Filed Pursuant to Rule 424(b)(1)
Registration Nos. 333-86776;
333-86776-01; 333-86776-02;
333-86776-03; 333-86776-04;
333-86776-05; 333-86776-06;
333-86776-07; 333-86776-08;
333-86776-09; 333-86776-10;
333-86776-11; 333-86776-12;
333-86776-13; 333-86776-14;
333-86776-15; 333-86776-16
PROSPECTUS
$400,000,000
American Media Operations, Inc.
OFFER TO EXCHANGE OF $400,000,000 10 1/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, FOR ANY AND ALL 10 1/4%
SENIOR SUBORDINATED NOTES DUE 2009 AND 10 1/4% SERIES B
SENIOR SUBORDINATED NOTES DUE 2009
Material Terms of the Exchange Offer
- The exchange offer expires 5:00 p.m., New York City time, May 31, 2002,
unless extended.
- The exchange notes to be issued shall be exchanged for up to all of our
outstanding 10 1/4% Senior Subordinated Notes due 2009 issued under an
indenture we entered into in 1999 and our outstanding 10 1/4% Series B
Senior Subordinated Notes due 2009, issued under an indenture we entered
into in 2002.
- The exchange offer is not conditioned upon any minimum aggregate
principal amount of old notes being tendered for exchange.
- All outstanding old notes that are validly tendered and not validly
withdrawn will be exchanged.
- Tenders of outstanding old notes may be withdrawn any time prior to the
expiration of the exchange offer.
- The exchange of old notes should not be a taxable exchange for U.S.
federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
- The terms of the exchange notes to be issued are substantially identical
to the outstanding 1999 and 2002 notes, except for certain transfer
restrictions and registration rights relating to the outstanding 2002
notes.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 13 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THIS EXCHANGE OFFER.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is May 2, 2002.
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, and, if given or made, such information or representations must not
be relied upon as having been authorized by us. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the securities to which it relates or any offer to sell or the
solicitation of an offer to buy such securities in any circumstances in which
such offer or solicitation is unlawful. 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 our affairs since the date hereof
or that the information contained herein is correct as of any time subsequent to
its date.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
FORWARD-LOOKING STATEMENTS.................................. ii
WHERE YOU CAN FIND ADDITIONAL INFORMATION................... ii
INCORPORATION BY REFERENCE.................................. iii
INDUSTRY DATA AND CIRCULATION INFORMATION................... iii
SUMMARY..................................................... 1
SUMMARY HISTORICAL FINANCIAL INFORMATION.................... 11
RISK FACTORS................................................ 13
USE OF PROCEEDS............................................. 23
CAPITALIZATION.............................................. 23
THE EXCHANGE OFFER.......................................... 24
DESCRIPTION OF OTHER INDEBTEDNESS........................... 35
DESCRIPTION OF THE EXCHANGE NOTES........................... 37
CERTAIN U.S. FEDERAL TAX CONSEQUENCES....................... 75
PLAN OF DISTRIBUTION........................................ 79
LEGAL MATTERS............................................... 80
INDEPENDENT AUDITORS........................................ 80
</Table>
i
FORWARD-LOOKING STATEMENTS
Some of the information presented or incorporated by reference in this
prospectus constitutes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including, in particular, the statements about our plans, strategies and
prospects under the heading "Summary" included in this prospectus and under the
headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" incorporated by reference in this
prospectus. We have used the words "may," "will," "expect," "anticipate,"
"believe," "estimate," "plan," "intend," and similar expressions to identify
forward-looking statements. We have based these forward-looking statements on
our current assumptions, expectations and projections about future events. We
caution you that a variety of factors could cause business conditions and
results to differ materially from what is contained in the forward-looking
statements. These forward-looking statements are subject to risks, uncertainties
and assumptions about us, including, among other things:
- our high degree of leverage and significant debt service obligations,
- our ability to increase circulation and advertising revenues,
- market conditions for our publications,
- our ability to develop new publications and services,
- outcomes of pending and future litigation,
- the effects of terrorism, including bioterrorism, on our business,
- increasing competition by domestic and foreign media companies,
- changes in the cost of paper used by us,
- any future changes in our management, and
- general risks associated with the publishing industry.
You should not put undue reliance on any forward-looking statements. You
should understand that many important factors, including those discussed under
the heading "Risk Factors" included in this prospectus and the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated by reference in this prospectus, could cause our
results to differ materially from those expressed or suggested in any
forward-looking statements. These forward-looking statements speak only as of
the date of this prospectus, and we undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC. You may read
this information at the SEC's public reference room at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549.
Please call 1-800-SEC-0330 for further information on its regional public
reference rooms. You may also obtain copies of this information by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Our SEC filings are also available
to the public at the SEC's web site at http://www.sec.gov.
We, together with the subsidiary guarantors, have filed a registration
statement on Form S-4 to register with the SEC the exchange notes to be issued
in exchange for the old notes. This prospectus is part of that registration
statement. As allowed by the SEC's rules, this prospectus does not contain all
of the information you can find in the registration statement or the exhibits to
the registration statement.
ii
INCORPORATION BY REFERENCE
Rather than include certain information in this prospectus that we have
already included in reports filed with the SEC, we are incorporating this
information by reference, which means that we can disclose important information
to you by referring to those publicly filed documents containing the
information. This information incorporated by reference is considered to be part
of this prospectus, and future information that we file with the SEC after the
date of this prospectus and prior to the termination of the exchange offer will
automatically update and supersede the information in this prospectus. We
incorporate by reference the following documents filed by us with the SEC and
any future filings we make with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act until all the securities offered under this prospectus are
sold:
- Annual Report on Form 10-K for the fiscal year ended March 26, 2001;
- Quarterly Report on Form 10-Q for the quarter ended June 25, 2001;
- Quarterly Report on Form 10-Q for the quarter ended September 24, 2001;
- Quarterly Report on Form 10-Q for the quarter ended December 24, 2001;
- Current Report on Form 8-K dated February 5, 2002; and
- Current Report on Form 8-K dated February 14, 2002.
---------------------
INDUSTRY DATA AND CIRCULATION INFORMATION
Unless otherwise specifically indicated, all statements presented or
incorporated by reference in this prospectus regarding (a) circulation rankings
in the United States and Canada of National Enquirer, Star, Globe, National
Examiner, Weekly World News and Sun relative to other magazines based on weekly
single copy circulation and of Country Weekly in its category based on bi-weekly
circulation, (b) rankings in the United States and Canada of National Enquirer,
Star, Globe and National Examiner relative to other magazines based on total
magazine retail dollars generated, (c) our publications' share of total weekly
single copy circulation in the United States and Canada and (d) the percentage
that average weekly single copy circulation of our publications in the United
States, Canada or outside of North America represents of total average weekly
single copy circulation of our publications are based upon statistical data
obtained from the report of the Audit Bureau of Circulations ("ABC") for the six
months ended June 30, 2001 (which information has not been independently
verified by us). Unless otherwise indicated, all average weekly circulation
information for our publications is an average of actual weekly single copy
circulation for the twelve months ended December 24, 2001. All references to
"circulation" are to single copy and subscription circulation, unless otherwise
specified. All information not described in the first sentence above regarding
National Enquirer, Star, Country Weekly, and Country Music is based on Spring
2001 Mediamark Research Inc. ("MRI") syndicated research data (which information
has not been independently verified by us). Information regarding magazine
audience estimates (i.e., multiple readers per copy) and reader demographics for
all of our other titles are based on research conducted by outside independent
research companies and the individual publishers' estimates.
iii
SUMMARY
This summary highlights information contained elsewhere in, or incorporated
by reference in, this prospectus. You should read all the information contained
or incorporated by reference in this prospectus carefully, including the
information under the heading "Risk Factors" and the financial information
included elsewhere in, or incorporated by reference in, this prospectus. Unless
the context otherwise requires, "we," "us," "our" and the "Company" refer to
American Media Operations, Inc. and its subsidiaries. "Holdings," refers to
American Media, Inc., a Delaware corporation and our parent company. The term
"1999 notes" refers to our outstanding 10 1/4% Senior Subordinated Notes due
2009, which we issued under an indenture we entered into in 1999. The term "2002
notes" refers to our outstanding 10 1/4% Series B Senior Subordinated Notes due
2009, which we issued under an indenture we entered into in 2002. The term "old
notes" refers to the 1999 notes and the 2002 notes, collectively. The term
"exchange notes" refers to the 10 1/4% Series B Senior Subordinated Notes due
2009, which are offered in exchange for the old notes pursuant to this
prospectus. All references to a particular fiscal year are to the four fiscal
quarters ended the last Monday in March of the fiscal year specified.
AMERICAN MEDIA OPERATIONS, INC.
OVERVIEW
We are a leading publisher in the field of general interest magazines,
publishing National Enquirer, Star, Globe, National Examiner, Weekly World News,
Sun, Country Weekly, Country Music Magazine, Mira!, Auto World Magazine and
other smaller publications. Our magazines' current aggregate weekly circulation
is approximately 5.0 million copies. National Enquirer, Star, and Globe, our
premier titles, have the first, fourth and sixth highest weekly single copy
circulation, respectively, of any weekly periodical in the United States. We are
the leader in total weekly single copy circulation of magazines in the United
States and Canada with approximately 44% of total U.S. and Canadian circulation.
We derive approximately 85% of our revenues from circulation, predominantly
single copy sales in retail outlets, and the remainder from advertising and
other sources. National Enquirer, Star and Globe are distributed in
approximately 150,000 retail outlets in the United States and Canada,
representing, in our opinion, substantially complete coverage of periodical
outlets in these countries. Our subsidiary Distribution Services, Inc. ("DSI")
arranges for the placement and merchandising of our publications and third-party
publications at retail outlets throughout the United States and Canada. In
addition, DSI provides marketing, merchandising and information-gathering
services for third parties. For the twelve months ended December 24, 2001, we
had operating revenues and EBITDA of $397.1 million and $135.3 million,
respectively.
Our tabloid publications are among the most well-known and widely
distributed titles in the publishing industry. While our tabloid publications
have a current aggregate weekly single copy circulation of approximately 4.3
million copies, they enjoy a weekly readership of over 30 million people due to
multiple readers per copy sold. Our other titles (including the Mini-Mags,
Micro-Mags and Digests) contribute an additional readership of over 20 million,
giving our titles a total readership in excess of 50 million. As a result, we
believe our publications enjoy strong consumer brand awareness with a large and
loyal readership base. Our publications include the following titles:
- National Enquirer is a weekly general interest periodical with an
editorial content devoted to investigative reporting, celebrities and
features, human interest stories and articles covering lifestyle topics
such as health, food and household affairs. National Enquirer is the
highest selling weekly periodical in the United States and Canada based
on single copy circulation, selling on average 1,543,000 copies per week.
National Enquirer has a total average weekly circulation of 1.9 million
copies, including subscriptions, with a total estimated readership in the
U.S. and Canada of 14.3 million.
- Star is a weekly celebrity news-based periodical dedicated to covering
the stars of television, movies and music, as well as the lives of the
rich and famous from politics, business, royalty and other areas. Star's
editorial content also incorporates fashion, health, fitness and diet
features, all with a celebrity spin. Star is the fourth highest selling
weekly periodical in the United States and Canada based on
1
single copy circulation, selling on average 1,224,000 copies per week.
Star has a total average weekly circulation of 1.5 million copies,
including subscriptions, with a total estimated readership in the U.S.
and Canada of 7.5 million.
- Globe is a weekly tabloid with content that is much edgier than the
National Enquirer and Star, with a greater emphasis on investigative
crime stories. Globe is the sixth highest selling weekly periodical in
the United States and Canada based on single copy circulation, selling on
average 609,000 copies per week. Globe has a total average weekly
circulation of 659,000 copies, including subscriptions, with an estimated
readership of 4.0 million.
- National Examiner's editorial content consists of celebrity and
human-interest stories, differentiating itself from the other titles
through its upbeat positioning as the "gossip, games and good news"
tabloid. The National Examiner has an average weekly single copy
circulation of 294,000 copies per week, with an average weekly
circulation of 313,000 copies, including subscriptions. Total readership
is estimated at 1.3 million.
- Weekly World News is a tabloid devoted to the publication of
entertaining, bizarre and strange but true stories. There is much
humorous original content and the paper has created several characters
that have become staples of pop culture. Weekly World News has an average
weekly single copy circulation of 222,000 copies, with a total average
weekly circulation of 243,000 copies, including subscriptions. Total
readership is estimated at 1.0 million.
- Sun's editorial content is skewed to an older target audience and focuses
on religion, health, holistic remedies, predictions and prophecies. Sun
also includes entertaining and unusual articles from around the world.
Sun has an average weekly single copy circulation of approximately
147,000 copies, with a total readership estimated at 600,000.
- Country Weekly is a special interest magazine presenting various aspects
of country music and related lifestyles, events and personalities, and
has the highest weekly circulation of any such magazine in its category.
Country Weekly is a bi-weekly publication and has an average single copy
circulation of 218,000 copies, with a total average bi-weekly circulation
of 413,000 copies, including subscriptions. Total readership is estimated
at 2.8 million.
- Country Music Magazine is a bi-monthly publication that is also a special
interest magazine presenting various aspects of country music and related
lifestyles, events and personalities. We acquired Country Music Magazine
on August 1, 2000. Country Music Magazine has an average single copy
circulation of approximately 19,000 copies, with a total average
circulation of 329,000 copies, including subscriptions. Country Music
Magazine has an estimated total readership of 4.8 million.
- Mini-Mags, Micro-Mags and Digest are pocket-sized books covering such
topics as diets, health, horoscopes, astrology and pets. We believe we
are the largest such publisher in the field, producing a total of
approximately 100 million copies annually.
- Mira! is a Spanish language magazine that features exclusive news, gossip
and goings-on about the hottest stars in the Latino community, along with
interviews and in-depth stories spotlighting them at work and at play. It
is distributed at checkout counters in supermarkets, bodegas and mass
merchandisers in the top 43 Hispanic markets in the United States. The
magazine was launched in June 2000 and has a bi-weekly circulation of
100,000 and an estimated total readership of 500,000.
- Auto World Magazine targets the in-market buyer and is the only
automotive magazine sold at checkout counters in supermarkets and mass
merchandisers. The readership is 33% female, giving Auto World by far the
highest number of women readers of any automotive title. Articles focus
on buying new and pre-owned cars, road tests, comparison tests, news,
pricing, recalls and rebates. Auto World Magazine is a monthly
publication with a circulation of 100,000 and an estimated total
readership of 1.5 million.
2
COMPETITIVE STRENGTHS
We believe that the following factors have contributed to the leading
market position of our publications:
- STRONG WELL-ESTABLISHED BRAND NAMES. Each of our tabloid publications
have leading positions in their respective categories. National Enquirer,
whose predecessors date back to 1926, and Globe and Star, which commenced
publication in 1953 and 1974, respectively, have been three of the
leading general interest magazines for over 25 years and are read by an
estimated 25 million people per week. We believe that our brand names are
among the most familiar magazine titles to consumers and are synonymous
with the celebrity genre. We believe that the long history and strong
brand identity of our publications has allowed us to establish a large
and loyal readership base.
- EXTENSIVE EDITORIAL SOURCING CAPABILITIES. We have long-established
editorial departments that source the stories, features and news items
that appear in our publications. Because a significant amount of our
editorial content is based on investigative reporting, our publications
are "first source" or "breaking story" magazines for our readers. We have
an extensive and reliable sourcing network, consisting of many sources
that have a long term history with us.
- BROAD DISTRIBUTION BASE. Our publications are sold in all 50 states in
the United States, as well as in Canada and, to a lesser extent, the
United Kingdom and continental Europe. Our distribution in the United
States includes virtually all of the leading supermarket chains, major
convenience store chains and leading mass merchandisers as well as a
broad base of regional and local newsstand outlets. We believe that
National Enquirer, Star and Globe enjoy broad distribution because they
are consistently among the highest revenue producing magazines to
retailers and are currently ranked second, fourth and seventh,
respectively, in terms of total magazine retail dollars generated. In
addition, DSI, our subsidiary that works with retailers to design their
front-end racks and position magazines for increased sales, provides a
value-added service to the retailers and helps to further strengthen our
retailer relationships and distribution. Our distribution base also
allows us to efficiently launch new titles such as Mira! and Auto World
Magazine, and expand the distribution of acquired titles such as Globe.
- STRONG MANAGEMENT TEAM. David J. Pecker, our chairman and chief
executive officer, has over 20 years of experience in the publishing
industry, including as chief executive officer and president of Hachette
Filipacchi Magazines, Inc., the third largest magazine publisher in the
United States. Since the Acquisition (as defined below) in 1999, he has
recruited many other senior managers in finance, legal, editorial and
advertising. Our management has successfully executed its strategy which
has resulted in an increase in our operating revenues and EBITDA of
approximately $103.7 million and $38.9 million, respectively, from fiscal
year 1999 to the twelve months ended December 24, 2001.
BUSINESS STRATEGY
- EXPAND READERSHIP AND UTILIZE PRICE FLEXIBILITY. We intend to increase
editorial content in certain publications, continue our aggressive
promotion of our brands and prudently utilize price flexibility to
increase readership and revenues. Beginning in April 2002 we expanded
National Enquirer and Star to 60 pages from 48 pages, comprised primarily
of expanded news stories and additional celebrity photographs. The
introduction of the expanded issues was initiated with a price increase
for National Enquirer and Star from $1.89 to $2.09. Research conducted on
60 page trial issues indicated strong consumer response. This change in
size and cover price was supported by our continued promotional campaign
consisting of television, newspaper and outdoor advertising, in-store
promotion at the checkout and editors' letters in National Enquirer and
Star. We also raised the cover prices of several of our other
publications at the same time. Historically, moderate, periodic cover
price increases have not materially affected single copy circulation of
our publications.
- INCREASE ADVERTISING REVENUES. We intend to continue marketing the
appeal and competitive advantages of advertising in our publications.
Since our Acquisition in 1999, we have successfully enhanced the
credibility of our publications, which has allowed us to market to a
broader advertiser base. Since 1999, we have added advertisers from the
entertainment, package goods and health industries which had previously
not advertised with us. We have increased advertising revenues by 70%
3
from fiscal year 1999 to the twelve months ended December 24, 2001, and
we believe we have a significant opportunity to continue this growth.
- BUILD ON STRENGTH OF DSI. DSI is a marketing organization whose primary
function is to coordinate the placement and merchandising of our
publications and other third-party publications at retail outlets
throughout the United States and Canada. In addition, DSI is selected by
retailers to coordinate the rack design, installation and positioning of
magazines for approximately 50% (based on our estimates) of all new
front-end racking programs initiated annually in the United States. As a
result of its broad market presence, we believe DSI is a strong platform
to more favorably display titles we may develop or acquire. DSI also
intends to expand its third-party client base of publishers which require
marketing and merchandising of their publications. DSI's third-party
clients currently include Hachette Filipacchi, which publishes Woman's
Day and Elle; Gruner & Jahr USA/Publishing, which publishes Family
Circle, Rosie, Fitness, Parents and YM; Wenner Media, Inc., which
publishes US Weekly, Rolling Stone and Men's Journal; and Newsweek, Inc.,
which publishes Newsweek. DSI also recently reached an agreement to
represent Bauer Publishing, which publishes First for Women and Women's
World.
- EXPAND CUSTOM PUBLISHING AND SPECIAL MAGAZINES GROUP. We are leveraging
our brand recognition and publishing and distribution infrastructure to
increase revenues through custom publishing and special magazines. For
example, in fiscal year 2002 we published a commemorative series of
magazines covering the terrorist attacks on the United States and the
life story of Dale Earnhardt, which we estimate will generate
approximately $6.5 million in revenues. We are also actively pursuing
custom publishing opportunities such as custom magazines and book
opportunities which utilize our archives and leverage our brand.
- PURSUE COMPLEMENTARY ACQUISITIONS. We intend to selectively pursue
additional titles whose circulation can be increased through our
distribution network or whose titles will complement our existing
business. We have a successful track record of acquiring magazines and
increasing revenues and profitability. For example, in 1999 we acquired
the Globe properties and within one year we increased EBITDA for such
properties by over 150%.
AMENDMENT TO OUR CREDIT FACILITY
On February 11, 2002, we amended our credit facility to (i) permit us to
incur the indebtedness represented by the 2002 notes and the related guarantees,
(ii) permit us to use 50% of the gross proceeds from the issuance and sale of
the 2002 notes to make a distribution to Holdings to enable Holdings to make a
further distribution to EMP Group L.L.C. ("LLC"), Holdings' parent entity, (iii)
require us to use the remaining net proceeds from the offering of the 2002 notes
after making such distribution to prepay term loans under our credit facility,
(iv) provide for an increase in the interest rate spread with respect to the
tranche B and tranche B-1 term loans under certain circumstances, (v) provide
more flexibility with respect to our ability to enter into hedging agreements to
hedge our interest-bearing liabilities and (vi) modify certain financial
covenants. See "Description of Other Indebtedness."
Effective March 26, 2002, Holdings entered into two interest rate swap
agreements, which effectively convert a portion of our fixed-rate debt to
variable rate debt. The aggregate notional amount of the two agreements is $150
million.
THE ACQUISITION
On May 7, 1999, LLC, a company formed by Evercore Capital Partners L.P., a
private equity firm ("Evercore"), acquired Holdings, our parent company (the
"Acquisition"). Evercore and certain other investors (the "Investors"),
including Mr. Pecker, made an equity investment of $235.0 million in LLC and
became beneficial owners of 100% of the common stock of Holdings.
4
THE EXCHANGE OFFER
EXCHANGE NOTES................ The forms and terms of the exchange notes are
identical in all material respects to the terms
of the old notes, except for certain transfer
restrictions, registration rights and
liquidated damages provisions relating to the
2002 notes.
OLD NOTES..................... In August 1999, we issued the 1999 notes in a
transaction registered under the Securities
Act, under an indenture that we entered into in
1999, in exchange for notes previously issued
in a private offering. On February 14, 2002, we
sold the 2002 notes in a private offering. The
2002 notes were issued under a new indenture,
which is substantially similar to the 1999
indenture. The 2002 notes also contain certain
transfer restrictions and registration rights.
THE EXCHANGE OFFER............ We are offering to exchange up to $250,000,000
of exchange notes for up to $250,000,000 of
1999 notes and up to $150,000,000 of exchange
notes for up to $150,000,000 of 2002 notes. The
objective of the exchange offer is to create a
single series of debt securities having a total
outstanding principal amount which is larger
than that of either the 1999 notes or the 2002
notes as separate series, thus resulting in
greater liquidity for the exchange notes.
However, see "Risk Factors -- Because the total
outstanding principal of the exchange notes
will include the total outstanding principal
amount of the 1999 notes and the 2002 notes,
you will experience an immediate dilution of
your percentage of ownership of such series."
Old notes may be exchanged only in $1,000
increments.
EXPIRATION DATE; WITHDRAWAL OF
TENDER........................ Unless we extend the exchange offer, it will
expire at 5:00 p.m., New York City time, on May
31, 2002. You may withdraw any old notes you
tender pursuant to the exchange offer at any
time prior to the expiration of the exchange
offer. We will return, as promptly as
practicable after the expiration or termination
of the exchange offer, any old notes not
accepted for exchange for any reason without
expense to you.
