<PAGE>
FILED PURSUANT TO RULE 424(B)(1)
REGISTRATION NO. 333-51891
PROSPECTUS
May 11, 1998
[LOGO]
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF ITS 7 5/8% SENIOR NOTES DUE 2008 FOR EACH $1,000
IN PRINCIPAL AMOUNT OF ITS OUTSTANDING 7 5/8%
SENIOR NOTES DUE 2008
OFFER TO EXCHANGE
ITS $8.625 SERIES H EXCHANGEABLE PREFERRED STOCK REDEEMABLE 2010 (LIQUIDATION
PREFERENCE $100 PER SHARE) (EXCHANGEABLE AT THE OPTION OF PRIMEDIA) FOR UP TO
2,500,000 SHARES OF ITS $8.625 SERIES G EXCHANGEABLE PREFERRED STOCK
REDEEMABLE 2010 (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 Letters of Transmittal (the
"Letters of Transmittal") (i) to exchange (the "Note Exchange Offer") up to
$250,000,000 aggregate principal amount of a new series of its 7 5/8% Senior
Notes due 2008 (the "New Notes") for up to $250,000,000 aggregate principal
amount of its outstanding 7 5/8% Senior Notes due 2008 (the "Old Notes") and
(ii) to exchange (the "Preferred Stock Exchange Offer" and, together with the
Note Exchange Offer, the "Exchange Offers") one share of its $8.625 Series H
Exchangeable Preferred Stock Redeemable 2010, par value $.01 per share,
liquidation preference $100.00 per share (the "New Preferred Stock"), for each
outstanding share of its $8.625 Series G Exchangeable Preferred Stock Redeemable
2010, par value $.01 per share, liquidation preference $100.00 per share (the
"Old Preferred Stock"), of which 2,500,000 shares are outstanding. There will be
no cash proceeds to PRIMEDIA from the Exchange Offers.
---------------------------
The form and terms of the New Notes and New Preferred Stock are the same as
the form and terms of the Old Notes and the Old Preferred Stock except that (i)
the New Notes and the shares of New Preferred Stock will have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and thus
will not bear restrictive legends restricting their transfer pursuant to the
Securities Act and (ii) holders of New Notes and/or New Preferred Stock will not
be entitled to certain rights of holders of the Old Notes and the Old Preferred
Stock, respectively, under the Registration Rights Agreement (as defined) which
will terminate upon the consummation of the Exchange Offers. See "The Exchange
Offers--Consequences of Failure to Exchange." The Old Notes and the New Notes
are sometimes referred to herein collectively as the "Notes." The Old Preferred
Stock and the New Preferred Stock are sometimes referred to herein collectively
as the "Preferred Stock." The New Preferred Stock is exchangeable into 8 5/8%
Class H Subordinated Exchange Debentures due 2010 (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 8 5/8% Class G Subordinated Exchange Debentures due 2010 (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
"8 5/8% Subordinated Debentures," and the New Notes, the New Preferred Stock and
the New Subordinated Debentures are sometimes referred to herein collectively as
the "Securities." As of December 31, 1997, the amount of pro forma senior
indebtedness (including indebtedness and other current and non-current
liabilities of PRIMEDIA's subsidiaries), was approximately $1,908.7 million and
the aggregate liquidation preference of the pro forma outstanding preferred
stock was approximately $575.0 million, all of which preferred stock ranks pari
passu with the Preferred Stock.
Interest on the New Notes shall accrue from the last interest payment date
on which interest was paid on the Old Notes surrendered in exchange therefor or,
if no interest has been paid, from the original date of issuance of the Old
Notes. The Notes are fully and unconditionally guaranteed jointly and severally
by all the wholly-owned domestic Restricted Subsidiaries (as defined) of the
Company. Dividends on the New Preferred Stock will accrue and will be cumulative
from the last dividend payment date on which dividends were paid on the shares
of Old Preferred Stock surrendered in exchange therefor or, if no dividends have
been paid, from the original date of issuance of the Old Preferred Stock.
----------------------------------
The Old Notes and the Old Preferred Stock were originally issued and sold on
February 17, 1998 in transactions not registered under the Securities Act, in
reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Old Notes and 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 Notes and the New Preferred Stock issued
pursuant to the Exchange Offers in exchange for Old Notes and Old Preferred
Stock may be offered for resale, resold and otherwise transferred by holders
thereof (other than any such holder which is an "affiliate" of 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 Notes and 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 Notes and New Preferred Stock and
neither such holders nor any other person is engaging in or intends to engage in
a distribution of such New Notes and 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 Offers. Each
broker-dealer that receives New Notes or New Preferred Stock for its own account
pursuant to the Exchange Offers where the Old Notes or the Old Preferred Stock,
as the case may be, were 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 Notes or New Preferred Stock. The Letters of Transmittal relating to
the Exchange Offers state 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 Notes or New Preferred Stock received in exchange for Old
Notes or Old Preferred Stock, as the case may be, where such Old Notes or Old
Preferred Stock were 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 New Notes, the New Preferred Stock, and the New Subordinated Debentures
which may be issued in exchange therefor, constitute new issues of securities
with no established trading market. Any Old Notes and shares of Old Preferred
Stock not tendered and accepted in the Exchange Offers will remain outstanding.
To the extent that Old Notes and shares of Old Preferred Stock are tendered and
accepted in the Exchange Offers, a holder's ability to sell untendered Old Notes
and shares of Old Preferred Stock could be adversely affected. No assurance can
be given as to the liquidity of the trading market for the Old Notes and Old
Preferred Stock or, if issued in exchange for Old Preferred Stock, the Old
Subordinated Debentures. See "Risk Factors--Lack of Public Market."
PRIMEDIA will accept for exchange any and all Old Notes and/or shares of Old
Preferred Stock validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on June 10, 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 July 6, 1998. Tenders of Old Notes and
shares of Old Preferred Stock may be withdrawn at any time prior to the
Expiration Date. The Exchange Offers are subject to certain customary
conditions. See "The Exchange Offers."
Approximately 78% 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."
----------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 22 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 Notes and 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 Offers.
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) the Annual Report on Form 10-K for the fiscal year ended December 31,
1997; and
(b) the Current Report on Form 8-K dated February 9, 1998.
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 Offers 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
JUNE 3, 1998.
2
<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
PRIMEDIA is the authoritative source of specialized information for highly
targeted audiences in the education, business and special interest consumer
markets. Most of the Company's products have leadership positions in the niche
markets in which such products compete: specialty magazines (E.G., SEVENTEEN,
AMERICAN BABY, SOAP OPERA DIGEST, TRUCKIN', SEW NEWS and TELEPHONY); education
(E.G., CHANNEL ONE NETWORK, WEEKLY READER and PRIMEDIA WORKPLACE LEARNING); and
information (E.G., APARTMENT GUIDES, WARD'S, THE WORLD ALMANAC and BACON'S).
The Company has achieved substantial sales growth through the development of
its franchises, combined with its operating expertise and a successful
acquisition strategy. From 1993 through 1997, net sales have grown at a compound
annual rate of 15%, to $1,487.6 million. The operating loss in 1997 was $20.8
million compared to $7.7 million in 1993 (after deductions for amortization,
depreciation, provision for loss on the sales of businesses and other of $322.8
million in 1997 and $145.9 million in 1993).
The Company had net income (loss) of $(172.8) million, $8.0 million and
$(75.4) million for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company's deficiency of earnings to fixed charges was $159.1
million, $35.7 million and $135.0 million for the years ended December 31, 1997,
1996 and 1995, respectively. The Company's deficiency of earnings to fixed
charges plus preferred stock dividends was $224.2 million, $79.2 million and
$164.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company's pro forma deficiency of earnings to fixed charges
and earnings to fixed charges plus preferred stock dividends was $141.8 million
and $201.4 million, respectively, for the year ended December 31, 1997. See
"Unaudited Pro Forma Consolidated Financial Data."
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 60%, with 80% 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 magazine segment; classroom learning and workplace learning in the
education segment; and consumer and business information products 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 take advantage of trends in the
specialty consumer market where advertising growth
3
<PAGE>
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
information products 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 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. A major 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 $31.1 million in 1997 and $28.8 million in 1996 or 2.1% of net
sales in each respective year. 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.
On November 18, 1997, the Company changed its name to PRIMEDIA Inc. to
reflect better the "prime" positioning the Company has in its six areas of
specialized "media." On November 18, 1997, the Company's New York Stock Exchange
symbol was changed from KCC to PRM.
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.,
together with Kohlberg Kravis Roberts & Co., L.P. ("KKR"). 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. At PRIMEDIA, they have recruited
and developed a cadre of strong, seasoned operating managers.
The Company's management, including the executives named above, have
invested in excess of $23 million in the Common Stock through March 31, 1998.
Assuming the exercise of all stock options, and giving effect to the KKR Fund
Investment, management would have owned approximately 11%, 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: specialty
magazines, education and information. These segments accounted for approximately
51%, 25% and 24%, respectively, of PRIMEDIA's net sales of $1,487.6 million for
the year ended December 31, 1997.
SPECIALTY MAGAZINES
The specialty magazines segment consists of specialty consumer magazines and
technical and trade magazines. In 1997, 60% of the Company's specialty consumer
magazines and nearly 50% of its technical and trade magazines were ranked number
one in their respective markets. According to the WALL STREET JOURNAL, PRIMEDIA
is the largest magazine publisher in the United States by ad page count. Some of
the Company's specialty consumer magazines include SOAP OPERA DIGEST, SEVENTEEN,
NEW YORK, CHICAGO,
4
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TRUCKIN' and SEW NEWS; some of the Company's leading technical and trade
publications include TELEPHONY, FLEET OWNER and AMERICAN PRINTER.
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, PRIMEDIA Workplace Learning,
formerly known as Westcott Communications. Classroom learning takes advantage of
the growth in spending on supplementary educational materials and the projected
increases in elementary and secondary school enrollments over the next decade
(in particular, school enrollments are expected to rise 7% between 1995 and
2005). Workplace learning focuses on the $69 billion training market, of which
the outsourced segment is the fastest growing portion, which is expected to rise
142% between 1995 and 2005.
INFORMATION
The Company produces over 170 highly targeted consumer and business
information products, most of which hold dominant positions in their niche
markets. The Company's premier consumer information products include APARTMENT
GUIDES, THE WORLD ALMANAC and such specialty reference products as FACTS ON FILE
NEWS SERVICES, which is used by public and institutional libraries. Its leading
business information products include BACON'S for public relations professionals
and INTERNATIONAL TRADE GUIDES for import/ export professionals. The growth in
advertising supported consumer information (E.G.--targeted free publications,
such as APARTMENT GUIDES) is being driven by advertisers' need to reach their
customers as cost effectively as possible. From 1995 to 2005, advertising
revenue generated from free shopping guides is expected to nearly double.
Consequently, APARTMENT GUIDES and PRIMEDIA's other targeted free publications
should continue to provide significant opportunities for growth through new
ventures and acquisitions. PRIMEDIA's business information products capitalize
on the growth in business spending on information which is expected to increase
8% on a compound annual basis, between 1995 and 2005.
RECENT DEVELOPMENTS
INVESTMENT BY KKR 1996 FUND L.P.
On March 18, 1998, KKR 1996 Fund L.P., a Delaware limited partnership
affiliated with KKR (the "KKR Fund"), purchased 16,666,667 shares of newly
issued common stock from the Company for $200 million (the "KKR Fund
Investment"). The net proceeds from the KKR Fund Investment were used to repay
borrowings outstanding under the Credit Facilities, which amounts may be
reborrowed for general corporate purposes including acquisitions. See "Summary
Consolidated Financial Data" and "Unaudited Pro Forma Consolidated Financial
Data."
ACQUISITIONS
On March 19, 1998, the Company completed the acquisition of the stock of
Cowles Enthusiast Media and Cowles Business Media (together, "Cowles") from
McClatchy Newspapers, Inc. ("McClatchy") for approximately $200 million (the
"Cowles Acquisition"). With the Cowles Acquisition, the Company added 25
enthusiast titles to its specialty consumer magazines group, and 11 technical
and trade magazines and 15 trade shows to its technical and trade magazines
group.
For the period from January 1, 1998 through April 16, 1998, in addition to
the Cowles Acquisition, the Company had completed four product-line acquisitions
in the specialty magazines and information segments. The aggregate purchase
price for such acquisitions was approximately $12 million.
5
<PAGE>
NON-CORE BUSINESSES SOLD
As a part of its strategy to focus on areas of its business that have the
greatest potential for growth, the Company divested certain businesses that do
not fit within its growth vehicles. Those businesses are Krames Communications,
the Katharine Gibbs Schools, Newbridge Book Clubs, Newbridge Educational
Publishing, NEW WOMAN magazine, STAGEBILL, and INTERTEC MAILING SERVICES. The
net proceeds from the completed sales of Non-Core Businesses (as defined below)
were used to repay borrowings outstanding under the Credit Facilities, which
amounts may be reborrowed for general corporate purposes including acquisitions.
The Company intends to divest DAILY RACING FORM during 1998. The above
businesses are collectively referred to as the "Non-Core Businesses".
The following table presents unaudited combined operating results for the
year ended December 31, 1997 for the Non-Core Businesses. There can be no
assurance that the remaining Non-Core Business will be divested.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Sales, net..................................................................... $ 247,351
Operating loss................................................................. (131,397)
Depreciation and amortization.................................................. 146,970
</TABLE>
DIVESTITURES
On April 23, 1998, the Company entered into a definitive stock purchase
agreement to sell Nelson Information, Inc., a leading information provider in
the financial services industry, to Thomson Information Services Inc.
SERIES E EXCHANGE OFFER
The Company consummated an exchange offer on February 17, 1998 (the "Series
E Exchange Offer") pursuant to which each share of its $9.20 Series E
Exchangeable Preferred Stock (the "Series E Preferred Stock") was exchanged at
the option of the holder thereof for a share of $9.20 Series F Exchangeable
Preferred Stock (the "Series F Preferred Stock"). The Series F Preferred Stock
is registered under the Securities Act, and otherwise has the same terms as the
Series E Preferred Stock.
REDEMPTION OF $11.625 SERIES B EXCHANGEABLE PREFERRED STOCK
On March 20, 1998, the Company used net proceeds of approximately $169.2
million from the offering of the Old Notes and the Old Preferred Stock to redeem
all of the issued and outstanding shares of its $11.625 Series B Preferred Stock
Redeemable 2005, par value $.01 per share, (the "Series B Preferred Stock"), at
a redemption price of $105.80 per share plus accrued and unpaid dividends to the
redemption date.
TERMINATION OF DEFINED BENEFIT PENSION PLAN
In January 1998, the Company elected to terminate its defined benefit
pension plan effective March 31, 1998. In connection with this termination, the
Company froze benefit accruals effective December 31, 1997. In the opinion of
the Company's management, the plan benefits payable on the termination are
adequately accrued for and will not have a material impact on the Company's
consolidated financial statements. Active plan participants will be eligible to
participate in the Company's defined contribution plans.
TERMINATION OF NEW CREDIT FACILITY
On April 20, 1998, the New Credit Facility expired. As a result, the Company
has total commitments of $1.4 billion and can borrow up to $1.5 billion in the
aggregate under its Bank Credit Facilities.
6
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FIRST QUARTER OPERATING RESULTS
The following represents certain operating and balance sheet data for the
quarter ended and as of March 31, 1998:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
OPERATING DATA:
Sales, net..................................................................... $ 344,986
Depreciation and amortization.................................................. 40,606
Operating income............................................................... 24,282
Interest expense............................................................... 33,421
Net loss....................................................................... (9,732)
Preferred stock dividends and redemption premium............................... 23,485
Loss applicable to common shareholders......................................... (33,217)
BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 29,566
Long-term debt, excluding current maturities................................... 1,640,335
Exchangeable preferred stock................................................... 557,430
</TABLE>
7
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[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
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THE EXCHANGE OFFERS
<TABLE>
<S> <C>
Registration Rights
Agreement; Effect on
Holders.................... The Old Notes and Old Preferred Stock were sold by PRIMEDIA on
February 17, 1998 to Salomon Brothers Inc and Morgan Stanley
& Co. Incorporated, as the initial purchasers (the "Initial
Purchasers") pursuant to a Purchase Agreement dated February
11, 1998 between PRIMEDIA and the Initial Purchasers (the
"Purchase Agreement"). The Initial Purchasers subsequently
sold the Old Notes and the Old Preferred Stock to qualified
institutional buyers and non-U.S. persons in reliance on
Rule 144A and Regulation S, respectively, under the
Securities Act. Pursuant to the Purchase Agreement, PRIMEDIA
and the Initial Purchasers entered into a Registration
Rights Agreement dated as of February 17, 1998 (the
"Registration Rights Agreement") which grants the holders of
the Old Notes and the Old Preferred Stock certain exchange
and registration rights. These Exchange Offers are intended
to satisfy such rights. Therefore, the holders of the
Securities are not entitled to any exchange or registration
rights with respect thereto. All untendered Old Notes and
shares of Old Preferred Stock will continue to be subject to
the restrictions on transfer described under "The Exchange
Offers-- Consequences of Failure to Exchange." To the extent
that Old Notes and shares of Old Preferred Stock are
tendered and accepted in the Exchange Offers, the trading
market for untendered Old Notes and shares of Old Preferred
Stock could be adversely affected. See "The Exchange
Offers--Purpose and Effect of the Exchange Offers" and
"--Consequences of Failure to Exchange" and "Risk
Factors--Lack of Public Market."
The Note Exchange Offer Up to $250,000,000 in principal amount of New Notes will be
exchanged for up to $250,000,000 in aggregate principal
amount of Old Notes. PRIMEDIA will issue the New Notes to
holders on the earliest possible date following the
Expiration Date.
The Preferred Stock
Exchange Offer........... One share of New Preferred Stock will be exchanged for each
share of Old Preferred Stock. As of the date hereof, 2,500,000
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 June 10, 1998 unless the
Exchange Offers are extended by PRIMEDIA in its sole
discretion, in which case the term "Expiration Date" means
the latest date and time to which the Exchange Offers are
extended. The Company will not extend the Exchange Offers
beyond July 6, 1998.
</TABLE>
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Conditions to the Exchange
Offers................... The Exchange Offers are not conditioned upon any minimum
aggregate principal amount of Old Notes or minimum number of
shares of Old Preferred Stock being tendered for exchange.
However, the Exchange Offers are subject to certain
customary conditions, which may be waived by PRIMEDIA. See
"The Exchange Offers--Conditions of the Exchange Offers."
PRIMEDIA reserves the right to terminate the Exchange Offers
if any of such conditions have not been satisfied and to
amend the Exchange Offers at any time prior to the
Expiration Date.
Procedures for Tendering
the Old Notes and the Old
Preferred Stock.......... See "The Exchange Offers--Procedures for Tendering" and
"--Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the Expiration
Date. See "The Exchange Offers--Withdrawal of Tenders."
Acceptance of the Old Notes
and the Old Preferred
Stock and Delivery of the
New Notes and the
New Preferred Stock...... PRIMEDIA will accept for exchange any and all Old Notes and
shares of Old Preferred Stock which are properly tendered in
the Exchange Offers prior to the Expiration Date. The New
Notes and shares of New Preferred Stock issued pursuant to
the Exchange Offers will be delivered on the earliest
practicable date following the Expiration Date. See "The
Exchange Offers--Terms of the Exchange Offers."
Certain Tax
Considerations........... For a discussion of certain federal income tax consequences of
the exchange of the Old Notes and the Old Preferred Stock, see
"Certain Federal Income Tax Considerations."
Exchange Agent............. The Bank of New York is serving as the exchange agent (the
"Exchange Agent") in connection with the Exchange Offers.
</TABLE>
TERMS OF THE NOTES, THE PREFERRED STOCK AND THE 8 5/8% SUBORDINATED DEBENTURES
The Exchange Offers apply to $250,000,000 aggregate principal amount of the
Old Notes and 2,500,000 shares of the Old Preferred Stock. The form and terms of
the New Notes and the New Preferred Stock are the same as the form and terms of
the Old Notes and the Old Preferred Stock except that the New Notes and the
shares of New Preferred Stock will have been registered under the Securities Act
and thus will not bear restrictive legends restricting their transfer pursuant
to the Securities Act. The form and terms of the New Subordinated Debentures
will be the same as the Old Subordinated Debentures. See "Description of
Preferred Stock and 8 5/8% Subordinated Debentures."
THE NOTES
<TABLE>
<S> <C>
Maturity Date.............. April 1, 2008.
Interest Payment Dates..... April 1 and October 1 of each year, commencing October 1,
1998.
Optional Redemption........ The Notes are redeemable at the option of PRIMEDIA, in whole
or in part, at any time on or after April 1, 2003, at the
redemption prices set forth herein, plus accrued and unpaid
interest to the redemption date. See "Description of Notes."
</TABLE>
10
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Change of Control.......... In the event of a Change of Control (i) each holder of the
Notes will have the right to require PRIMEDIA to repurchase
such holder's Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest
to the repurchase date and (ii) PRIMEDIA will have the
option to redeem the Notes, in whole or in part, at the
redemption prices set forth herein, plus accrued and unpaid
interest to the redemption date. The redemption prices for
optional redemptions by PRIMEDIA in the event of a Change of
Control will in all cases be equal to or greater than the
repurchase price to be paid to holders who elect to have
PRIMEDIA repurchase their Notes after a Change of Control.
Because of the highly leveraged nature of PRIMEDIA, there
can be no assurance that PRIMEDIA will have sufficient funds
to repurchase the Notes in the event of a Change of Control.
See "Description of Notes."
"Change of Control" means such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act), other than KKR and its Affiliates (as
defined), becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than (A) 35% of the
total voting power of the then outstanding voting stock of
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.
Indebtedness under the Credit Facilities will automatically
accelerate upon the earlier of 30 days from the Change of
Control and the date payment is required to be made in
respect of any tendered Notes. At December 31, 1997, after
giving pro forma effect to the Offerings, the KKR Fund
Investment and the application of the net proceeds therefrom
(a portion of which was used to redeem the Series B
Preferred Stock), the aggregate principal amount of
indebtedness under the Credit Facilities would have been
approximately $707.7 million. See "Description of Certain
Indebtedness." If the Company has insufficient funds with
which to repay the indebtedness under the Credit Facilities
and to repurchase the Notes, the holders of the Notes will
have a claim on the funds of the Company equal to that of
the lenders under the Credit Facilities.
Neither the trustee for the Notes, the Company nor its Board
of Directors will be able to waive the Change of Control
obligation of the Company. In the case of a leveraged buyout
in which KKR and its Affiliates maintain or increase their
voting control of the Company, such leveraged buyout will
not result in a "Change of Control."
</TABLE>
11
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<S> <C>
Guarantees................. The Notes are fully and unconditionally guaranteed on a senior
basis, jointly and severally, by each of the domestic
Restricted Subsidiaries other than Partially Owned
Restricted Subsidiaries (as defined), which guarantees rank
PARI PASSU with such subsidiaries' guarantees of PRIMEDIA's
obligations under the Credit Facilities and the Outstanding
Notes. In the event that any guarantee would constitute or
result in a violation of any applicable fraudulent
conveyance or similar law of any relevant jurisdiction, the
liability of any guarantor under such guarantee would be
reduced to the maximum amount permissible under the
applicable fraudulent conveyance or similar law.
Ranking.................... The Notes rank PARI PASSU with the obligations of PRIMEDIA
under the Credit Facilities and the Outstanding Notes. At
December 31, 1997, after giving pro forma effect to the
Offerings, the KKR Fund Investment and the application of
the net proceeds therefrom (a portion of which was used to
redeem the Series B Preferred Stock), the aggregate
principal amount of indebtedness under the Credit Facilities
would have been approximately $707.7 million and under the
Senior Notes would have been $647.5 million. None of such
indebtedness will be secured. The Notes will rank senior in
right of payment to all future subordinated indebtedness of
the Company. Such subordinated indebtedness will be limited
to the Class D Subordinated Debentures, the Class F
Subordinated Debentures and the 8 5/8% Subordinated
Debentures, if and when the same are issued at the option of
PRIMEDIA in exchange for the Series D Preferred Stock, the
Series F Preferred Stock and the Series G Preferred Stock
respectively, and additional subordinated indebtedness that
is permitted to be incurred by the terms of the Credit
Facilities, the Senior Note Indentures and such other
indebtedness as PRIMEDIA may have outstanding from time to
time. As of the date of this Prospectus, the Company has no
subordinated indebtedness outstanding. The Company has no
current intention to issue subordinated indebtedness. As
used herein the statement that certain indebtedness ranks
PARI PASSU with other indebtedness means only that in the
event of the bankruptcy or insolvency of the debtor, the
holders of such certain indebtedness and such other
indebtedness will have an equal claim on money or other
property of the debtor available for distribution.
Certain Covenants.......... The Note Indenture pursuant to which the Old Notes have been
issued and the New Notes will be issued contains certain
covenants which, among other things, limit the ability of
the Company to (i) incur indebtedness, (ii) create liens,
(iii) sell assets, (iv) engage in mergers, consolidations or
transactions with affiliates, (v) make investments in
certain subsidiaries, (vi) pay dividends on or repurchase or
retire capital stock and (vii) make certain other Restricted
Payments (as defined). See "Description of Notes--Certain
Covenants."
Sinking Fund............... There will be no sinking fund payments for the Notes.
THE PREFERRED STOCK
Dividends.................. Cumulative at $8.625 per annum from the date of issuance and
payable quarterly in cash on January 1, April 1, July 1 and
October 1 of each year, commencing July 1, 1998. The Company
presently intends to
</TABLE>
12
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<TABLE>
<S> <C>
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 be cumulative from the date the New Preferred
Stock is exchanged for the Old Preferred Stock. For federal
income tax purposes, distributions with respect to the
Preferred Stock will not qualify as dividends and will be
treated as a return of capital until the Company has
earnings and profits as determined under applicable federal
income tax principles. See "Certain Federal Income Tax
Considerations."
Liquidation Preference..... $100 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 outstanding shares of
Series D Preferred Stock, Series F Preferred Stock and
Preferred Stock voting together as a class, will be entitled
to elect two members to the Board of Directors of PRIMEDIA.
See "Description of Preferred Stock and 8 5/8% Subordinated
Debentures--The Preferred Stock--Voting Rights."
Mandatory Redemption....... PRIMEDIA is required to redeem the Preferred Stock on April 1,
2010 at a redemption price equal to the liquidation preference
plus accrued and unpaid dividends to the redemption date.
Optional Redemption........ At any time on or after April 1, 2003, the Preferred Stock is
redeemable, at the option of PRIMEDIA, at the redemption
prices set forth herein, plus accrued and unpaid dividends
to the redemption date. See "Description of Preferred Stock
and 8 5/8% Subordinated Debentures--The Preferred
Stock--Optional Redemption."
Optional Redemption Upon
Public Equity Offering... At any time prior to April 1, 2001, PRIMEDIA may, at its
option, redeem, in whole or in part, up to $125.0 million of
the aggregate liquidation preference of the Preferred Stock
at a price per share of $108.625, 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 8 5/8%
Subordinated Debentures--The Preferred Stock--Optional
Redemption."
Ranking.................... The Preferred Stock ranks PARI PASSU with the Series D
Preferred Stock, the Series F Preferred Stock and any Future
Parity Securities (as defined) and senior to all Junior
Securities (as defined). As of December 31, 1997, 2,000,000
shares of Series D Preferred Stock ($200,000,000 aggregate
liquidation preference) were issued and outstanding and
1,250,000 shares of Series E Preferred Stock
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
($125,000,000 aggregate liquidation preference) were issued
and outstanding (all of which shares of Series E Preferred
Stock subsequently were exchanged for shares of Series F
Preferred Stock pursuant to the Series E Exchange Offer).
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 D
Preferred Stock, Series F Preferred Stock and Preferred
Stock. See "Description of Preferred Stock and 8 5/8%
Subordinated Debentures--The Preferred Stock--Limitation on
Issuance of Senior Preferred Stock" and "Description of
Capital Stock of the Company."
Exchange Feature........... The Preferred Stock is exchangeable on any scheduled dividend
payment date into 8 5/8% Subordinated Debentures, in whole but
not in part, at the option of PRIMEDIA. See "Description of
Preferred Stock and 8 5/8% Subordinated Debentures--The
Preferred Stock-- Exchange."
8 5/8% SUBORDINATED
DEBENTURES
Maturity Date.............. April 1, 2010.
Interest Payment Dates..... January 1, April 1, July 1 and October 1 of each year,
commencing with the first of such dates to occur after the
issuance of the 8 5/8% Subordinated Debentures.
Optional Redemption........ On or after April 1, 2003, the 8 5/8% Subordinated Debentures
are redeemable, in whole or in part, at the option of
PRIMEDIA, at the redemption prices set forth herein, plus
accrued and unpaid interest to the redemption date. See
"Description of Preferred Stock and 8 5/8% Subordinated
Debentures--The Subordinated Debentures-- Optional
Redemption."
Optional Redemption Upon
Public Equity Offering... At any time prior to April 1, 2001, PRIMEDIA may, at its
option, redeem, in whole or in part, up to $125.0 million of
the aggregate principal amount of the 8 5/8% Subordinated
Debentures at 108.625% 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 8 5/8% Subordinated Debentures--The 8 5/8% Subordinated
Debentures--Optional Redemption."
Change of Control.......... In the event of a Change of Control (i) each holder of the
8 5/8% Subordinated Debentures will have the right to require
PRIMEDIA to repurchase such holder's 8 5/8% 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 8 5/8% Subordinated Debentures, in whole or in
part, at the redemption prices set forth herein, plus
accrued and unpaid interest to the redemption date. The
redemption prices for optional redemptions in the event of a
Change of Control will in all cases be equal to or
</TABLE>
14
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<TABLE>
<S> <C>
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 8 5/8% Subordinated Debentures. Because of
the substantial indebtedness of the Company, there can be no
assurance that PRIMEDIA will have sufficient funds to
repurchase the 8 5/8% Subordinated Debentures in the event
of a Change of Control. See "Description of Preferred Stock
and 8 5/8% Subordinated Debentures--The 8 5/8% Subordinated
Debentures--Change of Control."
Ranking.................... The 8 5/8% Subordinated Debentures (i) will rank PARI PASSU
with the Class D Subordinated Debentures and Class F
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
December 31, 1997, the amount of pro forma senior
indebtedness (including indebtedness and other current and
non-current liabilities of PRIMEDIA and its subsidiaries),
was approximately $1,908.7 million. None of such
indebtedness is secured.
Certain Covenants.......... The 8 5/8% 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 proceeds to PRIMEDIA from the Exchange Offers.
RISK FACTORS
Holders of the Old Notes and 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 Old Notes
and shares of Old Preferred Stock in exchange for New Notes and shares of New
Preferred Stock.
15
<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, 1997, 1996 and 1995. 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, 1997 and
the Company's unaudited pro forma consolidated balance sheet at December 31,
1997.
The summary unaudited pro forma consolidated operating data for the year
ended December 31, 1997 give effect to the following transactions and events as
if they had occurred on January 1, 1997: (i) the offering of the Series E
Preferred Stock consummated on September 26, 1997 (the "Series E Offering") and
the redemption of its Senior Preferred Stock with a portion of the proceeds
therefrom (the "Senior Preferred Stock Redemption"), (ii) the offering of the
Old Notes and the Old Preferred Stock (the "Offerings") and the redemption of
the Series B Preferred Stock with a portion of the proceeds therefrom (the
"Series B Preferred Stock Redemption") and (iii) the KKR Fund Investment. The
adjustments to reflect the Series E Offering, the Senior Preferred Stock
Redemption, the Offerings, the Series B Preferred Stock Redemption and the KKR
Fund Investment are hereinafter referred to as the "Pro Forma Adjustments." The
summary unaudited pro forma consolidated balance sheet data at December 31, 1997
gives effect to the Offerings, the Series B Preferred Stock Redemption and the
KKR Fund Investment as if they had occurred on December 31, 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 data and the notes thereto
included elsewhere in this Prospectus.
16
<PAGE>
PRIMEDIA INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
<S> <C> <C> <C> <C>
1997 1997 1996 1995
PRO FORMA(1) ACTUAL ACTUAL ACTUAL
------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Sales, net............................................... $ 1,487,595 $ 1,487,595 $ 1,374,449 $ 1,046,329
Depreciation and amortization............................ 184,165 184,165 190,702 192,276
Other charges(2)......................................... 138,640 138,640 -- 50,114
Operating income (loss).................................. (20,793) (20,793) 85,901 (26,275)
Interest expense......................................... 118,767 136,625 124,601 105,837
Income tax benefit(3).................................... 1,685 1,685 53,300 59,600
Income (loss) before extraordinary charge................ (140,159) (157,439) 17,597 (75,435)
Extraordinary charge--extinguishment of debt(4).......... -- (15,401) (9,553) --
Net income (loss)........................................ (140,159) (172,840) 8,044 (75,435)
Preferred stock dividends(5)............................. 59,591 65,073 43,526 28,978
Loss applicable to common shareholders................... (199,750) (237,913) (35,482) (104,413)
Basic and diluted loss applicable to common shareholders
per common share(6):
Loss before extraordinary charge....................... $ (1.37) $ (1.72) $ (.20) $ (.92)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Net loss............................................... $ (1.37) $ (1.84) $ (.27) $ (.92)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Basic and diluted common shares outstanding(6)......... 145,971,567 129,304,900 128,781,518 113,218,711
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
OTHER DATA:
EBITDA(7)................................................ $ 302,012 $ 302,012 $ 276,603 $ 216,115
Capital expenditures, net................................ 31,108 31,108 28,790 23,414
Net cash provided by operating activities................ 143,362 125,360 150,192 64,062
Net cash used in investing activities.................... (185,725) (185,725) (721,709) (318,712)
Net cash provided by financing activities................ 38,866 46,688 580,946 263,644
Deficiency of earnings to fixed charges(8)(9)............ (141,844) (159,124) (35,703) (135,035)
Deficiency of earnings to fixed charges and preferred
stock dividends(8)(9).................................. (201,435) (224,197) (79,229) (164,013)
Ratio of EBITDA to interest expense...................... 2.5x 2.2x 2.2x 2.0x
Ratio of EBITDA to interest expense and dividends on
preferred stock........................................ 1.7x 1.5x 1.6x 1.6x
Leverage ratio(10)....................................... 4.6x 5.4x 5.4x 4.9x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-------------------------
<S> <C> <C>
PRO FORMA(1) ACTUAL
-------------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 22,978 $ 22,978
Working capital deficiency(11)........................................................ (143,192) (146,245)
Intangible assets, net................................................................ 1,772,053 1,772,053
Total assets.......................................................................... 2,491,765 2,485,990
Long-term debt(12).................................................................... 1,394,739 1,656,541
Exchangeable preferred stock.......................................................... 554,374 470,280
Common stock subject to redemption.................................................... 4,376 4,376
Total shareholders' equity (deficiency)............................................... 24,313 (162,223)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
17
<PAGE>
(1) The 1997 summary pro forma consolidated operating data reflects the
reduction in interest expense, increase in amortization of deferred
financing costs and adjustments to preferred stock dividends as a result of
the Series E Offering, Senior Preferred Stock Redemption, the Offerings,
Series B Preferred Stock Redemption and the KKR Fund Investment as well as
the elimination of the extraordinary charge. The 1997 summary pro forma
consolidated balance sheet data reflects the net reduction in long-term debt
and accrued expenses and the net increases in exchangeable preferred stock
and deferred financing costs associated with the Offerings, the Series B
Preferred Stock Redemption and the KKR Fund Investment. Amounts repaid under
the Credit Facilities may be reborrowed for general corporate purposes,
including acquisitions. The increase in total shareholders' equity reflects
the KKR Fund Investment offset by the difference between the carrying value
and redemption value of the Series B Preferred Stock and the payment of a
premium on the redemption of the Series B Preferred Stock.
(2) Represents net provision in 1997 and 1995 for loss on the sales of
businesses and provision in 1995 for restructuring and other costs.
(3) At December 31, 1997, 1996 and 1995, management of the Company reviewed
recent operating results for the years then ended and projected future
operating results for the years through December 31, 2003. At December 31,
1997 the Company's management determined that no adjustment to net deferred
income tax assets was required. For the year ended December 31, 1997, the
Company recorded an income tax carryback claim of $1,685. At December 31,
1997, the Company had net operating loss carryforwards ("NOLs") of
approximately $749,000 which will be available to reduce future taxable
income. In addition to the NOLs, management estimates that approximately
$864,000 of unamortized goodwill and other intangible assets will be
available as deductions from any future taxable income. At December 31, 1996
and 1995, management had determined that a portion of the net deferred
income tax assets would likely be realized. Accordingly, the Company
recorded an income tax benefit of $53,300 in 1996 and $59,600 in 1995.
