common stock subject to
redemption.............................................................. $ -- $ 9,927 $ (885)
---------- --------- ----------
---------- --------- ----------
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
PRIMEDIA Inc. (which together with its subsidiaries is herein referred to as
either "PRIMEDIA" or the "Company" unless the context implies otherwise) is the
authoritative source for specialized information to targeted markets. The
Company's three business segments are education, information and specialty
magazines. The specialty magazines segment has in prior years been referred to
as the media segment, but the Company believes that the use of specialty
magazines is more descriptive of the underlying businesses. The education
segment includes Channel One, Westcott, Weekly Reader, Newbridge, Krames and
Katharine Gibbs. This segment specializes in providing educational materials to
the classroom and workplace learning markets. The information segment includes
PRIMEDIA Reference, PRIMEDIA Directory, Haas, Bacon's, a portion of Intertec,
Nelson and Daily Racing Form. The information segment produces consumer and
business directories in a variety of formats for decision makers in business,
professional and special interest consumer markets. The information is compiled
and sold through reference works, newspapers, CD-ROMs, almanacs and directories.
The specialty magazines segment includes PRIMEDIA Magazines, PJS, McMullen Argus
and the majority of Intertec. The specialty magazines segment is concentrated
primarily on specialty consumer magazines, and technical and trade magazines.
2. CHANGE IN METHOD OF ACCOUNTING FOR ADVERTISING COSTS
Effective July 1, 1994, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 93-7, "Reporting on
Advertising Costs" (the "SOP").
Under the Company's previous accounting policy, general advertising costs
were expensed as incurred; promotional and subscription acquisition costs were
capitalized prior to the launching of a direct marketing or subscription
acquisition campaign and then expensed when the promotional materials were
mailed or displayed. In compliance with the new SOP, the Company now expenses
advertising costs the first time the advertising takes place, except for
direct-response advertising qualifying for capitalization under the SOP which is
capitalized and amortized over its expected period of future benefit. Direct-
response advertising consists of product promotional mailings, catalogues,
telemarketing and subscription promotions. The capitalized costs of advertising
are amortized using a ratio of current period revenues to total current and
estimated future period revenues. The amortization periods range from 6 months
to 2 years subsequent to the promotional event. Amortization of direct-response
advertising costs is included in marketing and circulation expenses on the
accompanying statements of consolidated operations. The adoption of this new
accounting method resulted in a decrease in the net loss of approximately $9,800
($.09 per share), $11,800 ($.10 per share) and $2,000 ($.02 per share) for the
years ended December 31, 1994, 1995 and 1996, respectively. At December 31,
1994, 1995 and 1996, $16,895, $25,408 and $28,452 of advertising costs,
respectively, were reported as net assets and included in other non-current
assets on the accompanying consolidated balance sheets. Advertising expense was
approximately $100,357, $88,176 and $100,687, during the years ended December
31, 1994, 1995 and 1996, respectively.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of PRIMEDIA and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. The preparation of
financial statements in conformity with generally accepted accounting principles
F-18
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
requires management to make estimates and assumptions that affect the amounts of
assets, liabilities, revenues and expenses reported in the consolidated
financial statements.
Significant accounting estimates used include estimates for sales returns
and allowances and estimates for the realization of deferred tax assets.
Management has exercised reasonableness in deriving these estimates. However,
actual results may differ.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the presentation used in the current
period.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
establishes the accounting for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The adoption of this new accounting standard did not have a
material effect on the results of operations of the Company.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). This Statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
The Company has elected to continue to account for its employee stock
compensation plans under APB No. 25. Pro forma disclosures of net income (loss)
and loss per common and common equivalent share, as if the fair value based
method of accounting defined in SFAS No. 123 had been applied, are presented in
Note 18.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" which becomes effective for the Company's 1997
consolidated financial statements beginning in the fourth quarter of 1997. SFAS
No. 128 will eliminate the disclosure of primary earnings per share which
includes the dilutive effect of stock options, warrants and other convertible
securities ("Common Stock Equivalents") and instead requires reporting of
"basic" earnings per share, which will exclude Common Stock Equivalents.
Additionally, SFAS No. 128 changes the methodology for fully diluted earnings
per share. In the opinion of the Company's management, it is not anticipated
that the adoption of this new accounting standard will have a material effect on
the reported earnings per share of the Company.
CASH AND CASH EQUIVALENTS. Management considers all highly liquid
instruments purchased with an original maturity of 90 days or less to be cash
equivalents.
INVENTORIES. Inventories, including paper, purchased manuscripts,
photographs and art, are valued at the lower of cost or market principally on a
first-in, first-out ("FIFO") basis and include the value of inventory for which
a provision for estimated sales returns has been made.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation of property and
equipment, and the amortization of leasehold improvements are provided at rates
based on the estimated useful lives or lease terms, if shorter, using primarily
F-19
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the straight-line method. Improvements are capitalized while maintenance and
repairs are expensed as incurred.
EDITORIAL AND PRODUCT DEVELOPMENT COSTS. Editorial costs and product
development costs are generally expensed as incurred. Product development costs
include the cost of artwork, graphics, prepress, plates and photography for new
products.
ADVERTISING AND SUBSCRIPTION ACQUISITION COSTS. Advertising and
subscription acquisition costs are expensed the first time the advertising takes
place, except for direct-response advertising, the primary purpose of which is
to elicit sales from customers who can be shown to have responded specifically
to the advertising and that results in probable future economic benefits. These
direct-response advertising costs are reported as assets and amortized over the
estimated period of future benefit. Prior to July 1, 1994, direct-response
advertising costs were capitalized prior to launching a direct marketing or
subscription acquisition campaign and were expensed when the promotional
materials were mailed (see Note 2).
DEFERRED FINANCING COSTS. Deferred financing costs are being amortized by
the straight-line method over the terms of the related indebtedness.
DEFERRED WIRING AND INSTALLATION COSTS. Wiring and installation costs
incurred by Channel One and Westcott have been capitalized and are being
amortized by the straight-line method over 15 and five years, respectively, the
related estimated useful life.
$2.875 SENIOR EXCHANGEABLE PREFERRED STOCK ("SENIOR PREFERRED STOCK"),
$11.625 SERIES B EXCHANGEABLE PREFERRED STOCK ("SERIES B PREFERRED STOCK") and
the $10.00 SERIES D EXCHANGEABLE PREFERRED STOCK ("SERIES D PREFERRED
STOCK"). The Senior Preferred Stock, Series B Preferred Stock and Series D
Preferred Stock are stated at fair value on the date of issuance less issuance
costs. The difference between their carrying values and their redemption values
is being amortized (using the interest method) by periodic charges to additional
paid-in capital.
COMMON STOCK SUBJECT TO REDEMPTION. The common stock subject to redemption
is stated at redemption value which at December 31, 1995 and 1996, is equal to
quoted market value. The difference between the carrying value of such stock and
its redemption value is recorded by periodic charges to additional paid-in
capital.
COMPUTER SOFTWARE. Computer software costs are expensed as incurred.
INTEREST RATE SWAP AGREEMENTS. The Company's interest rate swap agreements
are designated and effective as modifications to existing debt obligations to
reduce the impact of changes in the interest rates on its floating rate
borrowings and, accordingly, are accounted for using the settlement method of
accounting. The differentials to be paid or received under the interest rate
swap agreements are accrued as interest rates change and are recognized as
adjustments to interest expense. The Company considers swap terms including the
reference rate, payment and maturity dates and the notional amount in
determining if an interest rate swap agreement is effective at modifying an
existing debt obligation. If the criteria for designation are no longer met or
the underlying instrument matures or is extinguished, the Company will account
for outstanding swap agreements at fair market value and any resulting gain or
loss will be recognized as other income or expense. Any gains or losses upon
early termination of the agreements will
F-20
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
be deferred and amortized over the shorter of the remaining life of the hedged
existing debt obligation or the original life of the interest rate swap
agreement.
PURCHASE ACCOUNTING. With respect to the acquisitions, the total purchase
price has been allocated to the tangible and intangible assets and liabilities
based on their respective fair values.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED AND INTANGIBLE
ASSETS. Intangible assets are being amortized using both accelerated and
straight-line methods over periods ranging from 1/4 of 1 year to 40 years. The
excess of purchase price over net assets acquired is being amortized on a
straight-line basis over 40 years. The recoverability of the carrying values of
the excess of the purchase price over the net assets acquired and intangible
assets is evaluated quarterly to determine if an impairment in value has
occurred. An impairment in value will be considered to have occurred when it is
determined that the undiscounted future operating cash flows generated by the
acquired businesses are not sufficient to recover the carrying values of such
intangible assets. If it has been determined that an impairment in value has
occurred, the excess of the purchase price over the net assets acquired and
intangible assets would be written down to an amount which will be equivalent to
the present value of the future operating cash flows to be generated by the
acquired businesses.
REVENUE RECOGNITION. Advertising revenues for all consumer magazines are
recognized as income at the on-sale date, net of provisions for estimated
rebates, adjustments and discounts. Other advertising revenues are generally
recognized based on the publications' cover dates. Newsstand sales are
recognized as income at the on-sale date for all publications, net of provisions
for estimated returns. Subscriptions are recorded as deferred revenue when
received and recognized as income over the term of the subscription. Westcott
subscription and broadcast fees for satellite and videotape network services are
recognized in the month services are rendered. Sales of books and other items
are recognized as revenue principally upon shipment, net of an allowance for
returns which is provided based on sales. Distribution costs charged to
customers are recognized as revenue when the related product is shipped. Tuition
is recorded as deferred revenue when received and recognized ratably as income
over the length of the school term. Channel One advertising revenue, net of
commissions, is recognized as advertisements are aired on the program. Certain
advertisers are guaranteed a minimum number of viewers per advertisement shown;
the revenue recognized is based on the actual viewers delivered not to exceed
the original contract value.
FOREIGN CURRENCY. Gains and losses on foreign currency transactions, which
are not significant, have been included in other, net. The effects of
translation of foreign currency financial statements into U.S. dollars are
included in the cumulative foreign currency translation adjustments account in
shareholders' equity.
LOSS PER COMMON AND COMMON EQUIVALENT SHARE. Loss per common and common
equivalent share for the years ended December 31, 1994, 1995 and 1996 was
computed using the weighted average number of common and common equivalent
shares outstanding during each year. The weighted average number of common and
common equivalent shares outstanding during 1994 and 1995 (for the quarters
prior to the initial filing of the registration statement), 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 at a purchase price
below $10.00 per share; and during the fourth quarters of 1994, 1995 and 1996,
the weighted average of common and
F-21
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
common equivalent shares includes incremental shares for non-qualified stock
options granted to purchase common stock (collectively, the "Incremental
Shares"). Such Incremental Shares were determined utilizing the treasury stock
method. Loss per common share assuming full dilution is not presented because
such calculation is antidilutive.
RECLASSIFICATION. The write-off of unamortized deferred financing costs of
$11,874 in 1994 and the premium paid on the redemption of the 10 5/8% Senior
Notes and the write-off of unamortized deferred financing costs of $9,553 in
1996 have been reclassified as an extraordinary charge on the accompanying
statements of consolidated operations.
4. ACQUISITIONS
The Company acquired certain net assets or stock of:
1994--Channel One, which produces and distributes a daily advertising
supported television news show for secondary school students and associated
video programming; a publisher of directories of residential apartments
available to rent; a producer and distributor of privately sponsored
supplemental educational materials; and Katharine Gibbs Schools, a network of
seven post-secondary career schools. In addition to the aforementioned, the
Company completed several other smaller acquisitions during 1994.
1995--a publisher of 13 specialty consumer magazine titles serving the
sewing, crafts, woodworking and shooting sports areas; a publisher of 11 trade
magazines in the mining, printing and packaging industries, a specialty consumer
magazine, 15 truck and automobile price guides and three marketing and sales
oriented magazines; an information provider for the public relations industry; a
publisher of 21 specialty consumer magazines serving the automobile, truck,
motorcycle and watercraft areas; a publisher of specialty consumer magazines
serving the automotive area; and a publisher of trade magazines and directories
and an operator of trade shows. In addition to the aforementioned, the Company
completed several other smaller acquisitions during 1995.
1996--Cahners Consumer Magazines, a publisher of specialty consumer
magazines including AMERICAN BABY, MODERN BRIDE, SAIL and POWER & MOTORYACHT,
along with 20 related properties and Westcott which utilizes various multi-media
technologies to provide workplace training, news, and information to
professionals and students in the corporate and professional, automotive,
banking, government and public service, education, health care, and interactive
distance training markets. In addition to the aforementioned, the Company
completed several other smaller acquisitions during 1996.
The acquisitions have been accounted for by the purchase method. The
preliminary purchase cost allocations for the above-mentioned acquisitions are
subject to adjustment when additional information concerning asset and liability
valuations are obtained. The final asset and liability fair values may differ
from those set forth in the accompanying consolidated balance sheet at December
31, 1996; however, the changes are not expected to have a material effect on the
consolidated financial position of the Company. The consolidated financial
statements include the operating results of these acquisitions subsequent to
their respective dates of acquisition. The foregoing acquisitions, except for
Channel One, Cahners and Westcott, if they had occurred on January 1 of the year
prior to acquisition, would not have had a material impact on the results of
operations.
F-22
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. ACQUISITIONS (CONTINUED)
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisitions of Channel One, Cahners and
Westcott had taken place on January 1, 1994:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------ ------------ ------------
Sales, net.................................................... $ 1,194,673 $ 1,238,254 $ 1,413,930
Operating income (loss)....................................... 14,861 (12,563) 82,100
Income (loss) before extraordinary charge..................... (72,814) (106,012) 1,314
Loss applicable to common shareholders before extraordinary
charge...................................................... (98,773) (134,990) (42,212)
Loss per common and common equivalent share before
extraordinary charge........................................ (.95) (1.17) (.32)
</TABLE>
5. NET ASSETS HELD FOR SALE
In 1995, the Company decided to sell, as of the acquisition date, certain
technical and trade magazines which were originally acquired as part of a larger
acquisition (see Note 6). During September 1996, the Company decided to divest
Katharine Gibbs and expects to complete the sale in 1997. The net assets of
these operations were recorded at net realizable value and have been classified
as a current asset in net assets held for sale on the accompanying consolidated
balance sheets.
6. DIVESTITURES
In June 1995, the Company sold certain newly acquired technical and trade
magazines and PREMIERE and on July 28, 1995, the Company sold Newfield. In
connection with these sales, the Company has received aggregate cash proceeds of
$58,656 and has recorded amounts due from buyer of approximately $5,000 on the
accompanying consolidated balance sheets at December 31, 1995 and 1996. In
connection with these sales, the Company recorded net aggregate provisions for
loss on the sales of businesses of $15,025 for the year ended December 31, 1994
and $35,447 for the year ended December 31, 1995.