CERTAIN CONDITIONS TO THE
EXCHANGE OFFER................ The exchange offer is subject to the following
conditions, which we may waive, which permit us
to refuse acceptance of the old notes or to
terminate the exchange offer if:
- a lawsuit is instituted or threatened in
a court or before a government agency
which may impair our ability to proceed
with the exchange offer;
- a law, statute, rule or regulation is
proposed or enacted or interpreted by
the SEC which may impair our ability to
proceed with the exchange offer; or
- any governmental approval is not
received which we think is necessary to
consummate the exchange offer.
PROCEDURES FOR TENDERING OLD
NOTES......................... If you wish to accept the exchange offer, you
must complete, sign and date the appropriate
letter(s) of transmittal in accordance with the
instructions, and deliver the appropriate
letter(s) of transmittal, along with the old
notes and any other required documentation, to
the exchange agent. A separate letter of
transmittal must be used for each of the 1999
notes and the 2002 notes.
5
By executing the letter(s) of transmittal
relating to the old notes, you will represent
to us that, among other things:
- any exchange notes you receive will be
acquired in the ordinary course of your
business;
- you have no arrangement or understanding
with any person to participate in the
distribution of the exchange notes; and
- you are not an affiliate of the Company
or, if you are an affiliate, you will
comply with the registration and
prospectus delivery requirements of the
Securities Act to the extent applicable.
If you hold your old notes through The
Depository Trust Company and wish to
participate in the exchange offer, you may do
so through The Depository Trust Company's
Automated Tender Offer Program. By
participating in the exchange offer, you will
agree to be bound by the appropriate letter(s)
of transmittal as though you had executed such
respective letter(s) of transmittal.
INTEREST ON THE EXCHANGE
NOTES......................... Interest on the exchange notes will accrue from
the date of their issuance at the rate of
10 1/4% per annum. Interest on the old notes
exchanged for exchange notes will cease to
accrue upon issuance of the exchange notes.
PAYMENT OF INTEREST ON THE
EXCHANGE NOTES................ Interest is payable every six months on May 1
and November 1, commencing on November 1, 2002.
The interest payment made to holders of the
exchange notes on November 1, 2002 will include
the interest on the old notes exchanged for
such exchange notes accrued and unpaid as of
the date of issuance of the exchange notes.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. If you are a beneficial owner whose old notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and wish to tender such old notes in the
exchange offer, please contact the registered
holder as soon as possible and instruct them to
tender on your behalf and comply with our
instructions set forth elsewhere in this
prospectus.
GUARANTEED DELIVERY
PROCEDURE..................... If you wish to tender your old notes, you may,
in certain instances, do so according to the
guaranteed delivery procedures set forth
elsewhere in this prospectus under "The
Exchange Offer -- Guaranteed Delivery
Procedures."
EXCHANGE AND REGISTRATION
RIGHTS AGREEMENT.............. On February 14, 2002, we sold the 2002 notes
and the related guarantees to the initial
purchasers in a transaction exempt from the
registration requirements of the Securities
Act. At that time, we entered into an exchange
and registration rights agreement with the
initial purchasers that grants the holders of
the 2002 notes certain exchange and
registration rights. The exchange offer
satisfies those rights, which terminate upon
consummation of the exchange offer. You will
not be entitled to any exchange or registration
rights with respect to the exchange notes.
Because the 1999 notes were issued pursuant to
an effective registration statement, the
ability of holders of 1999 notes to reoffer,
resell or
6
otherwise dispose of their 1999 notes will not
be affected by their failure to participate in
the exchange offer. However, both 1999 notes
and 2002 notes that are not tendered in the
exchange offer may experience a significantly
more limited trading market, which might
adversely affect the liquidity of any remaining
1999 notes or 2002 notes. See "Risk
Factors -- The market value of your current
notes may be lower if you do not exchange your
old notes or fail to properly tender your old
notes for exchange."
CERTAIN FEDERAL TAX
CONSIDERATIONS................ With respect to the exchange of the old notes
for the exchange notes:
- the exchange should not constitute a
taxable exchange for U.S. federal income
tax purposes;
- you should not recognize gain or loss
upon receipt of the exchange notes;
- you must include interest in gross
income to the same extent as the old
notes; and
- you should be able to tack the holding
period of the exchange notes to the
holding period of the old notes.
USE OF PROCEEDS............... We will not receive any proceeds from the
exchange of old notes pursuant to the exchange
offer.
EXCHANGE AGENT................ We have appointed JPMorgan Chase Bank as the
exchange agent for the exchange offer. The
address of the Exchange Agent is 3800 Colonnade
Parkway, Birmingham, Alabama 35243 and its
telephone number at that address is (205)
968-0506.
THE EXCHANGE NOTES
Pursuant to the exchange offer, we are offering to exchange up to
$400,000,000 million aggregate principal amount of the exchange notes for up to
an equal aggregate principal amount of 1999 notes and 2002 notes. The form and
terms of the exchange notes are the same as the form and terms of the 1999
notes, except for the total outstanding principal amount. The form and terms of
the exchange notes are the same as the form and terms of the 2002 notes, except
for the total outstanding principal amount and except that the exchange notes
will have been registered under the Securities Act and will not bear legends
restricting their transfer. The holders of exchange notes will not be entitled
to certain rights of holders of 2002 notes under the exchange and registration
rights agreement, which rights will terminate upon the consummation of the
exchange offer.
The exchange notes will evidence the same debt of the 1999 notes and the
2002 notes and will be issued under, and be entitled to the benefits of, the
indenture, dated as of February 14, 2002, between us, our subsidiary guarantors
and JPMorgan Chase Bank. This indenture has terms substantially similar to the
indenture, dated May 7, 1999, between us, our subsidiary guarantors and JPMorgan
Chase Bank pursuant to which the 1999 notes were issued.
ISSUER........................ American Media Operations, Inc.
NOTES OFFERED................. $400,000,000 in aggregate principal amount of
10 1/4% Series B Senior Subordinated Notes due
2009.
MATURITY DATE................. May 1, 2009.
INTEREST...................... Annual rate: 10 1/4%
Payment frequency: every six months on May 1
and November 1, commencing November 1, 2002.
OPTIONAL REDEMPTION........... On and after May 1, 2004, we may redeem some or
all of the exchange notes at the redemption
prices listed in the section
7
entitled "Description of the Exchange
Notes -- Optional Redemption." Prior to such
date, we may not redeem the exchange notes,
except pursuant to a change of control and at
the request of the note holders.
CHANGE OF CONTROL............. Upon the occurrence of a change of control, you
will have the right to require us to repurchase
all or a portion of your exchange notes at a
purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest and liquidated damages thereon,
if any, to the date of repurchase; provided,
however, that notwithstanding a change of
control, we will not be obligated to repurchase
the exchange notes pursuant to a change of
control offer in the event that we have
exercised our right to redeem all the exchange
notes, as described under "Optional Redemption"
above. See "Description of the Exchange
Notes -- Change of Control."
NOTE GUARANTEES............... The exchange notes will be fully and
unconditionally guaranteed (each such
guarantee, a "Note Guarantee"), on an unsecured
senior subordinated basis by each of our
subsidiaries existing on the issue date of the
exchange notes and by each of our future
wholly-owned domestic restricted subsidiaries
(collectively, the "Note Guarantors"). The Note
Guarantees will be subordinated to the
guarantees of our senior indebtedness issued by
the Note Guarantors under our credit facility.
See "Description of the Exchange
Notes -- Overview of the Exchange Notes and the
Note Guarantees -- The Note Guarantees."
RANKING....................... The exchange notes will be unsecured and
subordinated in right of payment to all of our
existing and future senior indebtedness,
including all of our borrowings under our
credit facility. The exchange notes will rank
equal in right of payment with all of our
existing and future senior subordinated
indebtedness (including any old notes not
exchanged for exchange notes) and senior to all
of our future subordinated obligations. We are
a holding company and as such we derive all of
our operating income and cash flow from our
subsidiaries. The Note Guarantees will be
unsecured and subordinated in right of payment
to all existing and future senior indebtedness
of the Note Guarantors, including all
guarantees of the Note Guarantors under our
credit facility. The Note Guarantees will rank
equal in right of payment with all of the
existing and future senior subordinated
indebtedness of the Note Guarantors (including
the guarantees of any old notes not exchanged
for exchange notes) and be senior to all of the
existing and future subordinated obligations of
the Note Guarantors. See "Description of the
Notes -- Ranking."
As adjusted for the offering of the 2002 notes
and the use of proceeds therefrom, as of
December 24, 2001, there would have been
outstanding:
(a) $350.8 million of senior indebtedness of
the Company (excluding unused commitments
under our credit facility), all of which
would have been secured indebtedness;
(b) $400.9 million of senior subordinated
indebtedness of the Company (including
the old notes) and no indebtedness of
8
the Company that is subordinate or junior
in right of repayment to the exchange
notes;
(c) no senior indebtedness of the Note
Guarantors (excluding their guarantees of
our indebtedness under our credit
facility); and
(d) no senior subordinated indebtedness of
the Note Guarantors (excluding the
guarantees of the old notes and the Note
Guarantees) and no indebtedness of the
Note Guarantors that is subordinate or
junior in right of payment to the
guarantees of the old notes.
The indenture relating to the exchange notes
permits us and our subsidiaries to incur a
significant amount of additional indebtedness.
CERTAIN COVENANTS............. The indenture under which the exchange notes
will be issued and under which the 2002 notes
were issued, limits, among other things, our
ability and the ability of our subsidiaries to:
- borrow money;
- guarantee other indebtedness;
- use assets as security in other
transactions;
- pay dividends on stock, redeem stock or
redeem subordinated debt;
- make investments;
- enter into agreements that restrict
dividends from subsidiaries;
- sell assets;
- enter into affiliate transactions;
- sell capital stock of subsidiaries;
- enter into new lines of business; and
- merge or consolidate.
For more details, see "Description of the
Exchange Notes -- Certain Covenants."
ABSENCE OF A PUBLIC MARKET FOR
THE EXCHANGE NOTES............ In general, you may freely transfer the
exchange notes. However, there are exceptions
to this general statement. Holders of exchange
notes may not freely transfer the exchange
notes if:
- they acquire the exchange notes outside
of their ordinary course of business;
- they have an arrangement with any person
to participate in the distribution of
the exchange notes; or
- they are an affiliate of ours.
Further, the exchange notes will be new
securities for which there will not initially
be a market. As a result, the development or
liquidity of any market for the exchange notes
may not occur. The initial purchasers of the
2002 notes have advised us that they currently
intend to make a market in the exchange notes.
However, you should be aware that the initial
purchasers are not obligated to
9
do so. In the event such a market may develop,
the initial purchasers may discontinue it any
time without notice. We do not intend to apply
for listing of the exchange notes on any
securities exchange or on any automated dealer
quotation system.
USE OF PROCEEDS............... We will not receive proceeds from the exchange
offer.
RISK FACTORS
You should carefully consider the information under the caption "Risk
Factors" and all other information contained or incorporated by reference in
this prospectus before tendering your old notes.
10
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth certain of our summary historical financial
information and the notes related thereto. The summary historical financial
information as of and for the fiscal periods ended March 29, 1999, May 6, 1999,
March 27, 2000, and March 26, 2001 has been derived from, and should be read in
conjunction with, our audited historical financial statements and the notes
related thereto, which have been audited by Arthur Andersen LLP, independent
auditors, and which are incorporated by reference in this prospectus. The
unaudited summary historical financial information as of and for the three
fiscal quarters ended December 25, 2000 and December 24, 2001 has been derived
from, and should be read in conjunction with, our unaudited financial statements
and the notes related thereto incorporated by reference in this prospectus. The
unaudited summary historical financial information as of and for the twelve
months ended December 24, 2001 has been derived from our historical financial
information as of and for the three fiscal quarters ended December 24, 2001,
plus our results for the fiscal quarter ended March 26, 2001 (which are derived
from our results for the fiscal year ended March 26, 2001). In our opinion, all
adjustments (which consist only of normal recurring entries) considered
necessary for a fair presentation have been included in our unaudited financial
statements. Interim results for the three fiscal quarters ended December 24,
2001 are not necessarily indicative of, or projections for, the results to be
expected for the full fiscal year ending March 25, 2002. The parent of American
Media Operations, Inc. was purchased on May 7, 1999 resulting in a change in the
historical cost basis of various assets and liabilities. Accordingly, the
historical financial information provided herein for periods prior to May 7,
1999 is not comparable to post-acquisition financial information. For purposes
of this presentation, all historical financial information for periods prior to
May 7, 1999 are referred to as the "Predecessor Company" and all periods
subsequent to May 6, 1999 are referred to as the "Company". A solid black
vertical line has been inserted in the table where financial information may not
be comparable across periods. The following Summary Historical Financial
Information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and the notes related thereto incorporated by reference in this
prospectus.
<Table>
<Caption>
PREDECESSOR COMPANY THE COMPANY
----------------------- -------------------------------------------
FORTY-SIX
FISCAL SIX WEEKS WEEKS FROM THREE FISCAL
YEAR FROM MAY 7, 1999 FISCAL YEAR QUARTERS
ENDED MARCH 30, THROUGH ENDED ENDED
MARCH 29, THROUGH MARCH 27, MARCH 26, DECEMBER 25,
1999 MAY 6, 1999 2000 2001 2000
--------- ----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
STATEMENT OF INCOME (LOSS) DATA:
Operating revenues:
Circulation............................ $248,630 $26,215 $ 251,338 $ 340,079 $ 253,682
Advertising............................ 23,460 2,640 22,521 37,141 26,004
Other.................................. 21,369 2,308 20,187 20,563 15,554
-------- ------- ---------- ---------- ----------
293,459 31,163 294,046 397,783 295,240
Operating expenses:
Editorial.............................. 28,906 3,040 29,567 39,286 29,384
Production............................. 79,691 7,784 71,465 103,132 75,346
Distribution, circulation and other
cost of sales........................ 67,640 6,624 58,168 75,012 56,583
Selling, general and administrative.... 26,212 3,248 37,865 41,050 31,972
Gain on sale of assets(1).............. (6,499) -- -- -- --
Depreciation and amortization.......... 32,110 3,703 57,209 76,733 57,768
-------- ------- ---------- ---------- ----------
228,060 24,399 254,274 335,213 251,053
Operating income........................ 65,399 6,764 39,772 62,570 44,187
Interest expense........................ (46,897) (4,837) (57,466) (71,742) (54,084)
Other income (expense), net(2).......... 2,943 25 125 751 806
-------- ------- ---------- ---------- ----------
Income before income taxes and
extraordinary charge................... 21,445 1,952 (17,569) (8,421) (9,091)
Income taxes............................ 13,559 1,365 1,361 6,875 4,133
-------- ------- ---------- ---------- ----------
Income (loss) before extraordinary
charge................................. 7,886 587 (18,930) (15,296) (13,224)
Extraordinary charge, net of income
taxes(3)............................... (2,161) -- (2,581) -- --
-------- ------- ---------- ---------- ----------
Net income (loss)....................... $ 5,725 $ 587 ($ 21,511) ($ 15,296) ($ 13,224)
======== ======= ========== ========== ==========
BALANCE SHEET DATA:
Total assets............................ $616,838 $1,166,964 $1,134,990 $1,113,667
Total debt.............................. 471,134 680,874 680,874 680,874
Total stockholder's equity.............. 60,198 201,698 186,493 188,543
OTHER DATA:
EBITDA(4)............................... $ 96,347 $10,467 $ 96,982 139,303 101,955
Capital expenditures.................... 15,019 717 13,330 27,875 17,682
Ratio of earnings to fixed charges(5)... 1.5x 1.4x 0.7x 0.9x 0.8x
<Caption>
THE COMPANY
---------------------------
THREE FISCAL TWELVE
QUARTERS MONTHS
ENDED ENDED
DECEMBER 24, DECEMBER 24,
2001 2001
------------ ------------
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME (LOSS) DATA:
Operating revenues:
Circulation............................ $ 250,517 $ 336,914
Advertising............................ 29,182 40,319
Other.................................. 14,881 19,890
---------- ----------
294,580 397,123
Operating expenses:
Editorial.............................. 29,033 38,935
Production............................. 78,590 106,376
Distribution, circulation and other
cost of sales........................ 57,980 76,409
Selling, general and administrative.... 31,050 40,128
Gain on sale of assets(1).............. -- --
Depreciation and amortization.......... 58,641 77,606
---------- ----------
255,294 339,454
Operating income........................ 39,286 57,669
Interest expense........................ (48,581) (66,239)
Other income (expense), net(2).......... 127 72
---------- ----------
Income before income taxes and
extraordinary charge................... (9,168) (8,498)
Income taxes............................ 3,990 6,732
---------- ----------
Income (loss) before extraordinary
charge................................. (13,158) (15,230)
Extraordinary charge, net of income
taxes(3)............................... -- --
---------- ----------
Net income (loss)....................... ($ 13,158) ($ 15,230)
========== ==========
BALANCE SHEET DATA:
Total assets............................ $1,088,593 $1,088,593
Total debt.............................. 670,079 670,079
Total stockholder's equity.............. 172,303 172,303
OTHER DATA:
EBITDA(4)............................... 97,927 135,275
Capital expenditures.................... 19,417 29,610
Ratio of earnings to fixed charges(5)... 0.8x 0.9x
</Table>
11
<Table>
<Caption>
PREDECESSOR COMPANY THE COMPANY
----------------------- -------------------------------------------
FORTY-SIX
FISCAL SIX WEEKS WEEKS FROM THREE FISCAL
YEAR FROM MAY 7, 1999 FISCAL YEAR QUARTERS
ENDED MARCH 30, THROUGH ENDED ENDED
MARCH 29, THROUGH MARCH 27, MARCH 26, DECEMBER 25,
1999 MAY 6, 1999 2000 2001 2000
--------- ----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
AS ADJUSTED FINANCIAL INFORMATION:(6)
Cash interest expense(7)................
Total debt..............................
Ratio of EBITDA to cash interest
expense(7).............................
Ratio of total debt to EBITDA...........
<Caption>
THE COMPANY
---------------------------
THREE FISCAL TWELVE
QUARTERS MONTHS
ENDED ENDED
DECEMBER 24, DECEMBER 24,
2001 2001
------------ ------------
(DOLLARS IN THOUSANDS)
AS ADJUSTED FINANCIAL INFORMATION:(6)
Cash interest expense(7)................ 66,201
Total debt.............................. 751,704
Ratio of EBITDA to cash interest
expense(7)............................. 2.0
Ratio of total debt to EBITDA........... 5.6
</Table>
- ---------------
(1) Fiscal 1999 is net of a gain of $6.5 million from the sale of our
publications relating to soap operas.
(2) Other income (expense) for the fiscal year ended March 29, 1999 is comprised
of the management fee accrued during such period and miscellaneous
non-recurring items and includes a net gain of $4.4 million from the
favorable settlement of certain litigation. The fiscal period ended March
27, 2000 and the six weeks ended May 6, 1999 includes miscellaneous
non-recurring items. The fiscal year ended March 26, 2001 includes minority
interest income of $376,000 and interest income of $570,000. The three
fiscal quarters ended December 25, 2000 includes minority interest income of
$376,000 and interest income of $414,000. The three fiscal quarters ended
December 24, 2001 includes interest income of $83,000. The twelve months
ended December 24, 2001 includes interest income of $128,000.
(3) In connection with the Acquisition, a fee related to an unused bridge loan
commitment totaling approximately $4.1 million ($2.6 million net of income
taxes) was charged as an extraordinary loss in the period from May 7, 1999
through March 27, 2000. During fiscal 1999, we recorded an extraordinary
charge totaling approximately $3.4 million ($2.2 million net of income
taxes) related to the write-off of deferred debt issuance costs and other
charges relating to the refinancing of indebtedness.
(4) EBITDA is defined as net income (loss) before extraordinary charges,
interest expense, income taxes, depreciation and amortization and other
income (expense) (other than management fees). The management fees included
in other income (expense) were $1.2 million in fiscal 1999. EBITDA is not a
measure of performance defined by GAAP. EBITDA should not be considered in
isolation or as a substitute for net income or a statement of cash flows,
which have been prepared in accordance with GAAP or as a measure of our
operating performance, profitability or liquidity. We believe EBITDA
provides useful information regarding our ability to service our debt, and
we understand that such information is considered by certain investors to be
an additional basis for evaluating a company's ability to pay interest and
repay debt. EBITDA measures presented herein may not be comparable to
similarly titled measures of other companies due to differences in methods
of calculation.
(5) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income (loss) before income taxes and
extraordinary items plus fixed charges) by fixed charges (interest expense
plus that portion of rental expense deemed to represent interest and
amortization of deferred debt issuance costs).
(6) The "As adjusted financial information" gives effect to the offering of the
2002 notes and the application of the net proceeds therefrom.
(7) As adjusted cash interest expense (and the related ratio) for the twelve
months ended December 24, 2001 is calculated by applying the current
prevailing interest rates (rather than historical rates) to indebtedness
outstanding during the twelve-month period. A 1/8% change in our weighted
average interest rate on our variable rate debt would result in a change of
$439,000 in our interest expense for the twelve months ended December 24,
2001.
12
RISK FACTORS
Before you tender your old notes in the exchange offer, you should be aware
that there are various risks, including those described below. You should
carefully consider these risk factors, together with the other information
contained in and incorporated by reference in this prospectus before tendering
your old notes.
THE MARKET VALUE OF YOUR CURRENT NOTES MAY BE LOWER IF YOU DO NOT EXCHANGE YOUR
OLD NOTES OR FAIL TO PROPERLY TENDER YOUR OLD NOTES FOR EXCHANGE.
Consequences of Failure to Exchange. To the extent that the old notes are
tendered and accepted for exchange pursuant to the exchange offer, the trading
market for old notes that remain outstanding may be significantly more limited,
which might adversely affect the liquidity of the old notes not tendered for
exchange. The extent of the market and the availability of price quotations for
old notes would depend upon a number of factors, including the number of holders
of old notes remaining at such time and the interest in maintaining a market in
such old notes on the part of securities firms. An issue of securities with a
smaller outstanding market value available for trading, or float, may command a
lower price than would a comparable issue of securities with a greater float.
Therefore, the market price for old notes that are not exchanged in the exchange
offer may be affected adversely to the extent that the amount that old notes
exchanged pursuant to the exchange offer reduces the float. The reduced float
also may tend to make the trading price of the old notes that are not exchanged
more volatile. Any 2002 notes that remain outstanding following consummation of
the exchange offer will continue to be subject to the same transfer restrictions
currently applicable to the 2002 notes.
Consequences of Failure to Properly Tender. Issuance of the exchange notes
in exchange for the old notes pursuant to the exchange offer will be made
following the prior satisfaction, or waiver, of the conditions set forth in "The
Exchange Offer -- Certain Conditions to the Exchange Offer" and only after
timely receipt by the exchange agent of such old notes, a properly completed and
duly executed applicable letter(s) of transmittal and all other required
documents. Therefore, holders of old notes desiring to tender such old notes in
exchange for exchange notes should allow sufficient time to ensure timely
delivery of all required documentation. Neither we, the exchange agent nor any
other person is under any duty to give notification of defects or irregularities
with respect to the tenders of old notes for exchange. Any old notes that are
not properly tendered in the exchange offer pursuant to the requirements
explained in "The Exchange Offer -- Procedures For Tendering," following
consummation of the exchange offer, will remain outstanding.
IF YOU FAIL TO TENDER YOUR 2002 NOTES FOR EXCHANGE, YOUR ABILITY TO TRANSFER
SUCH 2002 NOTES WILL BE LIMITED.