(4) Represents the write-off of unamortized deferred financing costs and
premiums paid on the redemption of the 10 5/8% Senior Notes for the years
ended December 31, 1997 and 1996.
(5) In 1997, the Company recorded a preferred stock dividend accrual in the
amount of $9,517. Of the total dividend accrual recorded in 1997, the
amounts that relate to prior periods were immaterial.
(6) Basic and diluted loss per common share, as well as the basic and diluted
common shares outstanding, were computed as described in Note 17 of the
notes to the consolidated financial statements included elsewhere in this
Prospectus. The pro forma basic and diluted loss per common share as well as
the pro forma basic and diluted common shares outstanding, were computed as
described in Note 4 of the notes to the Unaudited Pro Forma Consolidated
Financial Data for the year ended December 31, 1997 included elsewhere in
the Prospectus. Previously reported loss per share amounts have been
restated as required by the adoption of a new accounting pronouncement.
(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. Pro forma non-cash charges totaled $327,941 for the year ended
December 31, 1997. Actual non-cash charges totaled $327,219, $192,895 and
$241,536 for the years ended December 31, 1997, 1996 and 1995, 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 $186,097 and $126,506 for the year ended December 31,
1997. Adjusted to eliminate non-cash charges, actual earnings would have
exceeded fixed charges and fixed charges plus cash preferred stock dividends
by approximately $168,095 and $107,473, $157,192 and $130,248 and $106,501
and $95,001 for the years ended December 31, 1997, 1996 and 1995,
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, 1997, 1996 and 1995.
(11) Includes current maturities of long-term debt and assets held for sale as
of December 31, 1997.
(12) Excludes current maturities of long-term debt.
18
<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.
8 5/8% Debenture Indenture............. The Indenture governing the Old Subordinated
Debentures and, upon exchange, the New
Subordinated Debentures, if and when issued.
8 5/8% Subordinated Debentures......... The collective reference to the Old Subordinated
Debentures and the New Subordinated Debentures.
10 1/4% Senior Notes................... The $100,000,000 principal amount of 10 1/4% Senior
Notes due 2004 issued by PRIMEDIA.
Bank Credit Facilities................. The $1.5 billion credit facilities with The Chase
Manhattan Bank, The Bank of New York, Bankers
Trust Company and The Bank of Nova Scotia, as
agents.
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.
Class F Debenture Indenture............ The Indenture governing the Class F Subordinated
Debentures, if and when issued.
Class F Subordinated Debentures........ The 9.20% Subordinated Exchange Debentures due
2009, issuable upon exchange of the Series F
Preferred Stock.
Common Stock........................... The common stock, par value $.01 per share, of
PRIMEDIA.
Credit Facilities...................... The collective reference to the Bank Credit
Facilities and the New Credit Facility.
Debenture Exchange Offer............... The offer by PRIMEDIA to holders of Old
Subordinated Debentures to exchange the same for
the New Subordinated Debentures.
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 Notes.............................. The $250,000,000 principal amount of 7 5/8% Senior
Notes due 2008 being exchanged hereby for the Old
Notes.
New Preferred Stock.................... The 2,500,000 shares of Series H Exchangeable
Preferred Stock due 2010, par value $.01 per share,
being exchanged hereby for the Old Preferred
Stock.
New Subordinated Debentures............ The 8 5/8% Class H Subordinated Exchange Debentures
due 2010 issuable upon exchange of the New
Preferred Stock.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
Note Indenture......................... The Indenture, dated as of February 17, 1998,
governing the Old Notes and, upon exchange, the New
Notes, between PRIMEDIA and The Bank of New York,
as trustee.
Note Exchange Offer.................... The offer by PRIMEDIA to holders of the Old Notes
to exchange the same for New Notes.
Notes.................................. The collective reference to the Old Notes and the
New Notes.
Old Notes.............................. The $250,000,000 principal amount of outstanding
7 5/8% Senior Notes due 2008 issued by PRIMEDIA.
Old Preferred Stock.................... The 2,500,000 shares of outstanding $8.625 Series G
Exchangeable Preferred Stock Redeemable 2009, par
value $.01 per share, liquidation preference $100
per share.
Old Subordinated Debentures............ The 8 5/8% Subordinated Exchange Debentures due
2010, issuable upon exchange of the Old Preferred
Stock.
Outstanding Note Indentures............ The collective reference to the indentures
governing the Outstanding Notes.
Outstanding Notes...................... The collective reference to the 10 1/4% Senior
Notes and the 8 1/2% Senior Notes.
Preferred Stock........................ The collective reference to the Old Preferred Stock
and the New Preferred Stock.
Preferred Stock Exchange Offer......... The offer by PRIMEDIA to holders of the Old
Preferred Stock to exchange the same for the New
Preferred Stock.
Securities............................. The collective reference to the New Notes, the New
Preferred Stock and the New Subordinated
Debentures, if and when issued.
Senior Note Indentures................. The collective reference to the indentures
governing the Senior Notes.
Senior Notes........................... The collective reference to the Outstanding Notes
and the Notes.
Senior Preferred Stock................. The 4,000,000 Shares of $2.875 Senior Exchangeable
Preferred Stock, par value $.01 per share,
liquidation preference $25.00 per share which
were redeemed with the net proceeds of the Series
E 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, which were
redeemed with a portion of the net proceeds of
the Offerings.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
Series D Preferred Stock............... The 2,000,000 Shares of $10.000 Series D
Exchangeable Preferred Stock Redeemable 2008, par
value $.01 per share, liquidation preference
$100.00 per share.
Series F Preferred Stock............... The 1,250,000 Shares of $9.20 Series F Exchangeable
Preferred Stock Redeemable 2009, par value $.01
per share, liquidation preference $100.00 per
share.
Subordinated Debenture Indentures...... The collective reference to the Class D Debenture
Indenture, the Class F Debenture Indenture and
the 8 5/8% Debenture Indenture.
Subordinated Debentures................ The collective reference to the Class D
Subordinated Debentures, the Class F Subordinated
Debentures and the 8 5/8% Subordinated
Debentures.
</TABLE>
21
<PAGE>
RISK FACTORS
HOLDERS OF OLD NOTES AND 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 OLD NOTES AND SHARES OF OLD PREFERRED
STOCK IN EXCHANGE FOR NEW NOTES AND SHARES OF NEW PREFERRED STOCK OFFERED
HEREBY. THE RISK FACTORS SET FORTH BELOW ARE GENERALLY APPLICABLE TO THE OLD
NOTES AND OLD PREFERRED STOCK AS WELL AS THE NEW NOTES AND 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 December
31, 1997, the Company had a ratio of consolidated debt to total equity
(including all preferred stock and Common Stock subject to redemption) of 5.3 to
1. At December 31, 1997, on a pro forma basis after giving effect to the
Offerings, the KKR Fund Investment and the application of the net proceeds
therefrom, the Company would have had a ratio of consolidated debt to total
equity (including all preferred stock and Common Stock subject to redemption) of
2.4 to 1. See "Capitalization" and "Unaudited Pro Forma Consolidated Financial
Data." 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 fiscal year ended December 31, 1997,
there were no scheduled maturities on outstanding indebtedness and the Company
made cash interest payments of $142.4 million.
At December 31, 1997, borrowings under the Credit Facilities, on a pro forma
basis after giving effect to the Offerings, the KKR Fund Investment and the
application of the net proceeds therefrom, were approximately $707.7 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 7.11% for the year ended
December 31, 1997. As of December 31, 1997, the weighted average interest rate
on the Credit Facilities was 7.05%.
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 fiscal year ended December 31, 1997, the Company's interest
coverage ratio and fixed charge coverage ratio was 2.24 and 1.45, 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
22
<PAGE>
such agreements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
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 $141.8 million
and $201.4 million, respectively, for the year ended December 31, 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 $327.9 million for
the year ended December 31, 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 $186.1 million
and $126.5 million, respectively, for the year ended December 31, 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 Credit
Facilities and outstanding indebtedness under the Senior Notes, there will be no
required payments until the year 2000. At that time, the first principal payment
is scheduled at $100 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 D Subordinated Debentures, if issued, and Class F 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, 1997, 1996 and 1995 of $237.9 million, $35.5 million and $104.4
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 $146.8 million, $152.5 million
and $166.5 million for 1997, 1996 and 1995, respectively.
There can be no assurance that the Company will have net income applicable
to common shareholders in the future.
23
<PAGE>
FRAUDULENT CONVEYANCE CONSIDERATIONS
As of December 31, 1997, all of the assets of the Company were held by
PRIMEDIA's subsidiaries and for the year ended December 31, 1997, all of the
Company's operating revenues were derived from operations of PRIMEDIA's
subsidiaries. Therefore, PRIMEDIA's ability to make payments when due to holders
of the Notes is dependent upon the receipt of sufficient funds from its
subsidiaries. PRIMEDIA's obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis by its domestic
Restricted Subsidiaries other than its Partially Owned Restricted Subsidiaries.
If a Guarantee (as defined) is set aside or "avoided" under applicable
provisions of the federal bankruptcy law or comparable provisions of state
fraudulent transfer law, an event of default with respect to debt under the
Credit Facilities would occur, which could result in acceleration of such debt.
In addition, holders of the Notes would cease to have any claim in respect of a
Guarantor (as defined) and would be creditors solely of PRIMEDIA and any
Guarantor whose Guarantee was not avoided or held unenforceable. In such event,
a court might require that any prior payments in respect of such debt (or an
equivalent amount) be returned to or for the benefit of existing or future
creditors of such Guarantor. There can be no assurance that, after providing for
all prior claims, there would be sufficient assets to satisfy the claims of the
holders of the Notes relating to any voided portions of any of the Guarantees.
Under applicable federal bankruptcy law or comparable provisions of state
fraudulent transfer law, a Guarantee could be avoided or claims in respect of
any such Guarantee could be subordinated to all other debts of the relevant
Guarantor if such Guarantor at the time it incurred obligations (whether at the
time such Guarantee was entered into or at the time guaranteed indebtedness is
incurred) under such Guarantee (a)(i) was or is insolvent or rendered insolvent
by reason of such incurrence or (ii) was or is engaged in a business or
transaction for which the assets remaining with such Guarantor constituted
unreasonably small capital or (iii) intended or intends to incur, or believed or
believes that it would incur, debts beyond its ability to pay such debts as they
mature, and (b) any such Guarantor received or receives less than reasonably
equivalent value or fair consideration in connection with the making of such
Guarantee.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Guarantor would be considered insolvent if the sum of its debts, including
contingent liabilities, were greater than the fair saleable value of all of its
assets at a fair valuation or if the present fair saleable value if its assets
were less than the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they become absolute
and mature.
The Company believes that none of the Guarantors will be, at the time the
Guarantees are given, insolvent under the forgoing standards, that none of the
Guarantors is engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital and that none of the Guarantors
intended or intends or will intend to incur debts beyond its ability to pay such
debts as they mature. There can be no assurance, however, that a court passing
on such questions would agree with the Company.
SUBORDINATION OF PREFERRED STOCK AND 8 5/8% 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 D Preferred Stock, Series F Preferred Stock and
any preferred stock of PRIMEDIA which by its terms is on parity with or junior
to the Preferred Stock).
The 8 5/8% Subordinated Debentures will rank PARI PASSU with the Class D
Subordinated Debentures and Class F 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 8 5/8% Subordinated Debentures will not be guaranteed by any
subsidiary of the
24
<PAGE>
Company. In addition, the 8 5/8% 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 8 5/8% Subordinated Debentures only after all Senior Notes,
obligations under the Credit Facilities and other senior indebtedness of
PRIMEDIA have been paid in full. The 8 5/8% Debenture Indenture will not
prohibit the incurrence by PRIMEDIA of additional indebtedness that is senior to
or PARI PASSU with the 8 5/8% 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 8 5/8% 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 December 31, 1997
would have been approximately $1,908.7 million. None of such indebtedness is
secured.
The Notes will not be guaranteed by Partially Owned Restricted Subsidiaries
and will be structurally subordinated to all liabilities and obligations
(whether or not for borrowed money), including trade payables and advances of
such Partially Owned Restricted Subsidiaries. Currently, the Company does not
have any Partially Owned Restricted Subsidiaries.
CONTROL BY KKR
Approximately 78% of the shares of Common Stock (on a fully diluted basis
after giving effect to the KKR Fund Investment) 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 mid-1996
paper prices began to fall. In particular, the Company's average purchase price
for paper decreased approximately 19.8% in 1997 over 1996. 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."
LACK OF PUBLIC MARKET
The Notes and the Preferred Stock constitute new issues of securities with
no established trading market. In addition, because the Exchange Offers are not
conditioned upon any minimum number of Old Notes and shares of Old Preferred
Stock being tendered for exchange, the number of New Notes and shares of New
Preferred Stock issued could be quite small, which could have an adverse effect
on the
25
<PAGE>
liquidity of the New Notes and the New Preferred Stock. Also, to the extent that
Old Notes and shares of Old Preferred Stock are tendered and accepted in the
Exchange Offers, a holder's ability to sell untendered Old Notes and 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 Notes and the Preferred
Stock.
CONSEQUENCES OF FAILURE TO TENDER
The Old Notes and shares of Old Preferred Stock which are not exchanged for
New Notes and shares of New Preferred Stock pursuant to the Exchange Offers will
remain restricted securities within the meaning of Rule 144 of the Securities
Act. Accordingly, such Old Notes and shares of Old Preferred Stock may be resold
under limited circumstances, as discussed in "The Exchange Offers--Consequences
of Failure to Tender." The liquidity of the Old Notes and Old Preferred Stock
could be adversely affected by the Exchange Offers. Following consummation of
the Exchange Offers, holders of the Old Notes and 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 Note
Indenture and the 8 5/8% 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 the Company from the Exchange Offers. The
net proceeds to the Company from the Offerings were approximately $488 million
(after deducting Initial Purchasers' discounts and commissions but before
deducting other expenses of the Offerings).
The Company used approximately $169.2 million of the net proceeds from the
Offerings to redeem all of the outstanding Series B Preferred Stock, having an
aggregate liquidation preference of $157.6 million (including dividends paid in
kind from time to time thereon), at a redemption price of $105.80 per share,
plus accrued and unpaid dividends to the redemption date. The Company used the
remainder of the net proceeds from the Offerings and the net proceeds from the
KKR Fund Investment to repay borrowings outstanding under its Credit Facilities,
which amounts may be reborrowed for general corporate purposes including
acquisitions. Such borrowings under the Credit Facilities were incurred for
general corporate purposes, mature on various dates beginning 1999 through 2004
and bore interest at a weighted average floating rate of 7.05% as of December
31, 1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
26
<PAGE>
CAPITALIZATION
The following table sets forth, at December 31, 1997 (i) the actual cash and
cash equivalents and the consolidated capitalization of the Company, and (ii)
the pro forma cash and cash equivalents and the consolidated capitalization of
the Company as adjusted to give effect to the Offerings, the KKR Fund Investment
and the application of the estimated net proceeds therefrom as described under
"Use of Proceeds." The information below should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------------
<S> <C> <C>
ACTUAL PRO FORMA
------------ ------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................. $ 22,978 $ 22,978
------------ ------------
------------ ------------
Long-term debt:
Borrowings under Credit Facilities.................................................. $ 1,218,101 $ 707,737
10 1/4% Senior Notes due 2004....................................................... 100,000 100,000
8 1/2% Senior Notes due 2006, net................................................... 298,902 298,902
7 5/8% Senior Notes due 2008/New Notes, net(1)...................................... -- 248,562
Acquisition Obligation Payable(2)................................................... 53,871 53,871
------------ ------------
Total indebtedness................................................................ 1,670,874 1,409,072
Less current maturities......................................................... (14,333) (14,333)
------------ ------------
Total long-term debt.............................................................. 1,656,541 1,394,739
$11.625 Series B Exchangeable Preferred Stock......................................... 155,281 --
$10.00 Series D Exchangeable Preferred Stock.......................................... 194,495 194,495
$9.20 Series E Exchangeable Preferred Stock........................................... 120,504 120,504
$8.625 Series G Exchangeable Preferred Stock/New Preferred Stock (3).................. -- 239,375
Common stock subject to redemption(4)................................................. 4,376 4,376
Shareholders' equity (deficiency):
Common stock and additional paid-in capital(5)...................................... 781,489 977,166
Accumulated deficit(6).............................................................. (929,011) (938,152)
Cumulative foreign currency translation adjustments................................. (1,543) (1,543)
Common stock in treasury, at cost................................................... (13,158) (13,158)
------------ ------------
Total shareholders' equity (deficiency)......................................... (162,223) 24,313
------------ ------------
Total capitalization.................................................................. $ 1,968,974 $ 1,977,802
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Reflects reduction for de minimis original issue discount.
(2) Represents the present value at December 31, 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.
(3) Represents net proceeds to the Company after deduction of issuance costs and
de minimis issuance discount.
(4) Represents Common Stock that employees have the right to resell to the
Company under certain circumstances including termination of employment in
connection with the sale of the business for which they work, death,
disability or retirement after age 65. The resale feature expires five years
after the effective purchase date of the Common Stock. Since inception of
the Company, none of the employees has exercised such resale feature and the
likelihood of significant resales is considered by management to be remote.
(5) Does not include 11,562,930 shares of Common Stock issuable upon exercise of
stock options, 8,953,280 of which were then exercisable as of December 31,
1997.
(6) 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
$1,219,300 at December 31, 1997 net of a non-cash income tax benefits
aggregating $155,000 through December 31, 1997.
27
<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>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996 1995 1994
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Sales, net...................................................... $ 1,487,595 $ 1,374,449 $ 1,046,329 $ 964,648
Depreciation and amortization................................... 184,165 190,702 192,276 136,866
Other charges(1)................................................ 138,640 -- 50,114 15,025
Operating income (loss)(2)...................................... (20,793) 85,901 (26,275) 10,203
Interest expense................................................ 136,625 124,601 105,837 78,351
Income tax benefit(3)........................................... 1,685 53,300 59,600 42,100
Income (loss) before extraordinary charge....................... (157,439) 17,597 (75,435) (29,529)
Extraordinary charge-extinguishment of debt(4).................. (15,401) (9,553) -- (11,874)
Net income (loss)(2)............................................ (172,840) 8,044 (75,435) (41,403)
Preferred stock dividends(5).................................... 65,073 43,526 28,978 25,959
Loss applicable to common shareholders.......................... (237,913) (35,482) (104,413) (67,362)
Basic and diluted loss applicable to common shareholders per
common share(2)(6):
Loss before extraordinary charge.............................. $ (1.72) $ (.20) $ (.92) $ (.55)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss...................................................... $ (1.84) $ (.27) $ (.92) $ (.67)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted common shares outstanding................... 129,304,900 128,781,518 113,218,711 101,171,427
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
OTHER DATA:
EBITDA(7)....................................................... $ 302,012 $ 276,603 $ 216,115 $ 162,094
Capital expenditures, net....................................... 31,108 28,790 23,414 14,184
Net cash provided by operating activities....................... 125,360 150,192 64,062 64,890
Net cash used in investing activities........................... (185,725) (721,709) (318,712) (442,126)
Net cash provided by financing activities....................... 46,688 580,946 263,644 383,924
Deficiency of earnings to fixed charges(8)(9)................... (159,124) (35,703) (135,035) (71,629)
Deficiency of earnings to fixed charges and preferred stock
dividends(8)(9)............................................... (224,197) (79,229) (164,013) (97,588)
<CAPTION>
<S> <C>
1993
-----------
OPERATING DATA:
Sales, net...................................................... $ 844,748
Depreciation and amortization................................... 143,267
Other charges(1)................................................ 2,644
Operating income (loss)(2)...................................... (7,669)
Interest expense................................................ 74,336
Income tax benefit(3)........................................... --
Income (loss) before extraordinary charge....................... (86,496)
Extraordinary charge-extinguishment of debt(4).................. --
Net income (loss)(2)............................................ (86,496)
Preferred stock dividends(5).................................... 22,290
Loss applicable to common shareholders.......................... (108,786)
Basic and diluted loss applicable to common shareholders per
common share(2)(6):
Loss before extraordinary charge.............................. $ (1.22)
-----------
-----------
Net loss...................................................... $ (1.22)
-----------
-----------
Basic and diluted common shares outstanding................... 89,295,531
-----------
-----------
OTHER DATA:
EBITDA(7)....................................................... $ 138,242
Capital expenditures, net....................................... 11,485
Net cash provided by operating activities....................... 27,072
Net cash used in investing activities........................... (95,669)
Net cash provided by financing activities....................... 63,579
Deficiency of earnings to fixed charges(8)(9)................... (86,496)
Deficiency of earnings to fixed charges and preferred stock
dividends(8)(9)............................................... (108,786)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 22,978 $ 36,655 $ 27,226 $ 18,232
Working capital (deficiency)(10).................................... (146,245) (44,705) (56,560) 1,338
Intangible assets, gross............................................ 2,508,650 2,649,805 1,996,564 1,656,590
Less accumulated amortization................................... 736,597 896,824 762,393 602,542
----------- ----------- ----------- -----------
Intangible assets, net.............................................. 1,772,053 1,752,981 1,234,171 1,054,048
Total assets........................................................ 2,485,990 2,552,215 1,881,416 1,589,692
Long-term debt(11).................................................. 1,656,541 1,565,686 1,134,916 1,034,689
Exchangeable preferred stock........................................ 470,280 442,729 231,606 216,229
Common stock subject to redemption.................................. 4,376 5,957 28,022 16,552
Shareholders' equity (deficiency):
Common stock.................................................... 1,298 1,283 1,259 1,053
Additional paid-in capital...................................... 780,191 772,642 748,194 572,940
Accumulated deficit............................................. (929,011) (691,098) (655,616) (551,203)
Cumulative foreign currency translation adjustments............. (1,543) (1,270) (1,275) (1,324)
Common stock in treasury, at cost............................... (13,158) -- -- --
----------- ----------- ----------- -----------
Total shareholders' equity (deficiency)............................. $ (162,223) $ 81,557 $ 92,562 $ 21,466
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
1993
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 11,544
Working capital (deficiency)(10).................................... 3,605
Intangible assets, gross............................................ 1,343,482
Less accumulated amortization................................... 504,538
-----------
Intangible assets, net.............................................. 838,944
Total assets........................................................ 1,166,502
Long-term debt(11).................................................. 661,297
Exchangeable preferred stock........................................ 202,453
Common stock subject to redemption.................................. 25,287
Shareholders' equity (deficiency):
Common stock.................................................... 947
Additional paid-in capital...................................... 488,541
Accumulated deficit............................................. (483,841)
Cumulative foreign currency translation adjustments............. (1,220)
Common stock in treasury, at cost............................... --
-----------
Total shareholders' equity (deficiency)............................. $ 4,427
-----------
-----------
</TABLE>
(FOOTNOTES ON THE FOLLOWING PAGE)
28
<PAGE>
(1) Represents net provision for loss on the sales of businesses in 1997, 1995
and 1994, provision for restructuring and other costs in 1995 and provision
for write-down of real estate no longer utilized in 1993.
(2) Adoption of a change in method of accounting for direct-response advertising
costs effective July 1, 1994, resulted in an increase in operating income
(decrease in operating loss), an equal decrease in net loss (increase in net
income) and a decrease in basic and diluted loss per common share of
approximately $3,128 ($.02 per share), $2,000 ($.02 per share), $11,800
($.10 per share) and $9,800 ($.10 per share) for the years ended December
31, 1997, 1996, 1995 and 1994, respectively.
(3) At December 31, 1997, 1996, 1995 and 1994, management of the Company
reviewed recent operating results for the years then ended and projected
future operating results for the years through December 31, 2003. At
December 31, 1997, the Company's management determined that no adjustment to
net deferred income tax assets was required. In prior years, management
determined that a portion of the net deferred income tax assets at December
31, 1996, 1995 and 1994 would likely be realized. Accordingly, the Company
recorded an income tax benefit of $53,300 in 1996, $59,600 in 1995 and
$42,100 in 1994. For the year ended December 31, 1997, the Company recorded
an income tax carryback claim of $1,685. At December 31, 1997, the Company
had net operating loss carryforwards ("NOLs") of approximately $749,000
which will be available to reduce future taxable income. In addition to the
NOLs, management estimates that approximately $864,000 of unamortized
goodwill and other intangible assets will be available as deductions from
any future taxable income.
(4) Represents the write-off of unamortized deferred financing costs. For the
years ended December 31, 1997 and 1996, amount also includes the premiums
paid on the redemptions of the 10 5/8% Senior Notes.
(5) In 1997, the Company recorded a preferred stock dividend accrual in the
amount of $9,517. Of the total dividend accrual recorded in 1997, the
amounts that relate to prior periods were not material.
(6) Basic and diluted loss per common share, as well as the basic and diluted
common shares outstanding, were computed as described in Note 17 of the
notes to the audited consolidated financial statements included elsewhere in
this Prospectus. Previously reported loss per share amounts have been
restated as required by the adoption of a new accounting pronouncement.
(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 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, 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 $327,219, $192,895, $241,536, $160,778 and
$157,964 for the years ended December 31, 1997, 1996, 1995, 1994 and 1993,
respectively. Adjusted to eliminate such non-cash charges, earnings would
have exceeded fixed charges and fixed charges plus cash preferred stock
dividends by approximately $168,095 and $107,473 for 1997, $157,192 and
$130,248 for 1996, $106,501 and $95,001 for 1995, $89,149 and $77,649 for
1994 and $71,468 and $59,968 for 1993.
(10) Includes current maturities of long-term debt and asset held for sale.
(11) Excludes current maturities of long-term debt.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS).
INTRODUCTION
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
historical consolidated financial statements and notes thereto included herein.
The Company organizes its businesses into three 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 the
new name is more reflective of the focus of the segment.
Management believes a meaningful comparison of the results of operations for
1997, 1996 and 1995 is obtained by using segment information. This year, the
Company begins presenting results from continuing businesses ("Continuing
Businesses") which exclude the results of the non-core businesses ("Non-Core
Businesses"), which are either sold businesses or businesses held for sale. The
Non-Core Businesses include Krames Communications Incorporated ("Krames"), The
Katharine Gibbs Schools, Inc. ("Katharine Gibbs"), NEW WOMAN, Intertec Mailing
Services, Newbridge Communications, Inc. (excluding Films for the Humanities and
Sciences), and STAGEBILL which have been divested and THE DAILY RACING FORM
which is being held for sale. Management believes that this presentation is the
most useful way to analyze the historical trends of its businesses.
SELECTED FINANCIAL DATA
PRIMEDIA is a targeted information company, focused on highly specialized
niches of the specialty magazine, education and information markets.
SPECIALTY MAGAZINES (57.9% of sales from Continuing Businesses, 67.0% of
operating income from Continuing Businesses before corporate overhead and 50.5%
of EBITDA from Continuing Businesses before corporate overhead): Includes 67
specialty consumer magazines such as SEVENTEEN, SOAP OPERA DIGEST, NEW YORK,
CHICAGO, AMERICAN BABY and LOW RIDER plus 65 technical and trade magazines
including TELEPHONY, FLEET OWNER and REGISTERED REPRESENTATIVE.
This group focuses on reaching enthusiasts, or those interested in the key
topics (hobbies, lifestyles, industry, etc.) that its customers demand, while
providing its advertisers with the most efficient mechanism for reaching the
targeted audience through print, Internet and other allied products.
EDUCATION (18.6% of sales from Continuing Businesses, 5.2% of operating
income from Continuing Businesses before corporate overhead and 22.9% of EBITDA
from Continuing Businesses before corporate overhead): Includes classroom
learning products such as CHANNEL ONE NEWS, WEEKLY READER and Films for the
Humanities and Sciences, plus PRIMEDIA Workplace Learning (formerly Westcott
Communications, Inc.).
The classroom learning group targets grades Kindergarten through 12 with
highly targeted supplemental periodical, video and network products to help
teach students. The workplace learning group is the leading provider of high
quality workplace learning programs in such fields as healthcare, automotive,
banking and insurance.
INFORMATION (23.5% of sales from Continuing Businesses, 27.8% of operating
income from Continuing Businesses before corporate overhead and 26.6% of EBITDA
from Continuing Businesses before corporate overhead): Includes over 70 consumer
guides such as APARTMENT GUIDES, MICROTIMES and new homes guides; specialized
reference products such as THE WORLD ALMANAC and FACTS ON FILE NEWS SERVICES;
and nearly 100 specialized directories and databases.
30
<PAGE>
The information segment produces consumer and business information products
in a variety of formats for decision makers in business, professional and
special interest consumer markets. The information is compiled and sold as
reference works, CD-ROMs, almanacs and directories.
In 1997, PRIMEDIA executed a focusing program to accelerate growth, divest
Non-Core Businesses, and strengthen its balance sheet. Proceeds from the sales
of the Non-Core Businesses, excluding THE DAILY RACING FORM which is expected to
be sold in 1998, were $171,575 net of direct selling expenses. The Company
incurred a provision for loss on sales of businesses in the 1997 third quarter
of $138,640, primarily associated with the write-down of the net assets of THE
DAILY RACING FORM.
Additional selected financial data for the Company organized on the
foregoing basis are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Sales, Net:
Continuing Businesses:
Specialty Magazines............................................... $ 718,134 $ 635,392 $ 409,308
Education......................................................... 230,057 181,972 127,660
Information....................................................... 292,053 249,936 202,240
------------ ------------ ------------
Subtotal........................................................ 1,240,244 1,067,300 739,208
Non-Core Businesses................................................... 247,351 307,149 307,121
------------ ------------ ------------
Total........................................................... $ 1,487,595 $ 1,374,449 $ 1,046,329
------------ ------------ ------------
------------ ------------ ------------
Depreciation, Amortization and Other Charges(1):
Continuing Businesses:
Specialty Magazines............................................... $ 66,134 $ 71,424 $ 53,347
Education......................................................... 64,326 51,706 77,320
Information....................................................... 45,276 37,306 54,052
Corporate......................................................... 99 779 703
------------ ------------ ------------
Subtotal........................................................ 175,835 161,215 185,422
Non-Core Businesses................................................... 146,970 29,487 56,968
------------ ------------ ------------
Total........................................................... $ 322,805 $ 190,702 $ 242,390
------------ ------------ ------------
------------ ------------ ------------
Operating Income (Loss):
Continuing Businesses:
Specialty Magazines............................................... $ 91,295 $ 64,971 $ 36,504
Education......................................................... 7,130 7,232 (32,126)
Information....................................................... 37,823 36,668 4,513
Corporate......................................................... (25,644) (22,276) (17,737)
------------ ------------ ------------
Subtotal........................................................ 110,604 86,595 (8,846)
Non-Core Businesses................................................... (131,397) (694) (17,429)
------------ ------------ ------------
Total........................................................... (20,793) 85,901 (26,275)
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
31
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
Other Income (Expense):
<S> <C> <C> <C>
Interest expense...................................................... (136,625) (124,601) (105,837)
Amortization of deferred financing and organizational costs........... (3,071) (3,662) (3,135)
Other, net............................................................ 1,365 6,659 212
------------ ------------ ------------
Loss before income tax benefit and extraordinary charge................. (159,124) (35,703) (135,035)
Income tax benefit...................................................... 1,685 53,300 59,600
------------ ------------ ------------
Income (loss) before extraordinary charge............................... (157,439) 17,597 (75,435)
Extraordinary charge--extinguishment of debt............................ (15,401) (9,553) --
------------ ------------ ------------
Net income (loss)....................................................... $ (172,840) $ 8,044 $ (75,435)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Other charges includes net provision for loss on the sales of businesses in
1997 and 1995 and provision for restructuring and other costs in 1995.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Sales from Continuing Businesses increased 16.2% to $1,240,244 in 1997 from
$1,067,300 in 1996 due to sales increases in all segments. Sales as reported,
including the Non-Core Businesses, increased by 8.2% in 1997 over 1996.
Operating income from Continuing Businesses increased 27.7% to $110,604
during 1997 from $86,595 during 1996. This increase is attributable to the sales
increase as well as declines in paper costs which began declining in 1996.
Interest expense increased by $12,024 or 9.7% in 1997 over 1996 reflecting
increased borrowings associated with acquisitions.
The loss before income tax benefit and extraordinary charge increased by
$123,421 to $159,124 during 1997 compared to $35,703 during 1996. This increase
is attributable to the provision for loss on the sales of businesses of $138,640
recorded during the third quarter of 1997.
At December 31, 1997 and 1996, management of the Company reviewed recent
operating results for the years then ended and projected future operating
results for the years through 2003. The Company's management determined that no
adjustment to net deferred income tax assets was required at December 31, 1997
and that an income tax benefit of $53,300 should be recognized at December 31,
1996. The Company reported a Federal income tax carryback claim of $1,685 in
1997.
The extraordinary charge in 1997 reflects the aggregate premium paid of
$9,537 on the redemption of the Company's 10 5/8% Senior Notes and an additional
write-off of related deferred financing costs of $5,864. The extraordinary
charge of $9,553 in 1996 resulted primarily from the write-off of deferred
financing costs relating to the replacement of the Company's then existing
credit facilities with new credit facilities.
SPECIALTY MAGAZINES
Results from Continuing Businesses exclude NEW WOMAN, STAGEBILL and Intertec
Mailing Services. Sales from Continuing Businesses increased 13.0% to $718,134
in 1997 from $635,392 in 1996 due largely to $24,388 of advertising and
circulation growth at SEVENTEEN, which achieved record revenues in 1997, and at
SOAP OPERA DIGEST, which became a weekly publication during 1997. Technical and
trade magazines also showed strong growth, and revenue from Internet
advertising, while still a small portion of the segment,
32
<PAGE>
grew significantly. Acquisitions such as LOW RIDER, MUSCLE MUSTANG, SURFING,
REGISTERED REPRESENTATIVE and MIX, also contributed $51,544 to the sales growth.
Operating income from Continuing Businesses increased 40.5% to $91,295 in
1997 from $64,971 in 1996 due to the sales increase as well as declines in paper
costs which began declining in 1996.
EDUCATION
Results from Continuing Businesses exclude Krames, Katharine Gibbs and
Newbridge (excluding Films for the Humanities and Sciences). Sales from
Continuing Businesses increased 26.4% to $230,057 from $181,972 in 1996. The
increase is attributable to advertising growth at CHANNEL ONE, and the
acquisitions of PRIMEDIA Workplace Learning, QWIZ, Cover Concepts and Pictorial
which added $43,995 to sales growth.
Operating income from Continuing Businesses decreased 1.4% to $7,130 in 1997
from $7,232 in 1996 due primarily to increased goodwill and other intangible
amortization expense resulting from acquisitions.
INFORMATION
Results from Continuing Businesses exclude THE DAILY RACING FORM. Sales from
Continuing Businesses increased 16.9% to $292,053 from $249,936 in 1996. This
increase is largely attributable to approximately a $32,000 increase at the
apartment guides, including the start-up of new guides and acquisitions, and
strong performance at BACON'S and the directory units.
Operating income from Continuing Businesses increased 3.1% to $37,823 in
1997 from $36,668 in 1996, largely attributable to the strong sales increases at
the apartment guides partially offset by an $8,000 increase in amortization
expense resulting from acquisitions and increases in other operating expenses.
CORPORATE
Corporate expenses increased 15.1% to $25,644 in 1997 from $22,276 in 1996,
largely attributable to an increase in corporate headcount to accommodate the
growth of the Company as well as a one-time executive death benefit.
NON-CORE BUSINESSES
Sales from Non-Core Businesses declined 19.5% to $247,351 from $307,149 in
1996. Most of this decline resulted from the divestitures of Krames, Katharine
Gibbs and NEW WOMAN during 1997, and lower revenue levels at Newbridge
(excluding Films for the Humanities and Sciences) and THE DAILY RACING FORM. The
operating loss from Non-Core Businesses increased to $131,397 in 1997 from $694
in 1996, attributable to the $138,640 provision for the loss on the sales of
businesses.
1996 COMPARED TO 1995
Sales from Continuing Businesses increased 44.4% to $1,067,300 in 1996 from
$739,208 in 1995. Sales increased due to internal growth in all segments as well
as the impact of acquisitions. Specifically, the acquisitions of Cahners
Consumer Magazines ("Cahners"), PRIMEDIA Workplace Learning and the trade
magazines of Argus Inc. ("Argus") added approximately $199,144 to sales growth.
Sales as reported, including the Non-Core Businesses, increased by 31.4% in 1996
over 1995.
Operating income (loss) from Continuing Businesses increased to $86,595
during 1996 from $(8,846) during 1995. This improvement was driven by increases
in sales, the impact of acquisitions and the impact of several one-time,
principally non-cash charges totaling $68,072 in the second quarter of 1995.