During the second quarter of 1996, the Company completed the sale of certain
technical and trade magazines which were acquired in 1995 and were designated to
be sold upon acquisition. The differences between the proceeds received and the
carrying values of the assets held for sale were treated as adjustments to the
excess of purchase price over net assets acquired related to the retained
businesses. In addition, during the second quarter of 1996, the Company sold a
monthly tabloid targeted to electronic design engineers for consideration of a
motion picture and television production magazine and cash proceeds. During the
fourth quarter of 1996, the Company completed the sale of the Kits and Leaflets
Division of PJS and certain specialty consumer magazines. In connection with
these sales, the Company received aggregate cash proceeds of approximately
$8,100 and recorded a net gain on sale of businesses of approximately $5,800.
7. RESTRUCTURING AND OTHER COSTS
In the second quarter of 1995, the Company recorded charges of $14,667
related to a corporate restructuring effort at Newbridge, its professional book
club business, and the completion of a manufacturing outsourcing effort at Daily
Racing Form. Included in the restructuring charge of $7,272 are employee
F-23
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. RESTRUCTURING AND OTHER COSTS (CONTINUED)
separation costs of $1,287, litigation matters of $3,349, a write-down of
inventory and other assets of $2,086 related to the exit of a product line at
Newbridge and costs associated with the termination of a real estate lease which
is no longer needed in the operations of Daily Racing Form of $550. Included in
the other costs of $7,395 are costs incurred and associated with the correction
of customer and accounting systems and write-down of certain assets. During 1994
and early 1995, the Company experienced certain operational problems at
Newbridge relating to periodic mailings which described its then current product
offerings. These operational problems resulted in higher than normal levels of
bad debts and returns. In addition, Newbridge implemented a new customer
information processing system which inadvertently suppressed a number of
customer and product offering mailings resulting in lower than anticipated
demand for certain products and a corresponding increase in obsolete inventory.
Subsequently, the operational and new system problems were corrected. Based on
information which was then available, appropriate provisions for inventory
obsolescence of approximately $500 and for bad debts of approximately $2,500
were recorded in the first quarter of 1995. Expenses associated with the outside
consultants and systems corrections of approximately $1,400 were recorded in the
second quarter of 1995. Additional obsolescence provisions of approximately
$2,000 and bad debt provisions of approximately $1,000 were identified and
recorded in the second quarter of 1995. Approximately $4,100 of the
restructuring and other charges were paid in cash in 1995 and at December 31,
1995, approximately $2,600 of these charges is included in accrued liabilities.
Approximately $1,200 of the restructuring and other charges were paid in cash in
1996 and at December 31, 1996, $1,400 of these charges is included in accrued
liabilities, which is expected to be paid in 1997.
8. ADJUSTMENTS TO THE CARRYING VALUES OF LONG-LIVED ASSETS
In accordance with its accounting policy, during 1995, the Company recorded
aggregate write-downs of $17,958 and $5,786 to the carrying values of the
identifiable intangible assets and goodwill of PRIMEDIA Reference and a product
line of Newbridge, respectively. These adjustments are included in amortization
of intangible assets, excess of purchase price over net assets acquired and
other on the accompanying statement of consolidated operations for the year
ended December 31, 1995 and affect the operating results of the information and
education segments.
9. ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
Accounts receivable................................................... $ 211,150 $ 273,119
Less: Allowance for doubtful accounts................................. 14,364 15,418
Allowance for returns and rebates................................. 23,015 24,098
---------- ----------
$ 173,771 $ 233,603
---------- ----------
---------- ----------
</TABLE>
F-24
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Finished goods.......................................................... $ 49,026 $ 41,497
Work in process......................................................... 969 2,111
Raw materials........................................................... 27,978 17,838
--------- ---------
77,973 61,446
Less: allowance for obsolescence........................................ 7,129 8,703
--------- ---------
$ 70,844 $ 52,743
--------- ---------
--------- ---------
</TABLE>
11. PROPERTY AND EQUIPMENT, NET
Property and equipment, including that held under capital leases, consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
RANGE OF LIVES ----------------------
(YEARS) 1995 1996
--------------- ---------- ----------
<S> <C> <C> <C>
Land.................................................. -- $ 2,043 $ 2,022
Buildings and improvements............................ 1-40 19,296 24,219
Furniture and fixtures................................ 4-10 19,387 26,027
Machinery and equipment............................... 2-9 65,187 94,091
School equipment...................................... 10 54,625 55,860
Other................................................. 3-7 1,232 2,401
---------- ----------
161,770 204,620
Less: accumulated depreciation and amortization....... 49,757 81,797
---------- ----------
$ 112,013 $ 122,823
---------- ----------
---------- ----------
</TABLE>
Included in machinery and equipment above is an asset which was acquired
under a capital lease in the amount of $11,738 with accumulated amortization of
$434 and $1,739 at December 31, 1995 and 1996, respectively (see Note 22).
F-25
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. INTANGIBLE ASSETS AND EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, NET
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
RANGE OF LIVES --------------------------
(YEARS) 1995 1996
--------------- ------------ ------------
<S> <C> <C> <C>
Trademarks........................................ 40 $ 416,524 $ 448,490
Membership, subscriber and customer lists......... 2-20 435,960 504,951
Non-compete agreements............................ 1-10 217,101 227,312
Trademark license agreements...................... 2-15 17,500 17,500
Copyrights........................................ 12-20 47,849 47,849
Video library..................................... 1-7 14,835 14,837
Databases......................................... 4-12 128,468 121,377
Advertiser lists.................................. .25-15 80,577 133,850
Distribution agreements........................... 1-7 15,336 15,336
Other............................................. 1.5-15 20,971 63,875
------------ ------------
1,395,121 1,595,377
Less: accumulated amortization.................... 695,504 814,061
------------ ------------
$ 699,617 $ 781,316
------------ ------------
------------ ------------
</TABLE>
The excess of the purchase price over the fair value of the net assets
acquired is net of accumulated amortization of $66,889 and $82,763,
respectively, at December 31, 1995 and 1996.
13. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
<CAPTION>
<S> <C> <C>
Deferred financing costs, net......................................... $ 19,711 $ 22,814
Deferred wiring and installation costs, net........................... 62,937 58,086
Direct-response advertising costs, net (see Note 2)................... 25,408 28,452
Prepublication and programming costs, net............................. 3,821 6,506
Other................................................................. 5,729 7,834
---------- ----------
$ 117,606 $ 123,692
---------- ----------
---------- ----------
</TABLE>
The deferred financing costs are net of accumulated amortization of $8,139
and $9,794 at December 31, 1995 and 1996, respectively. The deferred wiring and
installation costs are net of accumulated amortization of $7,163 and $12,850 at
December 31, 1995 and 1996, respectively. Direct-response advertising costs are
net of accumulated amortization of $29,569 and $70,661 at December 31, 1995 and
1996, respectively. Prepublication and programming costs are net of accumulated
amortization of $4,121 and $4,852 at December 31, 1995 and 1996, respectively.
F-26
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. ACCRUED EXPENSES AND OTHER
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
<CAPTION>
<S> <C> <C>
Payroll, commissions and related employee benefits.................... $ 43,482 $ 40,553
Systems costs......................................................... 5,661 2,991
Rent and lease liabilities............................................ 10,027 13,502
Retail display costs and allowances................................... 10,723 8,263
Promotion costs....................................................... 2,032 2,663
Royalties............................................................. 8,067 8,362
Circulation costs..................................................... 3,382 5,420
Professional fees..................................................... 2,566 4,408
Taxes................................................................. 6,778 17,162
Customer advances..................................................... 3,031 2,482
Other................................................................. 30,218 35,153
---------- ----------
$ 125,967 $ 140,959
---------- ----------
---------- ----------
</TABLE>
15. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
<CAPTION>
<S> <C> <C>
Borrowings under Revolving Credit Agreement....................... $ 435,988 $ --
Borrowings under Bank Credit Facilities........................... -- 884,992
BONY Term Loan.................................................... 150,000 --
Chase Term Loan................................................... 150,000 --
10 5/8% Senior Notes due 2002..................................... 250,000 233,250
10 1/4% Senior Notes due 2004..................................... 100,000 100,000
8 1/2% Senior Notes due 2006..................................... -- 298,811
------------ ------------
1,085,988 1,517,053
Acquisition obligation payable.................................... 54,928 54,633
------------ ------------
1,140,916 1,571,686
Less: current maturities of long-term debt........................ 6,000 6,000
------------ ------------
$ 1,134,916 $ 1,565,686
------------ ------------
------------ ------------
</TABLE>
On May 31, 1996, the Company replaced its existing credit facilities under
the Revolving Credit Agreement, BONY Term Loan and the Chase Term Loan through
which the Company could borrow $970,000 in the aggregate with new credit
facilities with The Chase Manhattan Bank, the Bank of New York, Bankers Trust
Company and the Bank of Nova Scotia as agents (the "Bank Credit Facilities").
F-27
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. LONG-TERM DEBT (CONTINUED)
Under the Bank Credit Facilities, the Company has commitments of $1,250,000 and
can borrow up to $1,500,000 in the aggregate. The Company used approximately
$910,000 of the proceeds from the Bank Credit Facilities to repay borrowings
under the previously existing credit facilities and to pay certain related fees
and expenses.
The Bank Credit Facilities are comprised of a $750,000 Tranche A Revolving
Loan Commitment ("Tranche A Loan Commitment"), a $250,000 Term Loan ("Term
Loan") and an additional $250,000 Revolving Loan Commitment, ("Revolver/Term
Loan"). In addition, the Company has the right to solicit commitments of up to
$250,000 under the Tranche B Revolving Loan Facility ("Tranche B Facility"). The
Tranche A Loan Commitment may be utilized through the incurrence of Tranche A
revolving credit loans, swingline loans which may not exceed $40,000 in total,
Canadian dollar loans which may not exceed the Canadian dollar equivalent of
$40,000 in total or the issuance of letters of credit which may not exceed
$40,000. The Revolver/Term Loan may be utilized through the incurrence of
revolving credit loans. If the Company establishes commitments under the Tranche
B Facility, the Tranche B Facility may be utilized through the incurrence of
Tranche B revolving credit loans. The proceeds of the Bank Credit Facilities may
be used for general corporate and working capital purposes as well as to finance
certain future acquisitions.
The commitments under the Tranche A Loan Commitment and the Tranche B
Facility are subject to mandatory reductions semi-annually on June 30 and
December 31 with the first reduction on June 30, 1999 and the final reduction on
June 30, 2004. The mandatory reductions for the Tranche A Loan Commitment are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1999............................................................................ $ 75,000
2000............................................................................ 150,000
2001............................................................................ 150,000
2002............................................................................ 150,000
2003............................................................................ 150,000
2004............................................................................ 75,000
------------
$ 750,000
------------
------------
</TABLE>
The mandatory reductions for the Tranche B Facility are based on defined
percentages of the total Tranche B Facility. To the extent that the total
revolving credit loans outstanding exceed the reduced commitment amount, these
loans must be paid down to equal or less than the reduced commitment amount.
However, if the total revolving credit loans outstanding do not exceed the
reduced commitment amount, then there is no requirement to pay down any of the
revolving credit loans.
The principal amount of the Term Loan will be repaid semi-annually on June
30 and December 31 each year, with an initial payment of $25,000 on June 30,
2000, installments of $25,000 on each payment date thereafter through December
31, 2003 and a final payment of $50,000 on June 30, 2004.
F-28
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. LONG-TERM DEBT (CONTINUED)
As of December 31, 1996, the borrowings under the Bank Credit Facilities
consist of the $634,992 under the Tranche A Loan Commitment and $250,000 under
the Term Loan.
If the Company incurs indebtedness under the Revolver/Term Loan, the
revolving loans outstanding will automatically convert to term loans on May 23,
1997 and will mature on June 30, 2004. If the Company exercises that right, then
the term loans will be repaid according to the same installment schedule as
stated for the Term Loan above. If the Company does not incur indebtedness prior
to May 23, 1997, the Revolver/ Term Loan will expire.
The amounts borrowed (other than swingline loans) pursuant to the Bank
Credit Facilities bear interest at the following rates per annum, at the
Company's option: (i) the higher of (a) the Federal Funds Effective Rate as
published by the Federal Reserve Bank of New York plus 0.5% and (b) the prime
commercial lending rate announced by the Agent from time to time (the "Base
Rate"); plus, in each case, an applicable margin of up to 1/8 of 1% as specified
in the Bank Credit Facilities or (ii) the Eurodollar Rate plus an applicable
margin ranging from 1/2 of 1% to 1 1/2% as specified in the Bank Credit
Facilities. All swingline loans bear interest at the Base Rate plus the
applicable margin of up to 1/8 of 1% as specified in the Bank Credit Facilities.
During 1995, the weighted average interest rates on the Revolving Credit
Agreement, BONY Term Loan and Chase Term Loan, were 7.28%, 7.94% and 7.48%,
respectively. During 1996, the weighted average interest rate on the Revolving
Credit Agreement, BONY Term Loan, Chase Term Loan and Bank Credit Facilities
were 7.04%, 7.50%, 6.94% and 7.07%. The interest rate on the borrowings under
the Revolving Credit Agreement outstanding at December 31, 1995 ranged from
6.75% to 7.44%. The interest rate on the BONY Term Loan outstanding at December
31, 1995 was 7.81% and the interest rate on the Chase Term Loan outstanding at
December 31, 1995 was 7.63%. Interest rates on the borrowings under the Bank
Credit Facilities outstanding at December 31, 1996 ranged from 7.00% to 7.13%.
The Company has agreed to pay commitment fees equal to 3/8 of 1% per annum
on the daily average unused commitment of Tranche A Loan Commitment and Tranche
B Facility, certain fees with respect to the issuance of letters of credit and
an annual administration fee. The Company has agreed to pay a commitment fee of
1/8 of 1% per annum on the daily average unused commitment of the $250,000
revolving credit under the Revolver/Term Loan.
10 5/8% SENIOR NOTES. Interest on the 10 5/8% Senior Notes is payable
semi-annually at the annual rate of 10 5/8%. The 10 5/8% Senior Notes mature on
May 1, 2002. The 10 5/8% Senior Notes may not be redeemed prior to May 1, 1997
other than in connection with a change of control; however, a sinking fund
payment on May 1, 2001 is required to retire 50% of the 10 5/8% Senior Notes
prior to maturity. On May 1, 1997 and thereafter, the 10 5/8% Senior Notes are
redeemable at prices ranging from 104% with annual reductions to 100% in 2000
plus accrued and unpaid interest. During November and December 1996, the Company
purchased $16,750 of the 10 5/8% Senior Notes at a premium of 105.4% plus
accrued interest from various brokers on the open market (see Note 26).