We issued the 2002 notes in a private offering. As a result, the 2002 notes
have not been registered under the Securities Act, and may not be resold by
purchasers thereof unless the 2002 notes are subsequently registered or an
exemption from the registration requirements of the Securities Act is available.
The 2002 notes that are not tendered in the exchange offer will continue to be
subject to the existing restrictions upon their transfer. We will have no
obligation to provide for the registration under the Securities Act of
unexchanged 2002 notes.
THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES AND WE CANNOT BE SURE AN ACTIVE
TRADING MARKET FOR THE EXCHANGE NOTES WILL DEVELOP.
The exchange notes will be new securities for which there currently is no
market. Accordingly, we cannot assure you as to the development or liquidity of
any market for the exchange notes, and we will have no obligation to create such
a market. At the time of the private placement of the 2002 notes, the initial
purchasers of the 2002 notes advised us that they intended to make a market in
the 2002 notes and, if issued, the exchange notes. However, the initial
purchasers are not obligated to make a market in, the exchange notes, and they
may discontinue such activities at any time in their sole discretion.
The liquidity of any market for the exchange notes will depend upon the
number of holders of the exchange notes, the overall market for high yield
securities, our financial performance and prospects, the
13
prospects for companies in our industry generally, the interest of securities
dealers in making a market in the exchange notes and other factors.
BECAUSE THE TOTAL OUTSTANDING PRINCIPAL OF THE EXCHANGE NOTES WILL INCLUDE THE
TOTAL OUTSTANDING PRINCIPAL AMOUNT OF THE 1999 NOTES AND THE 2002 NOTES, YOU
WILL EXPERIENCE AN IMMEDIATE DILUTION OF YOUR PERCENTAGE OWNERSHIP OF THE SERIES
OF NOTES.
If all of the outstanding 1999 notes and 2002 notes are exchanged for
exchange notes, $400.0 million aggregate principal amount of exchange notes will
be outstanding following the consummation of the exchange offer, and the
exchange notes will be deemed to be a single series of notes outstanding under
the indenture. In the event any old notes are not exchanged for exchange notes,
any unexchanged 2002 notes will be combined with the exchange notes and will be
treated as a single class under the indenture. As a result, any actions
requiring the consent of each holder or the holders of a majority in outstanding
principal amount of exchange notes under the indenture will therefore require
the consent of each holder of exchange notes and each holder of any unexchanged
2002 notes or the holders of a majority in aggregate principal amount of
outstanding exchange notes and unexchanged 2002 notes, and the current
individual voting interest of each holder of 1999 notes and 2002 notes will
accordingly be diluted.
OUR SIGNIFICANT INDEBTEDNESS COULD IMPAIR OUR ABILITY TO OPERATE AND EXPOSE US
TO CERTAIN RISKS.
Our future performance could be affected by our substantial amount of debt.
As adjusted to give effect to the offering of the 2002 notes and the use of
proceeds therefrom, at December 24, 2001, we would have had total debt
(excluding unused commitments under our credit facility) of $751.7 million and
total stockholder's equity of $97.7 million, giving us a total debt to equity
ratio of 7.7 to 1.0. In addition, subject to restrictions in our credit facility
and in the indentures for the exchange notes and the 1999 notes, we may borrow
more money for working capital, capital expenditures, acquisitions or for other
purposes.
Our high level of debt could have important consequences for you, including
the following:
- we may have difficulty borrowing money in the future for working capital,
capital expenditures, acquisitions or other purposes;
- we will need to use a large portion of the money earned by our
subsidiaries to pay principal and interest on our credit facility, the
old notes, the exchange notes and other debt, which will reduce the
amount of money available to us to finance our operations and other
business activities;
- some of our debt has a variable rate of interest, which exposes us to the
risk of increased interest rates;
- debt under our credit facility will be secured and will mature prior to
the notes;
- we may have a much higher level of debt than certain of our competitors,
which may put us at a competitive disadvantage;
- our debt level makes us more vulnerable to economic downturns and adverse
developments in our business;
- our debt level reduces our flexibility in responding to changing business
and economic conditions, including increased competition in the
publishing industry; and
- our debt level limits our ability to pursue other business opportunities,
borrow more money for operations or capital in the future and implement
our business strategy.
As adjusted to give effect to the offering of the 2002 notes and the use of
proceeds therefrom, our interest expense for the fiscal year ended March 26,
2001 and the twelve-month period ended December 24, 2001 would have been $66.9
million and $66.2 million, respectively. On the same basis, for the fiscal year
ended March 26, 2001 and the twelve-month period ended December 24, 2001, our
earnings were insufficient to cover fixed charges by $3.6 million and $8.5
million, respectively.
We expect to obtain the money to pay our expenses and to pay the principal
and interest on the exchange notes, the old notes, our credit facility
(including our revolving credit facility) and other debt from the operations of
our subsidiaries. Therefore, our ability to meet our expenses and debt service
obligations depends on the future performance of our subsidiaries, which will be
affected by financial, business, economic and other factors. We will not be able
to control many of these factors, such as economic conditions and pressure
14
from competitors. We cannot be certain that the money earned by our subsidiaries
will be sufficient to allow us to pay principal and interest on our debt
(including the exchange notes) and meet our other obligations. If we do not have
enough money, we may be required to refinance all or part of our existing debt,
including the exchange notes, sell assets, borrow more money or raise equity. We
cannot guarantee that we will be able to refinance our debt, sell assets, borrow
more money or raise equity on terms acceptable to us or at all. In addition, the
terms of existing or future debt agreements, including our credit facility and
our indentures, may restrict us from adopting any of these alternatives.
Under our credit facility, we also must comply with certain specified
financial ratios and tests. If we do not comply with these or other covenants
and restrictions contained in our credit facility, we could default under our
credit facility. Such debt, together with accrued interest, could then be
declared immediately due and payable. Our ability to comply with such provisions
may be affected by events beyond our control. See "Description of Other
Indebtedness."
OUR PUBLICATIONS HAVE EXPERIENCED DECLINES IN SINGLE COPY CIRCULATION.
Single copy circulation of each of National Enquirer and Star has
experienced declines. For example, in fiscal 1997, National Enquirer and Star
had average weekly single copy circulation of approximately 2.1 million copies
and 1.9 million copies, respectively, which declined in fiscal 2001 to
approximately 1.7 million copies and 1.3 million copies, respectively. Our other
publications also have experienced declines in single copy circulation.
We believe that the principal factors contributing to these declines in
circulation include (a) adverse publicity against celebrity news-based media
resulting from the death of Princess Diana in August 1997, (b) a significant
reduction in advertising spending for National Enquirer and Star from $16.1
million in fiscal 1994 to $0.0 in fiscal 1998 and $0.6 million in fiscal 1999,
(c) increased competition from other publications and forms of media, such as
certain newspapers, television and radio programs and Internet sites
concentrating on celebrity news, (d) a general industry-wide decline in single
copy circulation of individual publications due to an increasing number of
publications in the industry and (e) diminished service levels from wholesalers
who distribute our magazines to retailers and fill the pockets at checkout
counters as a result of consolidation among wholesalers and their related
efforts to cut expenses.
In January 2002, we successfully negotiated multi-year contracts with all
of our major United States wholesalers for the complete distribution of our
product line. However, we cannot assure you that service levels will improve or
that if service levels do improve, our circulation will increase.
In addition, we have experienced, in the aggregate, single copy circulation
declines for our six tabloids and Country Weekly of 9.7% for the first three
quarters of fiscal year 2002 from the same period in fiscal year 2001 primarily
as a result of the September 11, 2001 terrorist attacks and the October anthrax
incident at our Boca Raton headquarters as well as the factors described above.
See "-- Terrorist attacks, such as the September 11, 2001 terrorist attacks and
the October anthrax incident at our Boca Raton headquarters, and other acts of
violence or war may affect the financial markets and our business, results of
operation and financial condition."
Historically, we have offset declines in single copy circulation, in part,
through increases in cover prices. We cannot assure you that we will be able to
increase cover prices without decreasing circulation, or be able to take other
measures, such as increasing advertising and promotion of our titles to offset
such circulation declines, or that the single copy circulation declines
described above will be reversed. Continued declines in circulation could have a
material adverse effect on our business or financial performance. See "-- There
are risks associated with the implementation of our business strategy" below and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which is incorporated by reference herein.
IF WE FAIL TO IMPLEMENT OUR BUSINESS STRATEGY, OUR BUSINESS WILL BE ADVERSELY
AFFECTED.
Our future financial performance and success are dependent in large part
upon our ability to successfully implement our business strategy. We cannot
assure you that we will be able to successfully implement our
15
business strategy or be able to improve our operating results. In particular, we
cannot assure you that we will be able to increase circulation of our
publications, obtain new sources of advertising revenues, generate additional
revenues by building on the brand names of our publications, attract new clients
for DSI or raise the cover prices of our publications without causing a decline
in circulation. Furthermore, any growth through acquisitions and investments
will be dependent upon identifying suitable acquisition or investment candidates
and successfully consummating such transactions and integrating the acquired
operations at reasonable costs. We may not successfully integrate any acquired
businesses and may not achieve anticipated revenue and cost benefits.
Such acquisitions and investments may require additional funding which may
be provided in the form of additional debt, equity financing or a combination
thereof. We cannot assure you that any such additional financing will be
available to us on acceptable terms or at all or that we will be permitted under
the terms of our credit facility (or any replacement thereof) or under the terms
of our indentures to obtain such financing for such purpose. See "Description of
Other Indebtedness" and "Description of the Notes -- Certain Covenants."
Implementation of our business strategy could be affected by a number of
factors beyond our control, such as increased competition, legal developments,
general economic conditions or increased operating costs or expenses. In
particular, there has been a recent trend of increased consolidation among both
retailers and wholesalers of magazines. This consolidation has caused an
increase in margin pressure on publishers. Because National Enquirer, Star and
Globe have been consistently among the highest revenue-producing magazines to
both retailers and wholesalers, we do not believe the increased consolidation
among retailers and wholesalers will have a material adverse effect on us.
Nevertheless, we cannot assure you that such consolidation will not have a
material adverse effect on us in the future.
Any failure to successfully implement our business strategy may adversely
affect our ability to service our indebtedness, including our ability to make
principal and interest payments on the exchange notes. We may, in addition,
decide to alter or discontinue certain aspects of our business strategy at any
time.
TERRORIST ATTACKS, SUCH AS THE SEPTEMBER 11, 2001 TERRORIST ATTACKS AND THE
OCTOBER ANTHRAX INCIDENT AT OUR BOCA RATON HEADQUARTERS, AND OTHER ACTS OF
VIOLENCE OR WAR MAY AFFECT THE FINANCIAL MARKETS AND OUR BUSINESS, RESULTS OF
OPERATION AND FINANCIAL CONDITION.
As a result of the September 11, 2001 terrorist attacks and subsequent
events, there has been considerable uncertainty in world financial markets. The
full effect of these events, as well as concerns about future terrorist attacks,
on the financial markets is not yet known, but could include, among other
things, increased volatility in the prices of securities, including the exchange
notes. These uncertainties could also adversely affect our ability to obtain
financing on terms acceptable to us or at all to finance our acquisitions,
capital expenditures or our working capital.
Terrorist attacks may negatively affect our operations and financial
condition. There can be no assurance that there will not be further terrorist
attacks against the United States or U.S. businesses. These attacks or armed
conflicts may directly impact our physical facilities or those of our retailers
and customers. These events could cause consumer confidence and spending to
decrease or result in the increased volatility in the U.S. and world financial
markets and economy. They could result in an economic recession in the United
States or abroad. Any of these occurrences could have a material adverse impact
on our operating results, revenues and costs.
Our Boca Raton headquarters, which housed substantially all of our
editorial operations (including our photo, clipping and research libraries),
executive offices and certain administrative functions, was closed on October 7,
2001 by the Palm Beach County Health Department when traces of anthrax were
found on a computer keyboard following the death of one of our photo editors
from inhalation anthrax. In response to the closure of our Boca Raton facility,
we immediately implemented our hurricane disaster plan to produce all our weekly
publications as originally scheduled. While this inhibited the production of our
publications, we printed all of our tabloids that week and we believe that our
operations have substantially returned to normal. As a result of the uncertainty
on the timing of our being able to return to our Boca Raton headquarters, if
ever, we
16
have entered into a two year lease for a 53,000 square foot facility two blocks
from our current Boca Raton headquarters. We will remain in this leased facility
until the Palm Beach County Health Department, OSHA (Occupational Safety and
Health Administration) and NIOSH (National Institute for Occupational Safety and
Health) deems the Boca Raton facility is safe to return to, or if we are unable
to return, we will extend the lease term on this new facility or seek an
alternative location. We have property insurance on our Boca Raton headquarters
and on the building's contents. We also have business interruption insurance.
The amount of our losses and related insurance recovery is indeterminable at
this time. We cannot assure you that our insurance will cover all of our losses,
including any clean-up costs associated with our Boca Raton headquarters, the
cost of remediating or replacing our photo, clipping and research libraries and
our lost profits.
In addition, our circulation has declined since the September 11, 2001
terrorist attacks and the October anthrax incident. We believe that as a result
of the anthrax incident, we have experienced a decline in circulation. When the
incident first occurred, there were specific concerns and consumer discomfort
and lack of knowledge with respect to the safety of our magazines. We quickly
responded to these safety concerns with an extensive public relations effort to
educate consumers that there was no health risk in buying our magazines. Since
the first issues following the anthrax incident, our unit sales have steadily
improved, although they remain below pre-September 11, 2001 levels. We cannot
predict what effect, if any, future acts of terrorism may have on our
circulation. However, the consequences of these events could have a material
adverse effect on our business, results of operations and financial condition.
See "-- Our publications have experienced declines in single copy circulation."
WE COULD INCUR MATERIAL CLEANUP COSTS UNDER ENVIRONMENTAL, HEALTH AND SAFETY
LAWS AT OUR BOCA RATON FACILITY.
As a result of the recent detection of anthrax at our Boca Raton
headquarters, steps have been taken to monitor and investigate the anthrax
incident with the involvement of the Environmental Protection Agency and other
governmental entities. It is unclear at this time what if any measures may be
required of us (as well as what defenses we may have to any such obligations) or
the extent to which insurance or other sources may cover our costs. Regardless
of whether we ultimately return our operations to that site, as owner of the
building, it may be necessary for us to remediate the premises or take other
steps to address the incident. These costs could be substantial. Accordingly, we
cannot assure you at this time that any cleanup or other obligations we may have
with respect to this matter will not have a material adverse effect on our
business, results of operations and financial condition.
THE EXCHANGE NOTES AND THE NOTE GUARANTEES ARE CONTRACTUALLY SUBORDINATED TO OUR
SENIOR INDEBTEDNESS.
The exchange notes will be contractually subordinated in right of payment
to all of our senior indebtedness and the Note Guarantees will be contractually
subordinated in right of payment to all senior indebtedness of the Note
Guarantors. In addition, the exchange notes and the Note Guarantees will be
effectively subordinated to any secured indebtedness of the Company and the Note
Guarantors to the extent of the value of the assets securing such indebtedness.
As adjusted to give effect to the offering of the 2002 notes and the use of
proceeds therefrom, as of December 24, 2001, we had approximately $350.8 million
of senior indebtedness (excluding unused commitments under our credit facility),
all of which is secured indebtedness, and the Note Guarantors had no senior
indebtedness (excluding their guarantees of our indebtedness under our credit
facility). The indentures permit us and the Note Guarantors to borrow certain
additional debt, which may be senior indebtedness.
We may not pay principal, premium (if any), interest or other amounts on
account of the exchange notes or the Note Guarantees in the event of a payment
default or certain other defaults in respect of certain senior indebtedness
(including indebtedness under our credit facility) unless such indebtedness has
been paid in full or the default has been cured or waived. In addition, in the
event of certain other defaults with respect to such senior indebtedness, we may
not be permitted to pay any amount on account of the exchange notes or the Note
Guarantees for a designated period of time. If we or the Note Guarantors are
declared bankrupt or insolvent, or if there is a payment default under, or an
acceleration of, any senior indebtedness, we are required to pay the lenders
under our credit facility and any other creditors who are holders of senior
indebtedness in
17
full before we apply any of our assets to pay you. Accordingly, we may not have
enough assets remaining after payments to holders of such senior indebtedness to
pay you.
Further, our credit facility will, and our future senior indebtedness may,
prohibit us from repurchasing any exchange notes prior to maturity, even though
the indenture requires us to offer to repurchase exchange notes in certain
circumstances. If we or the Note Guarantors make certain asset sales or if a
change of control occurs when we are prohibited from repurchasing exchange
notes, we could ask our lenders under our credit facility (or such future senior
indebtedness) for permission to repurchase the exchange notes or we could
attempt to refinance the borrowings that contain such prohibitions. If we do not
obtain such a consent to repay such borrowings or are unable to refinance such
borrowings, we would be unable to repurchase the exchange notes. Our failure to
repurchase tendered exchange notes at a time when such repurchase is required by
the indenture would constitute an event of default under the indenture, which,
in turn, would constitute a default under the credit facility and may constitute
an event of default under such future senior indebtedness. In such
circumstances, the subordination provisions in the indenture would restrict
payments to you. See "Description of Other Indebtedness," "Description of the
Exchange Notes -- Ranking," "Description of the Exchange Notes -- Change of
Control" and "Description of the Exchange Notes -- Certain Covenants."
OUR HOLDING COMPANY STRUCTURE MAY SUBORDINATE THE EXCHANGE NOTES TO THE
OBLIGATIONS OF OUR SUBSIDIARIES.
We are a holding company and as such we conduct substantially all our
operations through our subsidiaries. As a holding company, we are dependent upon
dividends or other intercompany transfers of funds from our subsidiaries to meet
our debt service and other obligations. Generally, creditors of a subsidiary
will have a superior claim to the assets and earnings of such subsidiary than
the claims of creditors of its parent company, except to the extent the claims
of the parent's creditors are guaranteed by the subsidiary.
Although the Note Guarantees provide the holders of the exchange notes with
a direct claim against the assets of the Note Guarantors, enforcement of the
Note Guarantees against any Note Guarantor may be subject to legal challenge in
a bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
such Note Guarantor, and would be subject to certain defenses available to
guarantors generally. See "-- Under fraudulent conveyance laws, courts could
void obligations under the exchange notes or the Note Guarantees." To the extent
that the Note Guarantees are not enforceable, the exchange notes would be
effectively subordinated to all liabilities of the Note Guarantors, including
trade payables of the Note Guarantors. Accordingly, in the event of our
dissolution, bankruptcy, liquidation or reorganization, the holders of the
exchange notes may not receive any amounts with respect to the exchange notes
until after the payment in full of the claims of creditors of our subsidiaries.
In addition, the Note Guarantees will be general unsecured obligations of the
Note Guarantors that will be subordinated to all senior indebtedness of the Note
Guarantors.
Although the indenture limits the ability of the Note Guarantors to incur
indebtedness and issue preferred stock, there are certain significant
qualifications and exceptions. The indenture does not limit such subsidiaries
from incurring liabilities that are excluded from the definitions of
indebtedness, disqualified stock or preferred stock under the indenture. See
"Description of the Notes -- Certain Covenants -- Limitations on Indebtedness."
In addition, the ability of the Company's and the Note Guarantors'
subsidiaries to pay dividends and make other payments to us may be restricted
by, among other things, applicable corporate and other laws and regulations and
agreements of the subsidiaries. Although the indenture limits the ability of
such subsidiaries to enter into consensual restrictions on their ability to pay
dividends and make other payments, such limitations are subject to a number of
significant qualifications and exceptions. See "Description of the Exchange
Notes -- Certain Covenants -- Limitations on Restrictions on Distributions from
Restricted Subsidiaries."
18
COVENANTS IN OUR DEBT AGREEMENTS RESTRICT OUR BUSINESS IN MANY WAYS.
Our indentures contain covenants with respect to us that restrict, among
other things,
- the incurrence of additional indebtedness and the issuance of
disqualified stock and preferred stock;
- the payment of dividends on and redemptions of capital stock and the
redemption of indebtedness that is subordinated in right of payment to
the Notes;
- certain other restricted payments including, without limitation,
investments;
- certain sales of assets;
- certain transactions with affiliates; and
- consolidations, mergers and transfers of all or substantially all of our
assets.
In addition, our credit facility contains other and more restrictive
covenants and prohibits us from prepaying our other indebtedness (including the
old notes and the exchange notes) while indebtedness under our credit facility
is outstanding. Our credit facility also requires us to maintain specified
financial ratios and satisfy financial condition tests. Our ability to meet
those financial ratios and tests can be affected by events beyond our control
and there can be no assurance that we will meet those ratios and tests. A breach
of any of these covenants, ratios, tests or restrictions could result in an
event of default under our credit facility and/or our indentures. Upon the
occurrence of an event of default under our credit facility, the lenders could
elect to declare all amounts outstanding under our credit facility, together
with accrued interest, to be immediately due and payable. If we were unable to
repay those amounts, the lenders could proceed against the collateral granted to
them to secure such indebtedness. If the lenders under our credit facility
accelerate the payment of the indebtedness, we cannot assure that our assets
would be sufficient to repay in full such indebtedness and our other
indebtedness, including the exchange notes. See "Description of Other
Indebtedness" and "Description of the Exchange Notes -- Certain Covenants."
ALL OF OUR ASSETS SECURE OUR OBLIGATIONS UNDER THE CREDIT FACILITY.
In addition to being contractually subordinated to all existing and future
senior indebtedness, our obligations under the exchange notes will be unsecured
while our obligations under our credit facility are secured by a security
interest in substantially all of our assets and the assets of each of our
existing and subsequently acquired or organized U.S. and, subject to certain
limitations, non-U.S. subsidiaries. In addition, our obligations under our
credit facility are secured by a pledge of all of the issued and outstanding
shares of, or other equity interests in, our existing or subsequently acquired
or organized U.S. subsidiaries and 65% of the capital stock of, or other equity
interests in, each of our subsequently acquired or organized non-U.S.
subsidiaries. If we or one of our restricted subsidiaries are declared bankrupt
or insolvent or if we default under our credit facility, the lenders could
declare all of the funds borrowed thereunder, together with accrued interest,
immediately due and payable. If we were unable to repay such indebtedness, the
lenders could foreclose on the pledged stock of our subsidiaries and on the
assets in which they have been granted a security interest, in each case to your
exclusion, even if an event of default exists under the indenture at such time.
Furthermore, under the Note Guarantees, if all shares of any Note Guarantor are
sold to persons pursuant to an enforcement of the pledge of shares in such Note
Guarantor for the benefit of the senior lenders, then the applicable Note
Guarantor will be released from its Note Guarantee automatically and immediately
upon such sale. See "Description of Other Indebtedness."
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THE PRICE OF PAPER INCREASES.
Our operating income may be significantly affected by changes in the price
of paper used in our publications. For the three quarters ended December 24,
2001, these costs represented approximately 12% of our revenues. We have
currently committed our volume requirements with our major suppliers through
December 31, 2002. For the three fiscal quarters ended December 24, 2001, our
average cost per metric ton for paper was 14% higher than the comparable prior
year period. The current spot price for paper is 16% lower than our average cost
per metric ton for the three fiscal quarters ended December 24, 2001. If paper
prices
19
increase in the future and we cannot pass these costs on to our customers, such
increases may have a material adverse effect on us. We do not currently hedge
against increases in paper prices but are reviewing various hedging strategies
against future increases in paper prices.
WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT.