This increase was achieved despite an increase in average purchase prices for
paper in the first half of 1996.
33
<PAGE>
Interest expense increased by $18,764 or 17.7% in 1996 over 1995 primarily
due to increased 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 reviewed its
recent operating results and projected future operating results and determined
that there should be sufficient future taxable income so 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 a result of many external factors including but
not limited to increased paper and postage costs and rates of interest.
The $9,553 extraordinary charge in 1996 reflects the aggregate premium paid
on the redemptions of the Company's 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
Results from Continuing Businesses exclude NEW WOMAN, STAGEBILL and Intertec
Mailing Services. Sales from Continuing Businesses increased 55.2% to $635,392
in 1996 from $409,308 in 1995 due largely 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 income from Continuing Businesses increased by $28,467 or 78.0% in
1996 over 1995. This increase was the result of an increase in sales partially
offset by an increase in average paper prices in 1996 over 1995.
EDUCATION
Results from Continuing Businesses exclude Krames, Katharine Gibbs and
Newbridge (excluding Films for the Humanities and Sciences). Sales from
Continuing Businesses increased 42.5% to $181,972 in 1996 from $127,660 in 1995.
The growth is attributable to sales increases at WEEKLY READER and Films for the
Humanities and Sciences and the addition of PRIMEDIA Workplace Learning.
Operating income (loss) from Continuing Businesses increased to $7,232 in
1996 from $(32,126) in 1995. This improvement is primarily due to the one-time
charges in the second quarter of 1995 for the provision for loss associated with
the sale of Newfield Publications, Inc.
INFORMATION
Results from Continuing Businesses exclude THE DAILY RACING FORM. Sales from
Continuing Businesses increased 23.6% to $249,936 in 1996 from $202,240 in 1995.
This increase is largely attributable to double-digit organic growth at the
apartment guides as well as the impact of acquisitions which contributed
approximately $17,600 to the increase in sales.
Operating income from Continuing Businesses increased to $36,668 in 1996
from $4,513 in 1995, largely attributable to the increase in sales and a
decrease in amortization expense. Goodwill and intangible amortization expense
decreased by $24,277 in 1996 over 1995 primarily as a result of an
34
<PAGE>
adjustment to the carrying values of goodwill and other intangibles totaling
approximately $18,000 in the second quarter of 1995.
CORPORATE
Corporate expenses increased 25.6% to $22,276 in 1996 from $17,737 in 1995,
largely attributable to an increase in corporate headcount to accommodate the
growth of the Company.
NON-CORE BUSINESSES
The operating loss from Non-Core Businesses decreased to $694 in 1996 from
$17,429 in 1995, attributable to the one-time restructuring charge recorded in
1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information regarding the Company's
EBITDA and other net cash flow items. Data is presented for both Continuing
Businesses and Non-Core Businesses.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
EBITDA(1):
Continuing Businesses:
Specialty Magazines.................................................... $ 157,429 $ 136,395 $ 89,851
Education.............................................................. 71,456 58,938 45,194
Information............................................................ 83,099 73,974 58,565
Corporate.............................................................. (25,545) (21,497) (17,034)
----------- ----------- -----------
Subtotal............................................................. 286,439 247,810 176,576
Non-Core Businesses...................................................... 15,573 28,793 39,539
----------- ----------- -----------
Total................................................................ $ 302,012 $ 276,603 $ 216,115
----------- ----------- -----------
----------- ----------- -----------
Net Cash Provided by (Used in) Operating Activities:
Continuing Businesses:
Specialty Magazines.................................................... $ 152,323 $ 125,437 $ 69,853
Education.............................................................. 57,103 59,063 26,716
Information............................................................ 66,690 61,106 64,646
Corporate.............................................................. (162,248) (129,090) (111,521)
----------- ----------- -----------
Subtotal............................................................. 113,868 116,516 49,694
Non-Core Businesses...................................................... 11,492 33,676 14,368
----------- ----------- -----------
Total................................................................ $ 125,360 $ 150,192 $ 64,062
----------- ----------- -----------
----------- ----------- -----------
Net Cash Provided by (Used in) Investing Activities:
Continuing Businesses:
Specialty Magazines.................................................... $ (137,414) $ (213,203) $ (234,755)
Education.............................................................. (165,657) (434,603) 10,441
Information............................................................ (46,397) (58,813) (82,371)
Corporate.............................................................. (1,740) (1,735) (2,424)
----------- ----------- -----------
Subtotal............................................................. (351,208) (708,354) (309,109)
Non-Core Businesses...................................................... 165,483 (13,355) (9,603)
----------- ----------- -----------
Total................................................................ $ (185,725) $ (721,709) $ (318,712)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Cash Provided by (Used in) Financing Activities:
Continuing Businesses:
Specialty Magazines.................................................... $ (4,318) $ (10,073) $ (5,332)
Education.............................................................. (1,586) (2,653) (160)
Information............................................................ (2,982) (4,698) (2,094)
Corporate.............................................................. 54,656 600,156 272,293
----------- ----------- -----------
Subtotal............................................................. 45,770 582,732 264,707
Non-Core Businesses...................................................... 918 (1,786) (1,063)
----------- ----------- -----------
Total................................................................ $ 46,688 $ 580,946 $ 263,644
----------- ----------- -----------
----------- ----------- -----------
Excess (Deficiency) Of Earnings to Fixed Charges (2) from:
Continuing Businesses:
Specialty Magazines.................................................... $ 89,025 $ 66,161 $ 30,336
Education.............................................................. 6,186 5,576 (32,973)
Information............................................................ 32,734 36,061 2,884
Corporate.............................................................. (152,834) (140,005) (113,972)
----------- ----------- -----------
Subtotal............................................................. (24,889) (32,207) (113,725)
Non-Core Businesses...................................................... (134,235) (3,496) (21,310)
----------- ----------- -----------
Total.................................................................. $ (159,124) $ (35,703) $ (135,035)
----------- ----------- -----------
----------- ----------- -----------
Excess (Deficiency) of Earnings to Fixed Charges and Preferred Stock
Dividends (2) from:
Continuing Businesses:
Specialty Magazines.................................................... $ 89,025 $ 66,161 $ 30,336
Education.............................................................. 6,186 5,576 (32,973)
Information............................................................ 32,734 36,061 2,884
Corporate.............................................................. (217,907) (183,531) (142,950)
----------- ----------- -----------
Subtotal............................................................. (89,962) (75,733) (142,703)
Non-Core Businesses.................................................... (134,235) (3,496) (21,310)
----------- ----------- -----------
Total................................................................ $ (224,197) $ (79,229) $ (164,013)
----------- ----------- -----------
----------- ----------- -----------
</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.
(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 $146,245 at December 31, 1997 compared to $44,705 at December
31, 1996. Consolidated working capital deficiency reflects certain industry
working capital practices and accounting principles, including the expensing of
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editorial and product development costs when incurred and the recording of
unearned subscription income as a current liability. Advertising costs are
expensed when the promotional activities occur except for certain
direct-response advertising costs which are capitalized and amortized over the
estimated period of future benefit.
1997 COMPARED TO 1996
Consolidated EBITDA from Continuing Businesses increased by 15.6% to
$286,439 in 1997 from $247,810 in 1996 because of higher revenues, paper price
declines and acquisitions of new businesses.
EBITDA from Continuing Businesses in the Specialty Magazines segment
increased 15.4% in 1997 to $157,429 from $136,395 in 1996. This increase is
attributable to strong organic revenue growth, paper price declines and
acquisitions.
EBITDA from Continuing Businesses in the Education segment increased 21.2%
to $71,456 in 1997 from $58,938 in 1996 due to advertising revenue growth at
CHANNEL ONE and the inclusion of acquisitions including PRIMEDIA Workplace
Learning.
EBITDA from Continuing Businesses in the Information segment increased 12.3%
in 1997 to $83,099 from $73,974 in 1996 primarily due to growth at the APARTMENT
GUIDES which was attributable to increased advertising revenue and the impact of
acquisitions.
EBITDA from Non-Core Businesses declined 45.9% to $15,573 in 1997 from
$28,793 in 1996, due to sales declines at Newbridge (excluding Films for the
Humanities and Sciences) and THE DAILY RACING FORM.
The reported net cash provided by operating activities during the year ended
December 31, 1997, after interest payments of $142,421, was $125,360, a decrease
of $24,832 over the 1996 period, due primarily to an increase in interest
payments.
The reported net cash used in investing activities decreased in 1997 as a
result of decreased acquisition activities. The Company spent $326,192 for
acquisitions during 1997 compared with $700,990 in 1996. The reported net
capital expenditures were $31,108 during the 1997 period, an 8.1% increase from
$28,790 in 1996. Increased investment in production and new product technology
is expected to result in increased capital spending in 1998.
The reported net cash provided by financing activities decreased in 1997 as
a result of reduced debt and stock issuances during 1997 as well as the
redemption of certain outstanding borrowings.
The Company's earnings (defined as pretax income or loss before
extraordinary charge) from Continuing Businesses were inadequate to cover fixed
charges and fixed charges plus preferred stock dividends by $24,889 and $89,962
and $32,207 and $75,733 for 1997 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 from Continuing
Businesses (including depreciation, amortization and non-cash interest expense)
of $179,857 and $162,408 for the years ended December 31, 1997 and 1996,
respectively. Adjusted to eliminate these non-cash charges, earnings from
Continuing Businesses would have exceeded fixed charges and fixed charges plus
cash preferred stock dividends, by $154,968 and $94,346 and $130,201 and
$103,257 for the years ended December 31, 1997 and 1996, respectively.
1996 COMPARED TO 1995
Consolidated EBITDA from Continuing Businesses increased by 40.3% to
$247,810 in 1996 from $176,576 in 1995 because of growth from existing
operations, new product additions and acquisitions of businesses.
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EBITDA from Continuing Businesses in the Specialty Magazines segment
increased 51.8% in 1996 to $136,395 from $89,851 in 1995 due to strong organic
growth in circulation and advertising as well as acquisitions.
EBITDA from Continuing Businesses in the Education segment increased 30.4%
to $58,938 in 1996 from $45,194 in 1995 due to advertising revenue growth at
CHANNEL ONE and the inclusion of the acquisition of PRIMEDIA Workplace Learning.
EBITDA from Continuing Businesses in the Information segment increased 26.3%
in 1996 to $73,974 from $58,565 in 1995 due to increased advertising revenues in
the apartment guides and a portion of Intertec as well as the inclusion of
acquisitions.
EBITDA from Non-Core Businesses declined 27.2% to $28,793 in 1996 from
$39,539 in 1995, primarily due to the sales decline at Newbridge (excluding
Films for the Humanities and Sciences).
The reported 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 the 1995 period, primarily due to EBITDA growth.
The reported 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.
Payments for businesses acquired of $700,990 were made during the year ended
December 31, 1996 as compared to $353,954 in 1995. The reported net capital
expenditures were $28,790 during the 1996 period, a 23.0% increase from $23,414
in 1995. These expenditures included data processing equipment, televisions,
videocassette recorders, satellite dishes, furniture and leasehold improvements
and were financed with net cash provided by operations.
The reported net cash provided by financing activities increased in 1996 as
a result of increased debt and preferred stock issuances.
The Company's earnings (defined as pretax income or loss before
extraordinary charge) from Continuing Businesses were inadequate to cover fixed
charges and fixed charges plus preferred stock dividends by $32,207 and $75,733
and $113,725 and $142,703 for 1996 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 from Continuing
Businesses (including depreciation, amortization, provision for loss on the
sales of businesses, non-cash interest expense and other) of $162,408 and
$189,879 for the years ended December 31, 1996 and 1995, respectively. Adjusted
to eliminate these non-cash charges, earnings from Continuing Businesses would
have exceeded fixed charges and fixed charges plus cash preferred stock
dividends, by $130,201 and $103,257 and $76,154 and $64,654 for the years ended
December 31, 1996 and 1995, respectively.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1997, the Company had NOLs of approximately $749,000 which
will be available to reduce future taxable income. In addition, management
estimates that approximately $864,000 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
38
<PAGE>
value of $15,401 on the accompanying statement of consolidated operations for
the year ended December 31, 1997.
On April 21, 1997, the Company entered into a new 364-day credit facility
with The Chase Manhattan Bank, the Bank of New York, Bankers Trust Company and
the Bank of Nova Scotia as agents (the "New Credit Facility") which expires
April 20, 1998 (see "Recent Developments"). 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 to be used for general corporate and working capital
purposes as well as to finance certain future acquisitions.
The amounts borrowed pursuant to the New Credit Facility bear interest at
rates per annum identical to those in the previously existing credit facilities
("Bank Credit Facilities"). The New Credit Facility combined with the Bank
Credit Facilities are collectively referred to as the "Credit Facilities." At
December 31, 1997, the Company had two interest rate swap agreements in effect
with an aggregate notional amount of $200,000 and an interest rate cap agreement
based on a notional principal amount of $100,000. Under the outstanding 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, 1997, the
weighted average variable rate and weighted average fixed rate were 5.88% and
6.68%, 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 will receive a floating rate of interest based on
three-month LIBOR, which resets quarterly, and the Company will pay a fixed rate
of interest, each quarter, for the terms of the respective agreements.
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, at December 31, 1997, the Company has total
commitments of $1,550,000 and can borrow up to $1,650,000 in the aggregate. As
of December 31, 1997, aggregate borrowings under the Credit Facilities were
$1,218,101. As of December 31, 1997, the amounts borrowed under the Credit
Facilities bore interest at a weighted average variable interest rate of 7.05%.
Also, at December 31, 1997, the Company had outstanding $100,000 of 10 1/4%
Senior Notes, $300,000 of 8 1/2% Senior Notes, 1,576,036 shares of $11.625
Series B Exchangeable Preferred Stock, 2,000,000 shares of $10.00 Series D
Exchangeable Preferred Stock and 1,250,000 shares of $9.20 Series E Exchangeable
Preferred Stock.
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 including dividend payments on
its common 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.
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,
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<PAGE>
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.
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 $14,333, $21,167, $19,167, and $8,833 to be made
in semi-annual installments in 1998 through 2001, respectively. The Company's
aggregate lease obligations for 1998, 1999 and 2000 are expected to be
approximately $30,000, $27,000 and $24,000, 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 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" which became effective for the Company's
1997 consolidated financial statements beginning in the fourth quarter of 1997.
SFAS No. 128 eliminates 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 excludes Common Stock Equivalents.
Additionally, SFAS No. 128 changes the methodology and criteria for calculating
and reporting fully diluted earnings per share. The adoption of this new
accounting standard did not have a material effect on the reported loss per
share of the Company. SFAS No. 128 also required previously reported loss per
share to be restated.
In June 1997, the Financial Accounting Standards Board 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 non-owner 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.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which becomes effective for the Company's 1998 consolidated financial
statements. SFAS No. 132 standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain previously
required disclosures. 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 consolidated financial statements of the Company.
RECENT DEVELOPMENTS
In January 1998, the Company elected to terminate its defined benefit
pension plan effective March 31, 1998. In connection with this termination, the
Company froze benefit accruals effective December 31, 1997. In the opinion of
the Company's management, the plan benefits payable on the termination are
adequately accrued for and will not have a material impact on the Company's
consolidated financial statements. Active plan participants will be eligible to
participate in the Company's defined contribution plans.
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<PAGE>
On February 17, 1998, the Company exchanged the 1,250,000 shares of its
$9.20 Series E Exchangeable Preferred Stock for 1,250,000 shares of $9.20 Series
F Exchangeable Preferred Stock ("Series F Preferred Stock"). The terms of the
Series F Preferred Stock are the same as the $9.20 Series E Exchangeable
Preferred Stock except that the Series F Preferred Stock has been registered
under the Securities Act of 1933.
On February 17, 1998, the Company completed a private offering of 2,500,000
shares of $8.625 Series G Exchangeable Preferred Stock for $250,000 and $250,000
principal amount of 7 5/8% Senior Notes Due 2008. The net proceeds of these
offerings were used to redeem all of the Company's outstanding $11.625 Series B
Exchangeable Preferred Stock at $105.80 per share plus accrued and unpaid
dividends to the redemption date and to reduce outstanding borrowings under the
Credit Facilities, which amounts may be reborrowed for general corporate
purposes including acquisitions.
On March 18, 1998, KKR 1996 Fund L.P., a Delaware limited partnership
affiliated with KKR (the "KKR Fund"), purchased 16,666,667 shares of newly
issued common stock from the Company for $200,000 (the "KKR Fund Investment").
The net proceeds from the KKR Fund Investment were used to repay borrowings
outstanding under the Credit Facilities, which amounts may be reborrowed for
general corporate purposes including acquisitions.
On March 19, 1998, the Company completed the acquisition of the stock of
Cowles Enthusiast Media and Cowles Business Media (together, "Cowles") from
McClatchy Newspapers, Inc. ("McClatchy") for approximately $200,000 (the "Cowles
Acquisition"). With the Cowles Acquisition, the Company added 25 enthusiast
titles to its specialty consumer magazines group, and 11 technical and trade
magazines and 15 trade shows to its technical and trade magazines group.
For the period from January 1, 1998 through April 16, 1998, in addition to
the Cowles Acquisition, the Company had completed four product-line acquisitions
in the specialty magazines and information segments. The aggregate purchase
price for such acquisitions was approximately $12,000.
On April 20, 1998, the New Credit Facility expired. As a result, the Company
has total commitments of $1,400,000 and can borrow up to $1,500,000 in the
aggregate under its Bank Credit Facilities.
On April 23, 1998, the Company entered into a definitive stock purchase
agreement to sell Nelson Information, Inc., a leading information provider in
the financial services industry, to Thomson Information Services Inc.
IMPACT OF INFLATION
The impact of inflation was immaterial during 1997 and 1996. Paper prices,
which had risen significantly during 1995 and early 1996, 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. During 1997, paper costs represented approximately
7.8% 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.
YEAR 2000
The Company has evaluated the potential impact of the situation commonly
referred to as the "Year 2000 problem". The Year 2000 problem, which is common
to most corporations, relates to the inability of
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<PAGE>
information systems, primarily computer software programs, to recognize and
process properly date information related to the year 2000 and beyond. An
assessment of the Company's systems indicates that the costs associated with
solving the Year 2000 problem will not be material, due largely to investments
already made in information systems in recent years. A significant portion of
the Company's efforts related to this issue involves assessing vendor compliance
and developing contingency plans to deal with situations where significant
vendors are perceived to be unable to fix in a timely manner their Year 2000
problem.
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition. These
statements are based upon a number of assumptions and estimates which are
inherently subject to uncertainties and contingencies, many of which are beyond
the control of the Company, and reflect future business decisions which are
subject to change. Some of these assumptions may not materialize and
unanticipated events will occur which can affect the Company's results.
42
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BUSINESS
GENERAL
PRIMEDIA is the authoritative source of specialized information for highly
targeted audiences in the education, business and special interest consumer
markets. Most of the Company's products have leadership positions in the
specialty niche markets in which such products compete: specialty media (E.G.,
SEVENTEEN, AMERICAN BABY, SOAP OPERA DIGEST, TRUCKIN', SEW NEWS and TELEPHONY);
education (E.G., CHANNEL ONE NETWORK, WEEKLY READER and PRIMEDIA Workplace
Learning); and information (E.G., APARTMENT GUIDES, WARD'S, THE WORLD ALMANAC
and BACON'S).
The Company has achieved substantial sales growth through the development of
its franchises, combined with its operating expertise and successful acquisition
strategy. From 1993 through 1997, net sales have grown at a compound annual rate
of 15% to $1,487.6 million. The operating loss in 1997 was $20.8 million
compared to $7.7 million in 1993 (after deductions for amortization,
depreciation, provision for loss on the sales of businesses and other of $322.8
million in 1997 and $145.9 million in 1993).
The Company had net income (loss) of $(172.8) million, $8.0 million and
$(75.4) million for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company's deficiency of earnings to fixed charges was $159.1
million, $35.7 million and $135.0 million for the years ended December 31, 1997,
1996 and 1995, respectively. The Company's deficiency of earnings to fixed
charges plus preferred stock dividends was $224.2 million, $79.2 million and
$164.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company's pro forma deficiency of earnings to fixed charges
and earnings to fixed charges plus preferred stock dividends was $141.8 million
and $201.4 million, respectively, for the year ended December 31, 1997.
Approximately 52% of PRIMEDIA's publications are controlled circulation and
the remaining 48% are paid circulation. For the year ended December 31, 1997,
PRIMEDIA's controlled circulation publications generated approximately 48% of
publication advertising revenue and 6% of circulation revenue and the paid
circulation publications generated approximately 52% of publication advertising
revenue and 94% 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 60%, with 80% 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 magazine segment; classroom learning and workplace learning in the
education segment; and consumer information and business information products 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 magazines 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 information products 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.
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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 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. A major 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 $31.1 million in 1997 and $28.8 million in 1996, or 2.1% of
net sales in each respective year. 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 MAGAZINES
The specialty magazine segment consists of specialty consumer magazines and
technical and trade magazines. In 1997, 60% of the Company's specialty consumer
magazines and nearly 50% of its technical and trade magazines were ranked number
one in their respective markets. According to the WALL STREET JOURNAL, PRIMEDIA
is the largest magazine publisher in the United States by ad page count. Some of
the Company's specialty consumer magazines include SOAP OPERA DIGEST, SEVENTEEN,
NEW YORK, CHICAGO TRUCKIN' and SEW NEWS, while leading technical and trade
publications include TELEPHONY, FLEET OWNER and AMERICAN PRINTER. 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, MODERN
BRIDE, SEVENTEEN, AMERICAN BABY, over 36 automotive magazines and 13 local
bridal, as well as sewing, crafts and other titles. The principal sources for
specialty consumer magazines' sales are advertising and circulation. In the year
ended December 31, 1997, approximately 54% of the specialty consumer magazines'
sales were from advertising, 42% were from circulation and 4% 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 was a
bi-weekly publication through 1996. In the spring of 1997, SOAP OPERA DIGEST
became a weekly publication with an average circulation of 1.1 million per week.
SOAP OPERA WEEKLY had an average 1997 circulation of 465,000. Both publications
are distributed mainly at supermarket, convenience store and drugstore checkout
counters with Soap Opera Digest also having a significant subscriber base. They
compete for circulation on the basis of editorial content and quality against
such publications as SOAP OPERA NEWS and SOAP OPERA MAGAZINE, both of which have
substantially lower circulation.
SEVENTEEN is the leading young womans' fashion and beauty magazine based on
both circulation and advertising pages, with fashion, boys, beauty, talent and
lifestyle editorial targeted to girls aged 12 to 19. SEVENTEEN is the largest
circulation teen and fashion and beauty magazine in the United States with a
monthly rate base of 2.3 million. Its 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
1.7 million expectant and new parents, contains articles on all aspects of
pregnancy and baby care. 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.
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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, TRUCKIN' the leading truck customization publication. SEW NEWS, the
premier sewing title, and DOG WORLD, the leading publication for dog breeders.
The Company's sales of 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.
In 1997, the Company acquired CONTEMPORARY BRIDE OF DETROIT, SHOTGUN NEWS,
SURFING, CAR AUDIO AND ELECTRONICS, VETTE, MUSCLE MUSTANGS, LOW RIDER, and
several other related titles. As a result of the Cowles Acquisition, the Company
added 25 enthusiast titles to its specialty consumer magazines group.
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.
BRAND LEVERAGING
In 1997, SEVENTEEN established a brand licensing program centered around the
launch of select categories of SEVENTEEN-branded merchandise. This merchandise
will begin to appear in retail outlets in mid-1998.
Major 1997 launches of websites were for SOAP OPERA DIGEST
(www.soapdigest.com) and NEW YORK MAGAZINE (www.newyorkmag.com). The Company now
has websites for the vast majority of its specialty consumer magazines. In 1997,
the Company launched numerous special issues of titles including, but not
limited to, SEVENTEEN, AUTOMOBILE MAGAZINE, HORTICULTURE and TRUCKIN'.
TECHNICAL AND TRADE MAGAZINES
The Company publishes 65 technical and trade magazines that provide vital
information to professionals in fields such as telecommunications (TELEPHONY and
WIRELESS REVIEW), agriculture (SOYBEAN DIGEST), transportation (FLEET OWNER) and
real estate (NATIONAL REAL ESTATE INVESTOR). In 1997, 31 of these publications
ranked number one and approximately 72% of these publications ranked number one
or two, 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 1997, approximately 78% of the 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,
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INTERNATIONAL WIRELESS COMMUNICATIONS EXPO and THE SATELLITE COMMUNICATIONS EXPO
& CONFERENCE, serving the advertisers and readers of the corresponding
publications.
In 1997, the Company announced a joint venture with Cheng Cheng Enterprises
Holdings (China) Ltd. to publish technical and trade magazines in China.
Additionally, the Company acquired both Cardinal Business Media, Inc., a leading
publisher of technical entertainment business magazines and REGISTERED
REPRESENTATIVES, the leading magazine for retail brokers. As a result of the
Cowles Acquisition, the Company added 11 technical and trade magazines and 15
trade shows to its technical and trade magazines group.
BRAND LEVERAGING
In the technical and trade magazine segment, the Company launched numerous
new media products including 14 websites and a CD-ROM for ELECTRICAL
WHOLESALING. The Company maintains 14 other sites for technical and trade
magazines. Many of these sites carry paid advertising.
EDUCATION
The Company is a leading provider of supplementary 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, PRIMEDIA Workplace Learning,
formerly known as Westcott Communications. Classroom learning takes advantage of
the growth in spending on supplementary educational materials and the projected
increases in elementary and secondary school enrollments over the next decade
(in particular, school enrollments are expected to rise 7% between 1995 and
2005). Workplace learning focuses on the $69 billion training market of which
the outsourced segment is the fastest growing portion, expected to rise 142%
between 1995 and 2005.
CLASSROOM LEARNING
The Company operates CHANNEL ONE NETWORK, WEEKLY READER and Films for the
Humanities and Sciences.
CHANNEL ONE'S NETWORK 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 approximately eight million students and 350,000
educators and approximately 12,000 secondary schools in the United States.
CHANNEL ONE NETWORK pioneered the delivery of world events and educational
programming into classrooms via satellite. Its award-winning daily news
broadcast reaches more students than any other electronically delivered
educational product. CHANNEL ONE NEWS has ten times the teenage audience of the
evening newscasts of ABC, CBS, NBC and cable networks combined.
Schools sign up for CHANNEL ONE NETWORK service 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 NETWORK 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. Substantially
all school contracts have come up for renewal at least once and approximately
99% have been renewed in each renewal cycle.
CHANNEL ONE NEWS is produced at CHANNEL ONE NETWORK'S Los Angeles studio,
using staff anchors and correspondents who report from U.S. and international
locations. CHANNEL ONE NETWORK has a library of over 1,500 broadcasts including
approximately 200 single subject series, 60 of which have been released as
educational videos.
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 1997, approximately 64% of CHANNEL ONE NEWS'
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advertising sales were from contracts having terms of three or more years. The
top five advertisers in 1997 by dollars were PepsiCo, M&M Mars, Quaker Oats,
Reebok and Nintendo, which together accounted for approximately 56% of
advertising sales, and 93% of which was pursuant to multi-year contracts
expiring between June 1998 and December 1999.
CHANNEL ONE'S THE CLASSROOM CHANNEL offers a range of instructional
programming to enhance the schools' curriculum. THE CLASSROOM CHANNEL offers an
average of 80 minutes of daily programming at no charge to schools. In 1997,
CHANNEL ONE NETWORK expanded its franchise by expanding the distribution of THE
COLLEGE CHANNEL, a college preparation service produced in conjunction with The
Princeton Review, to more than 5,000 high schools; increasing the traffic on its
CHANNELONE.COM on-line network by more than 100%; licensing its programming in
Thailand; and renewing its weekly ONEZONE news program for a second broadcast
season on public television. Additionally, in 1997, CHANNEL ONE NETWORK acquired
Cover Concepts, a publisher of customized school book covers.
WEEKLY READER is the best-known and highest-circulation student newspaper in
the United States, with over 6.6 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.
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. In order to capitalize on its
large teacher and school customer base for organic growth, WEEKLY READER
launched SCIENCE SPIN, an optional monthly supplement with separate editions for
grades K to 6. SCIENCE SPIN achieved an initial circulation of 510,000 in its
first year of publication. Every full-color issue contains current and
interesting science new tailored to student reading levels and the school
curriculum.
For the secondary school market, WEEKLY READER publishes eight other
periodicals: READ MAGAZINE, WRITING, CURRENT EVENTS, CURRENT SCIENCE, CURRENT
HEALTH I AND II, CAREER WORLD and KNOW YOUR WORLD EXTRA. These periodicals
provide current information and skills practice in the curriculum areas of
language arts, science, health and remedial reading. Editorial materials for
these publications are generated by in-house writers and freelance authors. The
Company's main competitors in these markets are Scholastic Corporation and Timer
Warner, Inc. WEEKLY READER generally competes on the basis of editorial quality,
content and value.
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 primarily grades 8
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. In 1997, Films acquired the exclusive right to
distribute the non-theatrical British Broadcasting Corporation videos to the
U.S. education markets.
WORKPLACE LEARNING
PRIMEDIA Workplace Learning, formerly Westcott Communications, Inc., is a
leading provider of high quality workplace educational materials including video
programming, print and computer based products. PRIMEDIA Workplace Learning has
approximately 20,000 corporate and institutional subscribers. The group's
satellite-delivered and video programming reaches three million professionals
each year on more than 20 networks and is the premier provider of
electronically-delivered workplace training in such fields as automotive,
healthcare, banking, and insurance.
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The Company's leading networks include the Executive Education Network
("EXEN") and the Interactive Medical Network ("IMN"). EXEN delivers executive
education courses taught by professors from leading business schools including
Harvard University, Colombia University and the University of Southern
California to corporate and professional clients nationwide.
In 1997, PRIMEDIA Workplace Learning launched two networks: the WORKPLACE
TRAINING NETWORK ("WTN") which provides satellite-delivered information on
industrial safety and training and the PRIMEDIA FINANCIAL NETWORK ("PFN") which
provides training for financial professionals, delivered by satellite and video.
PRIMEDIA WORKPLACE LEARNING 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 via television, print, video, internet or seminars.
In 1997, PRIMEDIA Workplace Learning acquired Pictorial, the largest
provider of specialized training and certification products for the insurance
industry, and QWIZ, the leading provider of computer-based office skills
testing. Both acquisitions add training and testing expertise in growth
industries.
INFORMATION
The Company produces over 170 highly targeted consumer and business
information products, most of which hold dominant positions in their niche
markets. The Company's premier consumer information products include APARTMENT
GUIDES, THE WORLD ALMANAC and such specialty reference products as FACTS ON FILE
NEWS SERVICES which is used by public and institutional libraries. Its leading
business information products include BACON'S for public relations professionals
and INTERNATIONAL TRADE GUIDES for import/ export professionals.
The growth in advertising supported consumer information (E.G.--targeted
free publications, such as the APARTMENT GUIDES) is being driven by the
advertisers' need to reach their customers as cost effectively as possible. From
1995 to 2005, advertising revenue generated from free shopping guides is
expected to nearly double. Consequently, APARTMENT GUIDES and PRIMEDIA's other
targeted free publication should continue to provide significant opportunities
for growth through new ventures and acquisitions. PRIMEDIA's business
information products capitalize on the growth in business spending on
information which is expected to increase 8% on a compound annual basis, between
1995 and 2005.
CONSUMER INFORMATION
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 SERVICES and the Gareth Stevens line of
juvenile reference works.
The Company is the leading publisher of rental apartment guides in the
United States with 63 local versions of its apartment guides, each of which is
published no less frequently than quarterly and provides informational listings
about featured apartment communities. All listed apartments are carried on the
Internet at WWW.APTGUIDES.COM. These listings are paid for by apartment
community managers, who need to fill vacant apartments, and who represent 100%
of the apartment guide sales. The Company is the dominant information provider
in apartment guides. The Company's only national competitor, FOR RENT, is
present in 37 of the Company's markets. In those markets, on average, the
Company captured 52% of total 1997 advertising pages, with FOR RENT capturing
43% of such advertising pages.
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In 1997, the Company acquired apartment guides in Dayton, Nashville, Memphis
and Little Rock, and made its most successful launch ever in Salt Lake City.
Additionally, the Company acquired a new homes guide in Austin.
The Company's DistribuTech Division is the nation's largest distributor of
free publications, including its own consumer directories and over 600 other
titles. In 1997, DistribuTech managed the distribution of its and other
publishers' free publications to over 19,000 grocery, convenience and drug
stores in 65 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 information guides typically are
displayed in free standing, multi-pocket racks. DistribuTech generates
substantial revenues by leasing the rack pockets that are not used for the
Company's publications to other publications that it also distributes.
DistribuTech competes on the basis of its prime retail locations for its rack
program.
THE WORLD ALMANAC is the leading almanac in the English language ranked by
unit sales and data content with approximately 1.0 million copies of the 1998
edition sold as of December 31, 1997. In 1997, the Company published the third
annual edition of THE WORLD ALMANAC FOR KIDS, which sold approximately 220,000
copies. THE WORLD ALMANAC licenses its content for use on seven CD-ROM products
and six 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
Services publishes subscription products that are 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 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 for use on four CD-ROM products and five
on-line services. The Company experiences competition for its reference products
from a variety of other print and electronic products from a variety of
publishers and competes based on the quality of its content and price.
BUSINESS INFORMATION
The Company publishes approximately 100 specialized directories and
databases focused on the specialized information needs of professionals in such
areas as commerce, public relations and transportation. 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. Products are available in the most appropriate
format for the customer: Internet, CD-ROM or print. The Company's Bacon's 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.
The Company also publishes newsletters that provide in-depth information on
selected markets. WARD'S AUTOMOTIVE REPORTS is recognized as the authoritative
source for industry-wise statistics on automotive production and sales. This
newsletter competes on the basis of the nature and quality of its editorial
content. In addition, the Company publishes, in print and electronic formats,
used vehicle valuation information. Other databases include THE ELECTRONICS
SOURCEBOOK AND AC-U-KWIK.
Most of the business information products published by the Company have no
competition. Where competition does exist, in most cases, the Company's
publication is dominant. Competition, 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.
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In 1997, the Company acquired INTELLICHOICE, the leading provider of
Internet-based automobile cost information over the life of the automobile and
released several CD-ROM products, including THE BLUEBOOK OF LOGISTICS EXECUTIVES
and ELECTRICAL WHOLESALING.
NON-CORE BUSINESSES SOLD
As a part of its strategy to focus on areas of its business that have the
greatest potential for growth, the Company divested certain businesses that do
not fit within its growth vehicles. Those businesses are Krames Communications,
the Katharine Gibbs Schools, Newbridge Book Clubs, Newbridge Educational
Publishing, NEW WOMAN magazine, STAGEBILL, and INTERTEC MAILING SERVICES. The
net proceeds from the completed sales of Non-Core Businesses were used to repay
borrowings outstanding under the Credit Facilities, which amounts may be
reborrowed for general corporate purposes including acquisitions. The Company
intends to divest DAILY RACING FORM during 1998. The above businesses are
collectively referred to as the Non-Core Businesses.
The following table presents unaudited combined operating results for the
year ended December 31, 1997 for the Non-Core Businesses. There can be no
assurance that the remaining Non-Core Business will be divested.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Sales, net .................................................................... $ 247,351
Operating loss ................................................................ (131,397)
Depreciation and amortization.................................................. 146,970
</TABLE>
In addition, on April 23, 1998, the Company entered into a definitive stock
purchase agreement to sell Nelson Information, Inc., a leading information
provider in the financial services industry, to Thomson Information Services
Inc.
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. With the exception of PRIMEDIA
Workplace Learning and Films which produce video products in-house, and most
Internet sites, all other production 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 1997. In 1997, approximately 39% and 34% of the Company's
paper purchases were supplied through 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.
On November 18, 1997, the Company changed its name to PRIMEDIA Inc. to
reflect better the "prime" positioning the Company has in its 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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MANAGEMENT
The following table sets forth the name, age as of December 31, 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....................................... 56 Director
Perry Golkin......................................... 44 Director
Henry R. Kravis...................................... 53 Director
George R. Roberts.................................... 54 Director
Michael T. Tokarz.................................... 48 Director
Jack L. Farnsworth................................... 52 Executive Vice President
James A. Warner...................................... 45 Vice President
Richard J. LeBrasseur................................ 55 Vice President
Michaelanne C. Discepolo............................. 45 Vice President
George Philips....................................... 67 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. Reilly is Chairman of the Executive
Committee of PRIMEDIA.