10 1/4% SENIOR NOTES. The annual interest rate of 10 1/4% is payable
semi-annually in June and December. The 10 1/4% Senior Notes mature on June 1,
2004, with no sinking fund. The 10 1/4% Senior Notes are redeemable on or after
June 1, 1999; however, 35% of the aggregate principal amount of the
F-29
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. LONG-TERM DEBT (CONTINUED)
10 1/4% Senior Notes may be redeemed at a price of 109 1/4% plus accrued and
unpaid interest on or prior to June 1, 1997 with net proceeds of a public equity
offering. In addition, upon a change of control, the Company may redeem the
10 1/4% Senior Notes. Beginning in 1999 and thereafter, the 10 1/4% Senior Notes
are redeemable at prices ranging from 104.95% with annual reductions to 100% in
2002 plus accrued and unpaid interest.
8 1/2% SENIOR NOTES. On January 24, 1996, the Company completed a private
offering of $300,000 of 8 1/2% Senior Notes. The 8 1/2% Senior Notes were issued
at 99.578% with related issuance costs of approximately $7,000. On August 21,
1996, the Company exchanged its 8 1/2% Senior Notes ("Old Notes") for a new
series of $300,000 8 1/2% Senior Notes due 2006 ("New Notes"). The New Notes
have been registered under the Securities Act of 1933. The New Notes mature on
February 1, 2006, with no sinking fund. Interest on the New Notes is payable
semi-annually in February and August at the annual rate of 8 1/2%. The New Notes
may not be redeemed prior to February 1, 2001 other than in connection with a
change of control. Beginning in 2001 and thereafter, the New Notes are
redeemable in whole or in part, at the option of the Company, at prices ranging
from 104.25% with annual reductions to 100% in 2003 plus accrued and unpaid
interest. Net proceeds from the Old Notes of approximately $293,000 were
primarily used to pay down borrowings under the Revolving Credit Agreement.
The 10 5/8% Senior Notes, 10 1/4% Senior Notes and 8 1/2% Senior Notes
(together referred to as the "Senior Notes"), and the Credit Facilities, all
rank senior in right of payment to all subordinated indebtedness of PRIMEDIA
Inc. (a holding company).
The above indebtedness, among other things, limits the ability of the
Company to change the nature of its businesses, incur indebtedness, create
liens, sell assets, engage in mergers, consolidations or transactions with
affiliates, make investments in or loans to certain subsidiaries, make
guarantees and certain restricted payments. The Company is restricted from
declaring or making dividend payments on its common and preferred stock. Under
the Company's most restrictive debt covenants, the Company must maintain a
minimum interest coverage ratio of 1.8 to 1 and a minimum fixed charge coverage
ratio of 1.05 to 1. The Company's maximum allowable leverage ratio is 6.0 to 1.
The Company believes it is in compliance with the financial and operating
covenants of its principal financing arrangements. Borrowings under the above
indebtedness are guaranteed by each of the domestic wholly-owned subsidiaries of
the Company. Such guarantees are full, unconditional and joint and several. The
separate financial statements of the domestic subsidiaries are not presented
because the Company believes the separate financial statements would not be
material to the shareholders and potential investors. The Company's foreign
subsidiaries are not guarantors of the above indebtedness. The total assets,
revenues, income or equity of such foreign subsidiaries, both individually and
on a combined basis, are inconsequential in relation to the total assets,
revenues, income or equity of the Company.
ACQUISITION OBLIGATION. In connection with the acquisition of certain of
the Company's specialty consumer magazine operations and Daily Racing Form, an
obligation was recorded equivalent to the present value of the principal and
interest payments of the notes payable in the amount of $54,928 at December 31,
1995 and $54,633 at December 31, 1996. The interest rate used in calculating the
present
value was 13%, which represents management's estimate of the prevailing market
rate of interest for such
F-30
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. LONG-TERM DEBT (CONTINUED)
obligation at the time of the acquisition. Principal and interest amounts
aggregating $69,500 will be repaid from June 1997 through June 2001.
INTEREST RATE SWAP AGREEMENTS. In May 1995, the Company entered into two,
three-year interest rate swap agreements with an aggregate notional amount of
$200,000. Under these swap agreements, the Company receives a floating rate of
interest based on three-month LIBOR, which resets quarterly, and pays a fixed
rate of interest which increases each year during the terms of the respective
agreements. The weighted average variable rate and weighted average fixed rate
were 6.0% and 6.05%, respectively, in 1995 and 5.5% and 6.2%, respectively, in
1996. Also, in May 1995, the Company entered into a three-year interest rate cap
agreement. As a result of this transaction, the Company currently has the right
to receive payments based on a notional principal amount of $100,000 to the
extent that three-month LIBOR exceeds 7.75% in year one, 8.75% in year two and
9.75% in year three of the agreement. Any interest differential to be received
will be recognized as an adjustment to interest expense. The interest rate cap
fee is recognized as an adjustment to interest expense over the life of the
interest rate cap agreement.
In the fourth quarter of 1996, the Company entered into six, one-year
interest rate swap agreements with an aggregate notional amount of $600,000.
Under these new swap agreements, the Company receives a floating rate of
interest based on three-month LIBOR, which resets quarterly, and pays a fixed
rate of interest, each quarter, for the term of the agreements. As of December
31, 1996, the weighted average variable rate and weighted average fixed rate
were 5.5% and 5.8%, respectively.
The net interest differential, charged to interest expense in 1994, 1995 and
1996 was $4,258, $539 and $1,943, respectively. The Company is exposed to credit
risk in the event of nonperformance by counterparties to its interest rate swap
and cap agreements. Credit risk is limited by entering into such agreements with
primary dealers only; therefore, the Company does not anticipate that
nonperformance by counterparties will occur. Notwithstanding this, the Company's
treasury department monitors counterparty credit ratings at least quarterly
through reviewing independent credit agency reports. Both current and potential
exposure are evaluated, as necessary, by obtaining replacement cost information
from alternative dealers. Potential loss to the Company from credit risk on
these agreements is limited to amounts receivable, if any. The Company enters
into these agreements solely to hedge its interest rate risk.
16. INCOME TAXES
At December 31, 1996, the Company had aggregate net operating loss
carryforwards for Federal and state income tax purposes ("NOLs") of
approximately $713,000 which will be available to reduce future taxable income.
The utilization of such NOLs is subject to certain limitations under Federal
income tax
F-31
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. INCOME TAXES (CONTINUED)
laws. In certain instances, such NOLs may only be used to reduce future taxable
income of the respective company which generated the NOL. The NOLs are scheduled
to expire in the following years:
<TABLE>
<S> <C>
2003.............................................................. $ 24,900
2004.............................................................. 60,300
2005.............................................................. 121,800
2006.............................................................. 93,400
2007.............................................................. 82,700
2008.............................................................. 83,700
2009.............................................................. 68,900
2010.............................................................. 156,100
2011.............................................................. 21,200
---------
$ 713,000
---------
---------
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss carryforwards. The tax effects of significant items comprising
the Company's net deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------
<S> <C> <C> <C>
FEDERAL STATE TOTAL
---------- --------- ----------
<CAPTION>
<S> <C> <C> <C>
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of inventory............................. $ 4,878 $ 1,429 $ 6,307
Difference between book and tax basis of accrued expenses and other............ 19,991 5,856 25,847
Reserves not currently deductible.............................................. 12,872 3,771 16,643
Difference between book and tax basis of other intangible assets............... 18,875 5,530 24,405
Operating loss carryforwards................................................... 168,310 49,309 217,619
---------- --------- ----------
Total.......................................................................... 224,926 65,895 290,821
---------- --------- ----------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible assets............... 24,515 7,182 31,697
Difference between book and tax basis of property and equipment................ 964 283 1,247
Other.......................................................................... 7,783 2,280 10,063
---------- --------- ----------
Total.......................................................................... 33,262 9,745 43,007
---------- --------- ----------
Net deferred income tax assets................................................. 191,664 56,150 247,814
Less: Valuation allowances..................................................... 103,649 30,365 134,014
---------- --------- ----------
Net............................................................................ $ 88,015 $ 25,785 $ 113,800
---------- --------- ----------
---------- --------- ----------
</TABLE>
F-32
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
<S> <C> <C> <C>
FEDERAL STATE TOTAL
---------- --------- ----------
<CAPTION>
<S> <C> <C> <C>
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of inventory............................. $ 3,550 $ 1,041 $ 4,591
Difference between book and tax basis of accrued expenses and other............ 18,583 5,444 24,027
Reserves not currently deductible.............................................. 2,277 667 2,944
Difference between book and tax basis of other intangible assets............... 31,043 9,094 40,137
Operating loss carryforwards................................................... 192,267 56,326 248,593
---------- --------- ----------
Total.......................................................................... 247,720 72,572 320,292
---------- --------- ----------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible assets............... 32,612 9,554 42,166
Difference between book and tax basis of property and equipment................ 11,382 3,335 14,717
Other.......................................................................... 9,757 2,858 12,615
---------- --------- ----------
Total.......................................................................... 53,751 15,747 69,498
---------- --------- ----------
Net deferred income tax assets................................................. 193,969 56,825 250,794
Less: Valuation allowances..................................................... 57,692 16,902 74,594
---------- --------- ----------
Net............................................................................ $ 136,277 $ 39,923 $ 176,200
---------- --------- ----------
---------- --------- ----------
</TABLE>
At December 31, 1994, 1995 and 1996, management of the Company reviewed
recent operating results and projected future operating results. At the end of
each of the respective years, management determined that a portion of the net
deferred income tax assets would likely be realized. Accordingly, in 1994, the
Company reduced the valuation allowances by $46,100 and recorded an income tax
benefit of $42,100 ($32,600 and $9,500 related to Federal and state income tax
benefits, respectively) and a reduction of the excess of purchase price over net
assets acquired of $4,000; in 1995, the Company reduced the valuation allowances
by $67,700 and recorded an income tax benefit of $59,600 ($46,100 and $13,500
related to Federal and state income tax benefits, respectively) and a reduction
of the excess of purchase price over net assets acquired of $8,100; and in 1996,
the Company reduced the valuation allowances by $62,400 and recorded an income
tax benefit of $53,300 ($41,200 and $12,100 related to Federal and state income
tax benefits, respectively) and a reduction of the excess of purchase price over
net assets acquired of $9,100. The amount of the net deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced. During
1994, 1995 and 1996, after the reduction in the valuation allowances discussed
above, there were net decreases in the valuation allowances of approximately
$13,800, $1,404 and $59,420 respectively.
A portion of the valuation allowances in the amount of approximately $30,200
at December 31, 1996 relates to net deferred tax assets which were recorded in
accounting for the acquisitions of various entities. The recognition of such
amount in future years will be allocated to reduce the excess of the purchase
price over the net assets acquired and other non-current intangible assets.
F-33
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. EXCHANGEABLE PREFERRED STOCK
Exchangeable Preferred Stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
---------- ----------
<S> <C> <C>
$2.875 Senior Exchangeable Preferred Stock................................................ $ 97,992 $ 98,266
$11.625 Series B Exchangeable Preferred Stock............................................. 133,614 150,513
$10.000 Series D Exchangeable Preferred Stock............................................. -- 193,950
---------- ----------
$ 231,606 $ 442,729
---------- ----------
---------- ----------
</TABLE>
$2.875 SENIOR EXCHANGEABLE PREFERRED STOCK
The Company authorized 4,000,000 shares of $.01 par value Senior Preferred
Stock, all of which was issued and outstanding at December 31, 1995 and 1996.
The liquidation and redemption value at December 31, 1995 and 1996 was $100,000.
Annual dividends of $2.875 per share on the Senior Preferred Stock are
cumulative and payable quarterly. Cash dividends of $11,500 have been paid
during each of the years 1994, 1995 and 1996. The Senior Preferred Stock may be
redeemed at the option of the Company, in whole or in part, at any time on or
after May 1, 1997 at redemption prices set at 105.8% in 1997 with annual
reductions to 100% in 2002 plus accrued and unpaid dividends to the date of
redemption. The Company is required to redeem 50% of the Senior Preferred Stock
on each of May 1, 2003 and May 1, 2004 at the liquidation preference of $25 per
share plus accrued and unpaid dividends. Upon any voluntary or involuntary
liquidation, the Senior Preferred Stock has a liquidation preference of $25 per
share plus accrued and unpaid dividends. The Senior Preferred Stock is
exchangeable, in whole but not in part, at the option of the Company, on any
scheduled dividend payment date for 11 1/2% Subordinated Debentures due 2004.
The Senior Preferred Stock is recorded on the accompanying consolidated balance
sheets at the aggregate redemption value (net of issuance costs) of $97,992 and
$98,266 at December 31, 1995 and 1996, respectively.
$11.625 SERIES B EXCHANGEABLE PREFERRED STOCK
The Company authorized 2,000,000 shares of $.01 par value Series B Preferred
Stock, 1,365,707 shares and 1,531,526 shares of which were issued and
outstanding at December 31, 1995 and 1996, respectively. The liquidation and
redemption value at December 31, 1995 and 1996 was $136,571 and $153,153,
respectively. Annual dividends of $11.625 per share on the Series B Preferred
Stock are cumulative and payable quarterly in cash or by issuing additional
shares of the Series B Preferred Stock. On and after May 1, 1998, dividends must
be paid in cash. On or after February 1, 1998, the Series B Preferred Stock may
be redeemed in whole or in part, at the option of the Company, at specified
redemption prices plus accrued and unpaid dividends. The Company is required to
redeem the Series B Preferred Stock on May 1, 2005 at a redemption price equal
to the liquidation preference of $100 per share, plus accrued and unpaid
dividends. The Series B Preferred Stock is exchangeable at the option of the
Company on or after an initial public offering of the Company's common stock for
its 11 5/8% Class B Subordinated Exchange Debentures due 2005 provided no shares
of the Senior Preferred Stock are then outstanding. Such debentures are
subordinate to all existing and future liabilities and obligations of the
Company and its subsidiaries. The Series B Preferred Stock is recorded on the
accompanying consolidated balance sheets at the aggregate
F-34
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. EXCHANGEABLE PREFERRED STOCK (CONTINUED)
redemption value (net of issuance costs) of $133,614 and $150,513 at December
31, 1995 and 1996, respectively.