National Enquirer, Globe, Star, National Examiner, Weekly World News, Sun,
Mira!, Country Music Magazine and Country Weekly compete in varying degrees with
other publications sold at retailers' checkout counters, as well as forms of
media concentrating on celebrity news, such as certain newspapers, magazines and
television and radio programs. We believe that historical declines in single
copy circulation of National Enquirer, Globe, Star and National Examiner have
resulted in part from increased competition from these publications and forms of
media. Competition for circulation is largely based upon the content of the
publication, its placement in retail outlets and, to a lesser extent, its price.
Competition for advertising revenues is largely based upon circulation levels,
readership, demographics, price and advertising results. Many of our competitors
have substantially larger operating staffs, greater capital resources and
greater revenues from their publications. In this respect, we may be at a
competitive disadvantage with such entities. We believe that currently our most
significant direct competitors in the print media are AOL Time Warner Inc.
(which publishes People, In Style and Entertainment Weekly), Wenner Media, Inc.,
(which publishes US Weekly Magazine), and Gemstar TV Guide, Inc. (which
publishes TV Guide). As use of the Internet and new on-line ventures focusing on
celebrity news increase, we may face additional competition.
In addition we compete with many other companies providing marketing and
distribution services, such as full-service national distributors, wholesalers
and publishers with their own marketing organizations. Certain of our
competitors have substantially larger operating staffs and greater capital
resources. In this respect, we may be at a competitive disadvantage with such
entities.
Increased competition may result in less demand for our products and
services which may have a material adverse effect on our business, results of
operation and financial condition.
OUR PERFORMANCE COULD BE ADVERSELY AFFECTED IF WE LOSE OUR KEY PERSONNEL.
We believe that our success is largely dependent on the abilities and
experience of Mr. Pecker, our chairman and chief executive officer, and our
senior management team. The loss of the services of Mr. Pecker or one or more of
these senior executives could adversely affect our ability to effectively manage
our overall operations or successfully execute current or future business
strategies. We have entered into a five-year employment contract with Mr.
Pecker, which expires on May 6, 2004 and is automatically extended for one-year
periods unless sixty days prior written notice is given by either party of its
intent to terminate. In addition, we believe that our success will depend upon
our ongoing ability to attract and retain qualified management and other
employees.
WE ARE CONTROLLED BY EVERCORE, WHOSE INTERESTS IN OUR BUSINESS MAY BE DIFFERENT
THAN YOURS.
Evercore has effective control of us by virtue of its rights to appoint a
majority of the Board of Managers and a majority of the Board of Directors of
our parent entities. As a result, Evercore controls our policies and operations
and has the power to appoint new management and approve any action requiring
stockholder approval (including adopting amendments to our certificate of
incorporation and approving mergers or sales of substantially all of our
assets). We cannot assure you that the interests of Evercore will not conflict
with your interests. See "Directors and Executive Officers," "Security Ownership
of Certain Beneficial Owners and Management" and "Certain Relationships and
Related Transactions" incorporated by reference in this prospectus from our Form
10-K for the fiscal year ended March 26, 2001.
PENDING AND FUTURE LITIGATION COULD MATERIALLY AFFECT OUR OPERATIONS.
We are involved in a number of litigation matters which have arisen in the
ordinary course of our business. Because the focus of our publications often
involves controversial celebrities or subjects, the risk of defamation or
invasion of privacy litigation arises in the ordinary course of our business.
Our experience
20
suggests that the claims for damages made in such lawsuits are heavily inflated
and, in any event, any reasonably foreseeable liability or settlement would be
covered by insurance. During the five fiscal years ended March 26, 2001, we paid
approximately $21 million in the aggregate for legal fees (including
pre-publication review, litigation-related insurance premiums and, to a lesser
extent, litigation settlements, including amounts covered by insurance
payments). We have not experienced any difficulty obtaining such insurance and
do not expect to experience any material difficulty in the future. There are
currently no claims pending that we believe would have a material adverse effect
on our operations. We cannot assure you that we will continue to be able to
obtain insurance on terms acceptable to us or at all or that any pending or
future litigation, if adversely determined, would not have a material adverse
effect on our business and financial condition.
WE MAY NOT BE PERMITTED OR HAVE THE ABILITY TO PURCHASE THE EXCHANGE NOTES UPON
A CHANGE OF CONTROL AS REQUIRED BY OUR INDENTURES.
Upon a change of control under our indentures, we will be required to offer
to purchase all of the exchange notes and the old notes then outstanding at 101%
of their principal amount, plus accrued but unpaid interest and liquidated
damages, if any, to the date of repurchase. If a change of control were to
occur, we cannot assure you that we would have sufficient funds to pay the
purchase price for the exchange notes and the old notes, and we expect that we
would require third-party financing to finance such repurchase; however, we
cannot assure you that we would be able to obtain such financing on favorable
terms, if at all. In addition, our credit facility restricts our ability to
repurchase the exchange notes and the old notes, including pursuant to an offer
in connection with a change of control. A change of control under the indentures
may result in an event of default under our credit facility and may cause the
acceleration of other senior indebtedness, if any, in which case the
subordination provisions of the exchange notes and the old notes would require
payment in full of our credit facility and any other senior indebtedness before
we could repurchase the exchange notes and the old notes. Our future
indebtedness may also contain restrictions on repayment requirements with
respect to certain events or transactions that could constitute a change of
control under the indentures. See "Description of Other Indebtedness" and
"Description of the Notes -- Change of Control." The inability to repay senior
indebtedness, if accelerated, and to purchase all of the tendered exchange
notes, would each constitute an event of default under the indentures.
UNDER FRAUDULENT CONVEYANCE LAWS, A COURT COULD VOID OBLIGATIONS UNDER THE
EXCHANGE NOTES OR NOTE GUARANTEES.
The incurrence of indebtedness by us or the Note Guarantors, such as the
exchange notes or the Note Guarantees, may be subject to review under federal
bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case
or lawsuit is commenced by or on behalf of unpaid creditors. Under these laws,
if in such case or lawsuit a court were to find that, at the time we or any Note
Guarantor incurred indebtedness (including indebtedness under the exchange notes
or the Note Guarantees),
(a) we or any Note Guarantor, as applicable, incurred such
indebtedness with the intent of hindering, delaying or defrauding current
or future creditors; or
(b) (i) we or any Note Guarantor, as applicable, received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness; and
(ii) we or any Note Guarantor, as applicable,
(1) were insolvent or were rendered insolvent by reason of any of
the transactions;
(2) were engaged, or about to engage, in a business or transaction
for which the assets remaining with us or such Note Guarantor
constituted unreasonably small capital to carry on our or its business;
(3) intended to incur, or believed that we or such Note Guarantor
would incur, debts beyond our or its ability to pay as such debts
matured (as all of the foregoing terms are defined in or interpreted
under the relevant fraudulent transfer or conveyance statutes); or
21
(4) were a defendant in an action for money damages, or had a
judgment for money damages docketed against us or such Note Guarantor
(in either case, if, after final judgment, the judgment is unsatisfied),
then such court could avoid or subordinate the amounts owing under the exchange
notes or the Note Guarantees to our or such Note Guarantor's presently existing
and future indebtedness and take other actions detrimental to you.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, a debtor would be considered insolvent if,
at the time such debtor incurred the indebtedness, either (a) the sum of its
debts (including contingent liabilities) is greater than its assets, at fair
valuation, or (b) the present fair saleable value of its assets is less than the
amount required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether we or any Note Guarantor were solvent at the relevant time, or
whether, whatever standard was used, the exchange notes would not be avoided or
further subordinated on another of the grounds set forth above.
We and the Note Guarantors believe that at the time we initially incur
indebtedness constituting the exchange notes and the Note Guarantees, we and
each Note Guarantor will:
(a) (i) neither be insolvent nor rendered insolvent thereby;
(ii) be in possession of sufficient capital to run our respective
businesses effectively; and
(iii) be incurring debts within our respective abilities to pay as the
same mature or become due; and
(b) have sufficient assets to satisfy any probable money judgment
against any of us in any pending action.
In reaching the foregoing conclusions, we have relied upon our analyses of
internal cash flow projections and estimated values of assets and liabilities.
However, we cannot assure you that a court passing on such questions would reach
the same conclusions.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings were initiated by or against us
or any Note Guarantor within 90 days after any payment by us with respect to the
exchange notes or by such Note Guarantor under the applicable Note Guarantee or
if we or such Note Guarantor anticipated becoming insolvent at the time of such
payment, all or a portion of such payment could be avoided as a preferential
transfer and the recipient of such payment could be required to return such
payment.
22
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
CAPITALIZATION
The following table sets forth our capitalization as of December 24, 2001
on an actual basis and as adjusted to give effect to the offering of the 2002
notes and the application of the proceeds therefrom. The table should be read in
conjunction with "Summary -- Summary Historical Financial Information," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the notes
related thereto included elsewhere in or incorporated by reference in this
prospectus.
<Table>
<Caption>
DECEMBER 24, 2001
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
Debt (including current maturities):
Credit facility(1)
Revolving credit facility.............................. $ -- $ --
Tranche A term loan facility(2)........................ 92,051 23,676
Tranche B term loan facility........................... 237,903 237,903
Tranche B-1 term loan facility......................... 89,251 89,251
-------- --------
Total credit facility................................ 419,205 350,830
1999 notes................................................ 250,000 250,000
2002 notes offered hereby................................. -- 150,000
Other Debt(3)............................................. 874 874
-------- --------
Total debt........................................... 670,079 751,704
-------- --------
Total stockholder's equity.................................. 172,303 97,678
-------- --------
Total capitalization........................................ $842,382 $849,382
======== ========
</Table>
- ---------------
(1) Our credit facility consists of (i) a tranche A term loan facility which
matures in April 2006, (ii) a tranche B term loan facility and a tranche B-1
term loan facility each of which matures in April 2007 and (iii) a $60.0
million revolving credit facility which matures in April 2006. All
borrowings under our credit facility are senior secured indebtedness. See
"Description of Other Indebtedness -- Our Credit Facility."
(2) The net proceeds of the offering of the 2002 notes after the distribution to
Holdings was used to prepay term loans under our credit facility.
(3) Other debt is comprised of our 10.38% Senior Subordinated Notes due 2002 and
our 11.63% Senior Subordinated Notes due 2004.
23
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
At the time we issued the 2002 notes, we have entered into an exchange and
registration rights agreement with the initial purchaser of the 2002 notes in
which we agreed, under certain circumstances, to file a registration statement
relating to an offer to exchange the old notes for exchange notes. We also
agreed to use our reasonable best efforts to cause such offer to be consummated
within 195 days following the original issue of the 2002 notes. The form and
terms of the exchange notes are the same as the form and terms of the 2002
notes, except for the total outstanding principal amount and except that the
exchange notes will have been registered under the Securities Act and will not
bear legends restricting their transfer. The 2002 notes were issued on February
14, 2002.
Under the circumstances set forth below, we will use our reasonable best
efforts to cause the SEC to declare effective a shelf registration statement
with respect to the resale of the 2002 notes and keep the statement effective
for up to two years after the effective date of the shelf registration
statement. These circumstances include:
- if pursuant to any changes in law, SEC rules or regulations or applicable
interpretations thereof by the staff of the SEC do not permit us to
effect the exchange offer as contemplated by the exchange and
registration rights agreement;
- if any 2002 notes validly tendered in the exchange offer are not
exchanged for exchange notes within 195 days after the original issue of
the 2002 notes;
- if the initial purchaser of the 2002 notes so requests (but only with
respect to any 2002 notes not eligible to be exchanged for exchange notes
in the exchange offer); or
- if any holder of the 2002 notes notifies us that it is not permitted to
participate in the exchange offer or would not receive fully tradable
exchange notes pursuant to the exchange offer.
If we fail to comply with certain obligations under the exchange and
registration rights agreement, we will be required to pay liquidated damages to
holders of the 2002 notes.
We satisfied our obligations relating to the registration of the 1999 notes
under the Securities Act in 1999. Generally, the 1999 notes are freely tradable
securities. The objective of the exchange offer is to create a single series of
debt securities having a total outstanding principal amount which is larger than
that of either the 1999 notes or the 2002 notes as separate series, thus
resulting in greater liquidity for the exchange notes. However, see "Risk
Factors -- Because the total outstanding principal of the exchange notes will
include the total outstanding principal amount of the 1999 notes and the 2002
notes, you will experience an immediate dilution of your percentage of ownership
of the series of notes."
Each holder of old notes that wishes to exchange old notes for exchange
notes in the exchange offer will be required to make the following
representations:
- any exchange notes will be acquired in the ordinary course of its
business;
- such holder has no arrangement with any person to participate in the
distribution of the exchange notes; and
- such holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an affiliate, that it will
comply with applicable registration and prospectus delivery requirements
of the Securities Act.
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for old notes may be offered for
24
resale, resold and otherwise transferred by any exchange note holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act, if:
- such holder is not an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act;
- such exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such
exchange notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- cannot rely on the position of the staff of the SEC enunciated in "Exxon
Capital Holdings Corporation" or similar interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired the
old notes as a result of market-making activities or other trading activities
may participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Please read the section
captioned "Plan of Distribution" for more details regarding the transfer of
exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter(s) of transmittal, the Company will accept for exchange any
old notes properly tendered and not withdrawn prior to the expiration date of
the exchange offer. The Company will issue $1,000 principal amount of exchange
notes in exchange for each $1,000 principal amount of old notes surrendered
under the exchange offer. Old notes may be tendered only in integral multiples
of $1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the old notes except that, with respect to the 2002 notes,
the issuance of the exchange notes will have been registered under the
Securities Act, and the exchange notes will not bear legends restricting their
transfer. The exchange notes will evidence the same debt as the old notes. The
exchange notes will be issued under and entitled to the benefits of the same
indenture that authorized the issuance of the 2002 notes. Consequently, the
exchange note and the 2002 notes will be treated as a single class of debt
securities under that indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $400.0 million aggregate principal
amount of the old notes is outstanding. This prospectus and the letter(s) of
transmittal are being sent to all registered holders of old notes. There will be
no fixed record date for determining registered holders of old notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the exchange and registration rights agreement, the applicable requirements
of the Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the SEC. Old notes that are not tendered for exchange in the
exchange offer will remain outstanding and continue to accrue interest and will
be entitled to the rights and benefits such holders have under the applicable
indenture relating to the old notes.
We will be deemed to have accepted for exchange properly tendered old notes
when we give oral or written notice of the acceptance to the exchange agent. The
exchange agent will act as agent for the tendering
25
holders for the purposes of receiving the exchange notes from us and delivering
exchange notes to such holders. Subject to the terms of the exchange and
registration rights agreement, we expressly reserve the right to amend or
terminate the exchange offer, and not to accept for exchange any old notes not
previously accepted for exchange, upon the occurrence of any of the conditions
specified below under the caption "-- Certain Conditions to the Exchange Offer."
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
letter(s) of transmittal, transfer taxes with respect to the exchange of old
notes. We will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the exchange offer. It is important that you
read the section labeled "-- Fees and Expenses" below for more details regarding
fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on May 31,
2002, unless in our sole discretion, we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
old notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any old notes, to extend the exchange
offer or to terminate the exchange offer and to refuse to accept old
notes not previously accepted if any of the conditions set forth below
under "-- Certain Conditions to the Exchange Offer" have not been
satisfied, by giving oral or written notice of such delay, extension or
termination to the exchange agent; or
- subject to the terms of the exchange and registration rights agreement,
to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of old notes. If we amend the exchange offer in a manner that
it determines to constitute a material change, we will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of old notes
of such amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
If we extend the period of time during which the exchange offer is open, or
if we are delayed in accepting for exchange of, or in issuing and exchanging the
exchange notes for, any old notes, or are unable to accept for exchange of, or
issue exchange notes for, any old notes pursuant to the exchange offer for any
reason, then, without prejudice to our rights under the exchange offer, the
exchange agent may, on our behalf, retain all old notes tendered, and such old
notes may not be withdrawn except as otherwise provided below in "-- Withdrawal
of Tenders." The right to delay acceptance for exchange of, or the issuance and
the exchange of the exchange notes for, any old notes is subject to applicable
law, including Rule 14e-1(c) under the Exchange Act, which requires that we
either deliver the exchange notes or return the old notes deposited by or on
behalf of the holders thereof promptly after termination or withdrawal of the
exchange offer.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest at a rate of 10 1/4% per annum,
payable semi-annually, on May 1 and November 1 of each year, commencing on
November 1, 2002, which interest will accrue from the date of issuance. Holders
of the old notes not exchanged for exchange notes will continue to receive
interest payments on the old notes on regularly scheduled interest payment dates
pursuant to the terms of the old notes. Interest on the old notes accepted for
exchange will cease to accrue upon issuance of the exchange notes. Holders of
26
exchange notes will receive interest on November 1, 2002 from the date of
initial issuance of the exchange notes, plus an amount equal to the interest on
the old notes exchanged for exchange notes accrued and unpaid through the date
of issuance of the exchange rates.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange any exchange notes for, any old
notes, and may terminate the exchange offer as provided in this prospectus
before accepting any old notes for exchange, if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer;
- any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the staff
of the SEC, which, in our reasonable judgment, might materially impair
our ability to proceed with the exchange offer; or
- any governmental approval has not been obtained, which approval we shall,
in our reasonable discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby.
In addition, we will not be obligated to accept for exchange the old notes
of any holder that has not made to us:
- the representations described under "-- Purpose and Effect of the
Exchange Offer," "-- Procedures for Tendering" and "Plan of
Distribution"; and
- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
us an appropriate form for registration of the exchange notes under the
Securities Act.
If we determine in our sole discretion that any of these foregoing
conditions are not satisfied, we may
- refuse to accept any old notes and return all old notes to the tendering
holders;
- extend the exchange offer and retain all old notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw such old notes; or
- waive such unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes which have not been withdrawn
If such waiver constitutes a material change to the exchange offer, we will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the old notes and we will extend the
exchange offer for a period of five to ten business days, depending on the
significance of the waiver and the manner of disclosure to the registered
holders, if the exchange offer would otherwise expire during such five to ten
day business period.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in its sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or from time to time.
In addition, the we will not accept for exchange any old notes tendered,
and will not issue exchange notes in exchange for any such old notes, if at such
time any stop order will be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended.
27
PROCEDURES FOR TENDERING
Only a holder of old notes may tender such old notes in the exchange offer.
To tender in the exchange offer, a holder must:
- complete, sign and date the letter(s) of transmittal, or a facsimile of
the letter(s) of transmittal; have the signature on the letter(s) of
transmittal guaranteed if the letter(s) of transmittal so requires; and
mail or deliver such letter(s) of transmittal or facsimile to the
exchange agent so that the exchange agent receives such letter(s) of
transmittal prior to 5:00 p.m., New York City time on the expiration
date; or
- comply with the Automated Tender Offer Program procedures of The
Depository Trust Company ("DTC") described below.
In addition, either:
- the exchange agent must receive old notes along with the letter(s) of
transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such old notes into the exchange
agent's account at DTC according to the procedures for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter(s) of transmittal and other required documents at the
address set forth below under "-- Exchange Agent" prior to 5:00 p.m., New York
City time on the expiration date.
The tender by a holder that is not withdrawn prior to the 5:00 p.m., New
York City time on the expiration date will constitute an agreement between such
holder and us in accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter(s) of transmittal.
The method of delivery of old notes, the letter(s) of transmittal and all
other required documents to the exchange agent is at the holder's election and
risk. Rather than mail these items, the Company recommends that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter(s) of transmittal or old notes to the
Company. Holders may request their respective brokers, dealers, commercial
banks, trust companies or other nominees to effect the above transactions for
them.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owners' behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter(s) of
transmittal and delivering its old notes either:
- make appropriate arrangements to register ownership of the old notes in
such owner's name; or
- obtain a properly completed bond power from the registered holder of old
notes.
The transfer of registered ownership may take considerable time and may not be
completed prior to the expiration date.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where such old notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes. See "Plan of Distribution."
28
Signatures on a letter(s) of transmittal or a notice of withdrawal
described below must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or another "eligible institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the old notes tendered pursuant thereto
are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
letter(s) of transmittal; or
- for the account of an eligible institution.
If the letter(s) of transmittal is signed by a person other than the
registered holder of any old notes listed on the old notes, such old notes must
be endorsed or accompanied by a properly completed bond power. The bond power
must be signed by the registered holder as the registered holder's name appears
on the old notes and an eligible institution must guarantee the signature on the
bond power.
If the letter(s) of transmittal or any old notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by the Company, they
should also submit evidence satisfactory to the Company of their authority to
deliver the letter(s) of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter(s) of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the old notes to the exchange agent in
accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent. The term "agent's message" means a message
transmitted by DTC, received by the exchange agent and forming part of the
book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering old notes that are the
subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of the
letter(s) of transmittal (or, in the case of an agent's message relating
to guaranteed delivery, that such participant has received and agrees to
be bound by the applicable notice of guaranteed delivery); and
- the agreement may be enforced against such participant.
The Company will determine in its sole discretion all questions as to the
validity, form, eligibility (including time of receipt), acceptance of tendered
old notes and withdrawal of tendered old notes. The Company's determination will
be final and binding. The Company reserves the absolute right to reject any old
notes not properly tendered or any old notes the acceptance of which would, in
the opinion of the Company's counsel, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular old notes. The Company's interpretation of the terms and conditions
of the exchange offer (including the instructions in the letter(s) of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of old
notes, neither the Company, the exchange agent nor any other person will incur
any liability for failure to give such notification. Tenders of old notes will
not be deemed made until such defects or irregularities have been cured or
waived. Any old notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned to the exchange agent without cost to the tendering
holder, unless otherwise provided in the letter(s) of transmittal, as soon as
practicable following the expiration date.
29
In all cases, the Company will issue exchange notes for old notes that it
has accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- old notes or a timely book-entry confirmation of such old notes into the
exchange agent's account at DTC; and
- a properly completed and duly executed letter(s) of transmittal and all
other required documents or a properly transmitted agent's message.
If any tendered old notes are not accepted for exchange for any reason set
forth in the terms and conditions of the exchange offer or if old notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged old notes will be returned without expense to
the tendering holder thereof, or, in the case of old notes tendered by
book-entry transfer into the exchange agent's account at the book-entry transfer
facility pursuant to the book-entry transfer procedures described below, such
non-exchanged notes will be credited to an account maintained with such
book-entry transfer facility, as promptly as practicable after the expiration or
termination of the exchange offer.