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. She is also a director
of Mecklermedia Corporation.
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. He
is the sole member of the Audit Committee.
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. Golkin is
a member of the Compensation and Executive Committees of PRIMEDIA.
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, The Gillette Company, IDEX Corporation, KinderCare
Learning Centers, Inc., Owens-
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Illinois Group, Inc., Owens-Illinois, Inc., Randall's Food Markets, Inc., RELTEC
Corporation, Safeway, Inc., Sotheby's Holdings, Inc., Union Texas Petroleum
Holdings, Inc. and World Color Press, Inc. Mr. Kravis is Chairman of the
Compensation Committee and serves on the Executive Committee of PRIMEDIA.
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, IDEX Corporation, KinderCare Learning Centers, Inc.,
Owens-Illinois Group, Inc., Owens-Illinois, Inc., Randall's Food Markets, Inc.,
RELTEC Corporation, 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, IDEX Corporation, Safeway, Inc. and Walter Industries, Inc. Mr.
Tokarz is a member of the Compensation and Executive Committees of PRIMEDIA.
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 PRIMEDIA Workplace Learning since June
1996.
Mr. Warner has been a Vice President of PRIMEDIA since March 1998 and
President of PRIMEDIA Specialty Magazines since February 1998. Prior to that
time, he was President of the CBS Television Network starting in 1995. From 1989
to 1995 he was President of CBS Enterprises.
Mr. LeBrasseur has been a Vice President of PRIMEDIA since March 1998,
President of the Supplemental Education Group since October 1997 and President
and Chief Executive Officer of Weekly Reader Corporation since April 1993.
Mr. Philips has been a Vice President of PRIMEDIA since May 1992.
Ms. Discepolo is a Vice President, Human Resources 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 OFFERS
PURPOSE AND EFFECT OF THE EXCHANGE OFFERS
The Old Notes and the Old Preferred Stock were issued by PRIMEDIA on
February 17, 1998 (the "Closing Date") to the Initial Purchasers, pursuant to
the Purchase Agreement. The Initial Purchasers subsequently sold the Old Notes
and the Old Preferred Stock to qualified institutional buyers in reliance on
Rule 144A and to non-U.S. persons pursuant to Regulation S, respectively, under
the Securities Act. As a condition to the Purchase Agreement, PRIMEDIA and the
Initial Purchasers entered into the Registration Rights Agreement on February
17, 1998. 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 Offers 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 Offers. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement is
intended to satisfy PRIMEDIA's obligations under the Registration Rights
Agreement and the Purchase Agreement.
As a result of the effectiveness of the Registration Statement of which this
Prospectus is a part, payment of certain liquidated damages provided for in the
Registration Rights Agreement will not occur. Following the consummation of the
Exchange Offers, holders of Old Notes and shares of Old Preferred Stock will not
have any further registration rights and the Old Notes and Old Preferred Stock
will continue to be subject to certain restrictions on transfer. See
"--Consequences of Failure to Exchange." Accordingly, the liquidity of the
market for the Old Notes and Old Preferred Stock could be adversely affected.
TERMS OF THE EXCHANGE OFFERS
Upon the terms and subject to the conditions set forth in this Prospectus
and in the applicable Letter of Transmittal, PRIMEDIA will accept (i) any Old
Notes in principal amounts of $1,000 validly tendered and not withdrawn prior to
the Expiration Date and (ii) any and all shares of Old Preferred Stock validly
tendered and not withdrawn prior to the Expiration Date. PRIMEDIA will issue (i)
New Notes in principal amounts of $1,000 for each $1,000 principal amount
outstanding of the Old Notes and (ii) one share of New Preferred Stock in
exchange for each share of Old Preferred Stock, accepted in the Exchange Offers.
Holders may tender some or all of their Old Notes or shares of Old Preferred
Stock pursuant to the Exchange Offers.
The form and terms of the New Notes and the New Preferred Stock are the same
as the form and terms of the Old Notes and the Old Preferred Stock except that
the New Notes and 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, $250,000,000 principal amount of Old
Notes and 2,500,000 shares of Old Preferred Stock were outstanding. Only a
registered holder of the Old Notes and 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 Notes or the Preferred Stock may
participate in the Exchange Offers. There will be no fixed record date for
determining registered holders of the Old Notes or the Old Preferred Stock
entitled to participate in the Exchange Offers.
Holders of the Old Preferred Stock do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Certificate of
Designations for the Old Preferred Stock in connection with the Preferred Stock
Exchange Offer. PRIMEDIA intends to conduct the Exchange Offers in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
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PRIMEDIA shall be deemed to have accepted validly tendered Old Notes or
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 Notes or the Old Preferred Stock for the
purposes of receiving the New Notes or the New Preferred Stock from PRIMEDIA.
If any tendered Old Notes or shares of Old Preferred Stock are not accepted
for exchange because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, certificates for any such unaccepted Old
Notes or shares of Old Preferred Stock will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes or shares of Old Preferred Stock in the
Exchange Offers will not be required to pay brokerage commissions or fees or,
subject to the instructions in the applicable Letter of Transmittal, transfer
taxes with respect to the exchange of Old Notes or shares of Old Preferred Stock
pursuant to the Exchange Offers. PRIMEDIA will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offers. See
"--Fees and Expenses."
Each broker-dealer that receives New Notes or New Preferred Stock for its
own account in exchange for Old Notes or Old Preferred Stock, where such New
Notes or New 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 Notes or 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 June
10, 1998, unless PRIMEDIA, in its sole discretion, extends the Exchange Offers,
in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offers is extended. The Company will not extend the Exchange
Offer beyond July 6, 1998.
In order to extend the Exchange Offers, 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 Old Notes or shares
of Old Preferred Stock, (ii) to extend the Exchange Offers, (iii) if any of the
conditions set forth below under "--Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offers, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (iv) to
amend the terms of the Exchange Offers in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offers are amended
in a manner determined by 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 holders of the Old Notes and the Old
Preferred Stock, and PRIMEDIA will extend the Exchange Offers for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to the registered holders, if the Exchange Offers would
otherwise expire during such five to ten business day period.
Without limiting the manner in which PRIMEDIA may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offers, 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
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<PAGE>
on a security listing as the owner of the Old Notes or the Old Preferred Stock)
of Old Notes or shares of Old Preferred Stock may tender such Old Notes or
shares of Old Preferred Stock in the Exchange Offers. To tender in the Exchange
Offers a holder must complete, sign and date the applicable Letter of
Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if
required by the applicable Letter of Transmittal and mail or otherwise deliver
such Letter of Transmittal or such facsimile, together with the Old Notes or the
shares of Old Preferred Stock and any other required documents, to the Exchange
Agent at the appropriate 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 applicable Letter of Transmittal.
THE METHOD OF DELIVERY OF THE OLD NOTES OR THE SHARES OF OLD PREFERRED STOCK
AND THE APPLICABLE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL, OLD NOTES
OR SHARES OF OLD PREFERRED STOCK SHOULD BE SENT TO 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 Notes and the Old
Preferred Stock at the book-entry transfer facility for the purpose of
facilitating the Exchange Offers, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of Old Notes and/or shares of Old
Preferred Stock by causing such book-entry transfer facility to transfer such
Old Notes and/or shares of Old Preferred Stock into the Exchange Agent's account
with respect to the Old Notes and/or shares of Old Preferred Stock in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of Old Notes and/or shares of Old Preferred Stock may be effected
through book-entry transfer into the Exchange Agent's accounts at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth on the back cover page of this Prospectus on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures.
Any beneficial owner whose Old Notes or shares of Old Preferred Stock are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. See "Instruction to Registered Holder from Beneficial Owner"
included with each Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Old Notes or 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 appropriate 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
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<PAGE>
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 a Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes or any shares of Old Preferred Stock listed therein,
such Old Notes or shares of Old Preferred Stock must be endorsed or accompanied
by a properly completed stock power, signed by such registered holder as such
registered holder's name appears on such Old Notes or shares of Old Preferred
Stock.
If a Letter of Transmittal, Old Notes or any shares of Old Preferred Stock
or stock powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
evidence satisfactory to PRIMEDIA of their authority to so act must be submitted
with such Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes or shares of Old
Preferred Stock will be determined by PRIMEDIA in its sole discretion, which
determination will be final and binding. PRIMEDIA reserves the absolute right to
reject any and all Old Notes or shares of Old Preferred Stock not properly
tendered or any Old Notes or shares of Old Preferred Stock 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 Old Notes or shares of Old Preferred Stock. PRIMEDIA's
interpretation of the terms and conditions of the Exchange Offers (including the
instructions in the Letters of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes or 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 Old Notes or 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 Old
Notes or the shares of Old Preferred Stock will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Old Notes or
shares of Old Preferred Stock received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the applicable Letter of Transmittal, as soon as
practicable following the Expiration Date.
By tendering, each registered holder will represent to PRIMEDIA that, among
other things, (i) the New Notes or the New Preferred Stock to be acquired by the
holder and any beneficial owner(s) of the Old Notes or the Old Preferred Stock
("Beneficial Owner(s)") in connection with the Exchange Offers are being
acquired by the holder and any Beneficial Owner(s) in the ordinary course of
business of the holder and any Beneficial Owner(s), (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the New Notes or the New Preferred Stock, (iii) the holder and
each Beneficial Owner acknowledge and agree that any person participating in the
Exchange Offers for the purpose of distributing the New Notes or the New
Preferred Stock must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the New Notes or the New Preferred Stock acquired by such person
and cannot rely on the position of the Staff of the Commission set forth in the
no-action letters that are discussed herein under "--Resales of the New Notes or
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 Notes or Old Preferred Stock acquired for
its own account as a result of market-making activities or other trading
activities and who receives New Notes or New Preferred Stock in the Exchange
Offers may be a statutory underwriter and must acknowledge that it will deliver
a
56
<PAGE>
prospectus in connection with any resale of such New Notes or 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 Notes
or New Preferred Stock received in exchange for Old Notes or Old Preferred Stock
where such Old Notes or Old Preferred Stock were 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."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes or shares of Old Preferred Stock
and (i) whose Old Notes or shares of Old Preferred Stock are not immediately
available, or (ii) who cannot deliver their Old Notes or shares of Old Preferred
Stock, the applicable Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date or complete the procedure for
book-entry transfer on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder, the certificate number(s) of such Old Notes or
shares of Old Preferred Stock and the principal amount of Old Notes or the
number of shares of Old Preferred Stock being tendered, stating that the tender
is being made thereby and guaranteeing that, within three business days after
the Expiration Date, the applicable Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes or shares of Old
Preferred Stock (or a confirmation of book-entry transfer of such Old Notes or
shares of Old Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility) and any other documents required by such Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) Such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Old Notes or
shares of Old Preferred Stock in proper form for transfer and all other
documents required by such 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 Old Notes or shares of Old Preferred
Stock according to the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of the Old Notes or shares of
Old Preferred Stock may be withdrawn at any time prior to the Expiration Date
or, if tendered notes or shares have not yet been accepted for exchange, after
the expiration of forty business days from the commencement of the Exchange
Offers.
To withdraw a tender of Old Notes or shares of Old Preferred Stock in the
Exchange Offers, a written or facsimile transmission notice of withdrawal must
be received by the Exchange Agent at its address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes or shares of Old Preferred Stock to be
withdrawn (the "Depositor"), (ii) identify the Old Notes or shares of Old
Preferred Stock to be withdrawn (including the certificate number or numbers and
principal amount of Notes or number of shares), and (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old
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Notes or shares of Old Preferred Stock were tendered (including any required
signature guarantees). If Old Notes or shares of Old Preferred Stock have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Old Notes or shares of Old
Preferred Stock or otherwise comply with the book-entry 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 Old Notes or shares
of Old Preferred Stock so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offers and no New Notes or shares of New
Preferred Stock will be issued with respect thereto unless the Old Notes or
shares of Old Preferred Stock so withdrawn are validly retendered. Properly
withdrawn Old Notes or shares of Old Preferred Stock may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the Expiration Date.
Any Old Notes or shares of Old Preferred Stock which have been tendered but
which are not accepted for exchange due to rejection of tender or termination of
the Exchange Offers, or which have been validly withdrawn, will be returned as
soon as practicable to the holder thereof without cost to such holder.
CONDITIONS OF THE EXCHANGE OFFERS
Notwithstanding any other term of the Exchange Offers, PRIMEDIA shall not be
required to accept for exchange, or exchange New Notes or shares of New
Preferred Stock for, any Old Notes or shares of Old Preferred Stock, and may
terminate the Exchange Offers as provided herein before the acceptance of such
Old Notes or shares of Old Preferred Stock, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offers
which, in the sole judgment of PRIMEDIA, might materially impair the ability
of PRIMEDIA to proceed with the Exchange Offers or materially impair the
contemplated benefits of the Exchange Offers 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 Offers or materially
impair the contemplated benefits of the Exchange Offers 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 Offers 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 Offers 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 Old Notes or shares of Old
Preferred Stock and return all tendered Old Notes or shares of Old Preferred
Stock to the tendering holders, (ii) extend the Exchange Offers and retain all
Old Notes or shares of Old Preferred Stock tendered prior to the Expiration
Date, subject, however, to the rights of holders to withdraw such Old Notes or
shares of Old Preferred Stock (see "--Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offers and accept all
validly tendered Old Notes or shares of Old Preferred Stock which have not been
withdrawn. If such determination or waiver constitutes a material change to the
Exchange Offers, PRIMEDIA will promptly disclose such determination or waiver by
means of a prospectus supplement
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that will be distributed to the registered holders, and PRIMEDIA will extend the
Exchange Offers for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offers would otherwise expire during such five to ten
business day period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offers. Questions and requests for assistance, requests for additional copies of
this Prospectus or of Letters of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
QUESTIONS AND REQUESTS RELATING TO THE NOTE EXCHANGE OFFER:
<TABLE>
<S> <C> <C>
BY MAIL: FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York (Eligible Institutions Only) The Bank of New York
101 Barclay Street, 7E (212) 815-6339 101 Barclay Street
New York, New York 10286 CONFIRM BY TELEPHONE: Corporate Trust Services Window
Attn: Reorganization Section, (212) 815-4146 Ground Level
7E: Vincent Jhingor FOR INFORMATION CALL: New York, New York 10286
(Registered or Certified Mail (212) 815-4146 Attn: Reorganization Section,
Recommended) 7E: Vincent Jhingor
</TABLE>
QUESTIONS AND REQUESTS RELATING TO THE PREFERRED STOCK EXCHANGE OFFER:
<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>
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
Offers and will not make any payments to brokers, dealers or others soliciting
acceptance of the Exchange Offers. 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 Offers 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 Notes or the Old Preferred Stock pursuant to the Exchange Offers. If,
however, a transfer tax is imposed for any reason other than the exchange of the
Old Notes or the Old Preferred Stock pursuant to the Exchange Offers, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxpayers or
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<PAGE>
exemption therefrom is not submitted with the applicable Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes or the shares of Old Preferred Stock which are not exchanged
for New Notes or shares of New Preferred Stock pursuant to the Exchange Offers
will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such Old Notes or the shares of Old Preferred Stock
may be resold only (i) to PRIMEDIA, its subsidiaries or the Initial Purchasers,
(ii) inside the United States to a qualified institutional buyer in compliance
with Rule 144A under the Securities Act, (iii) inside the United States to an
institutional accredited investor that, prior to such transfer, furnishes to
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 Notes or the Old Preferred Stock could be adversely
affected by the Exchange Offers. Following the consummation of the Exchange
Offers, holders of the Old Notes or the Old Preferred Stock will have no further
registration rights under the Registration Rights Agreement.
ACCOUNTING TREATMENT
The carrying value of the Old Notes or the Old Preferred Stock is not
expected to be materially different from the fair value of the New Notes or 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 Offers
associated with the New Notes will be reported as a non-current asset and
amortized over the term of the New Notes. The expenses of the Exchange Offers
associated with the New Preferred Stock will be reported as a reduction in the
carrying value of the New Preferred Stock. Such carrying value of the New
Preferred Stock will increase to the amount of the redemption value of the New
Preferred Stock over the term of the New Preferred Stock.
RESALES OF THE NEW NOTES AND THE NEW PREFERRED STOCK
With respect to resales of the New Notes or the New Preferred Stock, based
on interpretations by the staff of the SEC set forth in no-action letters issued
to third parties, and in a previous no-action letter issued to 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 Old Notes or shares of Old
Preferred Stock for New Notes or shares of New Preferred Stock in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the New Notes or the New Preferred Stock, will be allowed to
resell the New Notes or the New Preferred Stock to the public without further
registration under the Securities Act and without delivering to the purchasers
of the New Notes or the New Preferred Stock a prospectus that satisfies the
requirements of Section 10 thereof. However, if any holder acquires New Notes or
shares of New Preferred Stock in the Exchange Offers for the purpose of
distributing or participating in a distribution of the New Notes or the New
Preferred Stock, such holder cannot rely on the position of the staff of the SEC
in such no-action letter and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
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available. Each broker-dealer that receives New Notes or New Preferred Stock for
its own account in exchange for Old Notes or Old Preferred Stock, where such Old
Notes or 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 Notes or 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 Offers is required to represent to
PRIMEDIA in the applicable 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 New Notes or 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 Notes or the New
Preferred Stock, and (iv) the holder acknowledges that if such holder
participates in such Exchange Offers for the purpose of distributing the New
Notes or the New Preferred Stock such holder must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the New Notes or the New Preferred Stock and cannot rely on
the above no-action letter; however, holders of the New Notes or the New
Preferred Stock will have no registration rights under the Registration Rights
Agreement.
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DESCRIPTION OF NOTES
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes will have been registered under the
Securities Act and thus will not bear restrictive legends restricting their
transfer pursuant to the Securities Act and (ii) holders of New Notes will not
be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement which will terminate upon the consummation of the Note Exchange
Offer. The summary contained herein of certain provisions of the Notes does not
purport to be completed and is qualified in its entirety by reference to the
provisions of the Note Indenture.
GENERAL
The Old Notes have been and the New Notes will be issued pursuant to the
Note Indenture entered into among PRIMEDIA, the Guarantors and The Bank of New
York, as trustee (the "Trustee"). The terms of the Notes include those stated in
the Note Indenture and those made part of the Note Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes
are subject to all such terms, and holders of the Notes are referred to the Note
Indenture and the Trust Indenture Act for a statement thereof. A copy of the
Note Indenture is available upon request. The definitions of certain terms used
in the following summary are set forth below under "--Certain Definitions."
Other terms used in this summary but not defined in this Prospectus shall have
the meanings given to them in the Note Indenture.
The Notes rank senior in right of payment to all subordinated indebtedness
of the Company, and will be guaranteed on a senior basis by each of the domestic
wholly-owned Restricted Subsidiaries of PRIMEDIA. Such subordinated indebtedness
will be limited to the Class D Subordinated Debentures, Class F Subordinated
Debentures and 8 5/8% Subordinated Debentures, if and when the same are issued
at the option of PRIMEDIA in exchange for the Series D Preferred Stock, Series F
Preferred Stock and Preferred Stock, respectively, and additional subordinated
indebtedness that is permitted to be incurred by the terms of the Credit
Facilities, the Senior Note Indentures and such other senior indebtedness as
PRIMEDIA may have outstanding from time to time. When the New Notes are issued,
the Company will have no subordinated indebtedness outstanding. The Company has
no current intention to issue subordinated indebtedness. The Notes rank PARI
PASSU in right of payment with all senior indebtedness, including the Company's
obligations under the Credit Facilities and the Outstanding Notes. As used
herein, the statement that certain indebtedness ranks PARI PASSU with other
indebtedness means only that in the event of the bankruptcy or insolvency of the
debtor such certain indebtedness and such other indebtedness will have an equal
claim on money or other property of the debtor available for distribution. Based
on outstanding indebtedness at December 31, 1997, after giving effect to the
Offerings, the KKR Fund Investment and the application of the net proceeds
therefrom, the aggregate principal amount of indebtedness under the Credit
Facilities would have been approximately $707.7 million and indebtedness under
the Senior Notes would have been $647.5 million, none of which would have been
secured. The Company's obligations under the Notes are effectively subordinated
to any liabilities and obligations (whether or not for borrowed money),
including trade credit, of any Subsidiaries of the Company that are not
Guarantors.
The operations of PRIMEDIA are and generally will be conducted through its
subsidiaries, and, therefore, PRIMEDIA depends upon the cash flow of its
subsidiaries to meet its obligations, including its obligations under the Notes.
The Notes are guaranteed on a senior basis by each of the domestic wholly-owned
Restricted Subsidiaries of PRIMEDIA. As a result, the claims of holders of the
Notes will be at least PARI PASSU with all existing and future liabilities and
obligations (whether or not for borrowed money), including trade credit, of such
subsidiaries. The Note Indenture, however, permits the Company to organize
Unrestricted Subsidiaries, Partially Owned Restricted Subsidiaries and foreign
Restricted Subsidiaries which would not be required to guarantee the Notes or
any other indebtedness of the Company.
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PRINCIPAL, MATURITY, AND INTEREST
The Notes initially are limited in aggregate principal amount to $250.0
million and will mature on April 1, 2008. Additional Notes may be issued from
time to time, subject to the provisions of the Indenture described below under
the caption INCURRENCE OF INDEBTEDNESS. The Old Notes, New Notes and any
additional Notes subsequently issued would be treated as a single class for all
purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Interest on the Old Notes has
accrued from the date of issuance at the rate of 7 5/8% per annum and is payable
semi-annually on April 1 and October 1, commencing on October 1, 1998, to
holders of record on the immediately preceding March 15 and September 15.
Interest on the New Notes will accrue from the date the New Notes are exchanged
for the Old Notes. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. The Notes will be payable both as to
principal and interest at the office or agency of PRIMEDIA maintained for such
purpose within or without the City and State of New York or, at the option of
PRIMEDIA, payment of interest may be made by check mailed to the holders of the
Notes at their respective addresses set forth in the register of holders of
Notes. Until otherwise designated by PRIMEDIA, its office or agency in New York
will be the office of the Trustee maintained for such purpose. The New Notes
will be issued in registered form, without coupons, in denominations of $1,000
and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes are not redeemable at PRIMEDIA's option before April 1, 2003
(other than in connection with a Change of Control, as described below).
Thereafter, the Notes 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 unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning April 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 103.813%
2004.............................................................................. 102.542
2005.............................................................................. 101.271
2006 and thereafter............................................................... 100.000
</TABLE>
The Credit Facilities restrict the optional redemption or the repayment of
the Notes, and the Outstanding Note Indentures make such redemption or
prepayment a Restricted Payment (as defined in the Outstanding Note Indentures).
SINKING FUND
There will be no sinking fund payments for the Notes.
CHANGE OF CONTROL
HOLDERS' RIGHT TO REQUIRE REPURCHASE UPON CHANGE OF CONTROL. Upon the
occurrence of a Change of Control, each holder shall have the right to require
the repurchase of such holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the aggregate
principal amount plus accrued and unpaid interest, if any, to the date of
purchase (the "Change of Control Payment"). The redemption prices for optional
redemptions in the event of a Change of Control would in all cases be equal to
or greater than this repurchase price. Because of the highly leveraged nature of
the Company, there can be no assurance that PRIMEDIA will have sufficient funds
to repurchase the Notes in the event of a Change of Control. The right of the
holders of the Notes to require PRIMEDIA to repurchase the Notes in the event of
a Change of Control cannot be waived by the Trustee, PRIMEDIA or
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PRIMEDIA's Board of Directors. Within 40 days following any Change of Control,
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 and that
all Notes tendered will be accepted for payment; (2) the purchase price and the
purchase date, which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"); (3)
that any Note not tendered will continue to accrue interest; (4) that, unless
the Company defaults in the payment of the Change of Control Payment, all Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date; (5) that holders
electing to have any Notes purchased pursuant to a Change of Control Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the Business
Day preceding the Change of Control Payment Date; (6) that holders will be
entitled to withdraw their election if the Paying Agent receives, not later than
the close of business on the third Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the holder, the principal amount of the Notes delivered for
purchase, and a statement that such holder is withdrawing his election to have
such Notes purchased and (7) that holders whose Notes are being purchased only
in part will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided that each Holder will tender Notes,
and each Note purchased and each such new Note issued by PRIMEDIA will be in a
principal amount of $1,000 or integral multiples thereof.
On the Change of Control Payment Date, PRIMEDIA will, to the extent lawful,
(1) accept for payment Notes or portions thereof tendered pursuant to the Change
of Control Offer, (2) deposit with the Paying Agent (as defined in the Note
Indenture) an amount equal to the Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee, the Notes so accepted together with an officers' certificate
stating the Notes or portions thereof that were tendered to PRIMEDIA. The Paying
Agent shall promptly mail to each holder of Notes so accepted, payment in an
amount equal to the purchase price for such Notes, and the Trustee shall
promptly authenticate and mail to such holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; PROVIDED that each
such new Note shall be in a principal amount of $1,000 or integral multiples
thereof. 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.
Indebtedness under the Credit Agreements will automatically accelerate upon
the earlier of 30 days from the Change of Control and the Change of Control
Payment Date. If the Company has insufficient funds with which to repay the
indebtedness under the Credit Agreements and to repurchase the Notes, the
holders of the Notes will have a claim on the funds of the Company equal to that
of the lenders under the Credit Agreements.
OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. In addition to the rights set
forth under "Optional Redemption," the Notes will be redeemable, at the option
of 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 Notes to be redeemed, at a redemption price equal to the sum of (i) the then
outstanding principal amount thereof plus (ii) accrued and unpaid interest, if
any, to the redemption date plus (iii) the Applicable Premium. The following
definitions are used to determine the Applicable Premium:
"Applicable Premium" with respect to the Notes shall be calculated with
respect to the date of redemption and shall equal the greater of (i) 1.0% of the
then outstanding principal amount of such Notes and (ii) the excess of (A) the
present value of the required interest and principal payments due on such Notes,
computed using a discount rate equal to the Treasury Rate plus the Applicable
Spread, over (B) the then outstanding principal amount of such Notes.
"Applicable Spread", for purposes of the Note Indenture, is defined as one
half of one percent.
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"Treasury Rate", for purposes of the Note Indenture, is defined as the yield
to maturity at the time of computation of United States Treasury securities with
a constant maturity (as compiled by and published in the most recent Federal
Reserve Statistical Release H.15 (519) which has become publicly available at
least two business days prior to the date fixed for prepayment (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining Average Life of
the Notes; PROVIDED, that if the Average Life of the Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the Average Life of the Notes is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
The redemption prices in an optional redemption upon a Change of Control
will in all cases be equal to or higher than the price applicable to a
repurchase upon a Change of Control required by a holder. If PRIMEDIA were to
effect an optional Change of Control redemption before the Change of Control
Payment Date, holders that had previously tendered Notes to PRIMEDIA for
repurchase could withdraw such tenders prior to the Change of Control Payment
Date so as to participate in the optional redemption. However, PRIMEDIA would
have no obligation to announce such an optional Change of Control redemption
prior to the closing of the mandatory Change of Control Offer.
PRIMEDIA will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes triggered by a Change of Control.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
the Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; PROVIDED that no Notes of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Note. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
CERTAIN COVENANTS
LIMITATIONS ON RESTRICTED PAYMENTS. 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 or any of its
Restricted Subsidiaries' Capital Stock or other Equity Interests (other than (A)
dividends or distributions payable in Equity Interests (other than Redeemable
Stock) of PRIMEDIA or such Restricted Subsidiary or (B) dividends or
distributions payable to PRIMEDIA or any of its Restricted Subsidiaries), (ii)
(A) voluntarily purchase, redeem or otherwise acquire or retire for value any
preferred stock of PRIMEDIA or any of its Restricted Subsidiaries which, by its
terms, is exchangeable for any Indebtedness ("Exchangeable Preferred Stock")
that is PARI PASSU with or subordinated in right of payment to the Notes or (B)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
(other than Exchangeable Preferred Stock) of PRIMEDIA or any of its Restricted
Subsidiaries (other than any such Equity Interests purchased from PRIMEDIA or
any of its Restricted Subsidiaries), (iii) voluntarily purchase, repay, redeem,
defease (including, but not limited to, covenant or legal defeasance) or
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otherwise acquire or retire for value any Indebtedness (other than (A) the
Notes, (B) Indebtedness under the Credit Facilities, (C) Indebtedness permitted
under clause (v) or (vi) of the second paragraph of the INCURRENCE OF
INDEBTEDNESS covenant and any extension, refinancing, renewal, replacement,
substitution or refunding thereof permitted under clause (vii) of the second
paragraph of the INCURRENCE OF INDEBTEDNESS covenant or (D) Indebtedness between
and among PRIMEDIA and its Restricted Subsidiaries) that is PARI PASSU with or
subordinated in right of payment to the Notes (other than in connection with the
refunding or refinancing of such Indebtedness) or (iv) make Investments in
Restricted Payment Unrestricted Subsidiaries (the foregoing actions set forth in
clauses (i) through (iv) being referred to as "Restricted Payments"), if, at the
time of such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) PRIMEDIA could not incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of the INCURRENCE OF INDEBTEDNESS covenant
(without giving effect to clauses (i) through (xv) of the second paragraph
thereof), which calculation shall be made on a pro forma basis deducting
from Adjusted Consolidated Net Income the amount of any Investment PRIMEDIA
has made in an Unrestricted Subsidiary during the relevant period and any
Investment PRIMEDIA intends to make in an Unrestricted Subsidiary, to the
extent that such Investment is made with amounts included in Adjusted
Consolidated Net Income as a result of Transfers described in clause (c)(x)
below or clause (c)(y) of the INVESTMENTS IN UNRESTRICTED SUBSIDIARIES
covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after May 13, 1992, exceeds the sum of the
following: (w) 50% of the amount of the Adjusted Consolidated Net Income
(other than amounts included in the next succeeding clause (c)(x)) of
PRIMEDIA for the period (taken as one accounting period) from the beginning
of the first quarter commencing immediately after May 13, 1992, through the
end of PRIMEDIA's fiscal quarter ending immediately prior to the time of
such Restricted Payment (or, if Adjusted Consolidated Net Income for such
period is a deficit, 100% of such deficit); PLUS (x) 100% of the amount of
all Transfers from a Restricted Payment Unrestricted Subsidiary up to the
aggregate amount of the Investment (after taking into account all prior
Transfers from such Restricted Payment Unrestricted Subsidiary) in such
Restricted Payment Unrestricted Subsidiary (valued in each case as provided
in the definition of "Investment"); PLUS (y) in the event of a designation
of a Restricted Payment Unrestricted Subsidiary as a Restricted Subsidiary,
100% of an amount equal to the greater of (A) the fair market value of such
Subsidiary as determined by the Board of Directors in good faith (or, if
such fair market value may exceed $25.0 million, as determined in writing by
an independent investment banking firm of nationally recognized standing) at
the time of the redesignation of such Restricted Payment Unrestricted
Subsidiary as a Restricted Subsidiary and (B) the Consolidated Net Cash Flow
generated by such Subsidiary for the period (taken as one accounting period)
from the beginning of its first fiscal quarter commencing immediately after
the date of its designation as a Restricted Payment Unrestricted Subsidiary
through such Subsidiary's fiscal quarter ending immediately prior to its
designation as a Restricted Subsidiary (or if such Consolidated Net Cash
Flow for such period is a deficit, 100% of such deficit); PLUS (z) 100% of
the aggregate net cash proceeds received by PRIMEDIA from (i) the issuance
or sale of Equity Interests of PRIMEDIA (other than such Equity Interests
issued or sold to a Restricted Subsidiary of PRIMEDIA and other than
Redeemable Stock) or (ii) the sale of the stock of an Unrestricted
Subsidiary or the sale of all or substantially all of the assets of an
Unrestricted Subsidiary to the extent that a liquidating dividend is paid to
PRIMEDIA or any Restricted Subsidiary from the proceeds of such sale;
PROVIDED, however, that for purposes of making Investments in Unrestricted
Subsidiaries, if the amount determined in accordance with clauses (w) or (y)
above is a deficit, such deficit shall be excluded from the computation of
this clause (c); and PROVIDED, further, that all such amounts applied
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pursuant to this clause (c) shall not be available for application under
clause (c) of the INVESTMENTS IN UNRESTRICTED SUBSIDIARIES covenant.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the Note
Indenture; (ii) (A) the retirement of any shares of PRIMEDIA's Capital Stock
(the "Retired Capital Stock") either (1) in exchange for or (2) out of the net
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of PRIMEDIA) of other shares of, PRIMEDIA's Capital Stock (the
"Refunding Capital Stock") other than any Redeemable Stock, and (B) if
immediately prior to such retirement of such Retired Capital Stock the
declaration and payment of dividends thereon was permitted under either clause
(iii) or (vii) of this paragraph, the declaration and payment of dividends on
the Refunding Capital Stock in an aggregate amount per year no greater than the
aggregate amount of dividends per year that was declarable and payable on such
Retired Capital Stock immediately prior to such retirement; (iii) the
declaration and payment of dividends to the holders of the Series D Preferred
Stock, Series F Preferred Stock and Preferred Stock; (iv) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of PRIMEDIA issued to present and former members of management of PRIMEDIA and
its Subsidiaries pursuant to subscription and option agreements in effect on the
date of the Note Indenture and Equity Interests of PRIMEDIA issued to future
members of management pursuant to subscription agreements executed subsequent to
the date of the Note Indenture, containing provisions for the repurchase of such
Equity Interests upon death, disability or termination of employment of such
persons which are substantially identical to those contained in the subscription
agreements in effect on the date of the Note Indenture; (v) the declaration and
payment of dividends on the Common Stock of up to $25.0 million per annum plus
6% per annum of the net proceeds received at any time by PRIMEDIA from (a) the
issue or sale of Common Stock or (b) (1) the issuance of securities convertible
into Common Stock (other than any such convertible securities issued to (A)
members of the Company's management or its Board of Directors and (B) any
Subsidiary of the Company) and (2) the conversion of such convertible securities
into Common Stock, in both cases at the time of such conversion into Common
Stock; (vi) the repurchase, redemption or other acquisition or retirement for
value of Indebtedness of PRIMEDIA which is subordinated in right of payment to
the Notes either (A) in exchange for or (B) with the proceeds of the issuance
of, Equity Interests (other than Redeemable Stock) of PRIMEDIA; (vii) the
declaration and payment of dividends to holders of any class or series of
PRIMEDIA's preferred stock issued after the date of the Note Indenture
(including, without limitation, the declaration and payment of dividends on
Refunding Capital Stock in excess of the dividends declarable and payable
thereon pursuant to clause (ii) of this paragraph); PROVIDED that at the time of
such issuance PRIMEDIA's Fixed Charge Coverage Ratio, after giving effect to
such issuance, would be greater than 1.25 to 1; (viii) the redemption,
repurchase or other acquisition or retirement for value of any Indebtedness of
PRIMEDIA which is subordinated in right of payment to the Notes (A) with the
proceeds of, or in exchange for, Indebtedness incurred pursuant to clause (vii)
of the second paragraph of the INCURRENCE OF INDEBTEDNESS covenant or (B) if,
after giving effect to such redemption, repurchase or retirement, PRIMEDIA could
incur at least $1.00 of Indebtedness under the first paragraph of the INCURRENCE
OF INDEBTEDNESS covenant (without giving effect to clauses (i) through (xv) of
the second paragraph thereof); (ix) the retirement of the Series D Preferred
Stock, Series F Preferred Stock and Preferred Stock in exchange for the issuance
of the Class D Subordinated Debentures, Class F Subordinated Debentures and
8 5/8% Subordinated Debentures, respectively, pursuant to the respective
certificates of designations relating thereto, (x) the purchase of Class D
Subordinated Debentures, Class F Subordinated Debentures and 8 5/8% Subordinated
Debentures in accordance with the CHANGE OF CONTROL covenants in the Class D
Debenture Indenture, Class F Debenture Indenture and 8 5/8% Debenture Indenture,
respectively; (xi) Investments in Unrestricted Subsidiaries having an aggregate
fair market value, when taken together with all other Investments made pursuant
to this clause (xi) that are at that time outstanding, not to exceed $50.0
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value); (xii) the repurchase,
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retirement or other acquisition for value of Equity Interests of the Company
which are not held by KKR or any of its Affiliates; PROVIDED, that (A) the
aggregate Restricted Payments made under this clause (xii) shall not exceed $75
million and (B) immediately after giving effect to each Restricted Payment made
pursuant to this clause (xii) on a pro forma basis, PRIMEDIA could incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph of the
INCURRENCE OF INDEBTEDNESS covenant and (xiii) other Restricted Payments in an
aggregate amount not to exceed $25 million; PROVIDED that in determining the
aggregate amount expended for Restricted Payments in accordance with paragraph
(c) above, (1) no amounts expended under clauses (ii)(A)(1), (vi)(A), (viii) and
(ix) of this paragraph will be included, (2) 100% of the amounts expended under
clauses (ii)(A)(2), (iv), (v), (vi)(B), (vii), (x), (xi), (xii) and (xiii) of
this paragraph will be included, (3) 50% of the amounts expended under clause
(iii) of this paragraph will be included, (4) amounts expended under clause
(ii)(B) of this paragraph will be included to the extent previously included for
the Retired Capital Stock and (5) 100% of the amounts expended under clause (i)
to the extent not included under subclauses (1) through (4) of this proviso will
be included. For the purposes of determining compliance with this covenant, in
the event that a Restricted Payment meets the criteria of more than one of the
categories of permitted Restricted Payments described in clauses (i) through
(xiii) above or is entitled to be incurred pursuant to the first paragraph of
this covenant (including clauses (a), (b) and (c) thereof), PRIMEDIA shall, in
its sole discretion, classify such Restricted Payment in any manner that
complies with the covenants described above and such Restricted Payment will be
treated as having been made pursuant to only one of such clauses or pursuant to
the first paragraph hereof.