$10.00 SERIES D EXCHANGEABLE PREFERRED STOCK
On January 24, 1996, the Company completed a private offering of 2,000,000
shares of $.01 par value, $10 Series C Exchangeable Preferred Stock ("Series C
Preferred Stock") at $100 per share. Annual dividends of $10 per share on the
Series C Preferred Stock were cumulative and payable quarterly, in cash,
commencing May 1, 1996. On August 21, 1996, the Company exchanged the Series C
Preferred Stock for 2,000,000 shares of $.01 par value, Series D Preferred
Stock. Dividend payment terms of the Series D Preferred Stock are the same as
the terms of the Series C Preferred Stock. The Series D Preferred Stock has been
registered under the Securities Act of 1933. The liquidation and redemption
value at December 31, 1996 was $200,000. On and after February 1, 2001, the
Series D Preferred Stock may be redeemed in whole or in part, at the option of
the Company, at specified redemption prices plus accrued and unpaid dividends.
The Company is required to redeem the Series D Preferred Stock on February 1,
2008 at a redemption price equal to the liquidation preference of $100 per
share, plus accrued and unpaid dividends. The Series D Preferred Stock is
exchangeable in whole but not in part, at the option of the Company, on any
scheduled dividend payment date into 10% Class D Subordinated Exchange
Debentures due 2008 provided that no shares of the Senior Preferred Stock are
outstanding on the date of exchange. Net proceeds from the Series C Preferred
Stock offering of approximately $193,000 were primarily used to pay down
borrowings under the Revolving Credit Agreement. The Series D Preferred Stock is
recorded on the accompanying consolidated balance sheets at the aggregate
redemption value (net of issuance costs) of $193,950 at December 31, 1996.
18. COMMON STOCK
In October 1995, the Company increased the authorized number of shares of
common stock by 50,000,000 shares to 250,000,000 shares. During November 1995,
the Company completed public offerings of 17,250,000 shares of common stock at a
price of $10.00 per share. Proceeds from this initial public offering, net of
commissions and other related expenses of approximately $9,500, were
approximately $163,000. The Company used the net proceeds from this initial
public offering to repay borrowings outstanding under its Revolving Credit
Agreement, which could be reborrowed for general corporate purposes including
acquisitions (see Note 15).
STOCK PURCHASE AND OPTION PLAN. The PRIMEDIA Stock Purchase and Option Plan
(the "Plan") authorizes sales of shares of common stock and grants of incentive
awards in the forms of, among other things, stock options to key employees and
other persons with a unique relationship with the Company. The stock options are
granted with exercise prices at quoted market value at time of issuance. For the
purpose of determining fair value prior to November 1995, it was recognized that
the Company's common stock was not readily saleable to third parties at that
time, and therefore, was valued at a discount to a publicly-traded common stock.
The common stock issued and redeemed is included in the table of the activity of
the common stock subject to redemption.
F-35
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
18. COMMON STOCK (CONTINUED)
COMMON STOCK SUBJECT TO REDEMPTION. Under the following circumstances,
employees have the right to resell their shares of common stock to the Company:
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.
The following summarizes the activity of the common stock subject to
redemption:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- ----------
<S> <C> <C>
Balance at January 1, 1994.............................................................. 3,185,946 $ 25,488
Acquisitions of common stock held by management......................................... (27,436) (169)
Issuances of common stock............................................................... 244,672 1,943
Expiration of redemption feature........................................................ (1,251,002) (10,045)
----------- ----------
Balance at December 31, 1994............................................................ 2,152,180 17,217
Acquisitions of common stock held by management......................................... (57,031) (430)
Issuances of common stock............................................................... 458,994 3,274
Expiration of redemption feature........................................................ (147,630) (809)
Accretion in carrying value............................................................. -- 9,927
----------- ----------
Balance at December 31, 1995............................................................ 2,406,513 29,179
Acquisitions of common stock held by management......................................... (17,269) (148)
Expiration of redemption feature........................................................ (1,745,934) (21,230)
Reduction in carrying value............................................................. -- (885)
----------- ----------
Balance at December 31, 1996............................................................ 643,310 $ 6,916
----------- ----------
----------- ----------
</TABLE>
The redemption values of the common stock subject to redemption of $29,179
and $6,916 at December 31, 1995 and 1996, respectively, were based on a
repurchase price of $12.125 per share and $10.750 per share which are the quoted
market values at December 31, 1995 and 1996, respectively. Common stock subject
to redemption is recorded on the accompanying consolidated balance sheets net of
the amounts of notes receivable from employees (related to common stock
issuances) outstanding of $1,157 and $959 at December 31, 1995 and 1996,
respectively.
ACCOUNTING FOR EMPLOYEE STOCK BASED COMPENSATION The PRIMEDIA Stock
Purchase and Option Plan has authorized the grant of options to management
personnel for up to 25,000,000 shares of the Company's common stock. The options
are exercisable at the rate of 20% per year over a five-year period commencing
on the effective date of the grant; however, some optionees have received credit
for periods of employment with the Company and its predecessors and subsidiaries
prior to the date the options were granted. All options granted pursuant to the
Plan will expire no later than ten years from the date the option was granted.
F-36
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
18. COMMON STOCK (CONTINUED)
A summary of the status of the Company's fixed stock option plan as of
December 31, 1994, 1995 and 1996, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------------- ------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVG. AVG.
EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE PRICE OPTIONS PRICE PRICE OPTIONS PRICE
--------- ------------- ----------- --------- ------------- ----------- --------- -------------
Outstanding--
beginning of
year............... 8,865,297 $5.00-$7.00 $ 5.05 9,610,447 $5.00-$8.00 $ 5.31 12,326,087 $5.00-$8.00
Granted............ 850,000 $ 8.00 $ 8.00 3,139,325 $ 8.00 $ 8.00 1,830,400 1$0.00-$11.94
Exercised.......... (13,872) $ 5.00 $ 5.00 (193,401) $5.00-$8.00 $ 5.19 (681,890) $5.00-$8.00
Forfeited.......... (90,978) $5.00-$8.00 $ 5.26 (230,284) $5.00-$8.00 $ 6.28 (263,385) $5.00-$8.00
--------- --------- ---------
Outstanding--end of
the year........... 9,610,447 $5.00-$8.00 $ 5.31 12,326,087 $5.00-$8.00 $ 5.98 13,211,212 $5.00-$11.94
--------- --------- ---------
--------- --------- ---------
Exercisable at end of
the year........... 5,701,789 $5.00-$7.00 $ 5.02 7,269,817 $5.00-$8.00 $ 5.18 8,707,528 $5.00-$8.00
--------- --------- ---------
--------- --------- ---------
<CAPTION>
<S> <C>
WEIGHTED
AVG.
EXERCISE
PRICE
-----------
Outstanding--
beginning of
year............... $ 5.98
Granted............ $ 11.12
Exercised.......... $ 5.36
Forfeited.......... $ 7.69
Outstanding--end of
the year........... $ 6.69
Exercisable at end of
the year........... $ 5.38
</TABLE>
The weighted-average fair value per option for options granted in 1995 and
1996 was $3.06 and $4.13, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER WEIGHTED WEIGHTED
RANGE OF OUTSTANDING AVERAGE REMAINING AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE
- --------------- ----------- ----------------------- ---------------
<S> <C> <C> <C>
$5.00-$5.44 7,638,282 5 $ 5.00
$7.00 155,400 6 $ 7.00
$8.00 3,588,730 8 $ 8.00
$10.00-$11.94 1,828,800 9 $ 11.13
-----------
13,211,212 6 $ 6.69
-----------
-----------
</TABLE>
SFAS No. 123 provides for a fair-value based method of accounting for
employee options and measures compensation expense using an option valuation
model that takes into account, as of the grant date, the exercise price and
expected life of the option, the current price of the underlying stock and its
expected volatility, expected dividends on the stock, and the risk-free interest
rate for the expected term of the option. The Company has elected to continue
accounting for employee stock-based compensation under APB No. 25 and related
interpretations. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model for options granted in 1995 and 1996. The
following weighted-average
F-37
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
18. COMMON STOCK (CONTINUED)
assumptions were used for 1995 and 1996, respectively: risk-free interest rates
of 6.34% and 6.36%, dividend yields of 0.0% and 0.0%, volatility factors of the
expected market price of the Company's common stock of 22.59% and 20.83%; and a
weighted-average expected life of the option of 6 years. The estimated fair
value of options granted during 1995 and 1996 was $9,592 and $7,560,
respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Pro forma net income (loss).................................................................. $ (76,388) $ 5,738
Pro forma loss applicable to common shareholders............................................. $(105,366) $ (37,788)
Pro forma loss per common and common equivalent share........................................ $ (.92) $ (.29)
</TABLE>
The Company had reserved 20,837,921 shares of common stock for future
issuances in connection with the plan at December 31, 1996.
19. ACCUMULATED DEFICIT
The accumulated deficit of $691,098 at December 31, 1996 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 write-offs of the unamortized balance of deferred financing costs
(associated with all previous financings), the restructuring and other costs and
the net provision on sales of businesses in the aggregate amount of
approximately $924,900 which is net of the non-cash income tax benefits
aggregating $155,000 through December 31, 1996.
F-38
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values of the Company's
financial instruments for which it is practicable to estimate fair value are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
<S> <C> <C> <C> <C>
1995 1996
---------------------- ----------------------
<CAPTION>
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
10 5/8% Senior Notes............................................. $ 250,000 $ 267,950 $ 233,250 $ 260,950
10 1/4% Senior Notes............................................. 100,000 107,720 100,000 105,400
8 1/2% Senior Notes.............................................. -- -- 298,811 291,750
Acquisition Obligation........................................... 54,928 52,604 54,633 55,339
Senior Preferred Stock........................................... 97,992 109,000 98,266 107,500
Series B Preferred Stock......................................... 133,614 135,888 150,513 154,684
Series D Preferred Stock......................................... -- -- 193,950 196,000
Interest Rate Swap Agreements.................................... 449 5,057 982 3,531
Purchased Interest Rate Cap Agreement............................ (274) (2) (159) (2)
</TABLE>
The bracketed amounts above represent assets.
The fair values of the senior notes and preferred stocks were determined
based on the quoted market prices and the fair value of the acquisition
obligation was estimated using discounted cash flow analysis, based on current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the interest rate swap agreements was determined using discounted
cash flow models.
For instruments including cash and cash equivalents, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturity of these instruments. The fair value of floating-rate long-term
debt approximates carrying value because these instruments re-price frequently
at current market prices.
21. RETIREMENT PLANS
Substantially all of the Company's employees are eligible to participate in
defined contribution plans. The expense recognized for all of these plans was
$3,693 in 1994, $5,245 in 1995 and $5,432 in 1996.
In addition, the employees at PRIMEDIA Magazines and the non-union employees
at Daily Racing Form are eligible to participate in the PRIMEDIA Pension Plan
("Pension Plan") which is a non-contributory defined benefit pension plan. The
benefits to be paid under the Pension Plan are based on years of service and
compensation amounts for the highest consecutive five years of service in the
most current ten years. The Pension Plan is funded by means of contributions by
the Company to the plan's trust. The pension funding policy is consistent with
the funding requirements of U.S. Federal and other governmental laws and
regulations. Plan assets consist primarily of fixed income, equity and other
short-term investments.
F-39
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
21. RETIREMENT PLANS (CONTINUED)
The components of the net periodic pension cost of the Pension Plan for the
years ended December 31, 1994, 1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost......................................................................... $ 761 $ 755 $ 1,203
Interest cost........................................................................ 491 581 769
Actual investment (gain) or loss on plan assets...................................... 20 (812) (610)
Net amortization and deferral........................................................ 16 774 462
--------- --------- ---------
Net periodic pension cost............................................................ $ 1,288 $ 1,298 $ 1,824
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following is a reconciliation of the funded status of the Pension Plan:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested................................................................. $ (3,700) $ (6,342)
Non-vested............................................................. (400) (617)
--------- ---------
Accumulated benefit obligation........................................... (4,100) (6,959)
Additional liability based on projected compensation levels.............. (4,841) (5,118)
--------- ---------
Projected benefit obligation............................................. (8,941) (12,077)
Plan assets at fair value................................................ 4,273 5,473
--------- ---------
Projected benefit obligation in excess of plan assets.................... (4,668) (6,604)
Unrecognized net loss (gain)............................................. (1,011) 172
Obligation recorded at acquisition date.................................. 3,135 2,861
--------- ---------
Accrued pension cost..................................................... $ (2,544) $ (3,571)
--------- ---------
--------- ---------
</TABLE>
The obligation recorded at the acquisition date of PRIMEDIA Magazines and
Daily Racing Form is the excess of the projected benefit obligation over the
plan assets at the date of acquisition which is included in other non-current
liabilities. The weighted average discount rate and the weighted average rate of
compensation increases used in determining the actuarial present value of the
projected benefit obligation were 4.0% and 7.5% for 1995 and 1996, respectively.
The weighted average expected long-term rate of return on plan assets was 8.5%
for 1995 and 1996.
F-40
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
22. COMMITMENTS AND CONTINGENCIES
COMMITMENTS. Total rent expense under operating leases was $23,996, $24,409
and $31,561 for the years ended December 31, 1994, 1995 and 1996, respectively.
Certain leases are subject to escalation clauses and certain leases contain
renewal options. Minimum rental commitments under noncancellable operating
leases are approximately as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1997............................................................... $ 33,040
1998............................................................... 29,762
1999............................................................... 25,565
2000............................................................... 23,546
2001............................................................... 18,510
Thereafter......................................................... 52,340
----------
$ 182,763
----------
----------
</TABLE>
Future minimum lease payments under a capital lease (see Note 11) are
approximately as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1997............................................................... $ 1,980
1998............................................................... 1,980
1999............................................................... 1,980
2000............................................................... 1,980
2001............................................................... 1,980
Thereafter......................................................... 5,275
--------
15,175
Less: amount representing interest................................. 4,593
--------
Present value of net minimum lease payments........................ 10,582
Less: current portion.............................................. 969
--------
Long-term obligations (included in other non-current
liabilities)..................................................... $ 9,613
--------
--------
</TABLE>
CONTINGENCIES. The Company is involved in ordinary and routine litigation
incidental to its business. In the opinion of management, there is no pending
legal proceeding that would have a material adverse affect on the consolidated
financial statements of the Company.
At December 31, 1996, the Company had letters of credit outstanding of
approximately $4,850.
23. RELATED PARTY TRANSACTIONS
During each of the years ended December 31, 1994, 1995 and 1996, the Company
paid $1,000 in administrative and other fees to Kohlberg Kravis Roberts & Co.