By signing the letter(s) of transmittal, each tendering holder of old notes
will represent to us that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
- if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange notes;
- if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for old notes that were acquired as a result of
market-making activities, that it will deliver a prospectus, as required
by law, in connection with any resale of such exchange notes; and
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or, if the holder is an affiliate, it will
comply with any applicable registration and prospectus delivery
requirements of the Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus; and any financial institution that is a participant in
DTC's system may make book-entry delivery of old notes by causing DTC to
transfer such old notes into the exchange agent's account at DTC in accordance
with DTC's procedures for transfer. Holders of old notes who are unable to
deliver confirmation of the book-entry tender of their old notes into the
exchange agent's account at DTC or all other documents of transmittal to the
exchange agent on or prior to the expiration date must tender their old notes
according to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their old notes but whose old notes are not
immediately available or who cannot deliver their old notes, the letter(s) of
transmittal or any other required documents to the exchange
30
agent or comply with the applicable procedures under DTC's Automated Tender
Offer Program prior to the expiration date may tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed notice
of guaranteed delivery (by facsimile transmission, mail or hand delivery)
or a properly transmitted agent's message and notice of guaranteed
delivery:
- setting forth the name and address of the holder, the registered
number(s) of such old notes and the principal amount of old notes
tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange trading days
after the expiration date, the letter(s) of transmittal (or facsimile
thereof) together with the old notes or a book-entry confirmation, and
any other documents required by the letter(s) of transmittal will be
deposited by the eligible institution with the exchange agent; and
- the exchange agent receives such properly completed and executed
letter(s) of transmittal (or facsimile thereof), as well as all tendered
old notes in proper form for transfer or a book-entry confirmation, and
all other documents required by the letter(s) of transmittal, within
three (3) New York State Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time prior to the 5:00 p.m., New York City time
expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at the
address set forth below under "-- Exchange Agent", or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
- specify the name of the person who tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn (including the principal amount of
such old notes); and
- where certificates for old notes have been transmitted, specify the name
in which such old notes were registered, if different from that of the
withdrawing holder.
If certificates for old notes have been delivered or otherwise identified
to the exchange agent, then, prior to the release of such certificates, the
withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility. The Company will
determine all questions as to the validity, form and eligibility (including time
of receipt) of such notices, and our determination shall be final and binding on
all parties. The Company will deem any old notes so withdrawn not
31
to have been validly tendered for exchange for purposes of the exchange offer.
Any old notes that have been tendered for exchange but that are not exchanged
for any reason will be returned to their holder without cost to the holder (or,
in the case of old notes tendered by book-entry transfer into the exchange
agent's account at DTC according to the procedures described above, such old
notes will be credited to an account maintained with DTC for old notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn old notes may be retendered by following one
of the procedures described under "-- Procedures for Tendering" above at any
time on or prior to the 5:00 p.m., New York City time, on the expiration date.
EXCHANGE AGENT
JPMorgan Chase Bank has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter(s) of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
For Delivery by Registered or Certified Mail, Hand or by Overnight Courier:
JPMorgan Chase Bank
3800 Colonnade Parkway
Birmingham, Alabama 35243
By Facsimile Transmission
(for eligible institutions only):
(205) 968-9145
Confirm facsimile by telephone only:
(205) 968-0506
DELIVERY OF THE LETTER(S) OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER(S) OF TRANSMITTAL.
FEES AND EXPENSES
The Company will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, the Company may make additional
solicitations by telegraph, telephone or in person by its officers and regular
employees and those of our affiliates.
The Company has not retained any dealer-manager in connection with the
exchange offer and will not make any payments to broker-dealers or others
soliciting acceptances of the exchange offer. The Company will, however, pay the
exchange agent reasonable and customary fees for its services and reimburse it
for its related reasonable out-of-pocket expenses.
The Company will pay the cash expenses to be incurred in connection with
the exchange offer. The expenses are estimated in the aggregate to be
approximately $250,000. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
32
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of old notes under the exchange offer. The tendering holder, however, will be
required to pay any transfer taxes (whether imposed on the registered holder or
any other person) if:
- certificates representing old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of old notes
tendered;
- tendered old notes are registered in the name of any person other than
the person signing the letter(s) of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of such taxes is not submitted with the
letter(s) of transmittal, the amount of such transfer taxes will be billed to
that tendering holder.
Holders who tender their old notes for exchange will not be required to pay
any transfer taxes. However, holders who instruct the Company to register
exchange notes in the name of, or request that old notes not tendered or not
accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be required to pay any applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of 2002 notes who do not exchange their 2002 notes for exchange
notes under the exchange offer will remain subject to the restrictions on
transfer of such 2002 notes:
- as set forth in the legend printed on the 2002 notes as a consequence of
the issuance of the 2002 notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the 2002 notes.
In general, the 2002 notes may not be offered or sold unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the exchange and registration rights agreement, the
Company does not intend to register resales of the old notes under the
Securities Act. Based on interpretations of the SEC staff, exchange notes issued
pursuant to the exchange offer may be offered for resale, resold or otherwise
transferred by their holders (other than any such holder that is our "affiliate"
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that the holders acquired the exchange notes in the ordinary course of
the holders' business and the holders have no arrangement or understanding with
respect to the distribution of the exchange notes to be acquired in the exchange
offer. Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the exchange notes:
- should not rely on the above-described interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Because the 1999 notes were issued pursuant to an effective registration
statement under the Securities Act, the ability of holders of 1999 notes to
reoffer, resell or otherwise dispose of their 1999 notes will not be affected by
their failure to participate in the exchange offer. However, to the extent 1999
notes and 2002 notes are tendered and accepted in the exchange offer, the
principal amount of outstanding 1999 notes and 2002 notes will decrease with a
resulting decrease in the liquidity in the market for those notes. Accordingly,
the liquidity of the market of the 1999 notes and 2002 notes could be adversely
affected. See "Risk Factors -- The
33
market value of your current notes may be lower if you do not exchange your old
notes or fail to properly tender your old notes for exchange."
ACCOUNTING TREATMENT
The Company will record the exchange notes in its accounting records at the
same carrying value as the old notes, which is the aggregate principal amount,
as reflected in our accounting records on the date of exchange. Accordingly, the
Company will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. The Company will record the expenses of the
exchange offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
The Company may in the future seek to acquire untendered old notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any old notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
34
DESCRIPTION OF OTHER INDEBTEDNESS
OUR CREDIT FACILITY
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of our credit facility. Capitalized terms used
but not otherwise defined in this "Description of Other Indebtedness -- Our
Credit Facility" shall have the meaning assigned to them in our credit agreement
dated as of May 7, 1999, as amended and restated as of November 1, 1999, among
us, Holdings, the Note Guarantors, the lenders party thereto and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative agent.
The following description of our credit facility gives effect to the
February 11, 2002 amendment of our credit facility, and the offering of the 2002
notes and the application of the proceeds therefrom.
The credit facility provides senior secured financing consisting of a
tranche A term loan facility maturing April 1, 2006, a tranche B term loan
facility maturing April 1, 2007, a tranche B-1 term loan facility maturing April
1, 2007 and a $60.0 million revolving credit facility.
The tranche A term loan facility, the tranche B term loan facility and the
tranche B-1 term loan facility amortize in quarterly amounts based upon the
annual amounts shown below:
<Table>
<Caption>
TRANCHE A TRANCHE B TRANCHE B-1
TERM TERM TERM
LOAN LOAN LOAN
FACILITY FACILITY FACILITY
--------- --------- -----------
(DOLLARS IN MILLIONS)
Fiscal Year 2002(1).................................. $ 2.4 $ 0.6 $ 0.2
Fiscal Year 2003..................................... 3.2 2.4 0.9
Fiscal Year 2004..................................... 4.3 2.4 0.9
Fiscal Year 2005..................................... 5.5 2.4 0.9
Fiscal Year 2006..................................... 6.6 2.4 0.9
Fiscal Year 2007..................................... 1.7 170.9 64.2
Fiscal Year 2008..................................... -- 56.8 21.3
----- ------ -----
Total...................................... $23.7 $237.9 $89.3
===== ====== =====
</Table>
- ---------------
(1) The final amortization payment for fiscal year 2002 was made on January 2,
2002 in the amount of $3.2 million.
Principal amounts outstanding under the revolving credit facility will be
due and payable in full on April 1, 2006.
Our obligations under the credit facility are unconditionally and
irrevocably guaranteed by Holdings and each of our domestic subsidiaries. In
addition, the credit facility is secured by first priority or equivalent
security interests in substantially all tangible and intangible assets of
Holdings, the Company and each of our existing and subsequently acquired or
organized domestic subsidiaries, including all the capital stock of, or other
equity interests in, the Company, each of our direct or indirect domestic and
first-tier foreign subsidiaries and each of our subsequently acquired or
organized direct or indirect subsidiaries (which, in the case of a foreign
subsidiary, shall in each case be limited to 65% of such capital stock or equity
interests, as the case may be).
The credit facility is subject to mandatory prepayment with, in general,
- 100% of the proceeds of asset sales,
- 50% of our excess cash flow (as defined in the credit facility),
35
- 50% of the proceeds of equity offerings and
- 100% of the proceeds from the issuance of debt obligations.
The credit facility contains a number of covenants that, among other
things, restrict the ability of Holdings, the Company and our subsidiaries to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
repay other indebtedness, pay certain restricted payments and dividends, create
liens on assets, make investments, loans or advances, make certain acquisitions,
engage in mergers or consolidations, make capital expenditures, enter into sale
and leaseback transactions, and engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities. In addition, under
the credit facility, we are required to comply with specified financial ratios
and tests, including minimum fixed charge coverage and interest coverage ratios
and maximum leverage ratios. The credit facility also contains certain customary
events of default.
Effective March 26, 2002, Holdings entered into two interest rate swap
agreements, which effectively convert a portion of our fixed-rate debt to
variable rate debt. The aggregate notional amount of the two agreements is $150
million.
36
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Company issued the 2002 notes and will issue the exchange notes under
an indenture dated as of February 14, 2002, among the Company, the Note
Guarantors and JPMorgan Chase Bank, as trustee (the "Trustee"), a copy of which
is available upon request to the Company.
The indenture contains provisions which define your rights under the
exchange notes. In addition, the indenture governs the obligations of the
Company and of each Note Guarantor under the exchange notes. The terms of the
exchange notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended.
On February 14, 2002, the Company issued $150.0 million aggregate principal
amount of 2002 notes under the indenture. The terms of the exchange notes are
identical in all material respects to the 2002 notes, except for certain
transfer restrictions and registration and other rights relating to the exchange
of the 2002 notes for the exchange notes. The Trustee will authenticate and
deliver exchange notes for original issue only in exchange for a like principal
amount of 2002 notes. Any 2002 notes that remain outstanding after the
consummation of the exchange offer, together with the exchange notes, will be
treated as a single class of securities under the indenture. Accordingly, all
references in this section to specified percentages in aggregate principal
amount of the outstanding exchange notes shall be deemed to mean, at any time
after the exchange offer is consummated, such percentage in aggregate principal
amount of the 2002 notes and exchange notes then outstanding.
On May 7, 1999, the Company issued $250 million aggregate principal amount
of 1999 notes under an indenture. The indenture that governs the 2002 notes and
the exchange notes is substantially similar to the indenture that governs the
1999 notes. The primary difference is that the 2002 indenture places no
limitations on the principal amount of indebtedness the Company may issue under
the indenture. The 1999 indenture generally limits the amount of indebtedness
issued under that indenture to the $250,000,000 aggregate principal amount
issued in connection with the offering of the 1999 notes. However, subject to
certain limitations, the 1999 indenture does not prohibit us from issuing
additional senior subordinated debt outside of the 1999 indenture. With respect
to the material terms of the notes, events of default, change of control and
redemption provisions and restrictive covenants, the 2002 indenture and the 1999
indenture are substantially identical.
Certain of the Company's Subsidiaries will guarantee the exchange notes and
therefore will be subject to many of the provisions contained in this
"Description of the Exchange Notes." Each Subsidiary which guarantees the
exchange notes is referred to in this section as a "Note Guarantor." Each such
guarantee is termed a "Note Guarantee."
Definitions of certain terms used in this section may be found under the
heading "-- Certain Definitions." For purposes of this section, the term
"Company" refers only to American Media Operations, Inc. and not any of its
Subsidiaries. The following description is meant to be only a summary of certain
provisions of the indenture. It does not restate the terms of the indenture in
their entirety. We urge that you carefully read the indenture as it, and not
this description, governs your rights as Holders.
OVERVIEW OF THE EXCHANGE NOTES AND THE NOTE GUARANTEES
THE EXCHANGE NOTES
These exchange notes:
- are general unsecured obligations of the Company;
- will rank equal in right of payment with all existing and future Senior
Subordinated Indebtedness of the Company;
- are subordinated in right of payment to all future Senior Indebtedness of
the Company;
37
- are senior in right of payment to any future Subordinated Obligations of
the Company; and
- will be effectively subordinated to any Secured Indebtedness of the
Company and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness.
THE NOTE GUARANTEES
These exchange notes are guaranteed by each of the following subsidiaries
of the Company:
American Media Newspaper Group, Inc.
National Enquirer, Inc.
Globe Editorial, Inc.
Mira! Editorial, Inc.
Star Editorial, Inc.
National Examiner, Inc.
American Media Consumer Magazine Group, Inc.
AM Auto World Weekly, Inc.
American Media Consumer Entertainment Inc.
Country Music Media Group, Inc.
American Media Mini Mags, Inc.
American Media Distribution & Marketing Group, Inc.
Distribution Services, Inc.
NDSI, Inc.
American Media Property Group, Inc.
Globe Communications Corp.
The Note Guarantees:
- will be general unsecured obligations of each Note Guarantor;
- will rank equally in right of payment with any existing and future Senior
Subordinated Indebtedness of each Note Guarantor;
- will be subordinated in right of payment to all existing and future
Senior Indebtedness of each Note Guarantor;
- will be senior in right of payment to any future Subordinated Obligations
of each Note Guarantor; and
- will be effectively subordinated to any Secured Indebtedness of each Note
Guarantor to the extent of the value of the assets securing such
Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The exchange notes will mature on May 1, 2009. The notes are in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000.
Each exchange note bears interest at a rate of 10 1/4% beginning on the
date of its issuance, or from the most recent date to which interest has been
paid or provided for. We pay interest semi-annually to Holders of record at the
close of business on the April 15 or October 15 immediately preceding the
interest payment date on May 1 and November 1 of each year, beginning November
1, 2002.
INDENTURE MAY BE USED FOR FUTURE ISSUANCES
We may from time to time issue additional notes having identical terms and
conditions to the exchange notes (the "Additional Notes"). We will only be
permitted to issue such Additional Notes if at the time of such issuance we are
in compliance with the covenants contained in the Indenture. Any Additional
Notes will be part of the same issue as the exchange notes and will vote on all
matters with the exchange notes.
38
PAYING AGENT AND REGISTRAR
The payment of principal, premium, if any, and interest on the exchange
notes is payable at any office of ours or any agency designated by us. We have
initially designated the corporate trust office of the Trustee to act as our
agent in such matters. The location of the corporate trust office is 2001 Bryan
Street, 9th Floor, Dallas, Texas 75201. We, however, reserve the right to pay
interest to Holders by check mailed directly to Holders at their registered
addresses.
Holders may exchange or transfer their exchange notes at the same location
given in the preceding paragraph. No service charge will be made for any
registration of transfer or exchange of exchange notes. We, however, may require
Holders to pay any transfer tax or other similar governmental charge payable in
connection with any such transfer or exchange.
OPTIONAL REDEMPTION
We may not redeem the exchange notes prior to May 1, 2004. After this date,
we may redeem the exchange notes, in whole or in part, on not less than 30 nor
more than 60 days' prior notice, at the following redemption prices (expressed
as percentages of principal amount), plus accrued and unpaid interest and
liquidated damages thereon, if any, to the redemption date (subject to the right
of Holders on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the twelve-month period commencing on
May 1 of the years set forth below:
<Table>
<Caption>
REDEMPTION
YEAR PRICE
- ---- ----------
2004........................................................ 105.125%
2005........................................................ 103.417%
2006........................................................ 101.708%
2007 and thereafter......................................... 100.000%
</Table>
SELECTION
If we partially redeem exchange notes, the Trustee will select the exchange
notes to be redeemed on a pro rata basis, by lot or by such other method as the
Trustee in its sole discretion shall deem to be fair and appropriate, although
no note of $1,000 in original principal amount or less will be redeemed in part.
If we redeem any note in part only, the notice of redemption relating to such
note shall state the portion of the principal amount thereof to be redeemed. A
new note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancelation of the original note.
On and after the redemption date, interest will cease to accrue on exchange
notes or portions thereof called for redemption so long as we have deposited
with the Paying Agent funds sufficient to pay the principal of, plus accrued and
unpaid interest and liquidated damages thereon, if any, the exchange notes to be
redeemed.
RANKING
The exchange notes will be unsecured Senior Subordinated Indebtedness of
the Company, will be subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, will rank equally in right of payment with
all existing and future Senior Subordinated Indebtedness of the Company
(including any old notes not exchanged) and will be senior in right of payment
to all existing and future Subordinated Obligations of the Company. The exchange
notes also will be effectively subordinated to any Secured Indebtedness of the
Company and its Subsidiaries to the extent of the value of the assets securing
such Indebtedness, as well as to all liabilities of any future Subsidiaries
which will not be Note Guarantors. However, payment from the money or the
proceeds of U.S. Government Obligations held in any defeasance trust described
below under the caption "-- Defeasance" will not be subordinated to any Senior
Indebtedness or subject to the restrictions described herein.
We currently conduct all of our operations through our Subsidiaries. The
Note Guarantees will be unsecured Senior Subordinated Indebtedness of the
applicable Note Guarantor, will be subordinated in right
39
of payment to all existing and future Senior Indebtedness of such Note
Guarantor, will rank equally in right of payment with all existing and future
Senior Subordinated Indebtedness of such Note Guarantor and will be senior in
right of payment to all existing and future Subordinated Obligations of such
Note Guarantor. The Note Guarantees also will be effectively subordinated to any
Secured Indebtedness of the applicable Note Guarantor to the extent of the value
of the assets securing such Secured Indebtedness.
Although the indenture will limit the Incurrence of Indebtedness by and the
issuance of preferred stock of certain of our subsidiaries, such limitation is
subject to a number of significant qualifications.
As adjusted for the offering of the 2002 notes and the use of proceeds
therefrom, as of December 24, 2001 we would have had outstanding:
(a) $358.0 million of Senior Indebtedness of the Company, all of which
would have been Secured Indebtedness (excluding unused commitments under
the Credit Agreement);
(b) $400.9 million of Senior Subordinated Indebtedness of the Company
(including the old notes) and no indebtedness of the Company that is
subordinate or junior in right of repayment to the exchange notes;
(c) no Senior Indebtedness of the Note Guarantors (excluding their
Guarantees of Indebtedness of the Company under the Credit Agreement); and
(d) no Senior Subordinated Indebtedness of the Note Guarantors (other
than the Guarantees of the old notes) and no Indebtedness of the Note
Guarantors that is subordinate or junior in right of payment to the Note
Guarantees.
Although the amount of additional indebtedness we can incur is limited, we
may be able to incur substantial amounts of additional Indebtedness in certain
circumstances. Such Indebtedness may be Senior Indebtedness. See "-- Certain
Covenants -- Limitation on Indebtedness" below.
"Senior Indebtedness" of the Company or any Note Guarantor means the
principal of, premium (if any) and accrued and unpaid interest on (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization of the Company or any Note Guarantor, regardless of whether or
not a claim for post-filing interest is allowed in such proceedings), and fees
and other amounts owing in respect of, Bank Indebtedness and all other
Indebtedness of the Company or any Note Guarantor, whether outstanding on May 7,
1999 or thereafter Incurred, unless in the instrument creating or evidencing the
same or pursuant to which the same is outstanding it is provided that such
obligations are not superior, or are subordinated, in right of payment to the
exchange notes or such Note Guarantor's Note Guarantee; provided, however, that
Senior Indebtedness shall not include:
(a) any obligation of the Company to any Subsidiary of the Company or
of such Note Guarantor to the Company or any other Subsidiary of the
Company;
(b) any liability for Federal, state, local or other taxes owed or
owing by the Company or such Note Guarantor;
(c) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities);
(d) any Indebtedness or obligation of the Company or such Note
Guarantor (and any accrued and unpaid interest in respect thereof) that by
its terms is subordinate or junior in any respect to any other Indebtedness
or obligation of the Company or such Note Guarantor, including any Senior
Subordinated Indebtedness and any Subordinated Obligations;
(e) any obligations with respect to any Capital Stock; or
(f) any Indebtedness Incurred in violation of the indenture.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the exchange notes. The exchange notes will rank equally in all
respects with all other Senior Subordinated Indebtedness of the
40
Company. The Company will not Incur, directly or indirectly, any Indebtedness
which is subordinate or junior in ranking in any respect to Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured.
We may not pay principal of, premium (if any) or interest on the exchange
notes, or make any deposit pursuant to the provisions described under
"-- Defeasance" below, and may not otherwise repurchase, redeem or otherwise
retire any exchange notes (except that Holders may receive and retain (a)
Permitted Junior Securities and (b) payments made from the trust described under
"-- Defeasance" below) (collectively, "pay the exchange notes") if:
(a) any Designated Senior Indebtedness is not paid when due, or
(b) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms
unless, in either case,
(i) the default has been cured or waived and any such acceleration has
been rescinded, or
(ii) such Designated Senior Indebtedness has been paid in full;
provided, however, that we may pay the exchange notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (a) or (b) above has
occurred and is continuing.
During the continuance of any default (other than a default described in
clause (a) or (b) above) with respect to any Designated Senior Indebtedness of
the Company pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, we
may not pay the exchange notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to us) of written notice
(a "Blockage Notice") of such default from the Representative of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated:
(a) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice,
(b) by repayment in full of such Designated Senior Indebtedness, or
(c) because no defaults are continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the second preceding sentence),
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the exchange notes after the
end of such Payment Blockage Period.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this paragraph, no default or event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period by the Representative of
such Designated Senior
41
Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default shall have been cured or waived for a period of
not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company to creditors
upon a total or partial liquidation or a total or partial dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(a) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full of such Senior Indebtedness before the Holders
are entitled to receive any payment of principal of or interest on the
exchange notes; and
(b) until such Senior Indebtedness is paid in full any payment or
distribution to which Holders would be entitled but for the subordination
provisions of the indenture will be made to holders of such Senior
Indebtedness as their interests may appear (except that Holders may receive
and retain (i) Permitted Junior Securities and (ii) payments made from the
trust as described under "-- Defeasance" so long as, on the date or dates
the respective amounts were paid into the trust, such payments were made
with respect to the exchange notes without violating the subordination
provisions described herein); if a distribution is made to Holders that due
to the subordination provisions of the indenture should not have been made
to them, such Holders will be required to hold it in trust for the holders
of Senior Indebtedness of the Company and pay it over to them as their
interests may appear.
If payment of the exchange notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of the
Designated Senior Indebtedness of the Company (or their Representative) of the
acceleration. If any Designated Senior Indebtedness of the Company is
outstanding, the Company may not pay the exchange notes until five Business Days
after such holders or the Representative of such Designated Senior Indebtedness
receive notice of such acceleration and, thereafter, may pay the exchange notes
only if the subordination provisions of the indenture otherwise permit payment
at that time.
By reason of the subordination provisions of the indenture, in the event of
insolvency, creditors of the Company who are holders of Senior Indebtedness of
the Company may recover more, ratably, than the Holders, and creditors of the
Company who are not holders of Senior Indebtedness of the Company or of Senior
Subordinated Indebtedness of the Company (including the exchange notes) may
recover less, ratably, than holders of Senior Indebtedness of the Company and
Senior Subordinated Indebtedness of the Company.