Not later than the date of making any Restricted Payment, PRIMEDIA shall
deliver to the Trustee an Officer's Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the RESTRICTED PAYMENTS covenant were computed, which calculations
may be based on the Company's latest available internal financial statements.
INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. PRIMEDIA will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, make any Investment
in any Unrestricted Subsidiary, if at the time of such Investment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately before such Investment, PRIMEDIA would not be permitted
to incur at least $1.00 of Indebtedness pursuant to the first paragraph of
the INCURRENCE OF INDEBTEDNESS covenant (without giving effect to clauses
(i) through (xv) of the second paragraph thereof), which calculation shall
be made on a pro forma basis deducting from Adjusted Consolidated Net Income
the amount of any Investment PRIMEDIA has made in an Unrestricted Subsidiary
during the relevant period and any Investment PRIMEDIA intends to make in an
Unrestricted Subsidiary, to the extent that such Investment is made with
amounts included in Adjusted Consolidated Net Income as a result of the
Transfers described in clause (c)(x) of the LIMITATIONS ON RESTRICTED
PAYMENTS covenant or clause (c)(y) below; or
(c) such Investment, together with the aggregate of all other
Investments in Unrestricted Subsidiaries made after May 13, 1992, exceeds
(w) the aggregate Consolidated Net Cash Flow of PRIMEDIA for the period
(taken as one accounting period) from the beginning of the first quarter
immediately after May 13, 1992, to the end of PRIMEDIA's most recently ended
fiscal quarter at the time of such Investment; PLUS (x) 100% of the
aggregate net cash proceeds received by PRIMEDIA from (i) the issue or sale
of Equity Interests of PRIMEDIA (other than such Equity Interests issued or
sold to a Restricted Subsidiary of PRIMEDIA and other than Redeemable Stock)
or (ii) the sale of the stock of an Unrestricted Subsidiary or the sale of
all or substantially all of the assets of an Unrestricted Subsidiary to the
extent that a liquidating dividend is paid to PRIMEDIA or any Restricted
Subsidiary from the proceeds of such sale; PLUS (y) 100% of the amount of
all Transfers from a Net Cash Flow Unrestricted Subsidiary up to the
aggregate Investment (after taking into account all prior Transfers from
such Net Cash Flow Unrestricted Subsidiary) in such Net Cash Flow
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Unrestricted Subsidiary resulting from such payments or transfers of assets
(valued in each case as provided in the definition of "Investment"); PLUS
(z) in the event of a designation of a Net Cash Flow Unrestricted Subsidiary
as a Restricted Subsidiary, 100% of an amount equal to the greater of (A)
the fair market value of such Subsidiary as determined by the Board of
Directors in good faith (or, if such fair market value may exceed $25.0
million, as determined in writing by an independent investment banking firm
of nationally recognized standing) at the time of the redesignation of such
Net Cash Flow Unrestricted Subsidiary as a Restricted Subsidiary and (B) the
Consolidated Net Cash Flow generated by such Subsidiary for the period
(taken as one accounting period) from the beginning of its first fiscal
quarter commencing immediately after the date of its designation as a Net
Cash Flow Unrestricted Subsidiary through such Subsidiary's fiscal quarter
ending immediately prior to its designation as a Restricted Subsidiary (or
if such Consolidated Net Cash Flow for such period is a deficit, 100% of
such deficit):
PROVIDED that all such amounts applied pursuant to this clause (c) shall not
be available for application under clause (c) of the RESTRICTED PAYMENTS
covenant.
The foregoing limitations will not apply to an Investment to the extent that
it is (i) to capitalize a Restricted Payment Unrestricted Subsidiary permitted
pursuant to the LIMITATIONS ON RESTRICTED PAYMENTS covenant; (ii) funded by the
issuance of Equity Interests of PRIMEDIA to the extent net proceeds are not used
to fund an optional redemption of Notes and (iii) Investments in Unrestricted
Subsidiaries having an aggregate fair market value, when taken together with all
other Investments made pursuant to this clause (iii) that are at that time
outstanding, not to exceed $50.0 million at the time of such Investment (with
the fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value). For the purposes of
determining compliance with this covenant, in the event that the making of an
Investment in an Unrestricted Subsidiary meets the criteria of more than one of
the categories of permitted Investments in Unrestricted Subsidiaries described
in clauses (i) through (iii) above or is entitled to be incurred pursuant to the
first paragraph of this covenant (including clauses (a), (b) and (c) thereof),
PRIMEDIA shall, in its sole discretion, classify such Investment in an
Unrestricted Subsidiary in any manner that complies with the covenants described
above and Investment in an Unrestricted Subsidiary will be treated as having
been made pursuant to only one of such clauses or pursuant to the first
paragraph hereof.
All Net Cash Flow Unrestricted Subsidiaries of PRIMEDIA shall at all times
remain wholly-owned, directly or indirectly, by PRIMEDIA or a wholly-owned
Restricted Subsidiary of PRIMEDIA.
Not later than the date of making any Investment described above, PRIMEDIA
shall deliver to the Trustee an Officer's Certificate stating that such
Investment is permitted (including, without limitation, whether such Investment
is capitalizing a Net Cash Flow Unrestricted Subsidiary or a Restricted Payment
Unrestricted Subsidiary) and setting forth the basis upon which the calculations
required by the INVESTMENTS IN UNRESTRICTED SUBSIDIARIES covenant were computed,
which calculations may be based on the Company's latest available internal
financial statements.
DIVIDENDS AND PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. PRIMEDIA will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock, or any other interest or participation in, or measured by,
its profits, owned by PRIMEDIA or any of its Restricted Subsidiaries, or pay any
Indebtedness owed to PRIMEDIA or any of its Restricted Subsidiaries, (ii) make
loans or advances to PRIMEDIA or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to PRIMEDIA or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of: (A) the terms (as in effect on the date of the Note Indenture) of the
Existing Indebtedness, (B) the terms (as in effect on the date of the Note
Indenture) of the Credit Facilities and the Outstanding Notes and Outstanding
Note Indentures, (C) the terms of Indebtedness of PRIMEDIA incurred in
accordance with the INCURRENCE OF INDEBTEDNESS covenant; PROVIDED that such
terms of any such Indebtedness constitute no greater encumbrance or restriction
on the ability of any Restricted Subsidiary
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to pay dividends or make distributions, make loans or advances or transfer
properties or assets than is permitted by this covenant, (D) the terms of the
Note Indenture and the Notes, (E) applicable law, (F) customary non-assignment
provisions entered into in the ordinary course of business and consistent with
past practices, (G) the terms of purchase money obligations for property
acquired in the ordinary course of business, but only to the extent that such
purchase money obligations restrict or prohibit the transfer of the property so
acquired, (H) the terms of the Class D Subordinated Debentures, the Class D
Debenture Indenture, Class F Subordinated Debentures, Class F Debenture
Indenture, 8 5/8% Subordinated Debentures and 8 5/8% Debenture Indenture, (I)
any encumbrance or restriction with respect to a Subsidiary of PRIMEDIA that is
not a Subsidiary of PRIMEDIA on the date of the Note Indenture, which
encumbrance or restriction is in existence at the time such person becomes a
Subsidiary of PRIMEDIA or is created on the date it becomes a Subsidiary of
PRIMEDIA, (J) any encumbrance or restriction with respect to a Subsidiary of
PRIMEDIA imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all the Capital Stock or assets of
such Subsidiary, (K) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business, (L)
customary provisions contained in leases and other agreements entered into in
the ordinary course of business, (M) the terms of any Indebtedness for borrowed
money of any Partially Owned Restricted Subsidiary or (N) any encumbrance or
restriction existing under any agreement which refinances or replaces the
agreements described in clauses (A), (B), (D), (H), (K), (L) and (M), PROVIDED
that the terms and conditions of any such encumbrances or restrictions contained
in any such agreement constitute no greater encumbrance or restriction on the
ability of any Restricted Subsidiary to pay dividends or make distributions,
make loans or advances or transfer properties or assets than those under or
pursuant to the agreement evidencing the Indebtedness or obligations refinanced.
Nothing contained in this covenant shall prevent PRIMEDIA or a Restricted
Subsidiary from entering into any agreement permitting or providing for the
incurrence of Liens otherwise permitted by the LIMITATION ON LIENS covenant.
INCURRENCE OF INDEBTEDNESS. PRIMEDIA will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness unless PRIMEDIA's Debt to Consolidated Cash Flow Ratio for
its four full fiscal quarters ending immediately prior to the date such
additional Indebtedness is created, incurred, issued, assumed or guaranteed
would have been no greater than 6 to 1, and such Indebtedness is not senior in
right of payment to the Notes; PROVIDED that such calculation shall give effect
to (A) the incurrence of any Indebtedness (after giving effect to the
application of the proceeds thereof) in connection with the simultaneous
acquisition of any person, business, property or assets, and (B) the
Consolidated Cash Flow generated by such acquired person, business, property or
assets, giving effect in each case to such incurrence of Indebtedness,
application of proceeds and Consolidated Cash Flow as if such acquisition had
occurred at the beginning of such four quarter period. For purposes of the
foregoing provision, cash flow generated by any acquired person, business,
property or asset shall be determined on the same basis as the definition of
Consolidated Cash Flow and shall be based on the actual earnings before
interest, taxes, depreciation and amortization of such acquired person,
business, property or asset during the immediately preceding four full fiscal
quarters PLUS (y) (i) the savings in cost of goods sold that would have resulted
during that period from the effect of using the Company's actual costs for
comparable goods and services during that period and (ii) other savings in cost
of goods sold or eliminations of selling, general and administrative expenses as
determined by PRIMEDIA in good faith in its consideration of such acquisitions
and consistent with the Company's experiences in acquisitions of similar
businesses MINUS (z) the incremental expenses that would be included in cost of
goods sold and selling, general and administrative expenses that would have been
incurred by the Company in the operation of such acquired person, business,
property or assets during such period.
The foregoing limitations will not apply to the incurrence of (i)
Indebtedness pursuant to the Credit Facilities (PROVIDED that the principal
amount of such Indebtedness shall not exceed $1.65 billion, less the amount of
all repayments made in respect of term loans and of all permanent commitment
reductions with respect to revolving loans (except to the extent, and only to
the extent, that any required repayments of principal in connection with such
commitment reduction are not made) made under the Credit Facilities
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(excluding such repayments and commitment reductions which occur substantially
contemporaneously with a refinancing or a refunding thereof)), plus any amounts
then available under clause (vi) of this paragraph; (ii) Existing Indebtedness;
(iii) Indebtedness represented by the Outstanding Notes; (iv) the Class D
Subordinated Debentures issued in exchange for all the outstanding Series D
Preferred Stock, the Class F Subordinated Debentures issued in exchange for all
the outstanding Series F Preferred Stock and the 8 5/8% Subordinated Debentures
issued in exchange for all the outstanding Preferred Stock; (v) Capital Lease
Obligations in an aggregate principal amount which, when aggregated with the
principal amount of all other Capital Lease Obligations then outstanding and
incurred pursuant to this clause (v) and including all Refinancing Indebtedness
(as defined below) incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (v), does not exceed 5% of Total
Assets; (vi) Indebtedness in an aggregate principal amount equal to the greater
of (A) $225 million in the aggregate at any one time outstanding for PRIMEDIA
and its Restricted Subsidiaries or (B) Indebtedness created, incurred, issued,
assumed or guaranteed (x) by PRIMEDIA at any one time outstanding not in excess
of 7% of the Consolidated Net Worth of PRIMEDIA at the time of such creation,
incurrence, issuance, assumption or guarantee or (y) by any Restricted
Subsidiary of PRIMEDIA at any one time outstanding not in excess of 7% of the
Consolidated Net Worth of such Restricted Subsidiary at the time of such
creation, incurrence, issuance, assumption or guarantee; (vii) Indebtedness
created, incurred, issued, assumed or guaranteed in exchange for or the proceeds
of which are used to extend, refinance, renew, replace, substitute or refund
Indebtedness referred to in clauses (i) through (vi) above, including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness"); PROVIDED, that (A) the principal amount of such
Refinancing Indebtedness shall not exceed the principal amount of Indebtedness
(including unused commitments and additional Indebtedness incurred to pay
premiums and fees in connection therewith ) so extended, refinanced, renewed,
replaced, substituted or refunded PLUS any amounts then available under clause
(vi) of this paragraph, (B) in the case of Refinancing Indebtedness for
Indebtedness permitted under clauses (ii) and (iv) of this paragraph, the
Refinancing Indebtedness permitted under clauses (ii) and (iv) of this paragraph
shall have an Average Life equal to or greater than the Average Life of the
Indebtedness being extended, refinanced, renewed, replaced, substituted or
refunded and (C) the Refinancing Indebtedness for Indebtedness permitted under
clauses (ii) and (iv) of this paragraph shall rank, in right of payment, no more
senior than such Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded and the Refinancing Indebtedness for Indebtedness
permitted under clauses (i), (iii), (v) and (vi) of this paragraph shall rank,
in right of payment, PARI PASSU with or junior to the Notes; (viii) intercompany
Indebtedness incurred in connection with Investments in Unrestricted
Subsidiaries; PROVIDED that such Investments are permitted by the LIMITATIONS ON
RESTRICTED PAYMENTS covenant or the INVESTMENTS IN UNRESTRICTED SUBSIDIARIES
covenant; (ix) Indebtedness under Currency Agreements and Interest Rate
Agreements, PROVIDED that in the case of Currency Agreements which relate to
other Indebtedness, such Currency Agreements do not increase the Indebtedness of
PRIMEDIA outstanding other than as a result of fluctuations in foreign currency
exchange rates; (x) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of PRIMEDIA or any Restricted Subsidiary of PRIMEDIA pursuant to
such agreements, incurred or assumed by the acquired Subsidiary in connection
with the acquisition or disposition of any business, assets or Restricted
Subsidiary of PRIMEDIA, other than guarantees or similar credit support by
PRIMEDIA of Indebtedness incurred by any person acquiring all or any portion of
such business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; PROVIDED that the maximum aggregate liability in respect of all
such Indebtedness in the nature of such guarantees shall at no time exceed the
gross proceeds actually received from the sale of such business, assets or
Restricted Subsidiary; (xi) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts, which will not be, and
will not be deemed to be, inadvertent) drawn against insufficient funds in the
ordinary course of business, provided that such Indebtedness is extinguished
within three business days of its incurrence; (xii) Indebtedness of an entity at
the time it is acquired as a Restricted Subsidiary, PROVIDED that such
Indebtedness was not incurred or assumed by such entity in connection with or in
anticipation of such acquisition; (xiii) Indebtedness between PRIMEDIA and any
Restricted Subsidiary; (xiv) Non-Compete Notes, not to
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exceed $50.0 million in aggregate principal amount less the amount of all
principal repayments made in respect thereof; and (xv) PRIMEDIA's Obligations
arising from the repurchase, redemption or other acquisitions of Capital Stock
from management investors to the extent permitted by the LIMITATIONS ON
RESTRICTED PAYMENTS covenant. For the purposes of determining the aggregate
Indebtedness of any referent person, Indebtedness shall not include guarantees
by any other person of such Indebtedness. For the purposes of determining
compliance with this covenant, in the event that an item of Indebtedness meets
the criteria of more than one of the categories of permitted Indebtedness
described in clauses (i) through (xv) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, PRIMEDIA shall, in its sole
discretion, classify such item of Indebtedness in any manner that complies with
the covenants described above and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
LIMITATIONS ON LIENS. PRIMEDIA will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) on any of its assets or
any income or profits therefrom or assign or convey any right to receive income
therefrom unless the Notes are equally and ratably secured.
LIMITATIONS ON ASSET SALES. PRIMEDIA will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, consummate an Asset Sale
(including the sale of any of the stock of any Subsidiary) unless at least 100%
of the Net Proceeds from such Asset Sale (or, in the case of a Partially Owned
Restricted Subsidiary, PRIMEDIA's Pro Rata Portion thereof, after repayment by
such Partially Owned Restricted Subsidiary of its Indebtedness) are applied
first to repay Obligations or reduce commitments under the Credit Facilities in
accordance with the terms thereof and second to offer to redeem at par the
Outstanding Notes and third to offer to redeem at par the Notes. The foregoing
application of Net Proceeds from Asset Sales is not required in the case of (i)
sales or dispositions generating cash proceeds of less than, with respect to
PRIMEDIA and its Restricted Subsidiaries, $2,500,000 and (ii) sales and
dispositions as to which PRIMEDIA delivers a reinvestment notice and the
proceeds are so reinvested in one or more communications, publishing,
information, education or media assets or businesses within twelve months of the
date the relevant Asset Sale is consummated. Notwithstanding the foregoing,
neither PRIMEDIA nor its Restricted Subsidiaries will be required to apply the
Net Proceeds from any Asset Sale (i) to the extent that the aggregate Net
Proceeds from such Asset Sale, together with the Net Proceeds, if any, of any
other Asset Sale which have not been previously applied, are less than
$25,000,000 or (ii) to the extent that, and for so long as, such Net Proceeds
cannot be so applied as a result of an encumbrance or restriction permitted
pursuant to the LIMITATIONS ON LIENS covenant. The procedure for offering to
redeem the Notes in connection with Asset Sales is substantially the same as the
mechanism for redeeming the Notes in connection with a Change of Control.
TRANSACTIONS WITH AFFILIATES. Neither 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") involving
aggregate payments or consideration in excess of $5.0 million, unless (a) such
Affiliate Transaction is on terms that are not materially less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, a
resolution adopted by the majority of the Board of Directors approving such
Affiliate Transaction and set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (a) above.
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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) 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 other relocation expenses made in the ordinary
course of business of PRIMEDIA and its Subsidiaries, (iv) any Restricted
Payments not prohibited by the LIMITATIONS ON RESTRICTED PAYMENTS covenant or
any Investment not prohibited by the INVESTMENTS IN UNRESTRICTED SUBSIDIARIES
covenant, (v) transactions between or among any of PRIMEDIA and its Restricted
Subsidiaries, (vi) allocation of corporate overhead to Unrestricted Subsidiaries
on a basis not materially less favorable to PRIMEDIA than such allocations to
Restricted Subsidiaries or (vii) the payment of reasonable and customary fees
paid to, and indemnity provided on behalf of, officers, directors, employees or
consultants of PRIMEDIA or any Restricted Subsidiary.
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 (except a wholly-owned Restricted
Subsidiary, PROVIDED that in connection with any merger of PRIMEDIA with a
Restricted Subsidiary of PRIMEDIA, no consideration (other than common stock in
the surviving corporation or PRIMEDIA) shall be issued or distributed to the
shareholders of PRIMEDIA) 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 Trustee, in form
satisfactory to the Trustee, all of the obligations of PRIMEDIA under the Notes
and Note Indenture; (ii) immediately after giving effect to such transaction on
a pro forma basis (a) no Default and no Event of Default under the Note
Indenture shall have occurred and be continuing and (b) PRIMEDIA could incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph of the
INCURRENCE OF INDEBTEDNESS covenant and (iii) immediately after giving effect to
such transaction on a pro forma basis, the Fixed Charge Coverage Ratio of the
surviving entity is at least 1:1; PROVIDED that if the Fixed Charge Coverage
Ratio of PRIMEDIA before giving effect to such transaction is within the range
set forth in column (A) below, then the pro forma Fixed Charge Coverage Ratio of
the surviving entity shall be at least equal to the lesser of (x) the ratio
determined by multiplying the percentage set forth in Column B by the Fixed
Charge Coverage Ratio of PRIMEDIA prior to such transaction, and (y) the ratio
set forth in Column C below:
<TABLE>
<CAPTION>
(B)
(A) -- (C)
- --------------------------------------------------------------------------------- ---------
<S> <C> <C>
1.11:1 to 1.99:1................................................................. 90% 1.5:1
2.00:1 to 2.99:1................................................................. 80% 2.1:1
3.00:1 to 3.99:1................................................................. 70% 2.4:1
4.00:1 or more................................................................... 60% 2.5:1
</TABLE>
PAYMENTS FOR CONSENT. Neither PRIMEDIA nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms of provisions
of the Note Indenture or the Notes unless such consideration is offered to be
paid or agreed to be paid to all holders of the Notes which so consent, waive or
agree to amend in the time frame set forth in solicitation documents relating to
such consent, waiver or agreement.
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GUARANTEES
GUARANTEES. The Notes are fully and unconditionally guaranteed on a senior
basis, jointly and severally, by each of the domestic Restricted Subsidiaries
other than Partially Owned Restricted Subsidiaries (collectively, the
"Guarantors"). In the event that any guarantee would constitute or result in a
violation of any applicable fraudulent conveyance or similar law of any relevant
jurisdiction, the liability of any Guarantor under such guarantee would be
reduced to the maximum amount permissible under the applicable fraudulent
conveyance or similar law. The foregoing guarantees (the "Guarantees") rank PARI
PASSU with the guarantees made for the benefit of the lenders under the Credit
Facilities and with guarantees made for the benefit of the holders of the
Outstanding Notes. No Unrestricted Subsidiary or Partially Owned Restricted
Subsidiary shall become a guarantor of any Indebtedness of PRIMEDIA or any
Restricted Subsidiaries unless such Unrestricted Subsidiary or Partially Owned
Restricted Subsidiary becomes a guarantor of the Notes. The Company does not
currently have any Partially Owned Restricted Subsidiaries.
RELEASES OF GUARANTEES. Upon the sale or disposition (by merger or
otherwise) of any Guarantor by PRIMEDIA or any subsidiary of PRIMEDIA to any
entity that is not an affiliate of PRIMEDIA or any of its subsidiaries and which
sale or disposition is otherwise in compliance with the terms of the Note
Indenture, each such Guarantor is sold or disposed of for at least fair market
value (evidenced by a resolution of the Board of Directors of PRIMEDIA set forth
in an Officer's Certificate delivered to the Trustee) (the foregoing proviso
shall not apply to the sale or disposition of a Guarantor in a foreclosure
proceeding to the extent that such proviso would be inconsistent with the
requirements of the Uniform Commercial Code).
THE GUARANTORS. The Guarantors on the date of this Prospectus are set forth
below:
The Apartment Guide of Nashville, Inc.
Argus Publishers Corporation
American Heat Video Productions, Inc.
ASTN, Inc.
A WEP Company
Bacon's Information, Inc.
Bankers Consulting Company
Bowhunter Magazine, Inc.
Canoe & Kayak, Inc.
Cardinal Business Media, Inc.
Cardinal Business Media Holdings, Inc.
Channel One Communications Corp.
Climbing, Inc.
Cover Concepts Marketing Services, LLC
Cowles Business Media, Inc.
Cowles Enthusiast Media, Inc.
Cowles History Group, Inc.
CSK Publishing Company Incorporated
Cumberland Publishing, Inc.
DRF Finance, Inc.
Daily Racing Form, Inc.
Data Book, Inc.
The Electronics Source Book, Inc.
Excellence in Training Corporation
Films for the Humanities & Sciences, Inc.
Funk & Wagnalls Yearbook Corp.
Gareth Stevens, Inc.
GO LO Entertainment, Inc.
Guinn Communications, Inc.
Haas Publishing Companies, Inc.
Health & Sciences Network, Inc.
Horse & Rider, Inc.
Intermodal Publishing Company, Ltd.
IDTN Leasing Corporation
Industrial Training Systems Corporation
IntelliChoice, Inc.
Intertec Market Reports, Inc.
Intertec Presentations, Inc.
Intertec Publishing Corporation
K-III HPC, Inc.
K-III Prime Corporation
Kitplanes Acquisition Company
Law Enforcement Television Network, Inc.
Lifetime Learning Systems, Inc.
Little Rock Apartment Guide, Inc.
Lockert Jackson & Associates, Inc.
Low Rider Publishing Group, Inc.
McMullen Argus Publishing, Inc.
Memphis Apartment Guide, Inc.
Musical America Publishing, Inc.
Nelson Information, Inc.
Pictorial, Inc.
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Plaza Communications, Inc.
PRIMEDIA Holdings III Inc.
PRIMEDIA Information Inc.
PRIMEDIA Magazines Inc.
PRIMEDIA Magazines Finance Inc.
PRIMEDIA Reference Inc.
PRIMEDIA Special Interest Publications Inc.
PRIMEDIA Workplace Learning, Inc.
QWIZ, Inc.
R.E.R. Publishing Corporation
RetailVision, Inc.
Simba Information, Inc.
Southwest Art, Inc.
Straight Down, Inc.
Symbol of Excellence Publishers, Inc.
Tel-A-Train, Inc.
The Virtual Flyshop, Inc.
TI-IN Acquisition Corporation
Vegetarian Times, Inc.
Weekly Reader Corporation
Westcott Communications Michigan, Inc.
Westcott ECI, Inc.
Western Empire Publications, Inc.
The Company currently does not have any Partially Owned Restricted
Subsidiaries.
EVENTS OF DEFAULT AND REMEDIES
The Note Indenture provides that each of the following constitutes an "Event
of Default": (i) the failure to make any payment of interest on the Notes when
the same becomes due and payable and the continuance of such failure for a
period of 30 days; (ii) the failure to make any payment when due of principal or
premium on the Notes, whether at maturity, or upon acceleration, redemption or
otherwise; (iii) failure by PRIMEDIA to comply with any of its other agreements
in the Note Indenture or the Notes and such Default continues for 30 days after
receipt of a written notice from the Trustee or holders of at least 30% of the
aggregate principal amount of the Notes then outstanding, specifying such
Default and requiring that it be remedied; (iv) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by PRIMEDIA or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by PRIMEDIA
or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee is
now existing or thereafter created in the future, if either (A) such default is
the failure to pay the final scheduled principal installment in an amount of at
least $10 million in respect of any such Indebtedness on the stated maturity
date thereof (after giving effect to any extension of such maturity date by the
holder of such Indebtedness and after the expiration of any grace period in
respect of such final scheduled principal installment contained in the
instrument under which such Indebtedness is outstanding) or (B) as a result of
such default the maturity of such Indebtedness has been accelerated prior to its
express maturity and the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness the maturity of which has
been accelerated, aggregates $20 million or more; provided that an Event of
Default shall not be deemed to occur with respect to any accelerated
indebtedness which is repaid or prepaid within 20 days after such declaration;
(v) failure by PRIMEDIA or any of its Restricted Subsidiaries to pay certain
final judgments that exceed $15 million individually or $25 million in the
aggregate, which judgments are not discharged, satisfied, stayed, annulled or
rescinded within 60 days after their entry; (vi) certain events of bankruptcy or
insolvency with respect to PRIMEDIA or any of its Restricted Subsidiaries; and
(vii) except as permitted by the Note Indenture and the Notes, the cessation of
the effectiveness of the guarantees or the finding in any judicial proceeding
that the Guarantees are unenforceable or invalid or the denial or disaffirmation
by any guarantor of its obligations under its Guarantee. The term "Default"
means any event which is, or after notice or passage of time or both would be,
an Event of Default.
If a Default or an Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each holder of the Notes a
notice of the Default or Event of Default within 30 days after it occurs or, if
later, within 10 days after such Default or Event of Default becomes known to
the Trustee, unless such Default or Event of Default has been cured. Except in
the case of a Default or Event of Default in the payment of principal of,
premium, if any, or interest on any Note or that results from a failure to
comply with the CHANGE OF CONTROL covenant, the Trustee may withhold the notice
if and so long
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as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interest of the holders of the Notes.
If an Event of Default (other than an Event of Default with respect to
PRIMEDIA resulting from bankruptcy, insolvency or reorganization) occurs and is
continuing, the Trustee by written notice to PRIMEDIA, or the holders of at
least 30% of the principal amount of the Notes then outstanding by written
notice to PRIMEDIA and the Trustee, may, and such Trustee at the request of such
holders shall, declare all unpaid principal of, premium, if any, and accrued
interest on the Notes to be due and payable, as specified below. Upon a
declaration of acceleration, such principal, premium, if any, and accrued
interest shall be due and payable immediately. If an Event of Default resulting
from certain events of bankruptcy, insolvency or reorganization occurs with
respect to PRIMEDIA, all unpaid principal of, premium, if any, and accrued
interest on the Notes then outstanding shall IPSO FACTO become and be
immediately due and payable without any declaration, notice or other act on the
part of the Trustee or any holder. The holders of at least a majority in
principal amount of the Notes by notice to the Trustee may rescind an
acceleration and its consequences upon conditions provided in the Note
Indenture. Subject to certain restrictions set forth in the Note Indenture, the
holders of at least a majority in principal amount of the outstanding Notes by
notice to the Trustee may waive an existing Default or Event of Default and its
consequences (including waivers obtained in connection with a tender offer or
exchange offer for Notes), except a continuing Default or Event of Default in
the payment of principal of, premium, if any, or interest on, the Notes
(including, without limitation, pursuant to any mandatory or optional redemption
obligation under the Note Indenture) or a continuing Default or Event of Default
resulting from the failure to comply with the CHANGE OF CONTROL or LIMITATIONS
ON ASSET SALES covenants. When a Default or Event of Default is waived, it is
cured and ceases. A holder of Notes may not pursue any remedy with respect to
the Note Indenture, the Notes or any Guarantee unless: (1) the holder gives to
the Trustee written notice of a continuing Event of Default; (2) the holders of
at least 30% in principal amount of such Notes outstanding make a written
request to the Trustee to pursue the remedy; (3) such holder or holders offer to
the Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense (including, without limitation, fees of counsel); (4) the Trustee does
not comply with the request within 30 days after receipt of the request and the
offer of indemnity; and (5) during such 30-day period the Holders of a majority
in principal amount of the outstanding Notes do not give the Trustee a direction
which is inconsistent with the request.
PRIMEDIA is required to deliver to the Trustee annually a statement
regarding compliance with the Note Indenture, and PRIMEDIA is required upon
becoming aware of any Default or Event of Default to deliver a statement to the
Trustee specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of PRIMEDIA, as
such, shall have any liability for any obligations of PRIMEDIA under the Notes,
the Note Indenture or the Guarantees or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
DEFEASANCE AND DISCHARGE OF THE NOTE INDENTURE AND THE NOTES
If PRIMEDIA irrevocably deposits, or causes to be deposited, in trust with
the Trustee or the Paying Agent, at any time prior to the stated maturity of the
Notes or the date of redemption of all the outstanding Notes, as trust funds in
trust, money or direct noncallable obligations of or guaranteed by the United
States of America in an amount sufficient (without reinvestment thereof) to pay
timely and discharge the entire principal of the then outstanding Notes and all
interest due thereon to maturity or redemption, the Note Indenture shall cease
to be of further effect as to all outstanding Notes (except,
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among other things, as to (i) remaining rights of registration of transfer and
substitution and exchange of the Notes, (ii) rights of holders to receive
payment of principal of and interest on the Notes, and (iii) the rights,
obligations and immunities of the Trustee).
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Note
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and PRIMEDIA
may require a holder to pay any taxes and fees required by law or permitted by
the Note Indenture. PRIMEDIA is not required to transfer or exchange any Note
selected for redemption. Also, PRIMEDIA is not required to transfer or exchange
any Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Note Indenture, the
Guarantees or the Notes may be amended or supplemented with the consent of the
holders of at least 51% in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for Notes and the New Notes), and any existing default or compliance with any
provision of the Note Indenture or the Notes may be waived with the consent of
the holders of 51% in principal amount of the then outstanding Notes and the New
Notes (including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder of Notes) (i) reduce
the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption or purchase
price in connection with repurchases of the Notes with proceeds of Asset Sales,
upon a Change of Control or otherwise, (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes or that resulted from a failure to comply with the CHANGE OF CONTROL or
LIMITATIONS ON ASSET SALES covenants (except a rescission of acceleration of the
Notes by the holders of at least 51% in aggregate principal amount of the Notes
and the New Notes), (v) make any Notes payable in money other than that stated
in the Notes, (vi) make any change in the provisions of the Note Indenture
relating to waivers of past Defaults or the rights of holders of Notes to
receive payments of principal of or interest on the Notes, (vii) waive a
redemption payment with respect to any Note or (viii) make any change in the
foregoing.
Notwithstanding the foregoing, without the consent of any holder of the
Notes, PRIMEDIA and the Trustee may amend or supplement the Note Indenture or
the Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of PRIMEDIA's obligations to holders of the Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Note Indenture of any such holder,
or to comply with requirements of the Commission in order to effect or maintain
the qualification of the Note Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Note Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of 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 Trustee will be permitted to engage in
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other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within ninety days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Note Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of its own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Note
Indenture at the request of any of the holders of the Notes, unless they shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Note Indenture
without charge by writing to: PRIMEDIA Inc., 745 Fifth Avenue, New York, NY
10151, Attention: Warren Bimblick, Vice President, Investor Relations.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form, without coupons. The New Notes will be deposited with, or on
behalf of, The Depository Trust Company, New York, New York ("DTC"), and
registered in the name of Cede & Co. ("Cede") as DTC's nominee, in the form of
one or more global New Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Note Indenture.
Reference is made to the Note Indenture for a full disclosure of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Adjusted Consolidated Net Income" means, with respect to any person for any
period, (i) the Consolidated Net Income of such person for such period, plus
(ii) in the case of PRIMEDIA and its Restricted Subsidiaries, all cash received
during such period by PRIMEDIA or any Restricted Subsidiary from its
Unrestricted Subsidiaries from the payment of dividends or distributions
(including tax sharing payments and loans or advances which are junior in right
of payment to the Notes and have a longer Average Life than the Notes), but only
to the extent such cash payments are not otherwise included in "Adjusted
Consolidated Net Income." Each item of Adjusted Consolidated Net Income will be
determined in conformity with GAAP, except that, for purposes of the application
of Accounting Principles Board Opinions Nos. 16 and 17, such person may select
any amortization practice allowable by GAAP up to 40 years, notwithstanding the
use of a different amortization in such person's consolidated financial
statements. Any designation of a Subsidiary of PRIMEDIA as a Restricted
Subsidiary or Unrestricted Subsidiary at or prior to the time of the calculation
of Adjusted Consolidated Net Income of a Subsidiary will be treated as if it had
occurred at the beginning of the applicable period.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. A person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another person if the controlling person
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of the controlled person, whether through ownership
of voting securities, by agreement or otherwise.
"Asset Sale" means, with respect to any person, the sale, lease, conveyance,
disposition or other transfer by the referent person of any of its assets
(including by way of a sale-and-leaseback and including
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the sale or other transfer of any of the Capital Stock of any Subsidiary of the
referent person); provided, that notwithstanding the foregoing, the term "Asset
Sale" shall not include the sale, lease, conveyance, disposition or other
transfer of (i) with respect to any Unrestricted Subsidiary, (A) any assets not
constituting all or substantially all of the assets of any Net Cash Flow
Unrestricted Subsidiary and (B) any Capital Stock or any assets of any
Restricted Payment Unrestricted Subsidiary, (ii) all or substantially all of the
assets of PRIMEDIA, as permitted pursuant to the MERGER, CONSOLIDATION OR SALE
OF ASSETS covenant, (iii) any assets between PRIMEDIA, any Restricted Subsidiary
or any Unrestricted Subsidiary, (iv) any sale, conveyance, disposition or other
transfer of (A) cash and cash equivalents, (B) inventory in the ordinary course
of business and (C) any other tangible or intangible asset, in each case in the
ordinary course of business of PRIMEDIA or its Restricted Subsidiaries or (v)
the sale or discount, in each case without recourse, of accounts receivable
arising in the ordinary course of business, but only in connection with the
compromise or collection thereof.
"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment (assuming the exercise by the obligor of
such debt security of all unconditional (other than as to the giving of notice)
extension options of each such scheduled payment date) of such debt security
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease which
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock.