("KKR"), an affiliated party, and an aggregate of $180, in directors' fees to
certain partners of KKR. In addition, in connection with the Channel One
acquisition, the Company paid $2,500 in investment advisory fees to KKR. On
September 30, 1994, in order to finance the Channel One acquisition, the Company
issued 1,501 shares of Series C Preferred Stock ("Old Preferred Stock") at
$50,000 per share and 9,381,250 shares of common stock at $8.00 per share, which
was the fair value at such date, to partnerships affiliated with KKR. Gross
proceeds
F-41
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
23. RELATED PARTY TRANSACTIONS (CONTINUED)
of $150,100 were received from these issuances. Dividends were payable at the
higher of 11 3/4% and the interest rates associated with United States Treasury
bills and notes plus applicable margins. The Old Preferred Stock was redeemed on
November 21, 1994 for $76,324 which represented a redemption price of $50,000
per share plus the accumulated and unpaid dividends of $1,274.
On March 1, 1995, 3,125,000 shares of common stock were issued to a
partnership affiliated with KKR at $8.00 per share which was the fair value per
share at such date. On March 1, 1995, pursuant to the related certificate of
designations, 2,500 shares of Old Preferred Stock were authorized for issuance
and 1,000 shares were issued to partnerships affiliated with KKR at $50,000 per
share, which was the liquidation value per share at such date. The proceeds from
both issuances were used to pay down the borrowings under the Revolving Credit
Agreement. On August 3, 1995, the Company redeemed all 1,054 shares then
outstanding (which included dividends accrued through redemption date) of the
Old Preferred Stock at $50,000 per share for a total of $52,691. This
transaction was financed with borrowings under the Revolving Credit Agreement
(see Note 15).
24. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995:
Sales, net...................................... $238,664 $257,228 $265,604 $284,833 $1,046,329
Operating income (loss)......................... 4,663 (50,491) 13,130 6,423 (26,275)
Net income (loss)............................... (20,701) (78,929) (14,635) 38,830 (75,435)
Income (loss) applicable to common
shareholders.................................. (27,115) (87,009) (22,386) 32,097 (104,413)
Earnings (loss) per common and common equivalent
share......................................... $(.25) $(.78) $(.20) $.25 $(.91)
Weighted average common and common equivalent
shares outstanding............................ 109,622,179 111,371,697 110,909,810 128,406,304 115,077,498
FOR THE YEAR ENDED DECEMBER 31, 1996:
Sales, net...................................... $314,953 $335,680 $344,418 $379,398 $1,374,449
Operating income................................ 6,985 23,280 18,519 37,117 85,901
Income (loss) before extraordinary charge....... (20,740) (7,066) (11,895) 57,298 17,597
Extraordinary charge--extinguishment of debt.... -- (7,572) -- (1,981) (9,553)
Net income (loss)............................... (20,740) (14,638) (11,895) 55,317 8,044
Income (loss) applicable to common
shareholders.................................. (27,584) (27,041) (23,973) 43,116 (35,482)
Loss applicable to common shareholders per
common and common equivalent share:
Income (loss) before extraordinary charge..... $(.21) $(.15) $(.19) $.34 $(.20)
Net income (loss)............................. $(.21) $(.21) $(.19) $.32 $(.27)
Weighted average common and common equivalent
shares outstanding............................ 128,502,847 128,787,528 128,874,002 133,866,152 130,007,632
</TABLE>
F-42
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
24. UNAUDITED QUARTERLY FINANCIAL INFORMATION (CONTINUED)
The change in method of accounting for advertising costs resulted in a
decrease to operating loss or increase to operating income and a decrease to net
loss of approximately $16,000, $1,000 and $300 in the first, second and third
quarters of 1995, respectively. This accounting change decreased operating
income and net income by approximately $5,500 in the fourth quarter of 1995.
During the second quarter of 1995, the Company recorded a provision for loss on
the sales of businesses in the amount of $35,447, an aggregate write-down of
$17,958 of the carrying values of the identifiable intangible assets and
goodwill of PRIMEDIA Reference and restructuring and other costs in the amount
of $14,667. In addition, in the fourth quarter of 1995, the Company recognized
income tax benefits of $59,600 and recorded a provision to write-off $5,786 of
goodwill related to a product line of Newbridge. In the fourth quarter of 1995,
the Company recorded certain catch-up adjustments to the amortization of
identifiable intangible assets and goodwill due to the receipt of independent
appraisal reports for intangible assets. For all quarters presented prior to the
initial filing of the registration statement for the November 1995 initial
public offering, the weighted average number of common stock shares outstanding
include Incremental Shares as described in Note 3.
As a result of previous bank refinancings, the Company recorded on
extraordinary charge for the write-off of $7,572 and $625 of unamortized
deferred financings costs in the second and fourth quarter of 1996,
respectively. The Company recorded an extraordinary charge for the write-off of
additional unamortized deferred financing costs and the premium paid on the
redemption of the 10 5/8% Senior Notes of $1,356 in the fourth quarter of 1996.
In addition, in the fourth quarter of 1996, the Company recognized income tax
benefits of $53,300. In the fourth quarter of 1996, the Company recorded certain
catch-up adjustments to the amortization of identifiable intangible assets and
goodwill due to the receipt of independent appraisal reports for intangible
assets.
F-43
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
25. BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into three business segments:
specialty magazines, education and information (see Note 1). Summarized
financial information by business segment as of December 31, 1994, 1995 and 1996
and for each of the years then ended is set forth below:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
SALES, NET:
Specialty Magazines............................... $ 341,782 $ 452,373 $ 684,341
Education......................................... 430,134 330,414 376,217
Information....................................... 192,732 263,542 313,891
------------ ------------ ------------
Total............................................. $ 964,648 $ 1,046,329 $ 1,374,449
------------ ------------ ------------
------------ ------------ ------------
OPERATING INCOME (LOSS):
Specialty Magazines............................... $ 15,877 $ 32,169 $ 59,693
Education......................................... 10,590 (32,024) 15,011
Information....................................... (2,307) (8,683) 33,473
Corporate......................................... (13,957) (17,737) (22,276)
------------ ------------ ------------
Total............................................. $ 10,203 $ (26,275) $ 85,901
------------ ------------ ------------
------------ ------------ ------------
TOTAL ASSETS:
Specialty Magazines............................... $ 464,626 $ 723,711 $ 908,374
Education......................................... 613,897 547,587 939,947
Information....................................... 462,861 499,418 531,771
Corporate......................................... 48,308 110,700 172,123
------------ ------------ ------------
Total............................................. $ 1,589,692 $ 1,881,416 $ 2,552,215
------------ ------------ ------------
------------ ------------ ------------
DEPRECIATION, AMORTIZATION AND OTHER (1):
Specialty Magazines............................... $ 54,571 $ 58,100 $ 76,281
Education......................................... 47,258 107,284 64,228
Information....................................... 52,497 79,435 53,091
Corporate......................................... 645 706 764
------------ ------------ ------------
Total............................................. $ 154,971 $ 245,525 $ 194,364
------------ ------------ ------------
------------ ------------ ------------
CAPITAL EXPENDITURES, NET:
Specialty Magazines............................... $ 2,824 $ 5,724 $ 8,252
Education......................................... 8,724 10,750 14,460
Information....................................... 2,274 4,516 4,343
Corporate......................................... 362 2,424 1,735
------------ ------------ ------------
Total............................................. $ 14,184 $ 23,414 $ 28,790
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Other includes net provision for loss on the sales of businesses, provision
for restructuring and other costs and amortization of deferred financing and
organizational costs.
F-44
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
25. BUSINESS SEGMENT INFORMATION (CONTINUED)
There were no significant intersegment sales or transfers during 1994, 1995
and 1996. Operating income (loss) by business segment excludes interest income
and interest expense. Corporate assets consist primarily of cash, receivables,
property and equipment and the net deferred income tax asset. Depreciation,
amortization and other does not include the write-off of unamortized deferred
financing costs of $11,874 in 1994 and the premium paid on the repurchase of the
10 5/8% Senior Notes and the write-off of unamortized deferred financing costs
of $9,553 in 1996 but it does include the net provision for loss on sale of a
business of $15,025 in 1994, the net provision for loss on sales of businesses
of $35,447 in 1995 and provision for restructuring and other costs of $14,667 in
1995.
The adoption of a change in method of accounting for advertising costs
resulted in an increase in operating income in 1994 for the specialty magazines
and education segments of approximately $3,300 ($.03 per share) and $6,500 ($.06
per share), respectively. This change in method of accounting for advertising
costs resulted in a decrease in operating loss in 1995 for the education and
information segments of approximately $10,500 ($.09 per share) and $200,
respectively, and an increase in operating income in 1995 for the specialty
magazines segment of approximately $1,100 ($.01 per share) (see Note 2). In
1996, the change in method of accounting for advertising costs was immaterial
for the education and information segments and resulted in an increase in
operating income of approximately $1,700 ($.01 per share) for the specialty
magazines segment.
26. SUBSEQUENT EVENTS
As a part of its strategy to focus on areas of its business that have the
greatest potential for growth, the Company intends to divest certain businesses
that do not fit within its growth vehicles. Those businesses are: the DAILY
RACING FORM group which includes a national daily newspaper covering
thoroughbred horseracing and PRO FOOTBALL WEEKLY; KRAMES COMMUNICATIONS, a
leading publisher of patient information sold to healthcare providers for
distribution to patients and other healthcare users; the KATHARINE GIBBS
SCHOOLS, a chain of seven business schools; NEWBRIDGE COMMUNICATIONS, the
largest book club organization for professionals in the United States and the
largest provider of educational continuity programs in the United States; NEW
WOMAN magazine, a guide for personal relationships and careers; and STAGEBILL, a
performing arts magazine. The proceeds of these sales will be used to repay
indebtedness. These businesses represented approximately 22% of 1996 net sales
of the Company. The unaudited combined operating results for the years ended
December 31, 1994, 1995 and 1996 and total assets and liabilities at December
31, 1996 of these business units are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Sales, net............................................... $ 310,688 $ 307,121 $ 299,652
---------- ---------- ----------
---------- ---------- ----------
Operating income (loss).................................. $ 6,379 $ (18,186) $ (2,305)
---------- ---------- ----------
---------- ---------- ----------
Total assets (1)......................................... $ 350,736
----------
----------
Total liabilities........................................ $ 80,760
----------
----------
</TABLE>
- ------------------------
(1) At December 31, 1996, KATHARINE GIBBS SCHOOLS is reflected as an asset held
for sale in the accompanying consolidated balance sheet.
F-45
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. SUBSEQUENT EVENTS (CONTINUED)
In January 1997, the Company purchased, in aggregate, $20,850 of the 10 5/8%
Senior Notes at a weighted average price of 105% of the outstanding principal
plus accrued and unpaid interest, from various brokers on the open market. In
March 1997, the Company called for redemption all of its outstanding 10 5/8%
Senior Notes. On May 1, 1997, the Company redeemed the $212,400 remaining
principal amount of the 10 5/8% Senior Notes, at 104%, plus accrued and unpaid
interest.
On April 21, 1997, the Company entered into a new 364-day credit facility
with The Bank of New York, Bankers Trust Company, The Bank of Nova Scotia and
The Chase Manhattan Bank as agents (the "New Credit Facility") which expires
April 20, 1998. Under the terms of the New Credit Facility, the Company has
commitments of $150,000 which can be borrowed in the form of revolving loans.
The proceeds of all revolving loans under the New Credit Facility can be used
for general corporate and working capital purposes of the Company and its
subsidiaries, including, without limitation, the financing of permitted
acquisitions.
The amounts borrowed pursuant to the New Credit Facility bear interest at
rates per annum identical to those in the Bank Credit Facilities at the
Company's option as follows: (i) the higher of (a) the Federal Funds Effective
Rate plus 1/2% and (b) the prime lending rate as in effect from time to time
(the "Base Rate"); plus in each case, an applicable margin of up to 1/8 of 1% as
specified in the New Credit Facility or (ii) the Eurodollar Rate plus an
applicable margin ranging from 1/2% to 1 1/2% as specified in the New Credit
Facility.
Under the New Credit Facility, the Company has agreed to pay commitment fees
equal to 1/8 of 1% per annum on the daily average aggregate unutilized revolving
loan commitment.
In May 1997, the Company, through its Bank Credit Facilities, solicited
commitments of $150,000 under the Tranche B Facility. The Company has the right
to solicit additional commitments of up to $100,000 under the Tranche B
Facility. The commitments under the Tranche B Facility are subject to mandatory
reductions semi-annually on June 30 and December 31 with the first reduction on
June 30, 1999 and the final reduction on June 30, 2004.
On May 30, 1997, the Company sold Katharine Gibbs pursuant to a stock
purchase agreement and received a portion of the purchase price. The sale is
subject to certain regulatory approvals and is expected to be completed by the
end of 1997.
In July 1997, the Company entered into four, three-year and two, four-year
interest rate swap agreements, with an aggregate notional amount of $600,000.
Under these new swap agreements, which commence on January 2, 1998, the Company
receives a floating rate of interest based on three-month LIBOR, which resets
quarterly, and the Company pays a fixed rate of interest, each quarter, for the
terms of the respective agreements. The weighted average fixed rate of interest
under these agreements is 6.33%.
On August 14, 1997, the Company sold NEW WOMAN magazine pursuant to an asset
purchase agreement, and on August 29, 1997, the Company sold KRAMES
COMMUNICATIONS pursuant to a stock purchase agreement. The proceeds from these
divestitures were used to repay outstanding indebtedness. The aggregate
operating results of these divestitures prior to the divestitures were not
material to the consolidated operations of the Company.
F-46
<PAGE>
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
26. SUBSEQUENT EVENTS (CONTINUED)
On September 9, 1997, the Company announced that its board of directors had
authorized a program for the Company to repurchase up to $15 million of its
outstanding Common Stock from time to time in the open market and through
privately negotiated transactions.
On September 16, 1997, the Company purchased a block of 523,000 shares of
Common Stock at a price of $12 1/4 per share. The shares were purchased in the
open market through the New York Stock Exchange. The purchase of these shares
was not part of the share repurchase program described in the preceding
paragraph.
On September 26, 1997, the Company completed a private offering of 1,250,000
shares of $9.20 Series E Exchangeable Preferred Stock (the "Offering") and
called for redemption all of its Senior Preferred Stock (the "Redemption"). Net
proceeds of the Offering of approximately $121,450 will be used to redeem the
4,000,000 outstanding shares of Senior Preferred Stock on November 3, 1997 at a
redemption price of $26.45 per share plus accrued and unpaid dividends to the
redemption date and to repay borrowings outstanding under its Bank Credit
Facilities, which amounts may be reborrowed for general corporate purposes
including acquisitions. Until the Redemption, the Company has used the net
proceeds from the Offering to repay borrowings under the Bank Credit Facilities.