NOTE GUARANTEES
All of the Company's existing subsidiaries and certain future subsidiaries
of the Company (as described below), as primary obligors and not merely as
sureties, will jointly and severally irrevocably and unconditionally Guarantee
on an unsecured senior subordinated basis the performance and full and punctual
payment when due, whether at Stated Maturity, by acceleration, by redemption or
otherwise, of all obligations of the Company under the indenture (including
obligations to the Trustee) and the exchange notes, whether for payment of
principal of or interest on or liquidated damages in respect of the exchange
notes, expenses, indemnification or otherwise (all such obligations guaranteed
by such Note Guarantors being herein called the "Guaranteed Obligations"). Such
Note Guarantors will agree to pay, in addition to the amount stated above, any
and all costs and expenses (including reasonable counsel fees and expenses)
incurred by the Trustee or the Holders in enforcing any rights under the Note
Guarantees. Each Note Guarantee will be limited in amount to an amount not to
exceed the maximum amount that can be Guaranteed by the applicable Note
Guarantor without rendering the Note Guarantee, as it relates to such Note
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
After the Closing Date, the Company will cause each future Restricted Subsidiary
organized under the laws of the United States or any state or territory thereof
to execute and deliver to the Trustee a supplemental indenture pursuant to which
such Restricted Subsidiary will Guarantee payment of the exchange notes. See
"-- Certain Covenants -- Future Note Guarantors" below.
42
The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by a
Note Guarantor pursuant to its Note Guarantee will be subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Note Guarantor.
The terms of the subordination provisions described above with respect to the
Company's obligations under the exchange notes apply equally to a Note Guarantor
and the obligations of such Note Guarantor under its Note Guarantee.
Each Note Guarantee is a continuing guarantee and shall (a) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon each Note Guarantor and its successors and (c) inure to the benefit
of, and be enforceable by, the Trustee, the Holders and their successors,
transferees and assigns.
A Note Guarantor shall be released from all obligations under its Note
Guarantee and under the indenture upon (a) the merger or consolidation of such
Note Guarantor with or into any Person other than the Company or a Subsidiary or
Affiliate of the Company where such Note Guarantor is not the surviving entity
of such consolidation or merger or (b) the sale or transfer by the Company or
any Subsidiary of the Company of the Capital Stock of such Note Guarantor (or by
any other Person as a result of a foreclosure of any Lien on such Capital Stock
securing Senior Indebtedness), where, after such sale or transfer, such Note
Guarantor is no longer a Subsidiary of the Company; provided, however, that each
such merger, consolidation, sale or transfer by the Company or such Subsidiary
or Affiliate (i) shall comply with the terms of the indenture, including the
covenant described under "-- Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock" or (ii) in the case of a sale or transfer as a result of a
foreclosure of any Lien securing Senior Indebtedness by the holder of such Lien,
the net proceeds therefrom shall be applied in compliance with the terms of the
indenture that would apply to a sale thereof by the Company.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's exchange notes at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid interest
and liquidated damages thereon, if any, to the date of repurchase (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date); provided, however, that
notwithstanding the occurrence of a Change of Control, the Company shall not be
obligated to repurchase the exchange notes pursuant to this section in the event
that it has exercised its right to redeem all the exchange notes under the terms
of the section titled "-- Optional Redemption":
(a) prior to the earlier to occur of (i) the first public offering of
common stock of American Media, Inc. or (ii) the first public offering of
common stock of the Company, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of a majority in the aggregate of the total
voting power of the Voting Stock of the Company or American Media, Inc.,
whether as a result of issuance of securities of American Media, Inc. or
the Company, any merger, consolidation, liquidation or dissolution of
American Media, Inc. or the Company, any direct or indirect transfer of
securities by any Permitted Holder or otherwise (for purposes of this
clause (a) and clause (b) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
entity);
(b) (i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (a) above, except that
for purposes of this clause (b) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of the Company or Holdings and (ii) the
Permitted Holders "beneficially own" (as defined in clause (a) above),
directly or indirectly, in the aggregate a lesser percentage of the
43
total voting power of the Voting Stock of the Company or American Media,
Inc. than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of the Company or American Media, Inc., as the
case may be (for the purposes of this clause (b), such other person shall
be deemed to beneficially own any Voting Stock of a specified entity held
by a parent entity, if such other person is the beneficial owner (as
defined in this clause (b)), directly or indirectly, of more than 35% of
the voting power of the Voting Stock of such parent entity and the
Permitted Holders "beneficially own" (as defined in clause (a) above),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent entity and do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent entity);
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the Company
or American Media, Inc., as the case may be (together with any new
directors whose election by such board of directors of the Company or
American Media, Inc., as the case may be, or whose nomination for election
by the shareholders of the Company or American Media, Inc., as the case may
be, was approved by a vote of 66 2/3% of the directors of the Company or
American Media, Inc., as the case may be, then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of the Company or American
Media, Inc., as the case may be, then in office;
(d) the adoption of a plan relating to the liquidation or dissolution
of the Company or American Media, Inc.;
(e) the merger or consolidation of the Company or American Media, Inc.
with or into another Person or the merger of another Person with or into
the Company or American Media, Inc., or the sale of all or substantially
all the assets of the Company or American Media, Inc. to another Person
(other than a Person that is controlled by the Permitted Holders), and, in
the case of any such merger or consolidation, the securities of the Company
or American Media, Inc. that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of the Company or American Media, Inc. are changed into or
exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition
to any other consideration, securities of the surviving Person or
transferee that represent immediately after such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the surviving
Person or transferee; or
(f) Evercore no longer has the direct or indirect power to appoint or
to approve the appointment of a majority of the managers of (or other
individuals comprising) the board of managers or other governing body of
EMP Group L.L.C.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of exchange notes pursuant
to this covenant, then prior to the mailing of the notice to Holders provided
for in the immediately following paragraph but in any event within 30 days
following any Change of Control, the Company shall:
(a) repay in full all Bank Indebtedness or offer to repay in full all
Bank Indebtedness and repay the Bank Indebtedness of each lender who has
accepted such offer, or
(b) obtain the requisite consent under the agreements governing the
Bank Indebtedness to permit the repurchase of the exchange notes as
provided for in the immediately following paragraph.
Within 30 days following any Change of Control (unless the Company has
exercised its right to redeem the exchange notes as described under "-- Optional
Redemption"), the Company shall mail a notice to each Holder with a copy to the
Trustee (the "Change of Control Offer") stating:
(a) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's exchange notes at a
purchase price in cash equal to 101% of the
44
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase (subject to the right of Holders
of record on the relevant record date to receive interest on the relevant
interest payment date);
(b) the circumstances and relevant facts and financial information
regarding such Change of Control;
(c) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(d) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its exchange notes
purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Company and
purchases all exchange notes validly tendered and not withdrawn under such
Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of exchange notes pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness."
Such restrictions can only be waived with the consent of the Holders of a
majority in principal amount of the exchange notes then outstanding.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the exchange notes could cause
a default under such Senior Indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a repurchase may
be limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. The provisions under the indenture relative to the
Company's obligation to make an offer to repurchase the exchange notes as a
result of a Change of Control may be waived or modified with the written consent
of the Holders of a majority in principal amount of the exchange notes.
With respect to the disposition of property or assets, the phrase "all or
substantially all" as used in the indenture varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which is the choice of law under the indenture) and is
subject to judicial interpretation. Accordingly, in certain circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the property or
assets of a Person, and therefore it may be unclear as to whether a Change of
Control has occurred and whether the Company is required to make an offer to
repurchase the exchange notes as described above.
45
CERTAIN COVENANTS
The indenture will contain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Note Guarantor may Incur Indebtedness
if on the date of such Incurrence and after giving effect thereto the Leverage
Ratio would be less than 6.25:1 if Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Bank Indebtedness Incurred in an aggregate principal amount not to
exceed $400.0 million at any one time outstanding less the aggregate amount
of all mandatory prepayments, repayments, redemptions or purchases of
principal of such Indebtedness pursuant to the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock";
(ii) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary; provided, however, that (1) any
subsequent issuance or transfer of any Capital Stock or any other event
that results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or a Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof, (2)
if the Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the exchange notes, (3) if a Restricted
Subsidiary is the obligor, any such Indebtedness is made pursuant to an
intercompany note; and (4) if a Note Guarantor is the obligor, such
Indebtedness is subordinated in right of payment to the Note Guarantee of
such Note Guarantor;
(iii) Indebtedness (1) represented by the exchange notes (not
including any Additional Notes) and the Note Guarantees, the old notes and
the Guarantees of the old notes, (2) outstanding on May 7, 1999 (other than
the Indebtedness described in clauses (i) and (ii) above), and any
Indebtedness outstanding and Incurred by the Company or any Note Guarantor
after May 7, 1999 and prior to the Closing Date pursuant to Section 4.03(a)
of the 1999 notes indenture, (3) consisting of Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iii)
(including Refinancing Indebtedness) or the foregoing paragraph (a) and (4)
consisting of Guarantees by the Company or any Note Guarantor of any
Indebtedness permitted hereunder; provided that if such Indebtedness is by
its express terms subordinated in right of payment to the exchange notes or
a Note Guarantee of a Note Guarantor, as applicable, any such Guarantee
with respect to such Indebtedness shall be subordinated in right of payment
to the exchange notes or such Note Guarantor's Note Guarantee substantially
to the same extent as such Indebtedness is subordinated to the exchange
notes or the Note Guarantee, as applicable;
(iv) (1) Indebtedness incurred by a Restricted Subsidiary after May 7,
1999 and prior to Closing Date pursuant to Section 4.03(b)(iv) of the 1999
notes indenture, (2) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration
in, or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Subsidiary of or was
otherwise acquired by the Company); provided, however, that on the date
that such Restricted Subsidiary is acquired by the Company, the Company
would have been able to Incur $1.00 of additional Indebtedness pursuant to
the foregoing paragraph (a) after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (iv) and (3) Refinancing Indebtedness
Incurred by a Restricted Subsidiary in respect of Indebtedness Incurred by
such Restricted Subsidiary pursuant to this clause (iv);
(v) (1) Indebtedness Incurred by the Company or any Note Guarantor
after May 7, 1999 and prior to the Closing Date pursuant to Section
4.03(b)(v) of the 1999 notes indenture and (2) Indebtedness (including
Capitalized Lease Obligations) incurred by the Company or any Note
Guarantor, to finance the purchase, lease or improvement of property (real
or personal) or equipment (whether through the
46
direct purchase of assets or the Capital Stock of any Person owning such
assets) in an aggregate principal amount which, when aggregated with the
principal amount of all other Indebtedness then outstanding and incurred
pursuant to this clause (v) and including all Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (v) does not exceed 2% of Total Assets;
(vi) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(vii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary of
the Company in accordance with the terms of the indenture, other than
Guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary of the Company for the
purpose of financing such acquisition; provided, however, that (1) such
Indebtedness is not reflected on the balance sheet of the Company or any
Restricted Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will
not be deemed to be reflected on such balance sheet for purposes of this
clause (1)) and (2) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including the Fair
Market Value of noncash proceeds (such Fair Market Value of such noncash
proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(viii) Hedging Obligations that are incurred in the ordinary course of
business (but in any event excluding Hedging Obligations entered into for
speculative purposes); provided, however, that such Hedging Obligations do
not increase the Indebtedness of the Company outstanding at any time other
than as a result of fluctuations in interest rates or currency exchange
rates or by reason of fees, indemnities and compensation payable
thereunder;
(ix) (1) Indebtedness Incurred by the Company or a Restricted
Subsidiary after May 7, 1999 and prior to the Closing Date pursuant to
Section 4.03(b)(ix) of the 1999 notes indenture and (2) Obligations in
respect of performance and surety bonds and completion guarantees that are
incurred by the Company or any Restricted Subsidiary in the ordinary course
of business;
(x) Indebtedness arising from honoring by a bank or other financial
institution of a check, draft or similar instrument (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is
extinguished within five business days; and
(xi) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of Incurrence
that, when added to all other Indebtedness Incurred pursuant to this clause
(xi) and then outstanding, shall not exceed $25.0 million (it being
understood that any Indebtedness incurred pursuant to this clause (xi)
shall cease to be deemed to be Incurred or outstanding for purposes hereof
but shall be deemed Incurred for purposes of paragraph (a) from and after
the first date on which the Company could have incurred such Indebtedness
under paragraph (a) without reliance on this clause (xi)).
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the exchange notes to at least the same extent as such
Subordinated Obligations. The Company may not Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Senior
47
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
In addition, the Company may not Incur any Secured Indebtedness which is not
Senior Indebtedness unless contemporaneously therewith effective provision is
made to secure the exchange notes equally and ratably with (or on a senior basis
to, in the case of Indebtedness subordinated in right of payment to the exchange
notes) such Secured Indebtedness for so long as such Secured Indebtedness is
secured by a Lien. A Note Guarantor may not Incur any Indebtedness if such
Indebtedness is by its terms expressly subordinate or junior in ranking in any
respect to any Senior Indebtedness of such Note Guarantor unless such
Indebtedness is Senior Subordinated Indebtedness of such Note Guarantor or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness
of such Note Guarantor. In addition, a Note Guarantor may not Incur any Secured
Indebtedness that is not Senior Indebtedness of such Note Guarantor unless
contemporaneously therewith effective provision is made to secure the Note
Guarantee of such Note Guarantor equally and ratably with (or on a senior basis
to, in the case of Indebtedness subordinated in right of payment to such Note
Guarantee) such Secured Indebtedness for as long as such Secured Indebtedness is
secured by a Lien.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant, (i) Indebtedness Incurred pursuant to the Credit
Agreement prior to or on May 7, 1999 shall be treated as Incurred pursuant to
clause (i) of paragraph (b) above, (ii) Indebtedness permitted by this covenant
need not be permitted solely by reference to one provision permitting such
Indebtedness but may be permitted in part by one such provision and in part by
one or more other provisions of this covenant permitting such Indebtedness and
(iii) in the event that Indebtedness meets the criteria of more than one of the
types of Indebtedness described in this covenant, the Company, in its sole
discretion, shall classify such Indebtedness and only be required to include the
amount of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) or similar payment to the
direct or indirect holders of its Capital Stock except dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and except dividends or distributions payable to the Company or
another Restricted Subsidiary (and, if such Restricted Subsidiary has
shareholders other than the Company or other Restricted Subsidiaries, to
its other shareholders on a pro rata basis),
(ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of American Media, Inc., the Company or any Restricted
Subsidiary held by Persons other than the Company or another Restricted
Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations (other than
the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition and other than Indebtedness described in clause
(ii) of paragraph (b) of the covenants described under "-- Limitation on
Indebtedness") or
(iv) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein
referred to as a "Restricted Payment") if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default will have occurred and be continuing (or would result
therefrom);
48
(2) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (including, if the amount so expended is other than
in cash, the Fair Market Value of such Restricted Payments) declared or
made subsequent to May 7, 1999 would exceed the sum of, without
duplication:
(A) (i) 100% of EBITDA accrued during the period (treated as one
accounting period) from June 29, 1999 to the end of the most recent
fiscal quarter ending prior to the date of such Restricted Payment
for which financial statements are available (or, in case such EBITDA
during such period is a deficit minus 100% of such deficit), minus
(ii) 150% of Consolidated Interest Expense accrued during the period
(treated as one accounting period) from June 29, 1999 to the end of
the most recent fiscal quarter ending prior to the date of such
Restricted Payment for which financial statements are available;
(B) the aggregate Net Cash Proceeds and the Fair Market Value of
property or assets used or useful in a Permitted Business, in each
case received by the Company from capital contributions or the issue
or sale of its Capital Stock (other than Disqualified Stock)
subsequent to May 7, 1999 (other than an issuance or sale to (i) a
Subsidiary of the Company or (ii) an employee stock ownership plan or
other trust established by the Company or any of its Subsidiaries to
the extent such sale is financed by loans from or from Indebtedness
guaranteed by the Company unless such loans or Indebtedness have been
repaid with cash on or prior to the date of determination);
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to May 7, 1999 of any Indebtedness of the Company
or its Restricted Subsidiaries issued after May 7, 1999 which is
convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
the Fair Market Value of other property distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange);
(D) 100% of the aggregate amount received in cash from (i) the
sale or other disposition (other than to the Company or a Restricted
Subsidiary) of Investments (other than Permitted Investments)
("Restricted Investments") made by the Company and its Restricted
Subsidiaries after May 7, 1999 and from repurchases and redemptions
after May 7, 1999 of such Restricted Investments from the Company and
its Restricted Subsidiaries by any Person (other than the Company or
any of its Subsidiaries or Affiliates) and from repayments of loans
or advances after May 7, 1999 which constituted Restricted
Investments or (ii) the sale (other than to the Company or a
Subsidiary or an Affiliate) after May 7, 1999 of the Capital Stock of
an Unrestricted Subsidiary, in an amount not to exceed, in the case
of any Unrestricted Subsidiary, the amount of Investments previously
made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the
amount of Restricted Payments; provided, however, that no amount will
be included in this clause (D) to the extent it is already included
in Consolidated Net Income; and
(E) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries since May 7, 1999 resulting from (i)
payments of dividends, repayments of the principal of loans or
advances or other transfers of assets to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investment")
not to exceed, in the case of any Unrestricted Subsidiary, the amount
of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included
in the calculation of the amount of Restricted Payments; provided,
however, that no
49
amount will be included in this clause (E) to the extent it is
already included in Consolidated Net Income.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase, repurchase, retirement or other acquisition or
retirement for value of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of the
Company or an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries to the extent such sale is financed
by loans from or from Indebtedness guaranteed by the Company unless such
loans or Indebtedness have been repaid with cash on or prior to the date of
determination); provided, however, that
(1) such Restricted Payment will be excluded in subsequent
calculations of the amount of Restricted Payments and
(2) the Net Cash Proceeds from such sale applied in the manner set
forth in this clause (i) will be excluded from the calculation of
amounts under clause (iv)(3)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company that is permitted to be
Incurred pursuant to the covenant described under "-- Limitation on
Indebtedness"; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value will be
excluded in subsequent calculations of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock"; provided, however,
that such purchase or redemption will be excluded in subsequent
calculations of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend will be included
in subsequent calculations of the amount of Restricted Payments;
(v) the repurchase or other acquisition of shares of, or options to
purchase shares of, Capital Stock of the Company or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to
the terms of agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; provided, however, that the aggregate amount
of such repurchases or acquisitions in any fiscal year of the Company after
May 7, 1999 shall not exceed, together with the aggregate amount of all
payments made under clause (vi)(3) of this paragraph (b) below in such
fiscal year, in the aggregate $5.0 million, up to a maximum aggregate
amount, together with the aggregate amount of all payments made under
clause (vi)(3) of this paragraph (b) below, of $10.0 million during the
period from and after May 7, 1999; provided further, however, that such
repurchases and other acquisitions shall be included in subsequent
calculations of the amount of Restricted Payments;
(vi) the payment of dividends, other distributions or other amounts by
the Company for the purposes set forth in clauses (1) through (4) below;
provided, however, that such dividend, distribution or amount set forth in
clauses (1) through (4) shall be included in subsequent calculations of the
amount of Restricted Payments for the purposes of paragraph (a) above:
(1) to American Media, Inc. in amounts equal to the amounts
required for American Media, Inc. to pay franchise taxes and other fees
required to maintain its corporate existence and provide for other
operating costs of up to $2.0 million per fiscal year;
50
(2) to American Media, Inc. in amounts equal to amounts required
for American Media, Inc. to pay Federal, state and local income taxes to
the extent such income taxes are attributable to the income of the
Company and its Restricted Subsidiaries (and, to the extent of amounts
actually received from its Unrestricted Subsidiaries, in amounts
required to pay such taxes to the extent attributable to the income of
such Unrestricted Subsidiaries);
(3) to American Media, Inc. in amounts equal to amounts expended by
American Media, Inc. to repurchase Capital Stock of American Media, Inc.
owned by former employees of the Company or its Subsidiaries or their
assigns, estates and heirs; provided, however, that the aggregate amount
paid, loaned or advanced to American Media, Inc. pursuant to this clause
(3) in any fiscal year of the Company after May 7, 1999 shall not
exceed, together with the aggregate amount of all payments made under
clause (v) of this paragraph (b) above during such fiscal year, in the
aggregate, $5.0 million, up to a maximum aggregate amount, together with
the aggregate amount of all payments made under clause (v) of this
paragraph (b) above, of $10.0 million during the period from and after
May 7, 1999, plus any amounts contributed by American Media, Inc. to the
Company as a result of resales of such repurchased shares of Capital
Stock; and
(4) to American Media, Inc. in amounts required to pay the annual
monitoring fee to Evercore; provided, however, that the aggregate amount
paid, loaned or delivered to American Media, Inc. pursuant to this
clause (4) shall not, in the aggregate, exceed $750,000 per fiscal year;
(vii) the payment of dividends on the Company's common stock (or the
payment of dividends to American Media, Inc. to fund the payment by
American Media, Inc. of dividends on American Media, Inc.'s common stock)
following the first public offering of common stock of the Company or
American Media, Inc., as the case may be, after May 7, 1999, of up to 6%
per annum of the net proceeds received by the Company or contributed to the
Company by American Media, Inc. from such public offering; provided,
however, that (1) the aggregate amount of all such dividends shall not
exceed the aggregate amount of net proceeds received by the Company or
contributed to the Company by American Media, Inc. from such public
offering, (2) at the time of, and after giving effect to, any payment
permitted under this clause (vii), no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence thereof and
(3) any such payment shall be included in subsequent calculations of the
amount of Restricted Payments;
(viii) the declaration and payment of dividends or distributions to
holders of any class or series of Disqualified Stock of the Company or any
of its Restricted Subsidiaries issued or Incurred in accordance with the
covenant described under "-- Limitation on Indebtedness"; provided,
however, that such payments shall be excluded in subsequent calculations of
the amount of Restricted Payments; or
(ix) other Restricted Payments in an aggregate amount not to exceed
$20.0 million; provided, however, that at the time of, and after giving
effect to, any payment permitted under this clause (ix), no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof; and provided further that any such payment shall be
included in subsequent calculations of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(a) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligations owed to the Company or any of
its Restricted Subsidiaries,
(b) make any loans or advances to the Company or any of the Restricted
Subsidiaries or
(c) transfer any of its property or assets to the Company or any of
its Restricted Subsidiaries, except:
(i) any encumbrance or restriction pursuant to applicable law or an
agreement in effect at or entered into on May 7, 1999;
51
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, in contemplation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
otherwise acquired by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (i) or (ii) of this covenant or this
clause (iii) or contained in any amendment to an agreement referred to
in clause (i) or (ii) of this covenant or this clause (iii); provided,
however, that the encumbrances and restrictions contained in any such
Refinancing agreement or amendment are no less favorable, in the
aggregate, to the Holders than the encumbrances and restrictions
contained in such predecessor agreements;
(iv) in the case of clause (c), any encumbrance or restriction
(1) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or
(2) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security
agreements;
(v) with respect to a Restricted Subsidiary, any restriction
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition; and
(vi) in the case of clause (c), any encumbrance or restriction
pursuant to any agreement relating to Purchase Money Indebtedness that
is Incurred subsequent to the Closing Date in compliance with the
covenant described under "-- Limitation on Indebtedness" or (B) after
May 7, 1999 and on or prior to the Closing Date, in compliance with
Section 4.03 of the 1999 notes indenture.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless:
(i) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the Fair Market Value of the
shares and assets subject to such Asset Disposition,
(ii) at least 80% of the consideration thereof received by the Company
or such Restricted Subsidiary is in the form of cash or Temporary Cash
Investments; provided that the amount of (1) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or
in the notes thereto) of the Company or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the exchange
notes), that are assumed by the transferee of any such assets (provided
that the Company or such Restricted Subsidiary is released from all
liability with respect thereto), (2) any securities received by the Company
or such Restricted Subsidiary from such transferee that are converted by
the Company or such Restricted Subsidiary into cash (to the extent of the
cash received) within 90 days following the closing of such Asset
Disposition and (3) any Designated Noncash Consideration received by the
Company or any of its Restricted Subsidiaries in such Asset Disposition
having an aggregate Fair Market Value, taken together with all other
Designated Noncash Consideration received pursuant to this clause (3) or
after May 7, 1999 and prior to the Closing Date, pursuant to Section
4.06(a) of the 1999 notes indenture that is at that time outstanding, not
to exceed the greater of (A) $25.0 million or (B) 3% of Total Assets at
time of receipt of such Designated Noncash Consideration (with the Fair
Market Value of each item of Designated Noncash Consideration being
52
measured at the time received and without giving effect to subsequent
changes in value), shall be deemed to be cash for purposes of this
provision and for no other purpose; and
(iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted Subsidiary,
as the case may be)
(1) first, (A) to the extent the Company elects (or is required by
the terms of any Indebtedness), to prepay, repay, redeem or purchase
Senior Indebtedness of the Company or Indebtedness (other than any
Disqualified Stock) of a Restricted Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company and
other than Preferred Stock) or (B) to the extent the Company or such
Restricted Subsidiary elects, to acquire Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary
with Net Available Cash received by the Company or another Restricted
Subsidiary), in each case within one year from the later of such Asset
Disposition or the receipt of such Net Available Cash;
(2) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (1), to make an Offer (as
defined below) to purchase notes pursuant to and subject to the
conditions set forth in section (b) of this covenant; provided, however,
that if the Company elects (or is required by the terms of any other
Senior Subordinated Indebtedness), such Offer may be made ratably to
purchase the exchange notes and other Senior Subordinated Indebtedness
of the Company; and
(3) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (1) and (2), for any
general corporate purpose permitted pursuant to the terms of the
indenture;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (1)(A) or (2) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $5.0 million; provided that such amount shall be
decreased by the aggregate Net Available Cash from all Asset Dispositions made
after May 7, 1999 and prior to the Closing Date not applied at any time in
accordance with Section 4.06(a) of the 1999 notes indenture.