"Change of Control" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than KKR and
its Affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than (A) 35 percent (35%) of the total voting power of
the then outstanding voting stock of 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.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Adjusted Consolidated Net Income of such person for such period plus (a) (i)
with respect to any Restricted Subsidiary other than a Partially Owned
Restricted Subsidiary, provision for taxes based on income or profits to the
extent such provision for taxes was included in computing Adjusted Consolidated
Net Income and (ii) with respect to any Partially Owned Restricted Subsidiary,
the Pro Rata Portion of any provision for taxes based on income or profits to
the extent such provision for taxes was included in computing Adjusted
Consolidated Net Income, plus (b) (i) with respect to any Restricted Subsidiary
other than a Partially Owned Restricted Subsidiary, consolidated Interest
Expense, whether paid or accrued, to the extent such expense was deducted in
computing Adjusted Consolidated Net Income (including amortization of original
issue discount and non-cash interest payments), and (ii) with respect to any
Partially Owned Restricted Subsidiary, the Pro Rata Portion of consolidated
Interest Expense, whether paid or accrued, to the extent such expense was
deducted in computing Adjusted Consolidated Net Income (including amortization
of original issue discount and non-cash interest payments), plus (c) (i) with
respect to any Restricted Subsidiary other than a Partially Owned Restricted
Subsidiary, depreciation, amortization and other non-
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cash charges to the extent such depreciation, amortization and other non-cash
charges were deducted in computing Adjusted Consolidated Net Income (including
amortization of goodwill and other intangibles) and (ii) with respect to any
Partially Owned Restricted Subsidiary, the Pro Rata Portion of depreciation,
amortization and other non-cash charges to the extent such depreciation,
amortization and other non-cash charges were deducted in computing Adjusted
Consolidated Net Income (including amortization of goodwill and other
intangibles) ; provided, with respect to the calculation of a person's Debt to
Consolidated Cash Flow Ratio, that if, during such period, (a) such person or
any of its Subsidiaries shall have made any Asset Sales (other than, in the case
of PRIMEDIA and its Restricted Subsidiaries, sales of the Capital Stock of or
any assets of Unrestricted Subsidiaries which constitute Asset Sales),
Consolidated Cash Flow of such person for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive), to the extent such
Consolidated Cash Flow was included in computing Consolidated Cash Flow,
directly attributable to the assets or Capital Stock which are the subject of
such Asset Sales for such period or increased by an amount equal to the
Consolidated Cash Flow (if negative), to the extent such Consolidated Cash Flow
was included in computing Consolidated Cash Flow, directly attributable thereto
for such period and (b) such person or any of its Subsidiaries (other than, in
the case of PRIMEDIA and its Restricted Subsidiaries, Unrestricted Subsidiaries)
has made any acquisition of assets or Capital Stock (occurring by merger or
otherwise), including without limitation, any acquisition of assets or Capital
Stock occurring in connection with a transaction causing a calculation to be
made hereunder, Consolidated Cash Flow of such person shall be calculated
(notwithstanding clause (a) of the definition of Consolidated Net Income) as if
such acquisition of assets or Capital Stock (including the incurrence of any
Indebtedness in connection with any such acquisition and the application of the
proceeds thereof) took place on the first day of such period. Consolidated Cash
Flow of such person shall be determined for any period without regard to changes
in Working Capital of such person and its Subsidiaries during such period.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the (a) consolidated Interest Expense, whether paid or accrued, to the
extent such expense was deducted in computing Adjusted Consolidated Net Income
(including amortization of original issue discount and non-cash interest
payments) and (b) the amount of all cash dividend payments on all series of
preferred stock other than cash dividends on preferred stock of Unrestricted
Subsidiaries and cash dividends paid to such person or its Subsidiaries;
PROVIDED, that with respect to Partially Owned Restricted Subsidiaries, only the
Pro Rata Portion of any amounts covered by clauses (a) and (b) above shall be
included in calculating Consolidated Fixed Charges; provided further that if
during such period (i) such person or any of its Subsidiaries shall have made
any Asset Sales (other than, in the case of PRIMEDIA and its Restricted
Subsidiaries, sales of the Capital Stock of or any assets of Unrestricted
Subsidiaries which constitute Asset Sales). Consolidated Fixed Charges of such
person for such period shall be reduced by an amount equal to the Consolidated
Fixed Charges directly attributable to the assets which are the subject of such
Asset Sales for such period and (ii) such person or any of its Subsidiaries
(other than, in the case of PRIMEDIA and its Restricted Subsidiaries,
Unrestricted Subsidiaries) has made any acquisition of assets or Capital Stock
(occurring by merger or otherwise), including, without limitation, any
acquisition of assets or Capital Stock occurring in connection with the
transaction causing a calculation to be made hereunder, Consolidated Fixed
Charges of such person shall be calculated as if such acquisition of assets or
Capital Stock (including the incurrence of any Indebtedness in connection with
any such acquisition and the application of the proceeds thereof) took place on
the first day of such period.
"Consolidated Net Cash Flow" means, with respect to any person for any
period, the aggregate Consolidated Cash Flow of such person for such period,
MINUS (a) capital expenditures of such person and its Subsidiaries (and in the
case of PRIMEDIA and its Restricted Subsidiaries, excluding Unrestricted
Subsidiaries and, in the case of Partially Owned Restricted Subsidiaries,
including only the Pro Rata Portion thereof), MINUS (b) the aggregate amount of
all cash dividends paid by such person and its Subsidiaries (and in the case of
PRIMEDIA and its Restricted Subsidiaries, excluding Unrestricted Subsidiaries
and, in the case of Partially Owned Restricted Subsidiaries, including only the
Pro Rata
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Portion thereof) to holders of its Capital Stock other than to such person or
its Subsidiaries, MINUS (c) the aggregate amount of all taxes based on income or
profits paid by such person and its Subsidiaries (and in the case of PRIMEDIA
and its Restricted Subsidiaries, excluding Unrestricted Subsidiaries and, in the
case of Partially Owned Restricted Subsidiaries, including only the Pro Rata
Portion thereof) other than to such person or its Subsidiaries MINUS (d) cash
Interest Expense of such person and its Subsidiaries (and in the case of
PRIMEDIA and its Restricted Subsidiaries, excluding Unrestricted Subsidiaries
and, in the case of Partially Owned Restricted Subsidiaries, including only the
Pro Rata Portion thereof), MINUS, (e) repayments of principal of Indebtedness by
such person and its Subsidiaries (and in the case of PRIMEDIA and its Restricted
Subsidiaries, excluding Unrestricted Subsidiaries and, in the case of Partially
Owned Restricted Subsidiaries, including only the Pro Rata Portion thereof),
MINUS (f) any increases in Working Capital of such person and its Subsidiaries
(and in the case of PRIMEDIA and its Restricted Subsidiaries, excluding
Unrestricted Subsidiaries and, in the case of Partially Owned Restricted
Subsidiaries, including only the Pro Rata Portion thereof), and PLUS (g) any
decreases in Working Capital of such person and its Subsidiaries (and in the
case of PRIMEDIA and its Restricted Subsidiaries, excluding Unrestricted
Subsidiaries and, in the case of Partially Owned Restricted Subsidiaries,
including only the Pro Rata Portion thereof), in each case, for such period and
determined in accordance with GAAP; PROVIDED that in calculating the amount
referred to in clause (f) or (g) above, as the case may be, for any period
during which PRIMEDIA or any of its Restricted Subsidiaries has consummated an
Asset Sale (other than, in the case of PRIMEDIA and its Restricted Subsidiaries,
sales of Capital Stock of, cash or any assets of Unrestricted Subsidiaries which
constitute Asset Sales), the portion of the change in Working Capital for such
period attributable to the entity or business sold or purchased shall be based
(x) in the case of such an Asset Sale, on the change in Working Capital
attributable to the entity or business sold from the first day of such period to
the date of the consummation of such sale and (y) in the case of an acquisition,
on the change in Working Capital attributable to the entity or business acquired
from the date of consummation of such acquisition to the last day of such
period.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate net income (or loss) of such person and its Subsidiaries (and in
the case of PRIMEDIA and its Restricted Subsidiaries, excluding Unrestricted
Subsidiaries and, with respect to any Partially Owned Restricted Subsidiary,
including only the Pro Rata Portion of the net income (or loss) of such
Partially Owned Restricted Subsidiary as of any date of determination of
Consolidated Net Income for PRIMEDIA and its Restricted Subsidiaries) for such
period, on a consolidated basis, determined in accordance with GAAP, provided
that (i) the net income (or loss) of any person which is not a Subsidiary or is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of cash dividends or distributions (including tax sharing
payments and loans or advances which are junior in right of payment to the Notes
and have a longer Average Life than the Notes) paid to the referent person or a
Subsidiary of the referent person, (ii) except to the extent includable pursuant
to the foregoing clause (i), the income (or loss) of any person accrued prior to
the date it becomes a Subsidiary of such person or is merged into or
consolidated with such person or any of its Subsidiaries or that person's assets
are acquired by such person or any of its Subsidiaries shall be excluded, (iii)
any gains or losses attributable to Asset Sales net of related tax costs or tax
benefits, as the case may be, shall be excluded and (iv) the net income of any
Unrestricted Subsidiary (and, solely for purposes of the RESTRICTED PAYMENTS
covenant, the net income of any Partially Owned Restricted Subsidiary) shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Unrestricted Subsidiary (or, solely for the purposes of
the RESTRICTED PAYMENTS covenant, any Partially Owned Restricted Subsidiary) of
that net income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders that, in each such case, has not been legally
waived or otherwise satisfied.
"Consolidated Net Worth" means, at any date of determination, the sum of the
Capital Stock and additional paid-in capital plus retained earnings (or minus
accumulated deficit) of the referent person and
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its Subsidiaries on a consolidated basis, less amounts attributable to
Redeemable Stock, each item to be determined in conformity with GAAP (excluding
the effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52), except that
all effects of the application of Accounting Principles Board Opinions Nos. 16
and 17 and related interpretations shall be disregarded.
"Credit Facilities" means, collectively, the Bank Credit Facility and the
New Credit Facility, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, in each
case as amended, modified, renewed, refunded or refinanced from time to time, as
permitted in clause (i) of the second paragraph of the INCURRENCE OF
INDEBTEDNESS covenant.
"Currency Agreement" means the obligations of any person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such person or any of its subsidiaries against
fluctuations in currency values.
"Debt to Consolidated Cash Flow Ratio" means the ratio of all Indebtedness
of PRIMEDIA and its Restricted Subsidiaries to Consolidated Cash Flow.
"Equity Interests" means Capital Stock, warrants, options or other rights to
acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of PRIMEDIA and its Subsidiaries
(other than the Credit Facilities and the Outstanding Notes) in existence on the
date of the Note Indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means the ratio of Consolidated Cash Flow to
Consolidated Fixed Charges.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of the Note Indenture.
"Indebtedness" of any person is defined as any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement obligations with respect thereto) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to financing leases), if and to the extent any of
the foregoing indebtedness would appear as a liability upon a balance sheet of
such person prepared in accordance with GAAP (except that any such balance that
constitutes a trade payable and/or an accrued liability arising in the ordinary
course of business shall not be considered Indebtedness), and shall also
include, to the extent not otherwise included, any Capital Lease Obligations,
the maximum fixed repurchase price of any Redeemable Stock, indebtedness secured
by a Lien to which the property or assets owned or held by such person is
subject, whether or not the obligations secured thereby shall have been assumed,
guarantees of items that would be included within this definition to the extent
of such guarantees (exclusive of whether such items would appear upon such
balance sheet), and net liabilities in respect of Currency Agreements and
Interest Rate Agreements. For purposes of the preceding sentence, the maximum
fixed repurchase price of any Redeemable Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Note
Indenture, provided that if such Redeemable Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Stock. The amount of Indebtedness of any person at any date shall be without
duplication (i) the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any such contingent
obligations at such
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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 (a) the Indebtedness of any
Unrestricted Subsidiary of PRIMEDIA or any Unrestricted Subsidiary of a
Restricted Subsidiary and (b) with respect to any Partially Owned Restricted
Subsidiary, the Pro Rata Portion of any Indebtedness of any Partially Owned
Restricted Subsidiary of PRIMEDIA or any Partially Owned Restricted Subsidiary
of a Restricted Subsidiary pursuant to which the lender thereunder does not have
recourse to any of the assets of PRIMEDIA or any of its Restricted Subsidiaries.
"Interest Expense" means, with respect to any person, for any period, the
aggregate amount of interest in respect of Indebtedness (including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and the net cost (benefit)
associated with Interest Rate Agreements, and excluding amortization of deferred
finance fees and interest recorded as accretion in the carrying value of
liabilities (other than Indebtedness) recorded at a discounted value) and all
but the principal component of rentals in respect of Capital Lease Obligations,
paid, accrued or scheduled to be paid or accrued by such person during such
period.
"Interest Rate Agreements" means the obligations of any person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such person or any of its
subsidiaries against fluctuations in interest rates.
"Investment" means any direct or indirect advance, loan (other than advances
to customers in the ordinary course of business, which are recorded as accounts
receivable on the balance sheet of any person or its Subsidiaries) or other
extension of credit or capital contribution to (by means of any transfer of cash
or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities issued by any other person. For the
purposes of the RESTRICTED PAYMENTS and INVESTMENT IN UNRESTRICTED SUBSIDIARIES
covenants described above, (i) "Investment" shall include and be valued at the
fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at fair market value at the time of such
transfer, in each case as determined by the Board of Directors of PRIMEDIA in
good faith.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give any security interest in and any filing or other agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Net Cash Flow Unrestricted Subsidiary" means an Unrestricted Subsidiary
which is not a Restricted Payment Unrestricted Subsidiary.
"Net Proceeds" shall mean, with respect to any Asset Sale, the aggregate
cash proceeds (including any cash received by way of deferred payment pursuant
to a note receivable issued in connection with such Asset Sale, other than the
portion of such deferred payment constituting interest, and including any
amounts received as disbursement or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by PRIMEDIA or any of its
Subsidiaries in respect of such Asset Sale, net of (i) the cash expenses of such
sale (including, without limitation, the payment of principal, premium, if any,
and interest on Indebtedness required to be paid as a result of such Asset Sale
(other than the Senior Notes and amounts repaid pursuant to the Credit
Facilities) and legal, accounting and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any portion
of cash proceeds which PRIMEDIA
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determines in good faith should be reserved for post-closing adjustments, it
being understood and agreed that on the day that all such post-closing
adjustments have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale exceeds the actual post-closing adjustments
payable by PRIMEDIA or any of its Subsidiaries shall constitute Net Proceeds on
such date and (iv) any relocation expenses and pension, severance and shutdown
costs incurred as a result thereof.
"Obligations" means any principal, interest, penalties, fee,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Partially Owned Restricted Subsidiary" means any Restricted Subsidiary
other than a wholly-owned Restricted Subsidiary.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's, or other
like Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceedings, if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return-of-money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of PRIMEDIA or any of its Subsidiaries incurred in the ordinary course
of business; (vi) Liens (including extensions and renewals thereof) upon real or
tangible personal property acquired after the date of the Note Indenture,
PROVIDED that (a) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including the cost of construction) of the item of property subject thereto,
(b) the principal amount of the Indebtedness secured by such Lien does not
exceed 100% of such cost, (c) such Lien does not extend to or cover any other
property other than such item of property and any improvements on such item and
(d) the incurrence of such Indebtedness is permitted by the INCURRENCE OF
INDEBTEDNESS covenant; (vii) Liens securing reimbursement obligations with
respect to letters of credit which encumber documents and other property
relating to such letters of credit and the products and proceeds thereof; (viii)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(ix) judgment and attachment Liens not giving rise to an Event of Default; (x)
leases or subleases granted to others not interfering in any material respect
with the business of PRIMEDIA or any of its Subsidiaries; (xi) Liens encumbering
customary initial deposits and margin deposits, and other Liens incurred in the
ordinary course of business and which are within the general parameters
customary in the industry, in each case securing Indebtedness under Interest
Rate Agreements and Currency Agreements; (xii) Liens encumbering deposits made
to secure obligations arising from statutory, regulatory, contractual or
warranty requirements of PRIMEDIA or its Subsidiaries; (xiii) Liens arising out
of consignment or similar arrangements for the sale of goods entered into by
PRIMEDIA or any of its Subsidiaries in the ordinary course of business of
PRIMEDIA and its Subsidiaries; (xiv) any interest or title of a lessor in the
property subject to any Capital Lease Obligation or operating lease; (xv) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xvi) Liens permitted by the Credit Facilities as in effect on the date
of the Note Indenture; (xvii) Liens securing Indebtedness described in clause
(xii) of the second paragraph of the INCURRENCE OF INDEBTEDNESS covenant;
(xviii) Liens between PRIMEDIA and any Restricted Subsidiary or between
Restricted Subsidiaries; (xix) Liens securing letters of credit in an amount not
to exceed $75 million in the aggregate at any one time; (xx) Liens in an amount
not to exceed $50
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million in the aggregate at any one time and (xxi) Liens incurred by Partially
Owned Restricted Subsidiaries which do not exceed 10% of Total Assets in the
aggregate at any one time.
"PRO RATA PORTION" means, with respect to any Partially Owned Restricted
Subsidiary, the percentage of such Partially Owned Restricted Subsidiary's
outstanding Equity Interests beneficially owned by PRIMEDIA and its Restricted
Subsidiaries.
"Redeemable Stock" means any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable before the stated maturity of the Notes), or upon the happening of
any event, matures or is mandatorily redeemable, in whole or in part, prior to
the stated maturity of the Notes, or is, by its terms or upon the happening of
any event, redeemable at the option of the holder thereof, in whole or in part,
at any time prior to the stated maturity of the Notes except for Equity
Interests of PRIMEDIA issued to present and former members of management of
PRIMEDIA and its Subsidiaries pursuant to subscription and option agreements in
effect on the date of the Note Indenture and common stock and options of
PRIMEDIA issued to future members of management of PRIMEDIA and its Subsidiaries
pursuant to subscription agreements executed subsequent to the date of the Note
Indenture containing provisions for the repurchase of such common stock and
options upon death, disability or termination of employment of such persons
which are substantially identical to those contained in the subscription
agreements in effect on the date of the Note Indenture; PROVIDED that for
purposes of the "LIMITATION OF RESTRICTED PAYMENTS" covenant and that for
purposes of the definition of Indebtedness, Redeemable Stock does not include
the Series B Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock.
"Restricted Payment Unrestricted Subsidiary" means an Unrestricted
Subsidiary which was capitalized exclusively with a permitted Restricted Payment
or with the proceeds from the issuance of an Equity Interest by PRIMEDIA or with
the proceeds of the sale of stock or substantially all of the assets of any
other Unrestricted Subsidiary which was capitalized with such funds to the
extent that a liquidating dividend is paid to PRIMEDIA for any Restricted
Subsidiary from the proceeds of such sale.
"Restricted Subsidiary" 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; PROVIDED
that immediately after giving effect to such designation, PRIMEDIA could incur
at least $1.00 of additional Indebtedness pursuant to the first paragraph of the
INCURRENCE OF INDEBTEDNESS covenant on a pro forma basis taking into account
such designation.
"Subsidiary" of any person means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such person or one or more of
the other Subsidiaries of that person or a combination thereof.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries.
"Transfers" means (i) any payment of interest on Indebtedness, dividends or
repayments of loans or advances and (ii) any other transfers of assets, in each
case from an Unrestricted Subsidiary to PRIMEDIA or any of its Restricted
Subsidiaries.
"Unrestricted Subsidiary" means (i) any Subsidiary of PRIMEDIA which at the
time of determination is an Unrestricted Subsidiary (as designated by the Board
of Directors of PRIMEDIA, 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
(a) PRIMEDIA certifies that such designation complies with the LIMITATION ON
RESTRICTED PAYMENTS AND INVESTMENTS IN UNRESTRICTED SUBSIDIARIES covenants, and
(b) the Subsidiary to be so designated
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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; PROVIDED that immediately after giving effect to such designation,
PRIMEDIA could incur at least $1.00 of additional Indebtedness pursuant to the
first paragraph of the INCURRENCE OF INDEBTEDNESS covenant on a pro forma basis
taking into account such designation.
"Working Capital" means, with respect to any person for any period, the
current assets of such person and its Subsidiaries (and in the case of PRIMEDIA
and its Restricted Subsidiaries, excluding Unrestricted Subsidiaries and, in the
case of Partially Owned Restricted Subsidiaries, including only the Pro Rata
Portion thereof) on a consolidated basis, after excluding therefrom cash and
cash equivalents and deferred income taxes, less the current liabilities of such
person and its Subsidiaries (and in the case of PRIMEDIA and its Restricted
Subsidiaries, excluding Unrestricted Subsidiaries and, in the case of Partially
Owned Restricted Subsidiaries, including only the Pro Rata Portion thereof) on a
consolidated basis, after excluding therefrom, in each case to the extent
otherwise included therein, all short-term Indebtedness for borrowed money, the
current portion of any long-term Indebtedness, liabilities arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument inadvertently (except in the case of daylight overdrafts, which will
not be, and will not be deemed to be, inadvertent) drawn against insufficient
funds in the ordinary course of business, PROVIDED that such liabilities are
extinguished within three business days of this incurrence, and deferred income
taxes of such person and its Subsidiaries (and in the case of PRIMEDIA and its
Restricted Subsidiaries, excluding Unrestricted Subsidiaries and, in the case of
Partially Owned Restricted Subsidiaries, including only the Pro Rata Portion
thereof).
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DESCRIPTION OF PREFERRED STOCK AND 8 5/8% 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 Offers. 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 8 5/8% 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 8 5/8% Debenture
Indenture (which relates to both the Old Subordinated Debentures and the New
Subordinated Debentures) relating thereto.
THE PREFERRED STOCK
GENERAL
2,500,000 shares 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 D Preferred Stock, the Series F
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 will 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 8 5/8% Subordinated
Debentures; Holding Company Structure." The Preferred Stock is fully paid and
non-assessable and holders thereof will 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 at or after the time of the issuance, 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") and (ii) on a parity with, the Series D
Preferred Stock, the Series F 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 D
Preferred Stock and the Series F 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 Certificates of Designations for the
Preferred Stock provide 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 D
Preferred Stock, the Series F 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 will be subject to the future issuance of Junior Securities and
Parity Securities. 2,000,000 shares of the Series D Preferred Stock
($200,000,000 aggregate liquidation preference) were issued and outstanding and
1,250,000 shares of the Series E Preferred Stock ($125,000,000 aggregate
liquidation preference) were issued and outstanding. See "Description of Capital
Stock of the Company."
DIVIDENDS
Holders of Preferred Stock will be 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
$8.625 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 January 1, April 1, July 1 and October 1 of each year, commencing on
July 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
The Preferred Stock is not redeemable at PRIMEDIA's option before April 1,
2003. Thereafter, 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 to
the applicable redemption date (including an amount equal to a prorated dividend
from the last payment date to the redemption date), if redeemed during the
twelve-month period beginning April 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
PRICE PER
YEAR SHARE
- ---------------------------------------------------------- --------------
<S> <C>
2003...................................................... $ 104.313
2004...................................................... 102.875
2005...................................................... 101.438
2006 and thereafter....................................... 100.000
</TABLE>
In addition, up to $125.0 million of the aggregate liquidation preference of
the Preferred Stock may be redeemed at the option of PRIMEDIA at any time prior
to April 1, 2001 at a price per share of $108.625, 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
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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 April 1, 2010, 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 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 8 5/8%
Subordinated Debentures. See "--The 8 5/8% Subordinated Debentures" below for
the terms of the 8 5/8% Subordinated Debentures. Holders of Preferred Stock so
exchanged will be entitled to receive the principal amount of 8 5/8%
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 8 5/8% 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 8 5/8% Subordinated Debentures
issuable upon exchange shall be treated as the registered holder or holders of
such 8 5/8% 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 8 5/8% 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 8 5/8%
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
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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 8 5/8% 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 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
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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 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 Stock, Series D
Preferred Stock and Series F Preferred Stock, together with any outstanding
shares of Future Parity Securities entitled to vote thereon, voting as one
class, unless 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. 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 8 5/8% SUBORDINATED DEBENTURES
GENERAL
The 8 5/8% Subordinated Debentures will, if and when issued, be issued under
the 8 5/8% Debenture Indenture, to be dated as of the date of first issuance
(the "Exchange Date") of the 8 5/8% Subordinated Debentures, between PRIMEDIA
and The Bank of New York (the "Subordinated Debenture Trustee"). The terms of
the 8 5/8% Subordinated Debentures include those stated in the 8 5/8% Debenture
Indenture and those made part of the 8 5/8% Debenture Indenture by reference to
the Trust Indenture Act. The 8 5/8% Subordinated Debentures are subject to all
such terms, and holders of the 8 5/8% Subordinated Debentures are referred to
the 8 5/8% 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 8 5/8% Subordinated Debentures. Such
summary does not purport to be complete and is qualified in its entirety by
reference to the provisions of the 8 5/8% Debenture Indenture, a copy of the
proposed form of which is filed as an exhibit to the Registration Statement of
which this Prospectus 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 8 5/8% Debenture Indenture.
The 8 5/8% Subordinated Debentures will be issued in registered form,
without coupons, only in principal amounts of $1,000 and integral multiples
thereof. The 8 5/8% Subordinated Debentures will represent general unsecured
obligations of PRIMEDIA, and holders of the 8 5/8% Subordinated Debentures will
rank junior in right of payment to holders of Senior Indebtedness. The 8 5/8%
Subordinated Debentures are limited in aggregate principal amount to
$250,000,000.
Each 8 5/8% Subordinated Debenture will mature on April 1, 2010 and will
bear interest from the date of issuance at the rate of 8 5/8% per annum, payable
quarterly on January 1, April 1, July 1 and October 1 commencing with the first
of such dates to occur after the Exchange Date.
Interest on the 8 5/8% 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 8 5/8% 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 8 5/8% Subordinated Debentures at their respective
addresses set forth in the register of holders of the 8 5/8% 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 8 5/8% 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 8 5/8% 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
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creditors of PRIMEDIA, including holders of the 8 5/8% Subordinated Debentures,
even though such obligations do not constitute Senior Indebtedness.
The amount of pro forma senior indebtedness (including indebtedness and
other current and non-current liabilities of PRIMEDIA's subsidiaries) as of
December 31, 1997 was approximately $1,908.7 million. None of such indebtedness
is secured. See "Risk Factors--Subordination of Preferred Stock and 8 5/8%
Subordinated Debentures; Holding Company Structure."
The 8 5/8% Debenture Indenture provides that no payment of principal of or
interest on the 8 5/8% Subordinated Debentures, whether pursuant to the terms of
the 8 5/8% 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 8 5/8% 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
8 5/8% 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 8 5/8% Subordinated Debentures.
OPTIONAL REDEMPTION
The 8 5/8% Subordinated Debentures are not redeemable at PRIMEDIA's option
before April 1, 2003. Thereafter, the 8 5/8% 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 unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning April 1 of the years indicated below.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- -----------
<S> <C>
2003.......................................................... 104.313%
2004.......................................................... 102.875
2005.......................................................... 101.438
2006 and thereafter........................................... 100.000
</TABLE>
In addition, at any time prior to April 1, 2001, up to $125.0 million of the
8 5/8% Subordinated Debentures may be redeemed at a redemption price of 108.625%
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 8 5/8% 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 8 5/8% 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 8 5/8% 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 8 5/8% Debenture Indenture
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there will also be a Change of Control under the Class D Debenture Indenture,
the Class F 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 D Subordinated Debentures, Class F
Subordinated Debentures or 8 5/8% 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 8 5/8% Debenture Indenture and that all
8 5/8% 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 60 days from the date such notice is mailed) (the "Change of Control
Payment Date"); (3) that any 8 5/8% Subordinated Debentures not tendered will
continue to accrue interest; (4) that, unless PRIMEDIA defaults in the payment
of the Change of Control Payment, all 8 5/8% 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 8 5/8% Subordinated Debentures purchased pursuant to a Change of
Control Offer will be required to surrender the 8 5/8% Subordinated Debentures,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the 8 5/8% Subordinated Debenture completed, to the Paying Agent (as defined in
the 8 5/8% 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 8 5/8% Subordinated Debentures delivered for purchase,
and a statement that such holder is withdrawing his election to have such 8 5/8%
Subordinated Debentures purchased; and (7) that holders whose 8 5/8%
Subordinated Debentures are being purchased only in part may be issued new
8 5/8% Subordinated Debentures equal in principal amount to the unpurchased
portion of the 8 5/8% Subordinated Debentures surrendered; PROVIDED that each
8 5/8% Subordinated Debenture purchased and each such new 8 5/8% 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 8 5/8% Subordinated Debentures
unless it shall have either repaid all outstanding Senior Indebtedness or
obtained the requisite consents, if any, under all agreements governing all such
outstanding Senior Indebtedness, to permit the repurchase of the 8 5/8%
Subordinated Debentures. If any fee is paid to the holders of Senior
Indebtedness in connection with obtaining their consent to the repurchase of the
8 5/8% Subordinated Debentures, PRIMEDIA shall pay the holders of the 8 5/8%
Subordinated Debentures a fee equal to the principal amount of the 8 5/8%
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 8 5/8% 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 8 5/8%
Subordinated Debentures or portions thereof so tendered and (3) deliver or cause
to be delivered to the Subordinated Debenture Trustee, 8 5/8% Subordinated
Debentures so accepted together with an officers' certificate stating the 8 5/8%
Subordinated Debentures or portions thereof tendered to PRIMEDIA. The Paying
Agent shall promptly mail to each holder of 8 5/8% Subordinated Debentures so
accepted, payment in an amount equal to the purchase price for such 8 5/8%
Subordinated Debentures, and the Subordinated Debenture Trustee shall promptly
authenticate and mail to such holder a new 8 5/8% Subordinated Debenture equal
in principal amount to any unpurchased portion of the 8 5/8% Subordinated
Debentures surrendered; PROVIDED that each such new 8 5/8% 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.
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OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. In addition to the rights set
forth under "Optional Redemption," the 8 5/8% 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 8 5/8% 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 8 5/8% Subordinated
Debenture is defined as the greater of (i) 1.0% of the then outstanding
principal amount of such 8 5/8% Subordinated Debenture and (ii) the excess of
(A) the present value of the required interest and principal payments due on
such 8 5/8% 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 8 5/8% Subordinated Debenture.
SELECTION AND NOTICE
If less than all of the 8 5/8% Subordinated Debentures are to be redeemed at
any time, selection of the 8 5/8% 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 8 5/8%
Subordinated Debentures are listed or, if the 8 5/8% 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 8 5/8% 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 8 5/8% Subordinated Debentures to be redeemed at its registered
address. If any 8 5/8% Subordinated Debenture is to be redeemed in part only,
the notice of redemption that relates to such 8 5/8% Subordinated Debenture
shall state the portion of the principal amount thereof to be redeemed. A new
8 5/8% 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 8 5/8% Subordinated Debenture. On and after the
redemption date, interest ceases to accrue on 8 5/8% Subordinated Debentures or
portions of them called for redemption.
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 8 5/8% Debenture
Indenture shall have occurred and be continuing or will occur as a consequence
thereof.
"Restricted Subsidiary" for purposes of the 8 5/8% 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 8 5/8% 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
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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"), involving
aggregate payments of consideration in excess of $5.0 million, unless (a) such
Affiliate Transaction is on terms that are not materially less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, a
resolution adopted by the majority of the Board of Directors approving such
Affiliate Transaction and set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (a) above.
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 fees paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of PRIMEDIA or any Restricted Subsidiary,
(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 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, the Series D Debenture
Indenture or the Series F 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 8 5/8% Subordinated Debentures and the 8 5/8%
Debenture Indenture and (ii) immediately after giving effect to such
transaction, no Default and no Event of Default under the 8 5/8% Debenture
Indenture shall have occurred and be continuing.
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EVENTS OF DEFAULT AND REMEDIES THEREOF
The 8 5/8% Debenture Indenture will provide that each of the following will
constitute an "Event of Default" with respect to the 8 5/8% Subordinated
Debentures: (i) the failure to make any payment of interest on any of the 8 5/8%
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 8 5/8% 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 8 5/8% 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 8 5/8%
Debenture Indenture or the 8 5/8% 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
8 5/8% 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 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 8 5/8% 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 8 5/8% 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 8 5/8% 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 8 5/8% Subordinated Debentures then outstanding, by
written notice to PRIMEDIA and to the agents under the Credit Facilities, the
trustees under the Senior Note Indentures and the Exchange Debenture Indenture
(and to the Subordinated Debenture Trustee if such notice is given by the
holders of 8 5/8% Subordinated Debentures) may, and the Subordinated Debenture
Trustee at the request of such holders of 8 5/8% Subordinated Debentures shall,
declare all unpaid principal of, premium, if any, and accrued interest on the
8 5/8% Subordinated Debentures to be due and payable upon the first to occur of
an acceleration under any of the Credit Facilities, or 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 8 5/8% 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
8 5/8% Subordinated Debentures by written notice to the Subordinated Debenture
Trustee may rescind an acceleration and its consequences upon conditions
provided in the 8 5/8% Debenture Indenture. Subject to certain restrictions set
forth in the 8 5/8% Debenture Indenture, the holders of at least 51% in
principal amount of the outstanding 8 5/8% Subordinated Debentures by notice to
the Subordinated Debenture
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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 8 5/8% Subordinated Debentures), except a continuing Default or Event of
Default in the payment of principal of, premium, if any, or interest on, such
8 5/8% Subordinated Debentures (including, without limitation, pursuant to any
mandatory or optional redemption obligation under the 8 5/8% 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 8 5/8% Subordinated
Debentures may not pursue any remedy with respect to the 8 5/8% Debenture
Indenture or the 8 5/8% 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 8 5/8%
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 8 5/8%
Subordinated Debentures do not give the Subordinated Debenture Trustee a
direction which is inconsistent with the request.
PRIMEDIA is required to deliver to the Subordinated Debenture Trustee
annually a statement regarding compliance with the 8 5/8% 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 8 5/8%
Subordinated Debentures or the 8 5/8% Debenture Indenture or for any claim based
on, in respect of, or by reason of, such obligations of their creations. Each
holder of the 8 5/8% Subordinated Debentures by accepting a 8 5/8% Subordinated
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the 8 5/8% 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 8 5/8% DEBENTURE INDENTURE AND THE 8 5/8%
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 8 5/8% Subordinated Debentures or the date of
redemption of all the outstanding 8 5/8% 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 8 5/8% Subordinated
Debentures and all interest due thereon to maturity or redemption, and if such
deposit does not violate the subordination provisions of the 8 5/8% Debenture
Indenture, the 8 5/8% Debenture Indenture shall cease to be of further effect as
to all outstanding 8 5/8% Subordinated Debentures (except, among other things,
as to (i) remaining rights of registration of transfer, substitution and
exchange of 8 5/8% Subordinated Debentures, (ii) rights of holders to receive
payment of principal of and interest on the 8 5/8% 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 8 5/8% Subordinated Debentures.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange 8 5/8% Subordinated Debentures in
accordance with the 8 5/8% 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
8 5/8% Debenture Indenture. PRIMEDIA is not required to transfer or exchange any
8 5/8% Subordinated Debentures selected for redemption. Also, PRIMEDIA is not
required to transfer or exchange any 8 5/8% Subordinated Debentures for a period
of 15 days before a selection of 8 5/8% Subordinated Debentures to be redeemed.
The registered holder of a 8 5/8% Subordinated Debenture will be treated as
its owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the 8 5/8% Debenture
Indenture or the 8 5/8% Subordinated Debentures may be amended or supplemented
with the written consent of the holders of at least 51% in principal amount of
the 8 5/8% Subordinated Debentures then outstanding (including consents obtained
in connection with a tender offer or exchange offer for 8 5/8% Subordinated
Debentures), and any existing default under or compliance with any provision of
the 8 5/8% Debenture Indenture or the 8 5/8% Subordinated Debentures may be
waived with the consent of the holders of 51% in principal amount of the then
outstanding 8 5/8% Subordinated Debentures (including waivers obtained in
connection with a tender offer or exchange offer for 8 5/8% Subordinated
Debentures).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any 8 5/8% Subordinated Debentures held by a non-consenting
holder of 8 5/8% Subordinated Debentures) (i) reduce the principal amount of
8 5/8% Subordinated Debentures whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any 8 5/8% Subordinated Debenture or alter the provisions with respect to the
redemption price in connection with repurchases of 8 5/8% Subordinated
Debentures upon a Change of Control or otherwise, (iii) reduce the rate of or
change the time for payments of interest on any 8 5/8% Subordinated Debenture,
(iv) waive a Default or Event of Default in the payment of the principal of, or
premium, if any, or interest on 8 5/8% Subordinated Debentures or that resulted
from a failure to comply with the CHANGE OF CONTROL covenant (except a
rescission of acceleration of the 8 5/8% Subordinated Debentures by the holders
of at least 51% in aggregate principal amount of the 8 5/8% Subordinated
Debentures), (v) make any 8 5/8% Subordinated Debenture payable in money other
than that stated in the 8 5/8% Debenture Indenture, (vi) make any change in the
subordination provisions of the 8 5/8% Debenture Indenture that adversely
affects the rights of any 8 5/8% Subordinated Debenture holder, (vii) make any
change in the provisions of the 8 5/8% Debenture Indenture relating to waivers
of past defaults or the rights of holders of 8 5/8% Subordinated Debentures to
receive payments of principal of or interest on the 8 5/8% Subordinated
Debentures, (viii) waive a redemption payment with respect to any 8 5/8%
Subordinated Debenture or (ix) make any change in the foregoing.