On September 30, 1997, the Company sold Intertec Mailing Services pursuant
to an asset purchase agreement. The proceeds from this divestiture were used to
repay outstanding indebtedness. The operating results of this divestiture prior
to the divestiture were not material to the consolidated operations of the
Company.
On November 3, 1997, the Company redeemed all 4,000,000 outstanding shares
of $2.875 Senior Exchangeable Preferred Stock at a price of $26.45 per share,
plus accrued and unpaid dividends, aggregating $105,864.
Through November 17, 1997, the Company completed twelve product-line
acquisitions consisting of classroom learning, workplace learning, specialized
reference products, as well as specialty consumer magazines, technical and trade
magazines and apartment guides. The aggregate purchase price was approximately
$230,000.
On November 18, 1997, the Company changed its name to PRIMEDIA Inc. to
better reflect the "prime" positioning the Company has in six areas of
specialized "media." On November 18, 1997, the Company's New York Stock Exchange
symbol was changed from KCC to PRM.
On November 28, 1997, the Company entered into an agreement to acquire a
leading provider of training products for the insurance industry.
F-47
<PAGE>
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR
OVERNIGHT
COURIER:
Tender & Exchange (For Eligible Institutions Tender &
Department Only) Exchange
P.O. Box 11248 (212) 815-6213 Department
Church Street Station 101 Barclay
New York, NY 10286-1248 CONFIRM FACSIMILE BY Street
TELEPHONE: Receive and
(For Confirmation Only) Deliver Window
(800) 507-9357 New York, NY
10286
</TABLE>
<PAGE>
EXHIBIT (a)(ii)
LETTER OF TRANSMITTAL
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON FEBRUARY 17, 1998 (AS SUCH DATE AND TIME MAY BE EXTENDED BY THE
COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION DATE").
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
$9.20 SERIES E 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 January
16, 1998 (the "PROSPECTUS") of PRIMEDIA Inc. (formerly known as K-III
Communications Corporation), a Delaware corporation ("PRIMEDIA " or the
"COMPANY"), and this Letter of Transmittal (the "LETTER OF TRANSMITTAL "), that
together constitute the Company's offer (the "EXCHANGE OFFER ") to exchange one
share (or fraction thereof) of its $9.20 Series F Exchangeable Preferred Stock
(the "NEW PREFERRED STOCK") for each share (or fraction thereof) of its
outstanding $9.20 Series E 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. 333-38451) OF WHICH THE
PROSPECTUS IS A PART WAS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE
COMMISSION ON JANUARY 16, 1998.
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, the Company, 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 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 Exchange Offer.
The undersigned understands that tenders of shares of Old Preferred Stock
pursuant to the procedures described under the caption "The Exchange
Offer--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 Exchange Offer,
subject only to withdrawal of such tenders on the terms set forth in the
Prospectus under the caption "The Exchange Offer--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).
<PAGE>
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 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, (iii) the
undersigned and each Beneficial Owner acknowledge and agree that any person
participating in the 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 Offer--Resales of 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 except as otherwise
disclosed to the Company in writing.
If the undersigned is a broker-dealer that will receive New Preferred Stock
for its own account in exchange for Old Preferred Stock that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such New
Preferred Stock; however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BOX 1
DESCRIPTION OF OLD PREFERRED STOCK TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
<CAPTION>
NAME(S) AND ADDRESS(ES) OF
REGISTERED OLD PREFERRED STOCK
HOLDERS(S), CERTIFICATE
EXACTLY AS NAME(S) APPEAR(S) NUMBER(S) AGGREGATE
ON OLD PREFERRED STOCK OF SHARES OF NUMBER OF SHARES AGGREGATE
CERTIFICATE(S) OLD PREFERRED REPRESENTED NUMBER OF SHARES
(PLEASE FILL IN, IF BLANK) STOCK* BY 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
EACH BENEFICIAL OWNER OF
NUMBER OF TENDERED SHARES
TENDERED SHARES
HELD FOR ACCOUNT OF BENEFICIAL
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 Offer--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
Offer--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 _______________________________________________________________________
Signature Guarantee
(If required by
Instruction 5)
X _______________________________________________________________________
(Signature of Registered
Holder(s)
Authorized Signature
or Authorized Signatory)
X ____________________
Note: The above lines must be signed by the registered
Name: ________________
holder(s) of Old Preferred Stock as their name(s)
(please print)
appear(s) on the shares of Old Preferred Stock or by
Title: _______________
person(s) authorized to become registered holder(s) (which must be
transmitted with this Letter of
Name of Firm: _________
Transmittal). If signature is by a trustee, executor,
(Must
be an
Eligible
Institution
administrator, guardian, attorney-in-fact, officer, or as defined in
Instruction
2)
other person acting in a fiduciary or representative
Address: _____________
capacity, such person must set forth his or her full title below.
_____________
See Instruction 5.
_____________
Name(s): ______________________________________________________________
(incude Zip
Code)
______________________________________________________________
Area Code and Telephone
Number:
Capacity: _____________________________________________________________
___________
_____________________________________________________________
Dated: _______________
Street Address: _______________________________________________________
________________________________________________________________
________________________________________________________________
(include Zip Code)
Area Code and Telephone Number:
___________________________________
Tax Identification or Social Security Number:
____________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to engage in, a distribution of New Preferred
Stock. If the undersigned is a broker-dealer that will receive New Preferred
Stock for its own account in exchange for Old Preferred Stock that was acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Preferred Stock; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE 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 PRIMEDIA 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 three business days after the Expiration
Date, 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 three 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.
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.
<PAGE>
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 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 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.
8. SUBSTITUTE FORM W-9. 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, and with certain other information, on Substitute Form W-9
(which is provided herein), and to certify that the holder (or other payee) is
not subject to backup withholding. Failure to provide the information on the
Substitute Form W-9 may subject the holder to a $50 penalty imposed by the
Internal Revenue Service (the "IRS") and 31% federal income tax backup
withholding on payments made in connection with the Exchange Offer. (If
withholding results in an over-payment of taxes, a refund may be obtained from
the IRS.) Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. In order for a foreign individual to qualify as an exempt recipient,
the holder must submit a Form W-8, signed under penalties of perjury, attesting
to that individual's exempt status. A Form W-8 can be obtained from the Company.
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.
PRIMEDIA reserves the right in its sole discretion to take whatever steps
are necessary to comply with the Company's obligation regarding backup
withholding.
<PAGE>
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 counsel for the
Company, be unlawful. The Company also reserves the right to waive any
conditions of the Exchange Offer or defects, irregularities or conditions of
tender as to particular shares of Old Preferred Stock. 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 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 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 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 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 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 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
Offer--Withdrawal of Tenders."
<PAGE>
<TABLE>
<S> <C> <C>
PAYOR'S NAME: PRIMEDIA
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 number or TIN
RIGHT 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, Part 3 -
I 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>
EXHIBIT (a)(iii)
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
$9.20 SERIES E EXCHANGEABLE PREFERRED STOCK
The undersigned hereby acknowledges receipt of the Prospectus dated January
16, 1998 (the "PROSPECTUS") of PRIMEDIA Inc. (formerly known as 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 "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 Exchange Offer with respect to the $9.20 Series E
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 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, (iv) the undersigned acknowledges that any person participating
in the 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 (the "SECURITIES ACT"), 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 Offer--Resales of the New Preferred
Stock", (v) the undersigned understands that a secondary resale transaction
described in (iv) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K of the Commission and (vi) the undersigned is not an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Company except as
otherwise disclosed to the Company in writing; (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: _____________________________
<PAGE>
Date: __________________________________________________________________________
<PAGE>
EXHIBIT (a)(iv)
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
PRIMEDIA INC.
(FORMERLY KNOWN AS K-III COMMUNICATIONS CORPORATION)
$9.20 SERIES E EXCHANGEABLE PREFERRED STOCK
This form must be used by a holder of the $9.20 Series E Exchangeable
Preferred Stock (the "OLD PREFERRED STOCK") of PRIMEDIA Inc. (formerly known as
K-III Communications Corporation) ("PRIMEDIA") who wishes to tender shares of
Old Preferred Stock to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offer--Guaranteed Delivery Procedures" of
the Prospectus dated January 16, 1998 (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 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 PRIMEDIA, 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>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) NUMBER OF SHARES NUMBER OF SHARES
OF SHARES OF OLD PREFERRED STOCK REPRESENTED TENDERED
<S> <C> <C>
</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 third 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 Exchange Offer.
<PAGE>
EXHIBIT (a)(v)
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: I.E., 00-0000000. The table below will help determine the number to
give the Payer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------------------------
<C> <S> <C>
- --------------------------------------------------------------
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
<C> <S> <C>
- --------------------------------------------------------------
1. An individual account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(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)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the minor
(1)
6. Account in the name of The ward, minor, or
guardian or committee for other incompetent
a designated ward, minor person(3)
or incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under State law
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or
trustee unless the legal
entity itself is not
designated in the
account.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held The partnership
in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
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 receives
agricultural program
payments
</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
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service (the "IRS") 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) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan.
- The United States or any agency or instrumentalities.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality.
- A foreign government, a political subdivision of a foreign government, or
any 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) of the Code.
- An exempt charitable remainder trust, or non-exempt trust described in
section 4947(a)(1) of the Code.
- An entity registered at all times under the Investment Company Act of
1940.
- 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
of the Code.
- 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 certain 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 of the Code).
- Payments described in section 6049(b)(5) of the Code to nonresident
aliens.
- Payments on tax-free covenant bonds under section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file a 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, SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN
ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL
REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
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 sections 6041, 6041A(a), 6045, 6050A and 6050N of
the Code and the regulations promulgated therein.
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 recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividends 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) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you make
a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT (c)
CONFORMED COPY
- -------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of September 26, 1997
by and among
K-III Communications Corporation
and
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Brothers Inc
- -------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of September 26, 1997, by and between K-III Communications
Corporation, a Delaware corporation (the "Company") and Morgan Stanley & Co.
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc (collectively, the "Placement Agents"), who have purchased
1,250,000 shares of the Company's $9.20 Series E Exchangeable Preferred Stock
Redeemable 2009 (the "Series E Preferred Stock") pursuant to the Placement
Agreement (as defined below).
This Agreement is made pursuant to the Placement Agreement, dated
September 22, 1997 (the "Placement Agreement"), by and between the Company and
the Placement Agents. In order to induce the Placement Agents to purchase the
Series E Preferred Stock, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the obligations of the Placement Agents set forth in
Section 4 of the Placement Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
144A Offer: The transactions in which the Placement Agents propose
to sell the Series E Preferred Stock to certain "qualified institutional buyers"
(as such term is defined in Rule 144A under the Act) and "institutional
accredited investors" (as such term is defined in Regulation D under the Act)
and in "offshore transactions" (as such term is defined in Regulation S under
the Act) pursuant to the Offering Memorandum.
Act: The Securities Act of 1933, as amended.
Advice: As defined in Section 6(b) hereof.
Applicable Effectiveness Percent: As defined in Section 5 hereof.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The Borough of Manhattan,
The City of New York, New York are authorized or obligated by law or executive
order to close.
Class E Subordinated Debentures: The 9.20% Class E Subordinated
Debentures due 2009 of the Company issuable in exchange for the Series E
Preferred Stock.
Class F Subordinated Debentures: The 9.20% Class F Subordinated
Debentures due 2009 of the Company issuable in exchange for the Series F
Preferred Stock or, in connection with a Registered Exchange Offer for the Class
E Subordinated Debentures and containing terms identical to the Class E
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).
Closing Date: The date on which the Series E Preferred Stock is first
sold by the Placement Agents pursuant to the 144A Offer.
1
<PAGE>
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of a Registration Statement relating to the Series F
Preferred Stock or Class F Subordinated Debentures, as applicable, to be issued
in the Registered Exchange Offer, (ii) the maintenance of such Registration
Statement continuously effective for a period of not less than the minimum
period required under applicable federal and state securities laws (provided
that in no event shall such Registered Exchange Offer remain open and the
Registration Statement relating thereto remain continuously effective, in each
case, for less than 20 business days), and (iii) the delivery by the Company to
(A) the transfer agent for the Series F Preferred Stock of the same number of
shares of Series F Preferred Stock as the number of shares of Series E Preferred
Stock tendered by holders thereof pursuant to the Registered Exchange Offer, or
(B) the registrar under the Subordinated Debenture Indenture of Class F
Subordinated Debentures in the same aggregate principal amount as the aggregate
principal amount of Class E Subordinated Debentures tendered by Holders thereof
pursuant to the Registered Exchange Offer.
Dividend Payment Date: As defined in the Certificate of Designations
relating to the Series E Preferred Stock.
Effectiveness Target Date: As defined in Section 5 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer Consummation Date: The date on which the Registered
Exchange Offer is Consummated.
Exchange Offer Effective Date: The date on which the Registration
Statement relating to the Registered Exchange Offer becomes effective.
Exchange Offer Registration Statement: As defined in Section 3
hereof.
Holder: As defined in Section 2(b) hereof.
Indemnified Party: As defined in Section 8 hereof.
Interest Payment Date: As defined in the Subordinated Debenture
Indenture, for the Subordinated Debentures.
NASD: National Association of Securities Dealers, Inc.
Offering Memorandum: The offering memorandum, dated September 22,
1997 and all amendments and supplements thereto, relating to the Preferred Stock
prepared by the Company pursuant to the Placement Agreement.
Payment Date: Each Dividend Payment Date and each Interest Payment
Date.
Person: An individual, partnership, joint venture, corporation,
trust, estate or unincorporated organization, or a government or agency or
political subdivision thereof.
2
<PAGE>
Placement Agents: Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Salomon Brothers Inc.
Placement Agreement: The Placement Agreement, dated September 22,
1997, by and among the Company and the Placement Agents pursuant to which the
Placement Agents purchased 1,250,000 shares of the Company's Series E Preferred
Stock.
Preferred Stock: The Series E Preferred Stock and the Series F
Preferred Stock.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material, if any,
incorporated by reference into such Prospectus.
Record Holder: (i) With respect to any Payment Date occurring prior
to the date on which the Series E Preferred Stock is exchanged for Class E
Subordinated Debentures, each Person who was a Holder of Series E Preferred
Stock on the record date with respect to the Dividend Payment Date on which such
Payment Date shall occur, or, if no record date was set with respect to such
Dividend Payment Date, the date 15 days prior to such Dividend Payment Date; and
(ii) with respect to any Payment Date occurring after the date on which the
Series E Preferred Stock is exchanged for Class E Subordinated Debentures, each
Person who was a Holder of Class E Subordinated Debentures on the record date
with respect to the Interest Payment Date on which such Payment Date shall
occur.