(b) In the event of an Asset Disposition that requires the purchase of
exchange notes (and other Senior Subordinated Indebtedness) pursuant to clause
(a)(iii)(2) of this covenant, the Company will be required to purchase exchange
notes (and other Senior Subordinated Indebtedness) tendered pursuant to an offer
by the Company for the exchange notes (and other Senior Subordinated
Indebtedness) (the "Offer") at a purchase price of 100% of their principal
amount plus accrued and unpaid interest and liquidated damages, if any, to the
date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date) in
accordance with the procedures (including prorating in the event of
oversubscription), set forth in the indenture. If the aggregate purchase price
of exchange notes (and other Senior Subordinated Indebtedness) tendered pursuant
to the Offer is less than the Net Available Cash allotted to the purchase of the
exchange notes (and other Senior Subordinated Indebtedness), the Company may
apply the remaining Net Available Cash for any general corporate purpose
permitted pursuant to the terms of the indenture. The Company will not be
required to make an Offer for exchange notes (and other Senior Subordinated
Indebtedness) pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (a)(iii)(1))
is less than $10.0 million for any particular Asset Disposition (which lesser
amount will be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of exchange
53
notes pursuant to this covenant. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this covenant by virtue
thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
such Affiliate Transaction is on terms:
(i) that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the
time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate,
(ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $2.0 million,
(1) are set forth in writing and
(2) have been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction and
(iii) that, in the event such Affiliate Transaction involves an amount
in excess of $10.0 million, have been determined in writing by a nationally
recognized appraisal or investment banking firm to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries or not
materially less favorable than those that might reasonably have been
obtained in an arm's-length transaction.
(b) The provisions of the foregoing paragraph (a) will not prohibit
(i) any Restricted Payment permitted to be paid pursuant to the
covenant described under "-- Limitation on Restricted Payments,"
(ii) any issuance of securities, or other payments, awards or grants
in cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors,
(iii) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the Board of
Directors,
(iv) loans or advances to employees of the Company or any of its
Restricted Subsidiaries in the ordinary course of business not in excess of
$5.0 million in the aggregate outstanding at any one time,
(v) the payment of reasonable fees to directors of the Company and its
Subsidiaries who are not employees of the Company or its Subsidiaries, or
(vi) any transaction between the Company and a Restricted Subsidiary
or between Restricted Subsidiaries.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except:
(a) to the Company or a Restricted Subsidiary; or
(b) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would continue to be a Restricted Subsidiary or if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer be a Restricted Subsidiary and the Investment of
the Company in such Person after giving effect to such issuance or sale
would have been permitted to be made under the covenant described under
"-- Limitation on Restricted Payments" as if made on the date of such
issuance or sale (and such Investment shall be deemed to be an Investment
made for the purposes of such covenant). The proceeds of any sale of such
Capital Stock permitted hereby will be treated as Net
54
Available Cash from an Asset Disposition and must be applied in accordance
with the terms of the covenant described under "-- Limitation of Sales of
Assets and Subsidiary Stock."
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than a Permitted
Business.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the SEC and provide the Trustee and Holders and prospective
Holders (upon request) within 15 days after it files them with the SEC, copies
of its annual report and the information, documents and other reports that are
specified in Sections 13 and 15(d) of the Exchange Act; provided, however, the
Company shall not be so obligated to file such reports with the SEC if the SEC
does not permit such filing, in which event the Company will make available such
information to the Trustee, Holders and prospective Holders (upon request)
within 15 days after the time the Company would be required to file such
information with the SEC if it were subject to Section 13 or 15(d) of the
Exchange Act. Notwithstanding the foregoing, such requirements shall be deemed
satisfied prior to the commencement of the Exchange Offer (as defined) or the
effectiveness of the Shelf Registration Statement (as defined) by the filing
with the SEC of the Exchange Offer Registration Statement (as defined) and/or
Shelf Registration Statement, and any amendments thereto, with such financial
information that satisfies Regulation S-X of the Securities Act. The Company
also will comply with the other provisions of Section 314(a) of the TIA.
Future Note Guarantors. The Company will cause each domestic Restricted
Subsidiary organized or acquired after the date hereof to become a Note
Guarantor, and execute and deliver to the Trustee a supplemental indenture in
the form set forth in the indenture pursuant to which such Restricted Subsidiary
will Guarantee payment of the exchange notes. Each Note Guarantee will be
limited to an amount not to exceed the maximum amount that can be Guaranteed by
that Restricted Subsidiary without rendering the Note Guarantee, as it relates
to such Restricted Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
MERGER AND CONSOLIDATION
(a) The indenture will provide that the Company will not consolidate with
or merge with or into, or convey, transfer or lease all or substantially all its
assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the laws of
the United States, any State thereof or the District of Columbia and the
Successor Company (if not the Company) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
exchange notes and the indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness under paragraph (a) of the covenant described under
"-- Certain Covenants -- Limitation on Indebtedness"; and
(iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any)comply with the indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay the
principal of and interest on the exchange notes.
55
(b) In addition, the Company will not permit any Note Guarantor to
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, any Person unless:
(i) the resulting, surviving or transferee Person will be a
corporation organized and existing under the laws of the United States, any
State thereof or the District of Columbia, and such Person (if not such
Note Guarantor) will expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the obligations of such Note Guarantor under its Note Guarantee;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been Incurred
by such Person at the time of such transaction), no Default shall have
occurred and be continuing; and
(iii) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the indenture;
(iv) provided, however, that the foregoing shall not apply to any such
consolidation or merger with or into, or conveyance, transfer or lease to,
any Person if the resulting, surviving or transferee Person will not be a
Subsidiary of the Company and the other terms of the indenture, including
the covenant described under "--Limitations on Sales of Assets and
Subsidiary Stock," are complied with.
(c) Notwithstanding the foregoing:
(i) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company and
(ii) the Company may merge with an Affiliate incorporated solely for
the purpose of reincorporating the Company in another jurisdiction to
realize tax or other benefits.
DEFAULTS
Each of the following is an Event of Default:
(a) a default in any payment of interest on any note when due and
payable, whether or not prohibited by the provisions described under
"-- Ranking" above, continued for 30 days,
(b) a default in the payment of principal of any note when due and
payable at its Stated Maturity, upon required redemption or repurchase,
upon declaration or otherwise, whether or not such payment is prohibited by
the provisions described under "-- Ranking" above,
(c) the failure by the Company to comply with its obligations under
the covenant described under "-- Merger and Consolidation" above,
(d) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under "-- Change of
Control" or "-- Certain Covenants" above (in each case, other than a
failure to purchase exchange notes),
(e) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the exchange notes or the indenture,
(f) the failure by the Company or any Restricted Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million or its foreign currency equivalent (the "cross
acceleration provision") and such failure continues for 10 days after
receipt of the notice specified in the indenture,
(g) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"),
56
(h) the rendering of any judgment or decree for the payment of money
in excess of $10.0 million (net of any amounts with respect to which a
reputable and creditworthy insurance company has acknowledged liability in
writing) or its foreign currency equivalent against the Company or a
Restricted Subsidiary if:
(i) an enforcement proceeding thereon is commenced by any creditor,
or
(ii) such judgment or decree remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed
(the "judgment default provision") or
(iii) any Note Guarantee ceases to be in full force and effect
(except as contemplated by the terms thereof) or any Note Guarantor or
Person acting by or on behalf of such Note Guarantor denies or
disaffirms such Note Guarantor's obligations under the indenture or any
Note Guarantee and such Default continues for 10 days after receipt of
the notice specified in the indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (d), (e), (f) or (j) will not constitute
an Event of Default until the Trustee notifies the Company or the Holders of at
least 25% in principal amount of the exchange notes notify the Company of the
default and the Company or the Note Guarantor, as applicable, does not cure such
default within the time specified after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the exchange notes by notice to the Company and the Trustee may declare the
principal of and accrued but unpaid interest on all the exchange notes to be due
and payable. Upon such a declaration, such principal and interest will be due
and payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal of
and interest on all the exchange notes will become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holders.
Under certain circumstances, the Holders of a majority in principal amount of
the exchange notes may rescind any such acceleration with respect to the
exchange notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the indenture or the exchange notes unless:
(a) such Holder has previously given the Trustee notice that an Event
of Default is continuing,
(b) Holders of at least 25% in principal amount of the exchange notes
have requested the Trustee in writing to pursue the remedy,
(c) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense,
(d) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity,
and
(e) the Holders of a majority in principal amount of the exchange
notes have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the exchange notes will be given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to
57
follow any direction that conflicts with law or the indenture or that the
Trustee determines is unduly prejudicial to the rights of any other Holder or
that would involve the Trustee in personal liability. Prior to taking any action
under the indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The indenture will provide that if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each Holder notice of the
Default within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if any)
or interest on any Note (including payments pursuant to the redemption
provisions of such Note), the Trustee may withhold notice if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interests of the Holders. In addition, the Company will be required to
deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company will also be required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which with the giving of notice or the lapse of time would become an
Event of Default, their status and what action the Company is taking or proposes
to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture or the exchange notes may be
amended with the written consent of the Holders of a majority in principal
amount of the exchange notes then outstanding and any past default or compliance
with any provisions may be waived with the consent of the Holders of a majority
in principal amount of the exchange notes then outstanding. However, without the
consent of each Holder of a note affected, no amendment may, among other things:
(a) reduce the amount of exchange notes whose Holders must consent to
an amendment,
(b) reduce the rate of or extend the time for payment of interest or
any liquidated damages on any note,
(c) reduce the principal of or extend the Stated Maturity of any note,
(d) reduce the premium payable upon the redemption of any note or
change the time at which any Note may be redeemed as described under
"-- Optional Redemption" above,
(e) make any note payable in money other than that stated in the Note,
(f) make any change to the subordination provisions of the indenture
that adversely affects the rights of any Holder,
(g) impair the right of any Holder to receive payment of principal of,
and interest or any liquidated damages on, such Holder's exchange notes on
or after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such Holder's exchange notes,
(h) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions or
(i) modify the Note Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Company and the Trustee may amend
the indenture to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor corporation of the obligations
of the Company under the indenture,
- provide for uncertificated exchange notes in addition to or in place of
certificated exchange notes (provided that the uncertificated exchange
notes are issued in registered form for purposes of
58
Section 163(f) of the Code, or in a manner such that the uncertificated
exchange notes are described in Section 163(f)(2)(B) of the Code),
- make any change in the subordination provisions of the indenture that
would limit or terminate the benefits available to any holder of Senior
Indebtedness of the Company (or any representative thereof) under such
subordination provisions, or to add additional Note Guarantees with
respect to the exchange notes,
- secure the exchange notes,
- add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company,
- make any change that does not adversely affect the rights of any Holder,
subject to the provisions of the indenture,
- provide for the issuance of the exchange notes, Additional Notes or
Private Exchange Notes (as defined in the exchange and registration
rights agreement) or
- comply with any requirement of the SEC in connection with the
qualification of the indenture under the TIA.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company then outstanding unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent to
such change.
The consent of the Holders will not be necessary under the indenture to
approve the particular form of any proposed amendment. It will be sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, the Company will
be required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect therein,
will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange notes in accordance with the
indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes
required by law or permitted by the indenture. The Company will not be required
to transfer or exchange any exchange note selected for redemption or to transfer
or exchange any exchange note for a period of 15 days prior to a selection of
exchange notes to be redeemed. The exchange notes will be issued in registered
form and the registered Holder will be treated as the owner of such exchange
note for all purposes.
DEFEASANCE
The Company may at any time terminate all its obligations under the
exchange notes and the indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the exchange notes, to replace mutilated,
destroyed, lost or stolen exchange notes and to maintain a registrar and paying
agent in respect of the exchange notes. In addition, the indenture will provide
that the Company at any time may terminate:
(a) its obligations under the covenants described under "-- Certain
Covenants," and
(b) the operation of the cross-acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment
default provision described under "-- Defaults" above and the limitations
contained in clause (iii) under paragraph (a) of "-- Merger and
Consolidation" above ("covenant defeasance").
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In the event that the Company exercises its legal defeasance option or its
covenant defeasance option, each Note Guarantor will be released from all of its
obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the exchange notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the exchange notes may not be
accelerated because of an Event of Default specified in clause (d), (f) or (g)
(with respect only to Significant Subsidiaries), (h) (with respect only to
Significant Subsidiaries) under "-- Defaults" above or because of the failure of
the Company to comply with clause (iii) under paragraph (a) of "-- Merger and
Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money in an amount
sufficient or U.S. Government Obligations, the principal of, and interest on
which, will be sufficient, or a combination thereof sufficient, to pay the
principal, premium (if any) and interest on the exchange notes when due at
redemption or maturity, as the case may be, including interest thereon to
maturity or such redemption date, and must comply with certain other conditions,
including delivery to the Trustee of an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for Federal income tax purposes
as a result of such deposit and defeasance and will be subject to Federal income
tax on the same amounts and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in the
case of legal defeasance only, such Opinion of Counsel must be based on a ruling
of the Internal Revenue Service or other change in applicable Federal income tax
law).
CONCERNING THE TRUSTEE
JPMorgan Chase Bank is the Trustee under the indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
exchange notes.
GOVERNING LAW
The indenture will provide that it and the exchange notes will be governed
by, and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means:
(a) any property or assets (other than Indebtedness and Capital Stock)
to be used by the Company or a Restricted Subsidiary in a Permitted
Business;
(b) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(c) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (b) or (c) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates" and "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or American Media,
Inc. or of rights or warrants to
60
purchase such Voting Stock (whether or not currently exercisable) and any Person
who would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(a) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary),
(b) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or
(c) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary;
other than, in the case of (a), (b) and (c) above:
(i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Note Guarantor,
(ii) any sale of Capital Stock in, or Indebtedness or other securities
of, an Unrestricted Subsidiary,
(iii) transactions permitted under paragraph (a) under "-- Certain
Covenants -- Merger and Consolidation,"
(iv) an issuance of Capital Stock by a Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary,
(v) for purposes of the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments,"
(vi) any Permitted Asset Swap and
(vii) any disposition of assets with a Fair Market Value of not more
than $500,000.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the exchange notes, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(a) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or scheduled redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment,
by
(b) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors of
the Company.
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"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means the date of the indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its Restricted Subsidiaries in such
period but not included in such interest expense:
(a) interest expense attributable to Capitalized Lease Obligations and
the interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction,
(b) amortization of debt discount and debt issuance costs,
(c) capitalized interest,
(d) noncash interest expense,
(e) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing,
(f) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by the Company or any Restricted
Subsidiary,
(g) net costs associated with Hedging Obligations,
(h) dividends in respect of all Disqualified Stock of the Company and
all Preferred Stock of any of the Restricted Subsidiaries of the Company,
to the extent held by Persons other than the Company or a Wholly Owned
Subsidiary,
(i) interest Incurred in connection with investments in discontinued
operations and
(j) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
Notwithstanding anything to the contrary contained herein, commissions,
discounts, yield and other fees and charges Incurred in connection with any
transaction pursuant to which the Company or any Subsidiary of the Company may
sell, convey or otherwise transfer or grant a security interest in any accounts
receivable or related assets shall be included in Consolidated Interest Expense.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries for such period; provided, however,
that there shall not be included in such Consolidated Net Income:
(a) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that
(i) subject to the limitations contained in clause (d) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to
62
the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution made to a Restricted Subsidiary, to the limitations
contained in clause (c) below) and
(ii) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income to
the extent such loss has been funded with cash from the Company or a
Restricted Subsidiary;
(b) any net income (or loss) of any person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(c) any net income (or loss) of any Restricted Subsidiary (other than
any Note Guarantor) if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that
(i) subject to the limitations contained in clause (d) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution made to another Restricted Subsidiary,
to the limitation contained in this clause) and
(ii) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(d) any gain (loss) realized upon the sale or other disposition of any
asset of the Company or its Consolidated Subsidiaries (including pursuant
to any Sale/Leaseback Transaction) that is not sold or otherwise disposed
of in the ordinary course of business and any gain (loss) realized upon the
sale or other disposition of any Capital Stock of any Person;
(e) any extraordinary gain or loss; and
(f) the cumulative effect of a change in accounting principles.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of May 7, 1999, as
amended and restated as of November 1, 1999, as further amended as of February
12, 2002, and as amended restated, supplemented, waived, replaced (whether or
not upon termination), restructured, repaid, refunded, refinanced or otherwise
modified from time to time including any agreement extending the maturity
thereof or otherwise restructuring all or any portion of the Indebtedness under
such agreement or increasing the amount loaned thereunder or altering the
maturity thereof, initially among American Media, Inc., the Company, the lenders
thereunder and The Chase Manhattan Bank, as administrative agent for such
lenders.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the Fair Market Value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
63
such valuation, less the amount of Temporary Cash Investments received in
connection with a subsequent sale of such Designated Noncash Consideration.
"Designated Senior Indebtedness" of the Company means:
(a) the Bank Indebtedness and
(b) any other Senior Indebtedness of the Company that, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to at least $10.0 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the indenture.
"Designated Senior Indebtedness" of a Note Guarantor has a correlative
meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event:
(a) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(b) is convertible or exchangeable for Indebtedness or Disqualified
Stock (excluding Capital Stock convertible or exchangeable solely at the
option of the Company or a Restricted Subsidiary; provided that any such
conversion or exchange shall be deemed an Incurrence of Indebtedness or an
issuance of Disqualified Stock, as applicable) or
(c) is redeemable at the option of the holder thereof, in whole or in
part,
in each case on or prior to 91 days after the Stated Maturity of the exchange
notes, provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to 91 days
after the Stated Maturity of the exchange notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions of the covenants described under "-- Change of
Control" and "-- Certain Covenants -- Limitation on Sale of Assets and
Subsidiary Stock"; provided, however, that only the portion of Capital Stock
which so matures or is mandatorily redeemable, is so convertible or exchangeable
or is so redeemable at the option of the holder thereof prior to such date shall
be deemed to be Disqualified Stock; provided further, however, that if such
Capital Stock is issued to any employee or to any plan for the benefit of
employees of the Company or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Stock solely
because it may be required to be repurchased by the Company in order to satisfy
applicable statutory or regulatory obligations or as a result of such employee's
termination, death or disability.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus, without duplication, the following to the extent deducted in calculating
such Consolidated Net Income:
(a) Consolidated income tax expense,
(b) Consolidated Interest Expense,
(c) Consolidated depreciation expense,
(d) Consolidated amortization expense (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior period),
(e) any nonrecurring expenses or charges related to any Equity
Offering, Permitted Investment, acquisition or Indebtedness permitted to be
incurred by the indenture (whether or not successful) (including fees,
expenses or charges related to the Transactions (as defined in the 1999
notes indenture), including the Make-Whole Payments), in each case deducted
in such period in computing Consolidated Net Income,
64
(f) the amount of any annual monitoring fees paid to Evercore in an
amount not to exceed $750,000 during any fiscal year,
(g) any severance expenses related to the Transactions (as defined in
the 1999 notes indenture) or make-whole or similar payments or any
corporate relocation expenses arising from the relocation of the Company or
such Restricted Subsidiary from any of the facilities in which they are
located on May 7, 1999, in each case Incurred or made within eighteen
months after May 7, 1999 in an amount, taken together with all other
amounts under this clause (g), not to exceed $3.0 million in the aggregate,
and
(h) any other noncash charges reducing Consolidated Net Income for
such period (excluding any such charge which consists of or requires an
accrual of, or cash reserve for, any anticipated cash charges for any prior
or in any future period).
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of the Company shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income; provided, however, that with respect to any Restricted Subsidiary
other than a Note Guarantor, such amount shall be added to Consolidated Net
Income to compute EBITDA only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Equity Offering" means any public or private sale of common stock or
Preferred Stock of the Company or American Media, Inc. (other than Disqualified
Stock), other than public offerings with respect to the Company's or American
Media Inc.'s common stock registered on Form S-8 or other issuances upon
exercise of options by employees of the Company or any of its Restricted
Subsidiaries.
"Evercore" means Evercore Capital Partners L.P., a Delaware limited
partnership, and its Affiliates.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. For purposes of clause
(iv)(3)(B) under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments," the definition of "Permitted
Asset Swap" and calculating the Fair Market Value of Designated Noncash
Consideration, the Fair Market Value of property or assets other than cash which
involves (a) an aggregate amount in excess of $2.0 million, shall be set forth
in a resolution approved by at least a majority of the Board of Directors and
(b) an aggregate amount in excess of $10.0 million, shall have been determined
in writing by a nationally recognized appraisal or investment banking firm. For
all other purposes of the indenture, Fair Market Value will be determined in
good faith by the Board of Directors, whose determination will be conclusive and
evidenced by a resolution of the Board of Directors.
"GAAP" means generally accepted accounting principles in the United States
as in effect as of May 7, 1999, including those set forth in:
(a) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(b) statements and pronouncements of the Financial Accounting
Standards Board,
(c) such other statements by such other entities as approved by a
significant segment of the accounting profession and
(d) unless otherwise indicated, all ratios and computations based on
GAAP contained in the indenture shall be computed in conformity with GAAP.