Notwithstanding the foregoing, without the consent of any holder of the
8 5/8% Subordinated Debentures, PRIMEDIA and the Subordinated Debenture Trustee
may amend or supplement the 8 5/8% Debenture Indenture or 8 5/8% Subordinated
Debentures to cure any ambiguity, defect or inconsistency, to provide for
uncertificated 8 5/8% Subordinated Debentures in addition to or in place of
certificated 8 5/8% Subordinated Debentures, to provide for the assumption of
PRIMEDIA's obligations to holders of the 8 5/8% 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 8 5/8% Subordinated
Debentures or that does not adversely affect the legal rights under the 8 5/8%
Debenture Indenture of any such holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the 8 5/8%
Debenture Indenture under the Trust Indenture Act.
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CONCERNING THE SUBORDINATED DEBENTURE TRUSTEE
The 8 5/8% 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 8 5/8%
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 8 5/8%
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 8 5/8% Debenture Indenture at the request of any of the holders of the
8 5/8% Subordinated Debentures, unless they shall 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, the Notes, the Class D Debenture Indenture, and the Class F
Debenture Indenture and a lender and an agent under the Credit Facilities.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the 8 5/8% Debenture
Indenture. Reference is made to the 8 5/8% 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.
"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.
"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.
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"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.
"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 Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of the 8 5/8% 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 8 5/8%
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.
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"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.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any person or one or more of the other
Subsidiaries of that person or a combination thereof.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the 8 5/8%
Debenture Indenture without charge by writing to: PRIMEDIA Inc., 745 Fifth
Avenue, New York, NY 10151, Attention: Warren Bimblick, Vice President, Investor
Relations.
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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 D
Preferred Stock, two million shares of Series D Preferred Stock, liquidation
preference $100 per share, have been authorized for issuance, all of which were
issued and outstanding at December 31, 1997. Pursuant to the Certificate of
Designations for the Series E Preferred Stock, 1.25 million shares of Series E
Preferred Stock, liquidation preference $100 per share, have been authorized for
issuance, all of which were issued and outstanding at December 31, 1997. All of
such shares of Series E Preferred Stock were exchanged for shares of Series F
Preferred Stock in connection with the Series E Exchange Offer.
THE COMMON STOCK
As of March 31, 1998, 145,999,630 shares of Common Stock were issued and
outstanding, and 12,683,075 shares were issuable upon exercise of outstanding
options, 8,993,875 of which were exercisable as of December 31, 1997 (which
options, if exercised in full, would generate aggregate proceeds to the Company
of $51,994,133).
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 PRIMEDIA'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.
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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 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 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 F Preferred Stock and the Preferred Stock 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 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 Prospectus, 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 and
the Senior Note Indentures 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
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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, Series F
Preferred Stock and Preferred Stock (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 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 F Preferred Stock, in whole
but not in part. 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 and the indenture
relating to the 10 1/4% Senior Notes restrict the ability of PRIMEDIA to
exchange the Series D Preferred Stock for Class D Subordinated Debentures.
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THE SERIES F PREFERRED STOCK
The Series E Exchange Offer was consummated on February 17, 1998, pursuant
to which all shares of Series E Preferred Stock were exchanged for shares of
Series F Preferred Stock. The terms of the Series F Preferred Stock are the same
as the terms of the Series E Preferred Stock, except that the Series F Preferred
Stock has been registered under the Securities Act.
The holders of Series F Preferred Stock have no preemptive rights or
cumulative voting rights and are not subject to future assessments by PRIMEDIA.
All outstanding shares of Series F Preferred Stock are fully paid and
nonassessable. The Series F Preferred Stock has an aggregate liquidation
preference of $125,000,000.
RANK. The Series F 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 the Preferred Stock and senior to the Common Stock.
The Certificate of Designations relating to the Series F Preferred Stock
provides that, without the affirmative vote of at least a majority of the then
outstanding shares of Series F 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 F Preferred Stock and any other Parity Securities
entitled to vote thereon.
DIVIDENDS. The holders of the shares of Series F 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
9.20%. Such dividends are payable quarterly in arrears on each February 1, May
1, August 1 and November 1. Dividends on shares of the Series F Preferred Stock
accrue and are cumulative from the date of issuance of such shares. As of the
date of this Prospectus, all such dividends have been paid.
OPTIONAL REDEMPTION. PRIMEDIA may, at its option, redeem at any time on or
after November 1, 2002, from any source of funds legally available therefor, in
whole or in part, any or all of the shares of Series F Preferred Stock at
redemption prices declining ratably from 104.60% of liquidation value for the
twelve months commencing November 1, 2002 to 100.0% on and after November 1,
2004, 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 and
the Senior Note Indentures restrict the ability to redeem the Series F Preferred
Stock.
In addition, up to $60,000,000 of the Series F Preferred Stock may be
redeemed at any time on or before November 1, 2000 at a price of 109.0%, 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 F 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 November 1, 2009 at a price
equal to the liquidation preference thereof plus all accumulated dividends to
the date of redemption.
VOTING RIGHTS. Holders of the Series F 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 F Preferred Stock.
Such Certificate of Designations provides that in the event that dividends on
the Series F 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 F 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 F Preferred Stock are paid in full.
106
<PAGE>
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, Series F
Preferred Stock and Preferred Stock (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 F 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 F 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 PRIMEDIA (as
defined in its Certificate of Incorporation) immediately prior to such
transaction and (b) the Consolidated Net Worth of the Company on September 26,
1997.
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 F
Subordinated Debentures in exchange for the Series F Preferred Stock, in whole
but not in part. Holders of Series F Preferred Stock so exchanged will be
entitled to receive the principal amount of Class F Subordinated Debentures
equal to $100 for each $100 of liquidation preference of Series F 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 and the Senior Notes
Indentures restrict the ability of PRIMEDIA to exchange the Series F Preferred
Stock for Class F Subordinated Debentures.
107
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 1998 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............................................................. 123,552,932 84.6%
William F. Reilly(2)(4)................................................................ 4,659,253 3.5
Charles G. McCurdy(2)(5)............................................................... 2,394,612 1.8
Beverly C. Chell(2).................................................................... 2,044,357 1.6
Jack L. Farnsworth(2).................................................................. 359,900 *
Henry R. Kravis(3)..................................................................... -- --
Meyer Feldberg......................................................................... 11,250 *
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)........................... 9,859,842 7.2
</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, 3,110,560, 1,977,798, 1,635,484 and 286,400
for Messrs. Reilly and McCurdy, Ms. Chell, and Mr. Farnsworth, respectively,
consist of options which were either exercisable on March 31, 1998 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, Jr., 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.
108
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoted or modified so as to result in federal income tax consequences
different from these discussed below.
The exchange of Old Notes or Old Preferred Stock for New Notes or 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 Notes or New Preferred Stock, the holding period of the
New Notes or New Preferred Stock will include the holding period of the Old
Notes or Old Preferred Stock and the basis of the New Notes or New Preferred
Stock will be the same as the basis of the Old Notes or Old Preferred Stock
immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES OR OLD PREFERRED
STOCK FOR NEW NOTES OR 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.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes or New Preferred Stock for its
own account pursuant to the Exchange Offers must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes or 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 Notes
or New Preferred Stock received in exchange for Old Notes or Old Preferred Stock
where such Old Notes or 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 not receive any proceeds from any sale of New Notes or New
Preferred Stock by broker-dealers. New Notes or New Preferred Stock received by
broker-dealers for their own account pursuant to the Exchange Offers 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 Notes or 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 Notes or New Preferred Stock. Any broker-dealer that resells New Notes
or New Preferred Stock that were received by it for its own account pursuant to
the Exchange Offers and any broker or dealer that participates in a distribution
of such New Notes or 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 Notes or 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 Offers and will indemnify the holders of the Notes or the Preferred
Stock (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
109
<PAGE>
LEGAL MATTERS
The legality under state law of the New Notes, the New Preferred Stock and
the New Subordinated Debentures and certain tax matters will be passed upon for
the Company by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated financial statements of PRIMEDIA Inc. and subsidiaries as
of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997 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 are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
110
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma statement of consolidated operations for the year
ended December 31, 1997 gives effect to the following transactions and events as
if they had occurred on January 1, 1997: (i) the Series E Offering and the
Senior Preferred Stock Redemption, (ii) the Offerings and the Series B Preferred
Stock Redemption and (iii) the KKR Fund Investment. The adjustments to reflect
the Series E Offering, the Senior Preferred Stock Redemption, the Offerings, the
Series B Preferred Stock Redemption and the KKR Fund Investment are hereinafter
referred to as the "Pro Forma Adjustments." The unaudited pro forma consolidated
balance sheet at December 31, 1997 gives effect to the Offerings, the Series B
Preferred Stock Redemption and the KKR Fund Investment as if they had occurred
on December 31, 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 statement 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>
PRIMEDIA INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- --------------
<S> <C> <C> <C>
Sales, net:
Specialty Magazines............................................. $ 754,410 $ $ 754,410
Education....................................................... 379,552 379,552
Information..................................................... 353,633 353,633
------------ --------------
Total sales, net.................................................. 1,487,595 1,487,595
Operating costs and expenses:
Cost of goods sold.............................................. 341,879 341,879
Marketing and selling........................................... 271,351 271,351
Distribution, circulation and fulfillment....................... 262,151 262,151
Editorial....................................................... 120,952 120,952
Other general expenses.......................................... 163,705 163,705
Corporate administrative expenses............................... 25,545 25,545
Depreciation and amortization of prepublication costs, property
and equipment................................................. 37,334 37,334
Provision for loss on the sales of businesses and other, net.... 138,640 138,640
Amortization of intangible assets, excess of purchase price over
net assets acquired and other................................. 146,831 146,831
------------ --------------
Operating loss.................................................... (20,793) (20,793)
Other income (expense):
Interest expense................................................ (136,625) 17,858(1) (118,767)
Amortization of deferred financing costs........................ (3,071) (578)(1) (3,649)
Other, net...................................................... 1,365 1,365
------------ ----------- --------------
Income (loss) before income tax benefit and extraordinary
charge(3)....................................................... (159,124) 17,280 (141,844)
Income tax benefit--carryback claim............................... 1,685 1,685
------------ ----------- --------------
Income (loss) before extraordinary charge......................... (157,439) 17,280 (140,159)
Extraordinary charge--extinguishment of debt...................... (15,401) 15,401(5) --
------------ ----------- --------------
Net income (loss)................................................. (172,840) 32,681 (140,159)
Preferred stock dividends:
Cash............................................................ (45,305) (7,822)(1) (53,127)
Non-cash dividends in kind...................................... (4,451) 4,451(1) --
Senior Preferred Stock redemption premium....................... (5,800) 5,800(1) --
Dividend accrual................................................ (9,517) 3,053(1) (6,464)
------------ ----------- --------------
Income (loss) applicable to common shareholders................... $ (237,913) $ 38,163 $ (199,750)
------------ ----------- --------------
------------ ----------- --------------
Pro forma basic and diluted loss applicable to common shareholders
per common share(4) $ (1.37)
--------------
--------------
Pro forma basic and diluted common shares outstanding(4).......... 145,971,567
--------------
--------------
Pro forma deficiency of earnings to fixed charges(3).............. $ (141,844)
--------------
--------------
Pro forma deficiency of earnings to fixed charges and preferred
stock dividends(3).............................................. $ (201,435)
--------------
--------------
</TABLE>
See notes to unaudited pro forma consolidated financial data.
P-2
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 22,978 $ $ 22,978
Accounts receivable, net......................................... 199,289 199,289
Inventories, net................................................. 27,597 27,597
Net assets held for sale......................................... 38,665 38,665
Prepaid expenses and other....................................... 33,971 33,971
------------ ------------
Total current assets........................................... 322,500 322,500
Property and equipment, net........................................ 116,361 116,361
Other intangible assets, net....................................... 660,268 660,268
Excess of purchase price over net assets acquired, net............. 1,111,785 1,111,785
Deferred income tax asset, net..................................... 176,200 176,200
Other non-current assets........................................... 98,876 5,775(2) 104,651
------------ ------------- ------------
$ 2,485,990 $ 5,775 $ 2,491,765
------------ ------------- ------------
------------ ------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable................................................. $ 95,546 $ $ 95,546
Accrued interest payable......................................... 13,622 13,622
Accrued expenses and other....................................... 204,770 (3,053)(2) 201,717
Deferred revenues................................................ 140,474 140,474
Current maturities of long-term debt............................. 14,333 14,333
------------ ------------- ------------
Total current liabilities...................................... 468,745 (3,053) 465,692
------------ ------------- ------------
Long-term debt..................................................... 1,656,541 (261,802)(2) 1,394,739
------------ ------------- ------------
Other non-current liabilities...................................... 48,271 48,271
------------ ------------
Exchangeable preferred stock....................................... 470,280 84,094(2) 554,374
------------ ------------- ------------
Common stock subject to redemption................................. 4,376 4,376
------------ ------------
Shareholders' equity (deficiency):
Common stock..................................................... 1,298 167(2) 1,465
Additional paid-in capital....................................... 780,191 195,510(2) 975,701
Accumulated deficit.............................................. (929,011) (9,141)(2) (938,152)
Cumulative foreign currency translation adjustments.............. (1,543) (1,543)
Common stock in treasury, at cost................................ (13,158) (13,158)
------------ ------------- ------------
Total shareholders' equity (deficiency)........................ (162,223) 186,536 24,313
------------ ------------- ------------
$ 2,485,990 $ 5,775 $ 2,491,765
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
See notes to unaudited pro forma consolidated financial data.
P-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(1) The adjustment to interest expense reflects the net reduction in long-term
debt as a result of the reduced level of borrowings under the Credit
Facilities from the application of the net proceeds aggregating $524,934
from: (i) the proceeds of the Series E Offering; (ii) proceeds of the
Offerings and the KKR Fund Investment; and (iii) payments for the Series B
Preferred Stock Redemption and the Senior Preferred Stock Redemption. The
adjustment to interest expense reflects a weighted average interest rate of
7.11%. The adjustment to interest expense also reflects additional interest
expense associated with the issuance of the Old Notes under the Offerings.
The adjustment to amortization of deferred financing costs reflects the
additional deferred financing costs associated with the Old Notes. The
adjustments to dividends reflect the elimination of dividends associated
with the Senior and Series B Preferred Stock Redemptions and the new
dividends associated with the Old Preferred Stock Offering.
(2) The adjustment to other non-current assets reflects additional deferred
financing costs associated with the issuance of the Old Notes. The
adjustment to accrued expenses represents the reduction of accrued dividends
on the Series B Preferred Stock. The net reduction in long-term debt
represents the reduction in borrowings under the Credit Facilities from the
application of the net proceeds of the Offerings, KKR Fund Investment and
Series B Preferred Stock Redemption offset by the issuance of the Old Notes
under the Offerings. The net reduction in long-term debt associated with the
Series E Offering and the Senior Preferred Stock Redemption is already
reflected in the historical December 31, 1997 balance sheet since both
transactions occurred in 1997. Amounts repaid under the Credit Facilities
may be reborrowed for general corporate purposes, including acquisitions.
The net increase to exchangeable preferred stock represents the Old
Preferred Stock Offering net of the Series B Preferred Stock Redemption. The
increase in total shareholders' equity reflects the KKR Fund Investment net
of issuance costs, offset by the difference between the carrying value and
redemption value of the Series B Preferred Stock and the payment of a
premium on the redemption of the Series B Preferred Stock.
(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 businesses and non-cash interest expense on an acquisition
obligation, distribution advance and other current liability. These pro
forma non-cash charges totaled $327,941 for the year ended December 31,
1997. Adjusted to eliminate such pro forma non-cash charges, earnings would
have exceeded fixed charges and fixed charges plus cash preferred stock
dividends by $186,097 and $126,506 for the year ended December 31, 1997,
respectively.
(4) Pro forma basic and diluted loss applicable to common shareholders per
common share for the year ended December 31, 1997 was computed using the
weighted average number of common shares outstanding during the period
increased by the shares related to the KKR Fund Investment.
(5) Reflects the elimination of the extraordinary charge.
P-4
<PAGE>
PRIMEDIA INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND
1995
Report of Independent Auditors--Deloitte & Touche LLP................................ F-2
Statements of Consolidated Operations for the Years Ended
December 31, 1997, 1996 and 1995................................................... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996......................... F-4
Statements of Consolidated Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995................................................... F-5
Statements of Shareholders' Equity (Deficiency) for the Years Ended
December 31, 1997, 1996 and 1995................................................... F-6
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1997, 1996 and 1995................................................... F-8
</TABLE>
F-1
<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. and subsidiaries as of December 31, 1997 and 1996, and the related
statements of consolidated operations, shareholders' equity (deficiency), and
consolidated cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
January 27, 1998
(April 23, 1998 as to Note 25)
F-2
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
NOTES 1997 1996 1995
----- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Sales, net:
Specialty Magazines............................................. $ 754,410 $ 684,341 $ 452,373
Education....................................................... 379,552 376,217 330,414
Information..................................................... 353,633 313,891 263,542
----------- ----------- ----------
Total sales, net.................................................. 1,487,595 1,374,449 1,046,329
Operating costs and expenses:
Cost of goods sold.............................................. 341,879 337,065 251,347
Marketing and selling........................................... 271,351 249,301 177,167
Distribution, circulation and fulfillment....................... 262,151 230,533 188,147
Editorial....................................................... 120,952 104,484 73,703
Other general expenses.......................................... 163,705 154,966 122,816
Corporate administrative expenses............................... 25,545 21,497 17,034
Depreciation and amortization of prepublication costs, property
and equipment................................................. 9, 11 37,334 38,233 25,761
Provision for loss on the sales of businesses and other, net.... 4 138,640 -- 35,447
Restructuring and other costs................................... 5 -- -- 14,667
Amortization of intangible assets, excess of purchase price over
net assets acquired and other................................. 6, 10 146,831 152,469 166,515
----------- ----------- ----------
Operating income (loss)........................................... (20,793) 85,901 (26,275)
Other income (expense):
Interest expense................................................ (136,625) (124,601) (105,837)
Amortization of deferred financing and organizational costs..... 11 (3,071) (3,662) (3,135)
Other, net...................................................... 4 1,365 6,659 212
----------- ----------- ----------
Loss before income tax benefit and extraordinary charge........... (159,124) (35,703) (135,035)
Income tax benefit................................................ 14 1,685 53,300 59,600
----------- ----------- ----------
Income (loss) before extraordinary charge......................... (157,439) 17,597 (75,435)
Extraordinary charge--extinguishment of debt...................... (15,401) (9,553) --
----------- ----------- ----------
Net income (loss)................................................. (172,840) 8,044 (75,435)
Preferred stock dividends:
Cash............................................................ (45,305) (26,944) (11,500)
Non-cash dividends in kind...................................... (4,451) (16,582) (17,478)
Senior Preferred Stock redemption premium....................... 15 (5,800) -- --
Dividend accrual................................................ 15 (9,517) -- --
----------- ----------- ----------
Loss applicable to common shareholders............................ $ (237,913) $ (35,482) $ (104,413)
----------- ----------- ----------
----------- ----------- ----------
Basic and diluted loss applicable to common shareholders per
common share: 17
Loss before extraordinary charge................................ $ (1.72) $ (.20) $ (.92)
Extraordinary charge............................................ (.12) (.07) --
----------- ----------- ----------
Net loss........................................................ $ (1.84) $ (.27) $ (.92)
----------- ----------- ----------
----------- ----------- ----------
Basic and diluted common shares outstanding....................... 17 129,304,900 128,781,518 113,218,711
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
NOTES 1997 1996
------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 22,978 $ 36,655
Accounts receivable, net.............................................. 7 199,289 233,603
Inventories, net...................................................... 8 27,597 52,743
Net assets held for sale.............................................. 4 38,665 18,684
Prepaid expenses and other............................................ 33,971 34,834
------------ ------------
Total current assets.............................................. 322,500 376,519
Property and equipment, net............................................. 9 116,361 122,823
Other intangible assets, net............................................ 10 660,268 781,316
Excess of purchase price over net assets acquired, net.................. 10 1,111,785 971,665
Deferred income tax asset, net.......................................... 14 176,200 176,200
Other non-current assets................................................ 11 98,876 123,692
------------ ------------
$ 2,485,990 $ 2,552,215
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable...................................................... $ 95,546 $ 107,258
Accrued interest payable.............................................. 13,622 22,150
Accrued expenses and other............................................ 12 204,770 140,959
Deferred revenues..................................................... 140,474 144,857
Current maturities of long-term debt.................................. 13 14,333 6,000
------------ ------------
Total current liabilities......................................... 468,745 421,224
------------ ------------
Long-term debt.......................................................... 13, 25 1,656,541 1,565,686
------------ ------------
Other non-current liabilities........................................... 48,271 35,062
------------ ------------
Commitments and contingencies 21
Exchangeable preferred stock (aggregated liquidation and redemption
values of $482,604 and $453,153 at December 31, 1997 and 1996,
respectively)......................................................... 15 470,280 442,729
------------ ------------
Common stock subject to redemption ($.01 par value, 402,650 shares and
643,310 shares outstanding at December 31, 1997 and 1996,
respectively)......................................................... 16 4,376 5,957
------------ ------------
Shareholders' equity (deficiency):
Common stock ($.01 par value, 250,000,000 shares authorized;
129,797,078 shares and 128,349,045 shares issued at December 31,
1997 and 1996, respectively)........................................ 16 1,298 1,283
Additional paid-in capital............................................ 16 780,191 772,642
Accumulated deficit................................................... 18 (929,011) (691,098)
Cumulative foreign currency translation adjustments................... (1,543) (1,270)
Common stock in treasury, at cost (1,048,600 shares at December 31,
1997)............................................................... 16 (13,158) --
------------ ------------
Total shareholders' equity (deficiency)........................... (162,223) 81,557
------------ ------------
$ 2,485,990 $ 2,552,215
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ---------
<CAPTION>
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................................... $ (172,840) $ 8,044 $ (75,435)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, amortization and other...................................... 187,236 194,364 195,411
Provision for loss on the sales of businesses and other, net.............. 138,640 -- 35,447
Accretion of discount on acquisition obligation, distribution advance and
other................................................................... 7,343 6,398 8,147
Extraordinary charge - extinquishment of debt............................. 15,401 9,553 --
Non-cash income tax benefit............................................... -- (53,300) (59,600)
Other, net................................................................ (1,090) (6,213) (122)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net.................................................. 7,885 (24,692) (2,525)
Inventories, net.......................................................... 8,738 24,531 (23,630)
Prepaid expenses and other................................................ (10,433) (598) (13,127)
Increase (decrease) in:
Accounts payable.......................................................... (7,366) 5,807 6,742
Accrued interest payable.................................................. (8,528) 12,824 1,131
Accrued expenses and other................................................ (16,864) (12,674) (26,857)
Deferred revenues......................................................... (17,377) (11,201) 16,971
Other non-current liabilities............................................. (5,385) (2,651) 1,509
---------- ---------- ---------
Net cash provided by operating activities................................. 125,360 150,192 64,062
---------- ---------- ---------
INVESTING ACTIVITIES:
Additions to property, equipment and other, net............................. (31,108) (28,790) (23,414)
Proceeds from sales of businesses........................................... 171,575 8,071 58,656
Payments for businesses acquired............................................ (326,192) (700,990) (353,954)
---------- ---------- ---------
Net cash used in investing activities..................................... (185,725) (721,709) (318,712)
---------- ---------- ---------
FINANCING ACTIVITIES:
Borrowings under credit agreements.......................................... 1,028,049 1,683,787 622,459
Repayments of borrowings under credit agreements............................ (694,950) (1,384,800) (522,500)
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.................. 7,843 3,498 187,520
Proceeds from issuance of KKR Preferred Stock............................... -- -- 50,000
Proceeds from issuance of Series C (exchanged into Series D) Preferred
Stock, net of issuance costs.............................................. -- 193,451 --
Proceeds from issuance of Series E (exchanged into Series F) Preferred
Stock, net of issuance costs.............................................. 120,434 -- --
Redemption of KKR Preferred Stock........................................... -- -- (52,691)
Redemption of Senior Preferred Stock........................................ (105,800) -- --
Redemptions and purchases of 10 5/8% Senior Notes........................... (242,787) (17,655) --
Purchases of common stock for the treasury.................................. (13,158) -- --
Dividends paid to preferred stock shareholders.............................. (45,305) (26,944) (11,500)
Deferred financing costs paid............................................... (1,372) (13,132) (3,204)
Other....................................................................... (266) 7 (440)
---------- ---------- ---------
Net cash provided by financing activities................................. 46,688 580,946 263,644
---------- ---------- ---------
Increase (decrease) in cash and cash equivalents.............................. (13,677) 9,429 8,994
Cash and cash equivalents, beginning of year.................................. 36,655 27,226 18,232
---------- ---------- ---------
Cash and cash equivalents, end of year........................................ $ 22,978 $ 36,655 $ 27,226
---------- ---------- ---------
---------- ---------- ---------
SUPPLEMENTAL INFORMATION:
Businesses acquired:
Fair value of assets acquired............................................. $ 406,382 $ 779,192 $ 429,810
Liabilities assumed....................................................... 80,190 78,202 75,856
---------- ---------- ---------
Cash paid for businesses acquired......................................... $ 326,192 $ 700,990 $ 353,954
---------- ---------- ---------
---------- ---------- ---------
Interest paid............................................................... $ 142,421 $ 111,752 $ 102,040
---------- ---------- ---------
---------- ---------- ---------
Non-cash investing and financing activities:
Assets acquired under capital lease obligations........................... $ 15,760 $ -- $ 11,738
---------- ---------- ---------
---------- ---------- ---------
Preferred stock dividends in kind......................................... $ 4,451 $ 16,582 $ 17,478
---------- ---------- ---------
---------- ---------- ---------
Accretion in carrying value of preferred stock............................ $ 2,666 $ 1,090 $ 590
---------- ---------- ---------
---------- ---------- ---------
Accretion (reduction) in carrying value of common stock subject to
redemption.............................................................. $ 755 $ (885) $ 9,927
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance at January 1, 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.....................
KKR 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...................................................
Issuances of common stock, net of issuance costs...............................
Purchases of treasury stock....................................................
Expiration of redemption feature on common stock subject to redemption.........
$11.625 Series B Exchangeable Preferred Stock--dividends in kind...............
$11.625 Series B Exchangeable Preferred Stock--dividends.......................
$2.875 Senior Exchangeable Preferred Stock--dividends..........................
$10.00 Series D Exchangeable Preferred Stock--dividends........................
$9.20 Series E Exchangeable Preferred Stock--dividends.........................
$2.875 Senior Exchangeable Preferred Stock Redemption Premium..................
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...............................
$9.20 Series E Exchangeable Preferred Stock................................
Common stock subject to redemption.........................................
Cumulative foreign currency translation adjustments............................
Net loss.......................................................................
Balance at December 31, 1997...................................................
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN COMMON STOCK
COMMON STOCK ADDITIONAL CURRENCY IN TREASURY
- --------------------------- PAID-IN ACCUMULATED TRANSLATION --------------------
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS SHARES AMOUNT TOTAL
- -------------- ----------- ----------- ------------ ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
1,209,693 12 8,404 8,416
1,048,600 (13,158) (13,158)
238,340 3 2,566 2,569
(4,451) (4,451)
(16,794) (16,794)
(11,564) (11,564)
(23,333) (23,333)
(3,131) (3,131)
(5,800) (5,800)
(1,734) (1,734)
(317) (317)
(546) (546)
(69) (69)
(755) (755)
(273) (273)
(172,840) (172,840)
- -------------- ----------- ----------- ------------ ------------- --------- --------- ---------
129,797,078 $ 1,298 $ 780,191 $ (929,011) $ (1,543) 1,048,600 $ (13,158) $(162,223)
- -------------- ----------- ----------- ------------ ------------- --------- --------- ---------
- -------------- ----------- ----------- ------------ ------------- --------- --------- ---------
</TABLE>
F-7
<PAGE>
PRIMEDIA INC. 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 specialty magazines, education and
information. The specialty magazines segment has in prior years 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. The specialty
magazines segment includes PRIMEDIA Consumer Magazines, PRIMEDIA Special
Interest Publications (formerly PJS Publications, Inc.), McMullen Argus and the
majority of Intertec. The specialty magazines segment is concentrated primarily
on specialty consumer magazines, and technical and trade magazines. The
education segment includes CHANNEL ONE, Films for the Humanities and Sciences,
PRIMEDIA Workplace Learning (formerly Westcott Communications) and WEEKLY
READER. This segment specializes in providing educational materials to the
classroom learning and workplace learning markets. The information segment
includes PRIMEDIA Reference, PRIMEDIA Information, Haas, BACON'S, NELSON, a
portion of Intertec and THE DAILY RACING FORM. The information segment produces
consumer and business information products in a variety of formats for decision
makers in business, professional and special interest consumer markets. The
information is compiled and sold as guides, reference works, newspapers,
CD-ROMs, almanacs, directories and via the Internet.
2. 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
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 from these estimates.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the presentation used in the current
period.
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" which became effective for the Company's
consolidated financial statements beginning in the fourth quarter of 1997. SFAS
No. 128 eliminates 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 excludes Common Stock Equivalents. Additionally, SFAS No. 128
changes the methodology and criteria for calculating and reporting fully diluted
earnings per share. The adoption of this new accounting standard did not have a
material effect on the reported loss per share of the Company. SFAS No. 128 also
required previously reported loss per share to be restated (see Note 17).
In June 1997, the Financial Accounting Standards Board 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
F-8
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
during a period from transactions and other events and circumstances from
non-owner 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.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which becomes effective for the Company's 1998 consolidated financial
statements. SFAS No. 132 standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain previously
required disclosures. 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 consolidated financial statements 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
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.
Direct-response advertising consists of product promotional mailings,
catalogues, telemarketing and subscription promotions. These direct-response
advertising costs are capitalized as assets and amortized over the estimated
period of future benefit 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. Advertising
expense was $122,365, $121,158 and $88,176 during the years ended December 31,
1997, 1996 and 1995, respectively (see Note 11).
DEFERRED FINANCING COSTS. Deferred financing costs are being amortized by
the straight-line method over the terms of the related indebtedness.
F-9
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED WIRING AND INSTALLATION COSTS. Wiring and installation costs
incurred by CHANNEL ONE and PRIMEDIA Workplace Learning have been capitalized
and are being amortized by the straight-line method over the related estimated
useful lives which range from five to 15 years.
$2.875 SENIOR EXCHANGEABLE PREFERRED STOCK ("SENIOR PREFERRED STOCK"),
$11.625 SERIES B EXCHANGEABLE PREFERRED STOCK ("SERIES B PREFERRED STOCK"),
$10.00 SERIES D EXCHANGEABLE PREFERRED STOCK ("SERIES D PREFERRED STOCK") and
the $9.20 SERIES E EXCHANGEABLE PREFERRED STOCK ("SERIES E PREFERRED
STOCK"). The Senior Preferred Stock, Series B Preferred Stock, Series D
Preferred Stock and Series E 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, 1997 and 1996, is equal to
quoted market value. The difference between the carrying value of such stock and
its redemption value is being amortized by periodic charges to additional
paid-in capital.
COMPUTER SOFTWARE. Computer software costs are expensed as incurred, except
for certain costs incurred in connection with computer software to be sold,
leased or otherwise marketed. These costs, limited to production costs
subsequent to establishing technological feasibility, are reported as other non-
current assets and amortized over the estimated period of future benefit using
the straight-line method.
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 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
F-10
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. PRIMEDIA
Workplace Learning 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. 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 on the accompanying
statements of consolidated operations. 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
(deficiency).
3. ACQUISITIONS
The Company acquired certain net assets or stock of:
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 ("Cahners"), a publisher of specialty
consumer magazines including AMERICAN BABY, MODERN BRIDE, SAIL and POWER &
MOTORYACHT, along with 20 related properties and PRIMEDIA Workplace Learning,
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,
healthcare, and interactive distance training markets. In addition to the
aforementioned, the Company completed several other smaller acquisitions during
1996.
The foregoing acquisitions, except Cahners and PRIMEDIA Workplace Learning,
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. The following unaudited
pro forma information presents the results of operations of the
F-11
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS (CONTINUED)
Company as if the acquisitions of Cahners and PRIMEDIA Workplace Learning had
taken place on January 1, 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------ ------------
Sales, net........................................................ $ 1,413,930 $ 1,238,254
Operating income (loss)........................................... 82,100 (12,563)
Income (loss) before extraordinary charge......................... 1,314 (106,012)
Loss applicable to common shareholders before extraordinary
charge.......................................................... (42,212) (134,990)
Basic and diluted loss applicable to common shareholders per
common share before extraordinary charge........................ (.33) (1.19)
</TABLE>
1997--a provider of interactive, computer-based testing and training
products; a leading electronic automotive cost guide; a publisher of automotive
enthusiast magazines including LOW RIDER, ARTE, LOW RIDER BICYCLE and LOW RIDER
JAPAN; the publisher of REGISTERED REPRESENTATIVE, a trade magazine edited for
and circulated to the retail securities industry in the United States; a
publisher of specialty magazines targeting the professional recording, sound and
music production industry; and the leading provider of highly specialized
training and certification software products for the insurance industry. In
addition to the aforementioned, the Company completed several other smaller
acquisitions during 1997. The 1997 acquisitions, 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.
The acquisitions have been accounted for by the purchase method. The
preliminary purchase cost allocations for the above-mentioned current year's
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 on the accompanying consolidated balance
sheet at December 31, 1997; 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.
4. DIVESTITURES
In 1995, the Company sold certain technical and trade magazines, PREMIERE
magazine and Newfield. In connection with these sales, the Company has received
aggregate cash proceeds of $58,656 in 1995 and $1,000 in 1997 and has recorded
amounts due from buyer of approximately $4,000 and $5,000 on the accompanying
consolidated balance sheets at December 31, 1997 and 1996, respectively. In
connection with these sales, the Company recorded a net aggregate provision for
loss on the sales of businesses of $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 upon acquisition
were designated to be sold. The differences between the proceeds received and
the carrying values of the assets sold 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
F-12
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. DIVESTITURES (CONTINUED)
fourth quarter of 1996, the Company completed the sale of the Kits and Leaflets
Division of PRIMEDIA Special Interest Publications and certain specialty
consumer magazines. In connection with these sales, the Company received
aggregate cash proceeds of $8,071 and recorded a net gain on sale of businesses
of approximately $5,800.
During September 1996, the Company decided to divest Katharine Gibbs and
recorded its net assets at net realizable value as net assets held for sale on
the accompanying consolidated balance sheet at December 31, 1996.
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 combined with Katharine Gibbs are collectively referred to
as the Non-Core Businesses ("Non-Core Businesses") and are part of the Company's
plan to focus on six key growth vehicles in markets that have dynamic growth
opportunities.
During the second quarter of 1997, the Company completed the sale of
Katharine Gibbs. During the third quarter of 1997, the Company recorded a
provision aggregating $138,640 for the reduction of the carrying values of
Newbridge Communications, Inc. (excluding Films for the Humanities and
Sciences), THE DAILY RACING FORM, STAGEBILL, Krames, NEW WOMAN magazine and
Intertec Mailing Services to the estimated realizable value of the net assets of
such businesses. During the third quarter, the Company also completed the sales
of Krames, NEW WOMAN magazine and Intertec Mailing Services. During the fourth
quarter, the Company completed the sales of Newbridge Book Clubs, Newbridge
Educational Publishing and STAGEBILL. In connection with these sales, the
Company received aggregate proceeds of $171,575 net of direct selling expenses.