Registered Exchange Offer: The registration by the Company under the
Act of the Series F Preferred Stock or, if the Series E Preferred Stock has been
exchanged for Class E Subordinated Debentures, Class F Subordinated Debentures
pursuant to a Registration Statement pursuant to which the Company offers the
holders of all outstanding Transfer Restricted Securities the opportunity to
exchange all such outstanding Transfer Restricted Securities held by such Holder
for Series F Preferred Stock or Class F Subordinated Debentures, as applicable,
in an aggregate number of shares or principal amount, as applicable, equal to
the aggregate number of shares or principal amount, as applicable, of the
Transfer Restricted Securities tendered in such exchange offer by such Holders.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series F Preferred Stock or, if the Series E
Preferred Stock has been exchanged for Class E Subordinated Debentures, Class F
Subordinated Debentures, pursuant to a Registered Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, which is filed pursuant to the provisions of this
Agreement, including the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all exhibits and
material incorporated by reference therein.
Series E Preferred Stock: The $9.20 Series E Exchangeable Preferred
Stock Redeemable 2009, par value $.01 per share, of the Company with a
liquidation preference of $100 per share.
Series F Preferred Stock: The $9.20 Series F Exchangeable Preferred
Stock Redeemable 2009, par value $.01 per share, of the Company, issuable in
connection with the Registered Exchange Offer and containing terms identical to
the Series E Preferred Stock (except that dividends thereon will accrue from the
Exchange Offer Consummation Date and except that such securities shall bear no
legend and shall be free from restrictions on transfer).
Shelf Registration Statement: As defined in Section 4 hereof.
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Subordinated Debentures: The Class E Subordinated Debentures and the
Class F Subordinated Debentures.
Subordinated Debenture Indenture: The Indenture between the Company
and the trustee referred to therein pursuant to which the Subordinated
Debentures are issued.
Subordinated Debenture Trustee: The trustee referred to in the
Subordinated Debenture Indenture.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each share of Series E Preferred
Stock and, if the Company has elected to exchange such Series E Preferred Stock,
each Class E Subordinated Debenture issued in exchange therefor, until the
earlier to occur of (a) the Exchange Offer Consummation Date, (b) the date on
which such Preferred Stock or Subordinated Debentures, as applicable, have been
effectively registered under the Act and disposed of in accordance with a
Registration Statement and (c) the date on which such Preferred Stock or
Subordinated Debentures, as applicable, are distributed to the public pursuant
to Rule 144 under the Act.
Underwriter(s): The underwriter(s) participating in any Underwritten
Offering referred to in Section 6(b)(xii) and party to the underwriting
agreement referred to in such section.
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an Underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person is the registered owner of Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) If, in the reasonable opinion of the Company after consultation
with counsel, (i) the Registered Exchange Offer shall then be permissible under
applicable law and (ii) a Registration Statement (the "Exchange Offer
Registration Statement") with respect to the Series F Preferred Stock or Class F
Subordinated Debentures, as applicable, can be filed after the initial sale of
Series E Preferred Stock pursuant hereto, the Company shall (a) cause to be
filed with the Commission after the Closing Date a Registration Statement under
the Act relating to the Series F Preferred Stock or Class F Subordinated
Debentures, as applicable, (b) use its reasonable best efforts to cause such
Exchange Offer Registration Statement to become effective at the earliest
possible time thereafter, (c) in connection with the foregoing, (1) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Exchange Offer Registration Statement to become
effective, (2) if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under
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the Act, and (3) use its reasonable best efforts to cause all necessary filings
in connection with the registration and qualification of the Series F Preferred
Stock or Class F Subordinated Debentures, as applicable, to be registered under
the Blue Sky laws of such jurisdictions as are necessary to permit Consummation
of the Registered Exchange Offer, and (d) upon the effectiveness of such
Exchange Offer Registration Statement, commence the Registered Exchange Offer.
The Registered Exchange Offer shall be on the appropriate form permitting
registration of the Series F Preferred Stock or Class F Subordinated Debentures,
as applicable, to be offered in exchange for the Transfer Restricted Securities.
(b) The Company shall cause the Exchange Offer Registration Statement
to be continuously effective for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Registered Exchange Offer; provided, however, that in no event shall such period
be less than 20 Business Days. The Company shall cause the Registered Exchange
Offer to comply with all applicable federal and state securities laws. No
securities other than the Series F Preferred Stock or Class F Subordinated
Debentures, as applicable, shall be included in the Registration Statement
relating to the Registered Exchange Offer. The Company shall use its reasonable
best efforts to cause the Registered Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Effective Date.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If the Company is not required to file a
Registration Statement with respect to the Registered Exchange Offer pursuant to
Section 3(a) hereof, then pursuant to Rule 415 under the Act, the Company shall
file a "shelf" registration statement (the "Shelf Registration Statement")
relating to all then outstanding Transfer Restricted Securities, the holders of
which shall have provided the information required pursuant to Section 6(a)(i)
and (ii) hereof within the time specified in such section, and shall use its
reasonable best efforts to cause such Shelf Registration Statement to become
effective as promptly as practicable thereafter. Subject to the proviso
contained in Section 6(b)(x), the Company shall use its reasonable best efforts
to keep such Shelf Registration Statement continuously effective and to prevent
the happening of any event described in Section 6(b)(iv)(D) hereof for a period
of two years following the date on which such Shelf Registration Statement
becomes effective under the Act (as may be extended pursuant to Section 6
hereof) or shorter period terminating when all Transfer Restricted Securities
either (i) have been sold pursuant to the Shelf Registration Statement or (ii)
have ceased to be Transfer Restricted Securities pursuant to clause (c) of the
definition of Transfer Restricted Securities.
Subject to the proviso contained in Section 6(b)(x), upon the
occurrence of any event that would cause the Shelf Registration Statement (i) to
contain a material misstatement or omission or (ii) not to be effective and
usable for resale of Transfer Restricted Securities during the period that such
Shelf Registration Statement is required to be effective and usable, the Company
shall promptly file an amendment to the Shelf Registration Statement, in the
case of clause (i), correcting any such misstatement or omission, and in the
case of clauses (i) and (ii), use its reasonable best efforts to cause such
amendment to be declared effective and such Shelf Registration Statement to
become usable as soon as practicable thereafter.
(b) Restrictions on Sale of certain Securities by Others. The
Company agrees to use reasonable best efforts to cause each holder of its
privately placed debt securities (if the Holders effect an Underwritten Offer
with respect to the Subordinated Debentures) or preferred stock (if the Holders
effect an Underwritten Offer with respect to the Preferred Stock), and its
securities convertible into or
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exchangeable or exercisable for any such debt security or preferred stock, as
applicable, purchased from the Company at any time on or after the date of this
Agreement to agree not to effect any public sale or distribution of any such
securities during the 10 day period prior to and during the 60-day period
beginning on the closing date of each Underwritten Offer made pursuant to the
Shelf Registration Statement, including a sale pursuant to Rule 144 under the
Act (except as part of such Underwritten Registration).
SECTION 5. LIQUIDATED DAMAGES
If written notice that the applicable Registration Statement has been
declared effective shall not have been given on or before 180 days following the
Closing Date (the "Effectiveness Target Date"), then, commencing on the first
Payment Date following the 181st day after the Closing Date and on each Payment
Date thereafter until the applicable Registration Statement has been declared
effective, the Company shall pay to each Record Holder an amount, as liquidated
damages, equal to the product of (i) the aggregate liquidation preference of
all shares of Preferred Stock (or, if the Preferred Stock has been exchanged for
Subordinated Debentures, the aggregate principal amount of all such Subordinated
Debentures) constituting Transfer Restricted Securities and (ii) the "Applicable
Effectiveness Percent," which shall accrue from and after the 181st day after
the Closing Date. For purposes hereof, the "Applicable Effectiveness Percent"
shall be one-half of one percent (0.50%) per annum for each of the days
immediately succeeding the 181st day following the Closing Date until the
applicable Registration Statement has been declared effective.
SECTION 6. REGISTRATION PROCEDURES
(a) In connection with the Registered Exchange Offer (if required to
be made pursuant to Section 3(a) hereof):
(i) As a condition to its participation in the Registered
Exchange Offer pursuant to the terms of this Agreement, each Holder of
Transfer Restricted Securities shall be required to furnish, upon the
request of the Company, within 15 Business Days thereafter, such
information regarding such Holder and such Holder's intentions in
connection with the Series F Preferred Stock or Class F Subordinated
Debentures, as applicable, to be received in the Registered Exchange Offer
as the Company may from time to time reasonably request in writing. Each
such Holder shall be required to furnish to the Company all information
required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
(ii) As a condition to its participation in the Registered
Exchange Offer pursuant to the terms of this Agreement, each Holder of
Transfer Restricted Securities shall be required to furnish, upon the
request of the Company, prior to the Consummation thereof a written
representation to the Company that it is not engaged in, and does not
intend to engage in, a distribution of the Series F Preferred Stock or
Class F Subordinated Debentures, as applicable, to be received in the
Registered Exchange Offer and that it is acquiring the Series F Preferred
Stock or Class F Subordinated Debentures, as applicable, in its ordinary
course of business and shall otherwise cooperate in the Company's
preparations for the Registered Exchange Offer. Each Holder shall
acknowledge that any such Holder using the Registered Exchange Offer to
participate in a distribution of the securities to be acquired in the
Registered Exchange Offer (x) could not
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rely on the position of the Commission enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989) or similar no-action letters, (y)
must comply with registration and prospectus delivery requirements of the
Act in connection with a secondary resale transaction and (z) that such a
secondary resale transaction should be covered by an effective registration
statement containing the selling security holder information required by
Item 507 of Regulation S-K.
(iii) If the Registered Exchange Offer relates to the
Subordinated Debentures, the Company shall cause the Subordinated Debenture
Indenture to be qualified under the TIA not later than the effective date
of the first Registration Statement relating to the Registered Exchange
Offer; and, in connection therewith, will cooperate with the Subordinated
Debenture Trustee and the holders of the Class E Subordinated Debentures to
effect such changes to the Subordinated Debenture Indenture as may be
required for such Indenture to be so qualified in accordance with the terms
of the TIA; and will execute, and use its reasonable best efforts to cause
such Subordinated Debenture Trustee to execute, all documents as may be
required to effect such changes and all other forms and documents required
to be filed with the Commission to enable such Indenture to be so qualified
in a timely manner.
(b) In connection with the Shelf Registration Statement, the Company
will use its reasonable best efforts to effect such registration, to permit the
sale of the Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof and, pursuant thereto, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission, as soon as
practicable, a Registration Statement relating to the registration on any
appropriate form under the Act, cooperate and assist in any filings
required to be made with the NASD and use its reasonable best efforts to
cause such Shelf Registration Statement to become effective and approved by
such governmental agencies or authorities as may be necessary to enable the
selling Holders to consummate the disposition of such Transfer Restricted
Securities; provided that before filing a Shelf Registration Statement or
any Prospectus, or any amendments or supplements thereto, including
documents incorporated by reference after the initial filing of the Shelf
Registration Statement, the Company will furnish to the Holders and the
underwriter(s), if any, copies of all such documents proposed to be filed
prior to the filing thereof and shall make the Company's representative
available for discussion of such documents.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Shelf Registration Statement as may be
necessary to keep the Shelf Registration Statement effective for the
applicable period set forth in Section 3 hereof, or such shorter period
which will terminate when all Transfer Restricted Securities covered by
such Shelf Registration Statement have been sold; cause the Prospectus to
be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to comply
fully with the applicable provisions of Rules 424 and 430A under the Act in
a timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Shelf Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the sellers thereof set forth in such
Shelf Registration Statement or supplement to the Prospectus.
(iii) if requested by the Holders of Transfer Restricted
Securities being sold in an Underwritten Offering conducted pursuant to an
Underwriting Agreement referred to in
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Section 6(b)(xii) or the Underwriter(s) thereof, promptly incorporate in a
Prospectus supplement or post-effective amendment such information as such
Underwriter(s) and the Holders of Transfer Restricted Securities being sold
agree should be included therein relating to the plan of distribution of
the Transfer Restricted Securities, including, without limitation,
information with respect to the number of shares of Preferred Stock and
principal amount of Subordinated Debentures being sold to such
Underwriter(s), the purchase price being paid therefor and with respect to
any other terms of the offering of the Transfer Restricted Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(iv) advise the Underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in
writing, (A) when the Shelf Registration Statement or any post-effective
amendment thereto, has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) if at any time the representations and warranties of the
Company contemplated by paragraph (xii)(A) below cease to be true and
correct, (D) of the existence of any fact and the happening of any event
that makes any statement of a material fact made in the Registration
Statement, the Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading and (E)
of the receipt by the Company of any stop order from the Commission
suspending the effectiveness of the Registration Statement, and any order
issued by any state securities commission or other regulatory authority
suspending the qualification or exemption from qualification of such
Transfer Restricted Securities under state securities or Blue Sky laws. If
at any time the Company shall receive any such stop order suspending the
effectiveness of the Registration Statement, or any such order from a state
securities commission or other regulatory authority, the Company shall use
its reasonable best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
(v) promptly prior to the filing of any document that is to be
incorporated by reference into the Shelf Registration Statement or the
Prospectus (after initial filing of the Shelf Registration Statement),
provide copies of such document to the selling Holders and to the managing
Underwriter(s), if any, and make the Company's representative(s) available
for discussion of such document.
(vi) furnish to each selling Holder and each of the
Underwriter(s), if any, without charge, at least one signed copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference).
(vii) deliver to each selling Holder and each of the
Underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to the
use of the Prospectus and any amendment or supplement thereto by each of
the selling Holders and each of the Underwriter(s), if any, in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto.
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(viii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the Underwriter(s), if any,
and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities or
Blue Sky laws of such jurisdictions as the selling Holders or
Underwriter(s) may request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Securities covered by the Shelf Registration
Statement; provided, however, that the Company shall not be required to
register or qualify as a foreign corporation where it is not then so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Shelf Registration Statement, in any jurisdiction where it
is not now so subject.
(ix) cooperate with the selling Holders and the Underwriter(s),
if any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to be
in such denominations and registered in such names as the Holders or the
Underwriter(s), if any, may request at least two Business Days prior to any
sale of Transfer Restricted Securities made by such Underwriter(s);
(x) if any fact or event contemplated by Section 6(b)(iv)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus, as amended or supplemented, will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
provided, however, that the Company shall not be required to comply with
this Section 6(b)(x) if, and only for so long as: (i) the Company shall be
engaged in a transaction; (ii) (A) such transaction is required to be
disclosed in the Registration Statement, the related Prospectus, or any
amendment or supplement thereto, or the failure by the Company to disclose
such transaction in the Registration Statement or related Prospectus, or
any amendment or supplement thereto, as then amended or supplemented, would
cause such Registration Statement, Prospectus or amendment or supplement
thereto, to contain an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein not
misleading, in the light of the circumstances under which they were made;
(B) information regarding the existence of such transaction has not then
been publicly disclosed by or on behalf of the Company; and (C) the Company
determines, in its reasonable judgment, that disclosure of such transaction
would have a material adverse effect (1) on the business, condition
(financial or other), results of operations or properties of the Company
and its subsidiaries, taken as a whole, or (2) on the consummation of such
transaction and (iii) the Company notifies the Holders promptly after
making the determination set forth in clause (ii).