65
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take- or-
pay, or to maintain financial statement conditions or otherwise) or
(b) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means the Person in whose name an exchange note is registered on
the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(a) the principal of and premium (if any) in respect of indebtedness
of such Person for borrowed money;
(b) the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, exchange notes or other similar
instruments;
(c) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto);
(d) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion
of such services;
(e) all Capitalized Lease Obligations and all Attributable Debt of
such Person;
(f) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(g) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of
(i) the Fair Market Value of such asset at such date of
determination and
(ii) the amount of such Indebtedness of such other Persons;
(h) to the extent not otherwise included in this definition, Hedging
Obligations of such Person;
(i) to the extent not otherwise included, the amount then outstanding
(i.e., advanced, and received by, and available for use by, such Person)
under any receivables financing (as set forth in the books and
66
records of such Person and confirmed by the agent, trustee or other
representative of the institution or group providing such receivables
financing); and
(j) all obligations of the type referred to in clauses (a) through (i)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at
such date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person; provided that (a) Hedging Obligations
entered into in the ordinary course of business and in compliance with the
indenture, (b) endorsements of negotiable instruments and documents in the
ordinary course of business and (c) an acquisition of assets, Capital Stock or
other securities by the Company for consideration consisting exclusively of
Capital Stock (other than Disqualified Stock) of the Company shall not be deemed
to be an Investment. For purposes of the definition of "Unrestricted Subsidiary"
and the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments":
(a) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary in an amount (if positive) equal to
(i) the Company's "Investment" in such Subsidiary at the time of
such redesignation less
(ii) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation; and
(b) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its Fair Market Value at the time of such transfer.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in New York State are not required by law or regulation to be open.
"Leverage Ratio" as of any date of determination means the ratio of:
(a) Total Consolidated Indebtedness as of the date of determination to
(b) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at the end of the most recent
fiscal quarter for which financial statements are available,
provided, however, that
(i) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Leverage Ratio is an Incurrence of Indebtedness, EBITDA and,
for the purpose of calculating EBITDA, Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma basis to
such Indebtedness as if such Indebtedness had been Incurred on the first
67
day of such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such
period,
(ii) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the Leverage
Ratio, EBITDA and, for the purpose of calculating EBITDA, Consolidated
Interest Expense for such period shall be calculated on a pro forma basis
as if such discharge had occurred on the first day of such period and as if
the Company or such Restricted Subsidiary has not earned the interest
income actually earned during such period in respect of cash or Temporary
Cash Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness,
(iii) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, EBITDA for
such period shall be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to EBITDA (if
negative) directly attributable thereto for such period and, for the
purpose of calculating EBITDA, Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale),
(iv) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially
all of an operating unit of a business, EBITDA and, for the purpose of
calculating EBITDA, Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence
of any Indebtedness) as if such Investment or acquisition occurred on the
first day of such period, and
(v) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition or any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (iii) or
(iv) above if made by the Company or a Restricted Subsidiary during such
period, EBITDA and, for the purpose of calculating EBITDA, Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition of
assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
Any such pro forma calculations may include operating expense reductions for
such period resulting from the acquisition which is being given pro forma effect
that (a) would be permitted pursuant to Article XI of Regulation S-X under the
Securities Act or (b) have been realized or for which the steps necessary for
realization have been taken or are reasonably expected to be taken within six
months following any such acquisition, including, but not limited to, the
execution or termination of any contracts, the termination of any personnel or
the closing (or approval by the Board of Directors of any closing) of any
facility, as applicable, provided that, in either case, such adjustments
68
are set forth in an Officers' Certificate signed by the Company's chief
financial officer and another Officer which states (i) the amount of such
adjustment or adjustments, (ii) that such adjustment or adjustments are based on
the reasonable good faith beliefs of the officers executing such Officers'
Certificate at the time of such execution and (iii) that any related Incurrence
of Indebtedness is permitted pursuant to the indenture. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term as at the date
of determination in excess of twelve months).
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Make-Whole Payments" means payments in the aggregate of approximately $4.0
million that David J. Pecker, under his employment agreement with EMP, as in
effect on May 7, 1999 (which agreement was assumed by Holdings in the Merger (as
defined in the Offering Memorandum dated April 30, 1999 relating to the issuance
of the 1999 notes)), is entitled to in connection with the compensation he
forfeited upon termination of his employment with Hachette, a portion of which
became payable upon Mr. Pecker's termination of employment on March 31, 1999 and
the remaining portion of which shall be payable on April 15, 2000.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of:
(a) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition,
(b) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out of
the proceeds from such Asset Disposition,
(c) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and
(d) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"1999 notes" means the $250,000,000 aggregate principal amount of the
Company's 10 1/4% Senior Subordinated Notes due 2009 issued under the 1999
notes indenture.
"1999 notes indenture" means the indenture dated as of May 7, 1999, among
the Company, the guarantors party thereto and JPMorgan Chase Bank (formerly
known as The Chase Manhattan Bank), as trustee.
"Note Guarantee" means each Guarantee of the obligations with respect to
the exchange notes issued by any Person pursuant to the terms of the indenture.
Each such Note Guarantee will have subordination
69
provisions equivalent to those contained in the indenture and will be
substantially in the form prescribed in the indenture.
"Note Guarantor" means any Person that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company. An "Officer" of a Note Guarantor has a correlative
meeting.
"Officers' Certificate" means a certificate signed by two Officers.
"old notes" means the 1999 notes and the 2002 notes, collectively.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or a Note Guarantor, as applicable, or the Trustee.
"Permitted Asset Swap" means any one or more transactions in which the
Company or any Restricted Subsidiary exchanges assets (other than the trademarks
or other assets related to National Enquirer or Star) for consideration
consisting of (a) assets used or useful in a Permitted Business and (b) any cash
or Temporary Cash Investments (provided that such cash or Temporary Cash
Investments will be considered Net Available Cash from an Asset Disposition);
provided, however, that the Fair Market Value of the assets received by the
Company or such Restricted Subsidiary in such exchange, together with the amount
of any cash or Temporary Cash Investments also received in such exchange, shall
be at least equal to the Fair Market Value of the assets exchanged by the
Company or such Restricted Subsidiary.
"Permitted Business" means any business engaged in by the Company or any
Restricted Subsidiary on May 7, 1999 and any Related Business.
"Permitted Holders" means EMP Group L.L.C. and any Person acting in the
capacity of an underwriter in connection with a public or private offering of
the Company's or American Media Inc.'s Capital Stock.
"Permitted Investment" means
(a) an Investment by the Company or any Restricted Subsidiary in the
Company, a Restricted Subsidiary or a Person that will, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Restricted Subsidiary is a Permitted Business;
(b) an Investment by the Company or any Restricted Subsidiary in
another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Permitted
Business;
(c) an Investment by the Company or any Restricted Subsidiary in
Temporary Cash Investments;
(d) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(e) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(f) loans or advances to employees of the Company or such Restricted
Subsidiary made in the ordinary course of business not exceeding $5 million
in the aggregate outstanding at any time;
(g) an Investment by the Company or any Restricted Subsidiary in
stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments;
70
(h) an Investment by the Company or any Restricted Subsidiary in any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition that was made pursuant to
and in compliance with the covenant described under "-- Certain Covenants
-- Limitation on Sales of Assets and Subsidiary Stock";
(i) any Investment existing on May 7, 1999;
(j) guarantees (including Guarantees) of Indebtedness permitted under
the indenture; and
(k) without duplication, any Investment in any Person, the amount of
which, together with all other Investments in other Persons made pursuant
to this clause (k) and clause (k) of the definition of "Permitted
Investments" in the 1999 notes indenture, does not exceed $25.0 million in
the aggregate at any time outstanding.
"Permitted Junior Securities" shall mean debt or equity securities of the
Company or any successor corporation issued pursuant to a plan of reorganization
or readjustment of the Company that are subordinated to the payment of all
then-outstanding Senior Indebtedness of the Company at least to the same extent
that the exchange notes are subordinated to the payment of all Senior
Indebtedness of the Company on the Closing Date, so long as to the extent that
any Senior Indebtedness of the Company outstanding on the date of consummation
of any such plan of reorganization or readjustment is not paid in full in cash
or Cash Equivalents on such date, the holders of any such Senior Indebtedness
not so paid in full in cash have consented to the terms of such plan or
reorganization or readjustment.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Principal" of an exchange note means the principal of the exchange note
plus the premium, if any, payable on the exchange note which is due or overdue
or is to become due at the relevant time.
"Purchase Money Indebtedness" means Indebtedness:
(a) consisting of the deferred purchase price of an asset, conditional
sale obligations, obligations under any title retention agreement and other
purchase money obligations, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset being
financed, and
(b) incurred to finance the acquisition by the Company or a Restricted
Subsidiary of such asset, including additions and improvements; provided,
however, that such Indebtedness is incurred within 180 days after the
acquisition by the Company or such Restricted Subsidiary of such asset.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) any Indebtedness of the Company or any Restricted
Subsidiary existing on May 7, 1999 or Incurred in compliance with the indenture
(including Indebtedness of the Company that Refinances Refinancing
Indebtedness); provided, however, that:
(a) the Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced,
(b) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
remaining Average Life of the Indebtedness being refinanced,
71
(c) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate
issue price), plus costs related to the issuance of such Refinancing
Indebtedness, that is equal to or less than the aggregate principal amount
(or if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being Refinanced and
(d) if the Indebtedness being Refinanced is subordinated in right of
payment to the exchange notes, such Refinancing Indebtedness is
subordinated in right of payment to the exchange notes at least to the same
extent as the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include:
(i) Indebtedness of a Restricted Subsidiary other than a Note
Guarantor that Refinances Indebtedness of the Company or
(ii) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on May 7, 1999.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or such Restricted Subsidiary leases it from such Person, other than
leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of a Note Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of the Company means the exchange notes,
the 1999 notes and any other Indebtedness of the Company that specifically
provides that such Indebtedness is to rank equal with the exchange notes in
right of payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness. "Senior Subordinated Indebtedness" of a Note Guarantor has a
correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the exchange notes pursuant to a written
agreement. "Subordinated Obligation" of a Note Guarantor has a correlative
meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including
72
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by:
(a) such Person,
(b) such Person and one or more Subsidiaries of such Person or
(c) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(a) any investment in direct obligations of the United States or any
agency thereof or obligations Guaranteed by the United States or any agency
thereof,
(b) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is organized under the laws
of the United States, any state thereof or any foreign country recognized
by the United States having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act),
(c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) above entered
into with a bank meeting the qualifications described in clause (b) above,
(d) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States or any foreign country recognized by the United States with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Service, a division of The McGraw-
Hill Companies, Inc. ("S&P"), and
(e) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
"A" by Moody's Investors Service, Inc.
"TIA" means the Trust indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa -- 77bbbb) as in effect on May 7, 1999.
"Total Assets" means the total Consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Total Consolidated Indebtedness" means the aggregate amount of all
Indebtedness of the Company and its Restricted Subsidiaries, outstanding as of
such date of determination, determined on a Consolidated basis, after giving
effect to any Incurrence of Indebtedness and the application of the proceeds
therefrom giving rise to such determination.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"2002 notes" means the $150,000,000 aggregate principal amount the
Company's 10 1/4% Series B Senior Subordinated Notes due 2009 issued under the
indenture.
73
"Unrestricted Subsidiary" means:
(a) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below and
(b) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary of the Company) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any
Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that
either:
(i) the Subsidiary to be so designated has total Consolidated
assets of $1,000 or less or
(ii) if such Subsidiary has Consolidated assets greater than
$1,000, then such designation would be permitted under the covenant
entitled "Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to such
designation:
(1) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and
(2) no Default shall have occurred and be continuing. Any such
designation of a Subsidiary as a Restricted Subsidiary or
Unrestricted Subsidiary by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of the United States is pledged and which are not callable
or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company and/or one or more Wholly Owned Subsidiaries.
74
CERTAIN U.S. FEDERAL TAX CONSEQUENCES
The following is a summary of certain U.S. federal tax consequences to
holders who receive exchange notes in the exchange of the ownership and
disposition of exchange notes as of the date hereof. Except where noted, this
summary deals only with exchange notes held as capital assets, and it does not
deal with special situations. For example, this summary does not address tax
consequences to holders who may be subject to special tax treatment, such as
dealers in securities or currencies, financial institutions, regulated
investment companies, real estate investment trusts, tax-exempt entities,
insurance companies, persons holding exchange notes as a part of a hedging,
integrated, conversion or constructive sale transaction or a straddle, traders
in securities that elect to use a mark-to-market method of accounting for their
securities holdings, persons liable for alternative minimum tax or holders of
exchange notes whose "functional currency" is not the U.S. dollar. In addition,
this summary does not represent a detailed description of the U.S. federal
income tax consequences applicable to you if you are subject to special
treatment under the U.S. federal income tax laws (including if you are a U.S.
expatriate, "controlled foreign corporation," "passive foreign investment
company," "foreign personal holding company" or a corporation that accumulates
earnings to avoid U.S. federal income tax).
This summary is based upon provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations, rulings and judicial decisions as of
the date hereof. Those authorities may be changed, perhaps retroactively, so as
to result in U.S. federal income tax consequences different from those
summarized below.
If a partnership holds exchange notes, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding exchange notes, you
should consult your tax advisors.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE PARTICULAR U.S.
FEDERAL INCOME TAX CONSEQUENCES TO YOU OF THE OWNERSHIP OF THE EXCHANGE NOTES,
AS WELL AS THE CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
CONSEQUENCES OF REGISTERED EXCHANGE OFFER
The exchange of old notes pursuant to the registered exchange offer will
not constitute a material modification of the terms of the old notes and
therefore will not constitute a taxable event for U.S. federal income tax
purposes. In that event, the exchange would have no U.S. federal income tax
consequences to a holder, so that the holder's holding period and adjusted tax
basis for an exchange note would not be affected, and the U.S. holder would
continue to take into account income in respect of an exchange note in the same
manner as before the exchange.
CONSEQUENCES TO U.S. HOLDERS
The following is a summary of certain U.S. federal tax consequences that
will apply to you if you are a U.S. holder of exchange notes. Certain
consequences to "Non-U.S. holders" of exchange notes, which are beneficial
owners of exchange notes who are not U.S. holders, are described under
"-- Consequences to Non-U.S. holders" below.
A "U.S. holder" means a person that is one of the following:
- a citizen or resident of the U.S.;
- a corporation or partnership created or organized in or under the laws of
the U.S. or any political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if it (1) is subject to the primary supervision of a court within
the U.S. and one or more U.S. persons have the authority to control all
substantial decisions of the trust, or (2) has a valid election in effect
under applicable U.S. Treasury regulations to be treated as a U.S.
person.
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PAYMENTS OF INTEREST
Except as set forth below, interest on an exchange note will generally be
taxable to you as ordinary income at the time it is paid or accrued in
accordance with your method of accounting for tax purposes.
MARKET DISCOUNT
If a U.S. holder purchased an old note for an amount that is less than its
adjusted issue price, the amount of the difference is treated as "market
discount" for U.S. federal income tax purposes, unless that difference is less
than a specified de minimis amount. Under the market discount rules, a U.S.
holder will be required to treat any payment, other than qualified stated
interest, on, or any gain on the sale, exchange, retirement or other disposition
of, an exchange note as ordinary income to the extent of the market discount
that a U.S. holder has not previously included in income and is treated as
having accrued on the exchange note at the time of its payment or disposition.
In addition, a U.S. holder may be required to defer, until the maturity of the
exchange note or its earlier disposition in a taxable transaction, the deduction
of all or a portion of the interest expense on any indebtedness attributable to
the exchange note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the exchange note, unless a
U.S. holder elects to accrue on a constant interest method. A U.S. holder may
elect to include market discount in income currently as it accrues, on either a
ratable or constant interest method, in which case the rule described above
regarding deferral of interest deductions will not apply. A U.S. holder's
election to include market discount in income currently, one made, applies to
all market discount obligations acquired by the U.S. holder on or after the
first taxable year to which a U.S. holder's election applies and may not be
revoked without the consent of the Internal Revenue Service. U.S. holders should
consult their own tax advisors before making this election.
AMORTIZABLE BOND PREMIUM
If you purchased an old note at a price that exceeds the amount payable at
the maturity of the old note (not taking into account any portion of the
purchase price attributable to accrued but unpaid interest, if any), you will be
considered to have purchased the old note at a "premium". You generally may
elect to amortize the premium over the remaining term of the old note on a
constant yield method as an offset to interest when includible in income under
your regular accounting method. In the case of instruments that provide for
alternative payment schedules, such as the old notes and the exchange notes,
amortizable bond premium is calculated by assuming that (a) you will exercise or
not exercise options in a manner that maximizes your yield, and (b) we will
exercise or not exercise options in a manner that minimizes your yield (except
that we will be assumed to exercise call options in a manner that maximizes your
yield). If you do not elect to amortize bond premium, that premium will decrease
the gain or increase the loss you would otherwise recognize on disposition of an
exchange note. Your election to amortize premium on a constant yield method will
also apply to all debt obligations held or subsequently acquired by you on or
after the first day of the first taxable year to which the election applies. You
may not revoke the election without the consent of the IRS. You should consult
your own tax advisor before making this election.
DISPOSITION OF NOTES
A U.S. holder's tax basis in an exchange note will, in general, be the U.S.
holder's cost therefor, reduced by any amortized premium. Upon the sale,
exchange, retirement or other disposition of an exchange note, a U.S. holder
will recognize gain or loss equal to the difference between the amount realized
upon the sale, exchange, retirement or other disposition (not including an
amount equal to any accrued interest which will be treated as a payment of
interest for federal income tax purposes) and the adjusted tax basis of the
exchange note. Capital gains of individuals derived in respect of capital assets
held for more than one year are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on the exchange notes and to
the proceeds of sale of an exchange note made to you (unless you are an exempt
recipient such as a corporation). A backup withholding tax will apply to such
payments if you fail to provide a taxpayer identification number, a
certification of exempt status, or fail to report in full dividend and interest
income.
CONSEQUENCES TO NON-U.S. HOLDERS
U.S. FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest on an exchange note provided that:
- you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and applicable U.S. Treasury regulations;
- you are not a controlled foreign corporation that is related to us
through stock ownership;
- you are not a bank whose receipt of interest on the Notes is described in
section 881(c)(3)(A) of the Code; and
- either (a) you provide your name and address on an IRS Form W-8BEN (or
other applicable form), and certify, under penalties of perjury, that you
are not a U.S. person or (b) you hold your exchange notes through certain
foreign intermediaries and satisfy the certification requirements of
applicable U.S. Treasury regulations.
Special certification and other rules apply to certain non-U.S. holders
that are entities rather than individuals.
If you cannot satisfy the requirements described above, payments of
interest made to you will be subject to the 30% U.S. federal withholding tax,
unless you provide us with a properly executed (1) IRS Form W-8BEN (or other
applicable form) claiming an exemption from or reduction in withholding under
the benefit of an applicable tax treaty or (2) IRS Form W-8ECI (or other
applicable form) stating that interest paid on an exchange note is not subject
to withholding tax because it is effectively connected with your conduct of a
trade or business in the U.S. (as discussed below under "U.S. Federal Income
Tax").
The 30% U.S. federal withholding tax generally will not apply to any gain
that you realize on the sale, exchange, retirement or other disposition of an
exchange note.
U.S. FEDERAL INCOME TAX
If you are engaged in a trade or business in the U.S. and interest on the
exchange notes is effectively connected with the conduct of that trade or
business, you will be subject to U.S. federal income tax on that interest on a
net income basis (although exempt from the 30% withholding tax, provided certain
certification and disclosure requirements discussed above in "U.S. Federal
Withholding Tax" are complied with) in the same manner as if you were a U.S.
person as defined under the Code. In addition, if you are a foreign corporation,
you may be subject to a branch profits tax equal to 30% (or lower applicable
treaty rate) of your earnings and profits for the taxable year, subject to
adjustments, that are effectively connected with the conduct by you of a trade
or business in the U.S.
Any gain realized on the disposition of an exchange note (other than gain
representing accrued interest, which will be treated as such) generally will not
be subject to U.S. federal income tax unless:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by you, or
- you are an individual who is present in the U.S. for 183 days or more in
the taxable year of that disposition, and certain other conditions are
met.
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U.S. FEDERAL ESTATE TAX
Your estate will not be subject to U.S. federal estate tax on exchange
notes beneficially owned by you at the time of your death, provided that (1) you
do not actively (or constructively) own 10% or more of the total combined voting
power of all classes of our voting stock within the meaning of the Code and
applicable U.S. Treasury regulations and (2) interest on that exchange note
would not have been, if received at the time of your death, effectively
connected with the conduct by you of a trade or business in the U.S.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, you will not be subject to backup withholding and information
reporting with respect to payments that we make to you provided that we do not
have actual knowledge that you are a U.S. person, as defined under the Code, and
we have received from you the statement described above in the last bullet point
under "U.S. Federal Withholding Tax." In addition, you will not be subject to
backup withholding or information reporting with respect to the proceeds of the
sale of an exchange note within the U.S. or conducted through certain
U.S.-related financial intermediaries, if the payor receives the statement
described above and does not have actual knowledge that you are a U.S. person,
as defined under the Code, or you otherwise establish an exemption.
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PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued
to third parties, we believe that exchange notes issued pursuant to the exchange
offer in exchange for the old notes may be offered for resale, resold and
otherwise transferred by holders thereof, other than any holder which is:
- an "affiliate" of us within the meaning of Rule 405 under the Securities
Act;
- a broker-dealer who acquired exchange notes directly from us; or
- broker-dealers who acquired exchange notes as a result of market-making
or other trading activities,
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such exchange notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged in,
and do not intend to engage in, and have no arrangement or understanding with
any person to participate in, a distribution of such exchange notes. However,
broker-dealers receiving exchange notes in the exchange offer will be subject to
a prospectus delivery requirement with respect to resales of such exchange
notes. To date, the SEC has taken the position that these broker-dealers may
fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as the exchange pursuant to the
exchange offer, other than a resale of an unsold allotment from the sale of the
old notes to the initial purchasers, with the prospectus contained in the
exchange offer registration statement. Pursuant to the exchange and registration
rights agreement, we have agreed to permit these broker-dealers to use this
prospectus in connection with the resale of such exchange notes. We have agreed
that, for a period of 180 days after the expiration date, we will make this
prospectus, and any amendment or supplement to this prospectus, available to any
broker-dealer that requests such documents in the letter(s) of transmittal.
The objective of the exchange offer is to create a single series of debt
securities having a total outstanding principal amount which is larger than that
of either the 1999 notes or the 2002 notes as separate series, thus resulting in
greater liquidity for the exchange notes. However, see "Risk Factors -- Because
the total outstanding principal of the exchange notes will include the total
outstanding principal amount of the 1999 notes and the 2002 notes, you will
experience an immediate dilution of your percentage of ownership of the series
of notes."
Each holder of the old notes who wishes to exchange its old notes for
exchange notes in the exchange offer will be required to make certain
representations to us as set forth in "The Exchange Offer -- Procedures for
Tendering."
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. Until July 31, 2002, all
dealers effecting transactions in the exchange notes may be required to deliver
a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter(s)
of transmittal state that, by acknowledging that it will
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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 180 days after the consummation of the exchange offer, we
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(s) of transmittal. We have agreed to pay all expenses incident to
the exchange offer, including the expenses of one counsel for the holders of the
2002 notes, other than commissions or concessions of any broker-dealers and will
indemnify the holders of the 2002 notes, including any broker-dealers, against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the exchange notes are being passed
upon for us by Simpson Thacher & Bartlett, New York, New York.
INDEPENDENT AUDITORS
The audited financial statements incorporated by reference in this
prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
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AMERICAN MEDIA OPERATIONS, INC. LOGO