The remaining planned divestiture of THE DAILY RACING FORM is expected to be
completed during 1998. Its net assets have been recorded at net realizable value
as net assets held for sale on the accompanying consolidated balance sheet at
December 31, 1997.
The operating results of the Non-Core Businesses are included on the
accompanying statements of consolidated operations for the years ended December
31, 1997, 1996 and 1995. Total sales for the Non-Core Businesses were $247,351,
$307,149 and $307,121 for the years ended December 31, 1997, 1996 and 1995,
respectively. Excluding the 1997 provision for loss on the sales of businesses
and other, net, operating income (loss) for the Non-Core Businesses was $7,243,
$(694) and $(17,429) for the years ended December 31, 1997, 1996 and 1995,
respectively.
5. 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 Communications, Inc.
("Newbridge"), its professional book club business, and the completion of a
manufacturing outsourcing effort at THE DAILY RACING FORM. Included in the
restructuring charge of $7,272 were employee 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 THE DAILY RACING FORM of $550. Included in the other costs of
$7,395 were costs incurred and associated
F-13
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. RESTRUCTURING AND OTHER COSTS (CONTINUED)
with the correction of customer and accounting systems and write-down of certain
assets. During 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. As a
result of these operational problems, provisions for inventory obsolescence of
approximately $2,500 and for bad debts of approximately $3,500 were recorded,
along with expenses associated with the outside consultants and systems
corrections of approximately $1,400. Approximately $700, $1,200 and $4,100 of
the restructuring and other charges were paid in cash in 1997, 1996 and 1995,
respectively. At December 31, 1997, $700 of these charges is included in accrued
liabilities.
6. 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.
7. ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Accounts receivable................................................... $ 236,819 $ 273,119
Less: Allowance for doubtful accounts................................. 10,521 15,418
Allowance for returns and rebates................................ 27,009 24,098
---------- ----------
$ 199,289 $ 233,603
---------- ----------
---------- ----------
</TABLE>
8. INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Finished goods.......................................................... $ 12,271 $ 41,497
Work in process......................................................... 3,314 2,111
Raw materials........................................................... 14,494 17,838
--------- ---------
30,079 61,446
Less: Allowance for obsolescence........................................ 2,482 8,703
--------- ---------
$ 27,597 $ 52,743
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. 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) 1997 1996
--------------- ---------- ----------
<S> <C> <C> <C>
Land.................................................. -- $ 4,986 $ 2,022
Buildings and improvements............................ 1-40 33,808 24,219
Furniture and fixtures................................ 4-10 28,135 26,027
Machinery and equipment............................... 2-10 81,226 94,091
School equipment...................................... 5-10 58,665 55,860
Other................................................. 2-7 2,992 2,401
---------- ----------
209,812 204,620
Less: Accumulated depreciation and amortization....... 93,451 81,797
---------- ----------
$ 116,361 $ 122,823
---------- ----------
---------- ----------
</TABLE>
Included in property and equipment are assets which were acquired under
capital leases in the amount of $27,498 and $11,738 with accumulated
amortization of $3,043 and $1,739 at December 31, 1997 and 1996, respectively
(see Note 21).
10. 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) 1997 1996
--------------- ------------ ------------
<S> <C> <C> <C>
Trademarks........................................ 40 $ 342,645 $ 448,490
Membership, subscriber and customer lists......... 2-20 456,716 504,951
Non-compete agreements............................ 1-10 194,116 227,312
Trademark license agreements...................... 2-15 2,909 17,500
Copyrights........................................ 12-20 25,715 47,849
Video library..................................... 1-7 14,837 14,837
Databases......................................... 4-12 10,577 121,377
Advertiser lists.................................. .25-15 223,443 133,850
Distribution agreements........................... 1-7 11,525 15,336
Other............................................. 1.5-15 19,647 63,875
------------ ------------
1,302,130 1,595,377
Less: Accumulated amortization.................... 641,862 814,061
------------ ------------
$ 660,268 $ 781,316
------------ ------------
------------ ------------
</TABLE>
The excess of the purchase price over the fair value of the net assets
acquired is net of accumulated amortization of $94,735 and $82,763 at December
31, 1997 and 1996, respectively.
F-15
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
<S> <C> <C>
Deferred financing costs, net......................................... $ 15,276 $ 22,814
Deferred wiring and installation costs, net........................... 54,387 58,086
Direct-response advertising costs, net................................ 16,520 28,452
Prepublication and programming costs, net............................. 4,526 6,506
Other................................................................. 8,167 7,834
---------- ----------
$ 98,876 $ 123,692
---------- ----------
---------- ----------
</TABLE>
The deferred financing costs are net of accumulated amortization of $5,093
and $9,794 at December 31, 1997 and 1996, respectively. The deferred wiring and
installation costs are net of accumulated amortization of $18,718 and $12,850 at
December 31, 1997 and 1996, respectively. Direct-response advertising costs are
net of accumulated amortization of $53,840 and $70,661 at December 31, 1997 and
1996, respectively. Prepublication and programming costs are net of accumulated
amortization of $6,843 and $7,968 at December 31, 1997 and 1996, respectively.
12. ACCRUED EXPENSES AND OTHER
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
<S> <C> <C>
Payroll, commissions and related employee benefits.................... $ 53,494 $ 40,553
Systems costs......................................................... 2,066 2,991
Rent and lease liabilities............................................ 27,247 13,502
Retail display costs and allowances................................... 10,407 8,263
Promotion costs....................................................... 2,739 2,663
Royalties............................................................. 8,367 8,362
Circulation costs..................................................... 6,037 5,420
Professional fees..................................................... 12,319 4,408
Taxes................................................................. 18,528 17,162
Customer advances..................................................... 946 2,482
Deferred purchase price............................................... 16,204 8,231
Other................................................................. 46,416 26,922
---------- ----------
$ 204,770 $ 140,959
---------- ----------
---------- ----------
</TABLE>
F-16
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Borrowings under Bank Credit Facilities........................... $ 1,218,101 $ 884,992
10 5/8% Senior Notes Due 2002..................................... -- 233,250
10 1/4% Senior Notes Due 2004..................................... 100,000 100,000
8 1/2% Senior Notes Due 2006..................................... 298,902 298,811
------------ ------------
1,617,003 1,517,053
Acquisition obligation payable.................................... 53,871 54,633
------------ ------------
1,670,874 1,571,686
Less: Current maturities of long-term debt........................ 14,333 6,000
------------ ------------
$ 1,656,541 $ 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 "Credit Facilities"). The
Company used approximately $910,000 of the borrowings under the Credit
Facilities to repay borrowings under the previously existing credit facilities
and to pay certain related fees and expenses.
The 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"). In May 1997,
the Company solicited commitments of $150,000 ("Tranche B Loan Commitment")
under the 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 Tranche B Facility may be
utilized through the incurrence of Tranche B revolving credit loans. The
borrowings under the Credit Facilities may be used for general corporate and
working capital purposes as well as to finance certain future acquisitions.
F-17
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. LONG-TERM DEBT (CONTINUED)
The commitments under the Tranche A Loan Commitment and the Tranche B Loan
Commitment 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 Loan Commitment 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>
The mandatory reductions for the Tranche B Loan Commitment are based on
defined percentages of the total Tranche B Loan Commitment. To the extent that
the total revolving credit loans outstanding exceed the reduced commitment
amount, these loans must be paid down to an amount equal to 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 amounts of the Term Loan and the Revolver/Term Loan will each
be repaid semi-annually on June 30 and December 31 of 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.
On April 21, 1997, the Company entered into a new 364-day credit facility
with The Chase Manhattan Bank, the Bank of New York, Bankers Trust Company and
the Bank of Nova Scotia 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 to
be used for general, corporate and working capital purposes as well as to
finance certain future acquisitions.
F-18
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. LONG-TERM DEBT (CONTINUED)
At December 31, 1997, the Company has commitments of $1,550,000 and can
borrow up to $1,650,000 in the aggregate under the Credit Facilities and the New
Credit Facility (collectively referred to as the "Bank Credit Facilities").
As of December 31, 1997, the borrowings under the Bank Credit Facilities
consist of the $568,101 under the Tranche A Loan Commitment, $250,000 under the
Revolver/Term Loan, $150,000 under the Tranche B Loan Commitment and $250,000
under the Term Loan.
The amounts borrowed pursuant to the Bank Credit Facilities bear interest,
at the Company's option as follows: (i) the higher of (a) the Federal Funds
Effective Rate as published by the Federal Reserve Bank of New York plus 1/2 of
1% and (b) the prime commercial lending rate announced by the Agent from time to
time (in each case, 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 1997, the weighted average interest rate on the
Bank Credit Facilities was 7.11%. During 1996, the weighted average interest
rates 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%, respectively.
Interest rates on the borrowings under the Bank Credit Facilities outstanding at
December 31, 1997 ranged from 7.04% to 8.50%. Interest rates on the borrowings
under the Bank Credit Facilities outstanding at December 31, 1996 ranged from
7.00% to 7.13%.
Under the Credit Facilities, the Company has agreed to pay commitment fees
equal to 3/8 of 1% per annum on the daily average aggregate unutilized
commitment under the Tranche A Loan Commitment and the Tranche B Loan
Commitment. The Company has also agreed to pay certain fees with respect to the
issuance of letters of credit and an annual administration fee. 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.
10 5/8% SENIOR NOTES. 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. 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
consolidated operations for the year ended December 31, 1997.
10 1/4% SENIOR NOTES. Interest is payable semi-annually in June and
December at an annual rate of 10 1/4%. The 10 1/4% Senior Notes mature on June
1, 2004, with no sinking fund requirements. The 10 1/4% Senior Notes may not be
redeemed prior to June 1, 1999 other than in connection with a change of
control. 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.
F-19
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. LONG-TERM DEBT (CONTINUED)
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 requirements. 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 1/4% Senior Notes and 8 1/2% Senior Notes (together referred to as
the "Senior Notes"), and the Bank 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, issue
guarantees and make certain restricted payments including dividend payments on
its common 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 THE 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 $53,871 at December 31,
1997 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 obligation at the time of the acquisition.
Principal and interest amounts aggregating $63,500 will be repaid from June 1998
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 the outstanding 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 5.7% and 6.5%, respectively, in 1997, 5.5% and 6.2%,
respectively, in 1996 and 6.0% and 6.1%, respectively, in 1995. Also, in May
1995, the
F-20
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. LONG-TERM DEBT (CONTINUED)
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 received is 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 swap agreements, the Company received a floating rate of interest
based on three-month LIBOR, which resets quarterly, and paid a fixed rate of
interest, each quarter, for the term of the agreements. The weighted average
variable rate and weighted average fixed rate were 5.7% and 5.8%, respectively,
in 1997 and 5.5% and 5.8%, respectively, in 1996. These interest rate swap
agreements expired during the fourth quarter 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
will receive a floating rate of interest based on three-month LIBOR, which
resets quarterly, and the Company will pay a fixed rate of interest, each
quarter, for the terms of the respective agreements.
The net interest differential, related to the interest rate swap agreements
and the interest rate cap agreement, charged to interest expense in 1997, 1996
and 1995 was $2,048, $1,943 and $539, 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.
F-21
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. INCOME TAXES
At December 31, 1997, the Company had aggregate net operating loss
carryforwards for Federal and state income tax purposes ("NOLs") of
approximately $749,000 which will be available to reduce future taxable income.
The utilization of such NOLs is subject to certain limitations under Federal
income tax 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.............................................................. 26,100
2012.............................................................. 31,100
---------
$ 749,000
---------
---------
</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, 1997
---------------------------------
<S> <C> <C> <C>
FEDERAL STATE TOTAL
---------- --------- ----------
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of inventory............................. $ 2,187 $ 641 $ 2,828
Difference between book and tax basis of accrued expenses and other............ 16,075 4,709 20,784
Reserves not currently deductible.............................................. 2,615 766 3,381
Difference between book and tax basis of other intangible assets............... 80,945 23,714 104,659
Operating loss carryforwards................................................... 215,832 44,065 259,897
---------- --------- ----------
Total.......................................................................... 317,654 73,895 391,549
---------- --------- ----------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible assets............... 39,283 11,508 50,791
Difference between book and tax basis of property and equipment................ 16,405 4,806 21,211
Other.......................................................................... 19,424 5,691 25,115
---------- --------- ----------
Total.......................................................................... 75,112 22,005 97,117
---------- --------- ----------
Net deferred income tax assets................................................. 242,542 51,890 294,432
Less: Valuation allowances..................................................... 85,500 32,732 118,232
---------- --------- ----------
Net............................................................................ $ 157,042 $ 19,158 $ 176,200
---------- --------- ----------
---------- --------- ----------
</TABLE>
F-22
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
<S> <C> <C> <C>
FEDERAL STATE TOTAL
---------- --------- ----------
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..................................................... 36,927 37,667 74,594
---------- --------- ----------
Net............................................................................ $ 157,042 $ 19,158 $ 176,200
---------- --------- ----------
---------- --------- ----------
</TABLE>
At December 31, 1997, 1996 and 1995, 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. The amount of the net
deferred income tax assets was not adjusted in 1997. In 1996, the Company
reduced the valuation allowances by $62,400 and recorded an income tax benefit
of $53,300 ($47,500 and $5,800 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; and in 1995, the Company reduced the valuation allowances by
$67,700 and recorded an income tax benefit of $59,600 ($53,100 and $6,500
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. 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. After the reduction in the valuation allowances discussed
above, there was a net increase in the valuation allowance of $43,638 during
1997 and net decreases in the valuation allowances of $59,420 and $1,404 during
1996 and 1995, respectively.
A portion of the valuation allowances in the amount of approximately $39,000
at December 31, 1997 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-23
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. EXCHANGEABLE PREFERRED STOCK
Exchangeable Preferred Stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
$2.875 Senior Exchangeable Preferred Stock................................................ $ -- $ 98,266
$11.625 Series B Exchangeable Preferred Stock............................................. 155,281 150,513
$10.00 Series D Exchangeable Preferred Stock.............................................. 194,495 193,950
$9.20 Series E Exchangeable Preferred Stock............................................... 120,504 --
---------- ----------
$ 470,280 $ 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, 1996. The
liquidation and redemption value at December 31, 1996 was $100,000. Annual
dividends of $2.875 per share on the Senior Preferred Stock were cumulative and
payable quarterly. In November 1997, the Company redeemed all 4,000,000
outstanding shares of the Senior Preferred Stock for $105,864, which includes a
redemption premium of $5,800, plus accrued and unpaid dividends of $64.
$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 and 1,531,526 shares of which were issued and
outstanding at December 31, 1997 and 1996, respectively. The liquidation and
redemption value at December 31, 1997 and 1996 was $157,604 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. Commencing in the second quarter of
1997, the Company elected to satisfy its Series B Preferred Stock dividend
requirements 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 redemption value (net
of issuance costs) of $155,281 and $150,513 at December 31, 1997 and 1996,
respectively (see Note 25).
$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, $10.00 Series C Exchangeable Preferred Stock ("Series
C Preferred Stock") at $100 per share. Annual dividends of $10.00 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
F-24
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. EXCHANGEABLE PREFERRED STOCK (CONTINUED)
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,
1997 and 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 $194,495 and $193,950 at December 31, 1997 and 1996,
respectively.
$9.20 SERIES E EXCHANGEABLE PREFERRED STOCK
On September 26, 1997, the Company completed a private offering of 1,250,000
shares of $9.20 Series E Preferred Stock at $100 per share, all of which are
issued and outstanding at December 31, 1997. The liquidation and redemption
value at December 31, 1997 was $125,000. 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
consolidated balance sheet at the aggregate redemption value (net of unamortized
issuance costs) of $120,504 at December 31, 1997. Net proceeds from this private
offering were used to pay down borrowings under the Bank Credit Facilities (see
Note 25).
In 1997, the Company recorded a preferred stock dividend accrual in the
amount of $9,517. Of the total dividend accrual recorded in 1997, the amounts
that relate to prior periods were not material.
16. 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 a public offering 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
F-25
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. COMMON STOCK (CONTINUED)
$163,000. The Company used the net proceeds from this initial public offering to
repay borrowings outstanding under its Revolving Credit Agreement.
SHARE REPURCHASE PROGRAM. On September 9, 1997, the Company announced that
its board of directors had authorized a program for the Company to repurchase up
to $15,000 of its outstanding common stock from time to time in the open market
and through privately negotiated transactions. During the year ended December
31, 1997, the Company repurchased 1,048,600 shares of common stock for $13,158
at a weighted average price of $12.52.
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 prior to November 1995 and redeemed is included in the
table of the activity of the common stock subject to redemption.
COMMON STOCK SUBJECT TO REDEMPTION. Under the following circumstances,
employees who purchased shares prior to the Company's initial public offering of
common stock 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 because the stock is freely tradeable on the
public market 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, 1995.................................................................. 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
Acquisitions of common stock held by management............................................. (2,320) (19)
Expiration of redemption feature............................................................ (238,340) (2,569)
Accretion in carrying value................................................................. -- 755
--------- ---------
Balance at December 31, 1997................................................................ 402,650 $ 5,083
--------- ---------
--------- ---------
</TABLE>
The redemption values of the common stock subject to redemption of $5,083
and $6,916 at December 31, 1997 and 1996, respectively, were based on a
repurchase price of $12.625 per share and $10.75 per
F-26
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. COMMON STOCK (CONTINUED)
share which are the quoted market values at December 31, 1997 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 $707 and $959 at
December 31, 1997 and 1996, respectively.
ACCOUNTING FOR EMPLOYEE STOCK BASED COMPENSATION. The Plan has authorized
grants of up to 25,000,000 shares of the Company's common stock or options to
management personnel. 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.
A summary of the status of the Company's stock option plan as of December
31, 1997, 1996 and 1995, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------- ------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE PRICE OPTIONS PRICE PRICE OPTIONS PRICE
--------- ------------- ----------- --------- ------------- ----------- --------- -------------
Outstanding--
beginning of
year........... 13,211,212 $5.00-$11.94 $ 6.69 12,326,087 $5.00-$ 8.00 $ 5.98 9,610,447 $5.00-$8.00
Granted........ 135,800 1$0.88-$12.00 $ 11.27 1,830,400 1$0.00-$11.94 $ 11.12 3,139,325 $8.00
Exercised...... (1,209,693) $5.00-$11.81 $ 6.96 (681,890) $5.00-$ 8.00 $ 5.36 (193,401) $5.00-$8.00
Forfeited...... (574,389) $5.00-$11.81 $ 9.22 (263,385) $5.00-$ 8.00 $ 7.69 (230,284) $5.00-$8.00
--------- --------- ---------
Outstanding--end
of the year.... 11,562,930 $5.00-$12.00 $ 6.58 13,211,212 $5.00-$11.94 $ 6.69 12,326,087 $5.00-$8.00
--------- --------- ---------
--------- --------- ---------
Exercisable--end
of the year.... 8,953,280 $5.00-$11.94 $ 5.73 8,707,528 $5.00-$ 8.00 $ 5.38 7,269,817 $5.00-$8.00
--------- --------- ---------
--------- --------- ---------
<CAPTION>
<S> <C>
WEIGHTED
AVERAGE
EXERCISE
PRICE
-----------
Outstanding--
beginning of
year........... $ 5.31
Granted........ $ 8.00
Exercised...... $ 5.19
Forfeited...... $ 6.28
Outstanding--end
of the year.... $ 5.98
Exercisable--end
of the year.... $ 5.18
</TABLE>
The weighted-average fair value per option for options granted in 1997, 1996
and 1995 was $4.45, $4.13 and $3.06, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER WEIGHTED WEIGHTED
RANGE OF OUTSTANDING AVERAGE REMAINING AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE
- --------------- ----------- ----------------------- ---------------
<S> <C> <C> <C>
$5.00-$5.44 7,104,260 4 $ 5.00
$7.00 125,400 6 $ 7.00
$8.00 2,711,210 8 $ 8.00
$10.00-$12.00 1,622,060 9 $ 11.12
-----------
11,562,930 6 $ 6.58
-----------
-----------
</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
F-27
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. COMMON STOCK (CONTINUED)
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 Accounting Principles
Board Opinion ("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 1997, 1996 and
1995. The following weighted-average assumptions were used for 1997, 1996 and
1995, respectively: risk-free interest rates of 6.65%, 6.36% and 6.34%; dividend
yields of 0.0%, 0.0% and 0.0%; volatility factors of the expected market price
of the Company's common stock of 27.70%, 20.83% and 22.59%; and a
weighted-average expected life of the option of six years. The estimated fair
value of options granted during 1997, 1996 and 1995 was $604, $7,560 and $9,592,
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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income (loss)....................................................... $(176,351) $ 5,738 $ (76,388)
Pro forma loss applicable to common shareholders.................................. $(241,424) $ (37,788) $(105,366)
Pro forma basic and diluted loss per common share................................. $ (1.87) $ (.29) $ (.93)
</TABLE>
The Company had reserved approximately 12,000,000 shares of the Company's
common stock or options for future grants in connection with the Plan at
December 31, 1997.
17. LOSS PER SHARE
Loss per share has been determined based on income (loss) before
extraordinary charge after preferred stock dividends, divided by the weighted
average number of common shares outstanding for all periods presented.
Options to purchase 11,562,930, 13,211,212, 12,326,087 shares of common
stock were outstanding at December 31, 1997, 1996 and 1995, respectively, but
were not included in the computation of diluted loss per share because the
effect of their inclusion would be antidilutive.
F-28
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
18. ACCUMULATED DEFICIT
The accumulated deficit of $929,011 at December 31, 1997 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 $1,219,300 which is net of the non-cash income tax benefits
aggregating $155,000 through December 31, 1997.
19. 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>
1997 1996
---------------------- ----------------------
<CAPTION>
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
10 5/8% Senior Notes............................................. $ -- $ -- $ 233,250 $ 260,950
10 1/4% Senior Notes............................................. 100,000 108,000 100,000 105,400
8 1/2% Senior Notes.............................................. 298,902 307,470 298,811 291,750
Acquisition Obligation........................................... 53,871 55,329 54,633 55,339
Senior Preferred Stock........................................... -- -- 98,266 107,500
Series B Preferred Stock......................................... 155,281 169,818 150,513 154,684
Series D Preferred Stock......................................... 194,495 210,500 193,950 196,000
Series E Preferred Stock......................................... 120,504 125,000 -- --
Interest Rate Swap Agreements.................................... 485 410 982 3,531
Purchased Interest Rate Cap Agreement............................ (43) -- (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.
20. 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
approximately $6,300 in 1997, $5,400 in 1996 and $5,200 in 1995.
F-29
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
20. RETIREMENT PLANS (CONTINUED)
In addition, the employees at PRIMEDIA Magazines and the non-union employees
at THE DAILY RACING FORM are eligible to participate in a non-contributory
defined benefit pension plan ("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. The
components of the net periodic pension cost of the Pension Plan for the years
ended December 31, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost........................................................................ $ 1,387 $ 1,203 $ 755
Interest cost....................................................................... 1,073 769 581
Actual investment gain on plan assets............................................... (1,763) (610) (812)
Net amortization and deferral....................................................... 945 462 774
--------- --------- ---------
Net periodic pension cost........................................................... $ 1,642 $ 1,824 $ 1,298
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following is a reconciliation of the funded status of the Pension Plan:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested.............................................................. $ (10,737) $ (6,342)
Non-vested.......................................................... (851) (617)
---------- ----------
Accumulated benefit obligation........................................ (11,588) (6,959)
Additional liability based on projected compensation levels........... (6,448) (5,118)
---------- ----------
Projected benefit obligation.......................................... (18,036) (12,077)
Plan assets at fair value............................................. 13,391 5,473
---------- ----------
Projected benefit obligation in excess of plan assets................. (4,645) (6,604)
Unrecognized net loss (gain).......................................... (1,440) 172
Obligation recorded at acquisition date............................... 2,587 2,861
---------- ----------
Accrued pension cost.................................................. $ (3,498) $ (3,571)
---------- ----------
---------- ----------
</TABLE>
The obligation recorded at the acquisition date of PRIMEDIA Magazines and
THE 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 rates used in determining the
actuarial present value of the projected benefit obligation were 7.0% and 7.5%
for 1997 and 1996, respectively. The weighted average rate of compensation
increases used was 4.0% for 1997 and 1996. The weighted average expected
long-term rate of return on plan assets was 8.5% for 1997 and 1996 (see Note
25).
F-30
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
21. COMMITMENTS AND CONTINGENCIES
COMMITMENTS. Total rent expense under operating leases was $36,844, $31,561
and $24,409 for the years ended December 31, 1997, 1996 and 1995, respectively.
Certain leases are subject to escalation clauses and certain leases contain
renewal options. Minimum rental commitments under noncancelable operating leases
are approximately as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998............................................................... $ 26,868
1999............................................................... 22,759
2000............................................................... 20,218
2001............................................................... 15,365
2002............................................................... 12,504
Thereafter......................................................... 38,579
--------
$ 136,293
--------
--------
</TABLE>
Future minimum lease payments under capital leases (see Note 9) are
approximately as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998............................................................... $ 3,102
1999............................................................... 3,663
2000............................................................... 3,663
2001............................................................... 3,663
2002............................................................... 3,663
Thereafter......................................................... 23,379
-------
41,133
Less: amount representing interest................................. 15,760
-------
Present value of net minimum lease payments........................ 25,373
Less: current portion.............................................. 1,373
-------
Long-term obligations (included in other non-current
liabilities)..................................................... $ 24,000
-------
-------
</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, 1997, the Company had letters of credit outstanding of
approximately $3,100.
F-31
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
22. RELATED PARTY TRANSACTIONS
During each of the years ended December 31, 1997, 1996 and 1995, the Company
paid $1,000 in administrative and other fees to Kohlberg Kravis Roberts & Co.
("KKR"), an affiliated party. The Company paid an aggregate of $180, in
directors' fees to certain partners of KKR during the years ended December 31,
1997, 1996 and 1995.
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 Series C Preferred Stock ("KKR 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 KKR 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 Notes 13 and 25).
23. 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, 1997:
Sales, net...................................... $352,291 $368,762 $368,944 $397,598 $1,487,595
Operating income (loss)......................... 20,478 39,518 (112,326) 31,537 (20,793)
Income (loss) before extraordinary charge....... (12,546) 3,700 (147,674) (919) (157,439)
Extraordinary charge--extinguishment of debt.... (1,554) (13,847) -- -- (15,401)
Net loss........................................ (14,100) (10,147) (147,674) (919) (172,840)
Loss applicable to common shareholders.......... (26,426) (22,602) (160,130) (28,755) (237,913)
Basic and diluted loss applicable to common
shareholders per common share:
Loss before extraordinary charge.............. $(.19) $(.07) $(1.24) $(.22) $(1.72)
Net loss...................................... $(.20) $(.18) $(1.24) $(.22) $(1.84)
Basic and diluted common shares outstanding..... 129,114,344 129,289,307 129,411,579 129,404,368 129,304,900
</TABLE>
F-32
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
23. UNAUDITED QUARTERLY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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)
Basic income (loss) applicable to common
shareholders per common share:
Income (loss) before extraordinary charge..... $(.21) $(.15) $(.19) $.35 $(.20)
Net income (loss)............................. $(.21) $(.21) $(.19) $.33 $(.27)
Diluted income (loss) applicable to common
shareholders per common share:
Income (loss) before extraordinary charge..... $(.21) $(.15) $(.19) $.34 $(.20)
Net income (loss)............................. $(.21) $(.21) $(.19) $.32 $(.27)
Basic common shares outstanding................. 128,502,847 128,787,528 128,874,002 128,961,695 128,781,518
Diluted common shares outstanding 128,502,847 128,787,528 128,874,002 133,866,122 128,781,518
</TABLE>
The sum of the above quarterly per share amounts may not equal reported
year-to-date per share amounts due to rounding.
During the first quarter of 1997, the Company purchased, in aggregate
$20,850 of the 10 5/8% Senior Notes from various brokers on the open market. The
premium paid on the purchase and the write-off of the related deferred financing
fees totaled $1,554. In the second quarter, the Company redeemed the remaining
principal of the 10 5/8% Senior Notes. The aggregate premium paid and the
write-off of the related deferred financing fees totaled $13,847. During the
third quarter of 1997, the Company recorded a provision for loss on the sales of
businesses and other in the amount of $138,640.
As a result of previous bank refinancings, the Company wrote off $7,572 of
unamortized deferred financings costs in the second quarter of 1996 and $1,981
of unamortized deferred financing costs in the fourth quarter of 1996. In
addition, in the fourth quarter of 1996, the Company recognized an income tax
benefit of $53,300.
F-33
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
24. 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, 1997, 1996 and 1995
and for each of the years then ended is set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
SALES, NET:
Specialty Magazines............................... $ 754,410 $ 684,341 $ 452,373
Education......................................... 379,552 376,217 330,414
Information....................................... 353,633 313,891 263,542
------------ ------------ ------------
Total............................................. $ 1,487,595 $ 1,374,449 $ 1,046,329
------------ ------------ ------------
------------ ------------ ------------
OPERATING INCOME (LOSS):
Specialty Magazines............................... $ 71,580 $ 59,693 $ 32,169
Education......................................... 12,089 15,011 (32,024)
Information....................................... (78,818) 33,473 (8,683)
Corporate......................................... (25,644) (22,276) (17,737)
------------ ------------ ------------
Total............................................. $ (20,793) $ 85,901 $ (26,275)
------------ ------------ ------------
------------ ------------ ------------
TOTAL ASSETS:
Specialty Magazines............................... $ 972,550 $ 908,374 $ 723,711
Education......................................... 911,299 939,947 547,587
Information....................................... 435,153 531,771 499,418
Corporate......................................... 166,988 172,123 110,700
------------ ------------ ------------
Total............................................. $ 2,485,990 $ 2,552,215 $ 1,881,416
------------ ------------ ------------
------------ ------------ ------------
DEPRECIATION, AMORTIZATION AND OTHER CHARGES:
Specialty Magazines............................... $ 86,364 $ 76,281 $ 58,100
Education......................................... 68,275 64,228 107,284
Information....................................... 171,138 53,091 79,435
Corporate......................................... 99 764 706
------------ ------------ ------------
Total............................................. $ 325,876 $ 194,364 $ 245,525
------------ ------------ ------------
------------ ------------ ------------
CAPITAL EXPENDITURES, NET:
Specialty Magazines............................... $ 9,353 $ 8,252 $ 5,724
Education......................................... 16,258 14,460 10,750
Information....................................... 3,757 4,343 4,516
Corporate......................................... 1,740 1,735 2,424
------------ ------------ ------------
Total............................................. $ 31,108 $ 28,790 $ 23,414
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
There were no significant intersegment sales or transfers during 1997, 1996
and 1995. Operating income (loss) by business segment excludes interest income
and interest expense. Corporate assets consist
F-34
<PAGE>
PRIMEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
24. BUSINESS SEGMENT INFORMATION (CONTINUED)
primarily of cash, receivables, property and equipment and the net deferred
income tax asset. Depreciation, amortization and other charges includes the
amortization of deferred financing and organizational costs, the net provision
for loss on sales of businesses of $138,640 and $35,447 in 1997 and 1995,
respectively, and provision for restructuring and other costs of $14,667 in
1995.
25. SUBSEQUENT EVENTS
In January 1998, the Company elected to terminate its defined benefit
pension plan (see Note 20) effective March 31, 1998. In connection with this
termination, the Company froze benefit accruals effective December 31, 1997. In
the opinion of the Company's management, the plan benefits payable on the
termination are adequately accrued for and will not have a material impact on
the Company's consolidated financial statements. Active plan participants will
be eligible to participate in the Company's defined contribution plans.
On February 17, 1998, the Company exchanged the 1,250,000 shares of its
Series E Preferred Stock for 1,250,000 shares of $9.20 Series F Exchangeable
Preferred Stock ("Series F Preferred Stock"). The terms of the Series F
Preferred Stock are the same as the Series E Preferred Stock except that the
Series F Preferred Stock has been registered under the Securities Act of 1933.
On February 17, 1998, the Company completed a private offering of 2,500,000
shares of $8.625 Series G Exchangeable Preferred Stock for $250,000 and $250,000
principal amount of 7 5/8% Senior Notes Due 2008. The net proceeds of these
offerings were used to redeem all of the Company's outstanding Series B
Preferred Stock at $105.80 per share plus accrued and unpaid dividends to the
redemption date and to reduce outstanding borrowings under the Bank Credit
Facilities, which amounts may be reborrowed for general corporate purposes
including acquisitions.
On March 18, 1998, KKR 1996 Fund L.P., a Delaware limited partnership
affiliated with KKR (the "KKR Fund"), purchased 16,666,667 shares of newly
issued common stock from the Company for $200,000 (the "KKR Fund Investment").
The net proceeds from the KKR Fund Investment were used to repay borrowings
outstanding under the Bank Credit Facilities, which amounts may be reborrowed
for general corporate purposes including acquisitions.
On March 19, 1998, the Company completed the acquisition of the stock of
Cowles Enthusiast Media and Cowles Business Media from McClatchy Newspapers,
Inc. ("McClatchy") for approximately $200,000 (the "Cowles Acquisition"). With
the Cowles Acquisition, the Company added 25 enthusiast titles to its specialty
consumer magazines group, and 11 technical and trade magazines and 15 trade
shows to its technical and trade magazines group.
For the period from January 1, 1998 through April 16, 1998, in addition to
the Cowles Acquisition, the Company had completed four product-line acquisitions
in the specialty magazines and information segments. The aggregate purchase
price for such acquisitions was approximately $12,000.
On April 20, 1998, the New Credit Facility expired. As a result, the Company
has total commitments of $1,400,000 and can borrow up to $1,500,000 in the
aggregate under its Credit Facilities.
On April 23, 1998, the Company entered into a definitive stock purchase
agreement to sell Nelson Information, Inc., a leading information provider in
the financial services industry, to Thomson Information Services Inc.
F-35
<PAGE>
THE BANK OF NEW YORK
NOTE EXCHANGE OFFER
<TABLE>
<S> <C> <C>
BY MAIL: FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York (Eligible Institutions Only) The Bank of New York
101 Barclay Street, 7E (212) 815-6339 101 Barclay Street
New York, New York 10286 CONFIRM BY TELEPHONE: Corporate Trust Services Window
Attn: Reorganization Section, (212) 815-4146 Ground Level
7E: Vincent Jhingor FOR INFORMATION CALL: New York, New York 10286
(Registered or Certified Mail (212) 815-4146 Attn: Reorganization Section,
Recommended) 7E: Vincent Jhingor
</TABLE>
PREFERRED STOCK EXCHANGE OFFER
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER:
Tender & Exchange (For Eligible Institutions Only) Tender & Exchange
Department (212) 815-6213 Department
P.O. Box 11248 101 Barclay Street
Church Street Station CONFIRM FACSIMILE BY TELEPHONE: Receive and Deliver Window
New York, NY 10286-1248 (For Confirmation Only) New York, NY 10286
(800) 507-9357
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY PRIMEDIA. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF PRIMEDIA SINCE THE DATE AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Summary........................................ 3
Glossary of Certain Defined Terms.............. 19
Risk Factors................................... 22
Use of Proceeds................................ 26
Capitalization................................. 27
Selected Financial Information................. 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 30
Business....................................... 43
Management..................................... 51
The Exchange Offers............................ 53
Description of Notes........................... 62
Description of Preferred Stock and 8 5/8%
Subordinated Debentures...................... 87
Description of Capital Stock of the Company.... 103
Security Ownership of Certain Beneficial Owners
and Management............................... 108
Certain Federal Income Tax Considerations...... 109
Plan of Distribution........................... 109
Legal Matters.................................. 110
Experts........................................ 110
Unaudited Pro Forma Consolidated Financial
Data......................................... P-1
Index to Financial Statements.................. F-1
</TABLE>
[LOGO]
---------
PROSPECTUS
MAY 11, 1998
---------
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF ITS 7 5/8% SENIOR NOTES DUE 2008 FOR EACH $1,000
IN PRINCIPAL AMOUNT OF ITS OUTSTANDING 7 5/8% SENIOR NOTES DUE 2008
OFFER TO EXCHANGE
ITS $8.625 SERIES H EXCHANGEABLE PREFERRED STOCK REDEEMABLE 2010 (LIQUIDATION
PREFERENCE $100 PER SHARE) (EXCHANGEABLE AT THE OPTION OF PRIMEDIA) FOR UP TO
2,500,000 SHARES OF ITS $8.625 SERIES G EXCHANGEABLE PREFERRED STOCK REDEEMABLE
2010 (LIQUIDATION PREFERENCE $100 PER SHARE) (EXCHANGEABLE AT THE OPTION OF
PRIMEDIA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