(xi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of Exchange Offer Registration
Statement or the Shelf Registration Statement;
(xii) enter into such customary agreements (including an
underwriting agreement in form reasonably satisfactory to the Company) and
take all such other actions in connection therewith as may be requested by
the Holders of a majority of the outstanding shares (or principal amount,
as the case may be) of the Transfer Restricted Securities or the managing
Underwriter(s) in order to expedite or facilitate the disposition of the
Transfer Restricted Securities
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pursuant to the Shelf Registration and, in connection with any such
underwriting agreement entered into by the Company, (A) make such
representations and warranties to the Holders and the Underwriter(s), in
form, substance and scope as are customarily made by issuers to
Underwriters in primary underwritten offerings and covering matters
including, but not limited to, those set forth in the Placement Agreement;
(B) obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Underwriter(s) and the Holders of the Transfer
Restricted Securities being sold) addressed to each selling Holder and the
Underwriter(s) covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such Holders and Underwriters; (C) obtain "cold
comfort" letters and updates thereof from the Company's independent
certified public accountants addressed to the Underwriters and use its
reasonable best efforts to obtain such "cold comfort" letters addressed to
the Holders of Transfer Restricted Securities, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters by Underwriters in connection with primary
underwritten offerings; (D) set forth in full or incorporate by reference
in the underwriting agreement the indemnification provisions and procedures
of Section 8 hereof with respect to all parties to be indemnified pursuant
to said Section; and (E) deliver such documents and certificates as may be
reasonably requested by the Holders of the Transfer Restricted Securities
being sold or the underwriter(s) of such Underwritten Offering to evidence
compliance with clause (A) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company pursuant to this clause (xii). The above shall be done at each
closing under such underwriting or similar agreement, as and to the extent
required thereunder. Notwithstanding the foregoing, in no event shall any
Holder be entitled to participate in an Underwritten Registration unless
Holders of Preferred Stock the aggregate liquidation preference of which
equals or exceeds $25 million (or, if the Preferred Stock has been
exchanged for Subordinated Debentures, the principal amount of which equals
or exceeds $25 million) shall first notify the Company of their intent to
retain an Underwriter for such purpose pursuant to Section 11 hereof.
(xiii) make available at reasonable times for inspection by
the Holders of the Transfer Restricted Securities, any Underwriter
participating in an Underwritten Offering pursuant to such Shelf
Registration Statement and any attorney or accountant retained by such
selling Holders or any of the Underwriters (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company as shall be requested by any such
Inspector in connection with such Shelf Registration Statement subsequent
to the filing thereof and prior to its effectiveness; provided, however,
that any Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors in writing are
confidential shall not be disclosed to any Inspector unless (i) such
Inspector signs a confidentiality agreement reasonably satisfactory to the
Company or (ii) the release of such Records is ordered pursuant to a
subpoena or other court order or is otherwise required by law. Each Holder
agrees that it will, promptly after learning that disclosure of such
Records is sought by a court having jurisdiction, give notice to the
Company and allow the Company to undertake appropriate action to prevent
disclosure of such Records (it being understood, however, that, in no
event, shall any Holder be required to violate any such subpoena, court
order or applicable law as a result of the Company's actions to prevent
such disclosure).
(xiv) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to its security holders as soon as practicable a
consolidated earnings statement (which need not be audited) for the
twelve-month
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period (A) commencing at the end of any fiscal quarter in which Transfer
Restricted Securities are sold to the Underwriters in a firm or best
efforts Underwritten Offering or (B) if not sold to the Underwriters in
such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Shelf
Registration Statement.
(xv) cause the Subordinated Debenture Indenture to be qualified
under the TIA, and, in connection therewith, cooperate with the
Subordinated Debenture Trustee and the Holders to effect such changes to
such Indenture as may be required for such Indentures to be so qualified in
accordance with the terms of the TIA; and execute and use its reasonable
best efforts to cause such Subordinated Debenture Trustee to execute, all
documents as may be required to effect such changes and all other forms and
documents required to be filed with the Commission to enable such Indenture
to be so qualified in a timely manner.
Each Holder as to which any Shelf Registration Statement is being
effected shall furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such Holder not materially misleading.
Upon receipt of any notice from the Company of the existence of any
fact of the kind described in Section 6(b)(iv)(D) hereof, each Holder will
forthwith discontinue disposition of Transfer Restricted Securities until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(b)(x) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the Prospectus. If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities current at the time of receipt of
such notice. In the event the Company shall give any such notice, the time
period regarding the effectiveness of the Registration Statement set forth in
Section 4(a) hereof shall be extended by the number of days during the period
from and including the date of the giving of such Advice to and including the
date when each selling Holder covered by such Registration Statement shall have
received the copies of the supplemented or amended Prospectus contemplated by
Section 6(b)(x) hereof.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without limitation
all: (i) registration and filing fees and expenses (including filings made with
the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel, as may be required by the rules and
regulations of the NASD)); (ii) fees and expenses of compliance with federal
securities and state Blue Sky or securities laws; (iii) expenses of printing
(including printing certificates for the Preferred Stock, Subordinated
Debentures and Prospectuses), messenger and delivery services and telephone;
(iv) reasonable fees and disbursements of counsel for the Company and the
Holders of the Transfer Restricted Securities; (v) all application and filing
fees in connection with listing the Preferred Stock and the Subordinated
Debentures on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) reasonable fees and disbursements
of independent certified public accountants of the Company (including the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance).
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The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expense of its officers and employees
performing legal or accounting duties), the expenses of any annual audit, rating
agency fees and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with the Shelf Registration Statement, the Company
will reimburse the Holders of Transfer Restricted Securities being tendered or
registered for the reasonable fees and disbursements of Latham & Watkins, as
counsel to such Holders. Notwithstanding the provisions of this Section 7, each
Holder shall pay all registration expenses to the extent required by applicable
law.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder of
Transfer Restricted Securities and each person, if any, who controls such Holder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, or is under common control with or is controlled by such
Holder from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
by any Holder of Transfer Restricted Securities or any such controlling person
or person who is under common control with, or is controlled by such Holder, in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
either Memorandum (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except (i) insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Holder of
Transfer Restricted Securities furnished to the Company in writing by such
Holder expressly for use therein and (ii) that the foregoing indemnity with
respect to any untrue statement contained in or omission from a Memorandum shall
not inure to the benefit of any Holder of Transfer Restricted Securities (or any
person controlling, under common control with, or controlled by, such Holder)
from whom the person asserting any such loss, claim, damage or liability
purchased any of the Securities which are the subject thereof if such person was
not sent or given a copy of the Memorandum (or the Memorandum as amended or
supplemented) at or prior to the written confirmation of the sale of such
Securities to such person and the untrue statement contained in or omission from
such Memorandum was contained in the Memorandum (or the Memorandum as amended or
supplemented).
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless each of the Company, its
directors, its officers and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Holder, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in either
Memorandum or any amendments or supplements thereto.
(c) In case any proceeding (including without limitation any
governmental investigation) shall be instituted involving any person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such person (the "Indemnified Party") shall promptly notify the person against
whom such indemnity may be sought (the "Indemnifying Party") in writing and the
Indemnifying Party, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party and any others the Indemnifying Party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any
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such proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in respect of the legal expenses of any Indemnified Party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to paragraph (a) above and by the Company in the
case of parties indemnified pursuant to paragraph (b) above. The Indemnifying
Party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify the
Indemnified Party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the immediately preceding sentence, if
at any time an Indemnified Party shall have requested an Indemnifying Party to
reimburse the Indemnified Party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the Indemnifying Party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 60
days after receipt by such Indemnifying Party of the aforesaid request and (ii)
such Indemnifying Party shall not have reimbursed the Indemnified Party in
accordance with such request prior to the date of such settlement. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Party is or could have been a party and indemnity could
have been sought hereunder by such Indemnified Party, unless such settlement
includes an unconditional release of such Indemnified Party from all liability
on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a)
or (b) of this Section 8 is unavailable to an Indemnified Party or insufficient
in respect of any losses, claims, damages or liabilities referred to therein,
then each Indemnifying Party under such paragraph, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Holders of Transfer
Restricted Securities on the other hand, from their sale of the Transfer
Restricted Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company, on the one hand, and of the Holders of Transfer
Restricted Securities, on the other hand, in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Holders of Transfer Restricted Securities on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Holders of Transfer Restricted Securities and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the Holders of Transfer Restricted Securities
agree that it would not be just or equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
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to in paragraph (d) above. The amount paid or payable by an Indemnified Party
as a result of the losses, claims, damages and liabilities referred to in
paragraph (d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Holder of Transfer
Restricted Securities shall be required to contribute any amount in excess of
the amount by which the total price at which the Securities resold by it in the
initial placement of such Securities were offered to investors exceeds the
amount of any damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any Indemnified Party
at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 8 and the representations and warranties of the Company contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Holder of Transfer Restricted Securities or any person controlling
any Holder of Transfer Restricted Securities or by or on behalf of the Company,
its officers or directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Securities. The remedies provided for
in this Section 8 are not exclusive and shall not limit any rights or remedies
that may otherwise be available to any Indemnified Party at law or equity.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any of the
Series E Preferred Stock or Class E Subordinated Debentures remain outstanding
and during any period in which the Company is not subject to Section 13 or 15(d)
of the Exchange Act, to make available to any Placement Agent or beneficial
owner of such Transfer Restricted Securities in connection with any sale thereof
and any prospective purchaser of such Transfer Restricted Securities from such
Placement Agent or beneficial owner, the information required by Rule 144A(d)(4)
under the Act.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes the related underwriting agreement and all questionnaires, powers
of attorney, indemnities, and other documents required under the terms of such
underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
Subject to Section 6(b)(xii) hereof, the Holders of Transfer
Restricted Securities covered by the Shelf Registration Statement who desire to
do so may sell such Transfer Restricted Securities in an Underwritten Offering.
The Underwriter(s) that will administer said offerings will be selected by the
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Holders of a majority of the outstanding shares or the aggregate principal
amount, as applicable, of the Transfer Restricted Securities included in such
Underwritten Offering.
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to exercise
all rights provided herein, in the Subordinated Debenture Indenture, in the
Placement Agreement and granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreements of the Company in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of, in the case of Preferred Stock, the
outstanding shares and, in the case of Subordinated Debentures, the then
outstanding aggregate principal amount, in each case, that are Transfer
Restricted Securities.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the transfer agent for the Preferred Stock or the Registrar for the
Subordinated Debentures, as applicable, with a copy to the transfer agent
or the Registrar; and
(ii) if to the Company, to K-III Communications Corporation, 745
Fifth Avenue, New York, New York, 10151, Attention: Beverly Chell, with a
copy to Simpson Thacher & Bartlett at 425 Lexington Avenue, New York, New
York, 10017, Attention: Gary I. Horowitz.
All such 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 on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
From and after the date on which the Preferred Stock is exchanged for
Subordinated Debentures, copies of all such notices, demands or other
communications shall be concurrently delivered by the Person giving the same to
the trustee under the Subordinated Debenture Indenture at the address specified
therein.
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(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment hereof, subsequent Holders of Transfer Restricted Securities;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign acquired Transfer Restricted Securities from such Holder.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Placement Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
K-III Communications Corporation
By: /s/ Beverly C. Chell
--------------------------------
Name: Beverly C. Chell
Title: Vice Chairman
CONFIRMED AND ACCEPTED,
as of the date first written above
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Brothers Inc
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/ Francis B. Barker
------------------------------------
Name: Francis B. Barker
Title: Principal
<PAGE>
EXHIBIT (d)
SIMPSON THACHER & BARTLETT
A PARTNERSHIP WHICH INCLUDES PROFESSIONAL CORPORATIONS
425 LEXINGTON AVENUE
NEW YORK, N.Y. 10017-3954
(212) 455-2000
FAX: (212) 455-2502
October 22, 1997
K-III Communications Corporation
745 Fifth Avenue
New York, New York 10151
Ladies and Gentlemen:
We have acted as special counsel for K-III Communications
Corporation, a Delaware corporation (the "Company"), in connection with the
preparation and filing by the Company of a Registration Statement on Form S-4
(the "Registration Statement") filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to (i) up to 1,250,000 shares of
$9.20 Series F Exchangeable Preferred Stock, par value $.01 per share and
liquidation value $100 per share (the "Preferred Stock") to be issued by the
Company in exchange for up to 1,250,000 shares of $9.20 Series E Exchangeable
Preferred Stock, par value $.01 per share and liquidation value $100 per
share (the "Old Preferred Stock"), and (ii) up to $125,000,000 aggregate
principal amount of the Company's $9.20 Class F Subordinated Debentures due
2009 ("the Subordinated Debentures"), issuable, at the Company's option, in
exchange for the Preferred Stock, all as described in the Registration
Statement.
<PAGE>
K-III Communications -2- October 22, 1997
Corporation
We have examined the Registration Statement and the proposed form of
the Indenture to be dated as of the date of first issuance of the
Subordinated Debentures (the "Debenture Indenture") between the Company and
The Bank of New York, as Trustee (the "Debenture Trustee"), which has been
filed with the Commission as an Exhibit to the Registration Statement. In
addition, we have examined, and have relied as to matters of fact upon, the
originals or copies, certified or 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 have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
In such examination, we have assumed that the Debenture Indenture
will be duly authorized, executed and delivered by the Debenture Trustee. In
addition, we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to
us as originals and 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. We have also assumed that the
Debenture Indenture as executed and delivered by the parties thereto will be
in the form of the draft which has been filed with the Commission as an
Exhibit to the Registration Statement.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we hereby advise you that, in our opinion, the
statements set forth in the
<PAGE>
K-III Communications -3- October 22, 1997
Corporation
Registration Statement under the caption "Certain Federal Income Tax
Considerations," insofar as they purport to constitute summaries of matters
of United States federal income tax law and regulations or legal conclusions
with respect thereto, constitute accurate summaries of the matters described
therein in all material respects.
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 and the federal law of the United States. This opinion is
rendered to you solely in connection with the above-described transaction and
may not be relied upon for any other purpose without our prior written
consent.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus included therein.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
