K-III Communications Corp. , (May 14, 1993)

INQUIRY LETTER 1

SIMPSON THACHER & BARTLETT

425 LEXINGTON AVENUE

NEW YORK, N.Y. 10017-3909

TELEPHONE(212) 455-2000

March 08, 1993

Re: K-III Communications Corporation

Office of the Chief Counsel

Division of Corporation Finance

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Attention: Martin Dunn, Esq.

Deputy General Counsel

Ladies and Gentlemen:

Our client, K-III Communications Corporation (the "Company"), has sold to Donaldson, Lufkin & Jenrette Securities Corporation (the "Initial Purchaser") one million shares of 11 5/8% Exchangeable Preferred Stock (the "Preferred Stock") in a private placement pursuant to Section 4(2) of the Securities Act of 1933 (the "1933 Act"). The Initial Purchaser has informed the Company that it has resold or intends to resell such shares pursuant to Rule 144A promulgated under the 1933 Act ("Rule 144A"). The Preferred Stock is not rated. At the Companys option, until February 1, 1996 the Company can pay dividends on the Preferred Stock in cash or in-kind. The Preferred Stock is exchangeable into subordinated debentures at the option of the Company on or after the earlier of May 1, 1994 and the initial public offering by the Company of its common stock.

In connection with the sale of the Preferred Stock to the Initial Purchaser, the Company entered into a Registration Rights Agreement dated as of February 11, 1993 (the "Registration Rights Agreement") with the Initial Purchaser in which the Company agreed to either register securities on Form S-4 identical to the terms of the Preferred Stock (the "Exchange Securities") and exchange such securities for the Preferred Stock or, in the event such exchange is not permitted under the 1933 Act, to file a shelf registration statement permitting security holders to sell the Preferred Stock for two years. The ability of the Company to exchange the Preferred Stock through the use of Form S-4 rather than maintain an "evergreen" shelf registration statement would be less burdensome and less costly to the Company.

The purpose of this letter, therefore, is to request confirmation that the holder of privately placed non-rated exchangeable preferred stock acquired from the Initial Purchaser pursuant to Rule 144A (other than (i) a person participating in the distribution of such securities or (ii) a person who is an affiliate of the Company) who exchanges such securities for similar securities issued pursuant to an exchange offer registered under the 1933 Act and then resells the registered securities will be viewed by the Securities and Exchange Commission (the "Commission") staff no differently than a non-affiliated purchaser of registered securities who purchases such securities in a registered primary offering of securities and, after completion of such registered offering, resells the securities. In each such case the resales of the registered securities may be effected without any further registration under the 1933 Act or the delivery of a prospectus.

Prior to effectiveness of the registration statement, the Company would provide a supplemental letter to the staff (i) stating that the Company is registering the exchange offer in reliance on the staff position enunciated in Exxon Capital Holdings Corporation (dated May 13, 1988) (the "Exxon Capital Letter"), Morgan Stanley & Co. Incorporated (dated June 5, 1991) (the "Morgan Stanley Letter") and this letter and (ii) including a representation substantially to the following effect:

The Company has not entered into any arrangement or understanding with any person to distribute the securities to be received in the exchange offer and to the best of such Companys information and belief, each person participating in the exchange offer is acquiring the securities in its ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the securities to be received in the exchange offer.

In this regard, the Company will make each person participating in the exchange offer aware (through the exchange offer prospectus or otherwise) that if the exchange offer is being registered for the purpose of secondary resales, any securityholder using the exchange offer to participate in a distribution of the securities to be acquired in the registered exchange offer (1) could not rely on the staff position enunciated in the Exxon Capital Letter, the Morgan Stanley Letter or similar letters and (2) must comply with registration and prospectus delivery requirements of the 1933 Act in connection with a secondary resale transaction. The Company acknowledges that such a secondary resale transaction should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K.

The Company would also include in the transmittal letter (or similar documentation to be executed by the exchange offeree in order to participate in the exchange offer) a representation to the effect that by accepting the exchange offer, the exchange offeree represents to the Company that it is not engaged in, and does not intend to engage in, a distribution of the Exchange Securities. The Company would commence the exchange offer for the Initial Securities when the Form S-4 registration statement is declared effective by the Commission. The exchange offer would remain in effect for a limited time and would not require the Company to maintain an "evergreen" registration statement. The exchange offer would be conducted by the Company in compliance with the Securities Exchange Act of 1934 and any applicable rules and regulations thereunder.

Prior Interpretative Letters

On May 13, 1988, the office of Chief Counsel, Division of Corporation Finance issued the Exxon Capital Letter. The no-action request in that letter related to the private placement of broker-remarketed preferred stock (rated in the highest investment grade rating), which placements were to be followed by an exchange offer registered under the 1933 Act to the owners of such preferred stock of a new series of broker-remarketed preferred stock. In connection with that transaction the Division concluded that as long as the private placees were not affiliates of the Company, the private placees could resell the registered broker-remarketed preferred stock without compliance with the registration and prospectus delivery provisions of the 1933 Act provided that the securities were acquired in the ordinary course of business of such private placees and such private placees had no arrangement with any person to participate in the distribution of such securities.

On June 5, 1991, the Office of Chief Counsel, Division of Corporation Finance issued the Morgan Stanley Letter. The no-action request in that letter related to a holder of privately placed non-convertible debt or preferred stock (rated, in the case of preferred stock, in one of the four highest generic rating categories) who exchanges such securities for similar securities issued pursuant to an exchange offer registered under the 1933 Act and then resells the registered securities. The Division concluded that such holders may resell the Exchange Securities without complying with the registration and prospectus delivery requirements of the 1933 Act, provided that the private placee acquires the Exchange Securities in the ordinary course of its business and has no arrangement to participate in a distribution of the Exchange Securities.

Conclusion

We believe that the Commissions position set forth in the Exxon Capital and Morgan Stanley Letters should be equally applicable to the transactions described herein. The Preferred Stock is more akin to debt than it is to common stock and, in fact, is exchangeable into debt securities of the Company. Covenants in the Companys existing senior debt securities and bank loan agreement made it more expedient for the Company to issue Preferred Stock rather than debt. If the Company had issued unrated debt securities they would fall squarely within the Divisions positions in the Morgan Stanley Letter. We would appreciate, therefore, if the Division would confirm that subsequent resales of Exchange Securities acquired by a private placee that has acquired the Exchange Securities in the ordinary course of its business and has no arrangement with any person to participate in the distribution of the Exchange Securities will be viewed by the Commission no differently from resales by non-affiliated purchasers after completion of any registered primary offering of securities and, therefore, that resales of Exchange Securities by the private placees may be effected without any further registration under the 1933 Act or the delivery of a prospectus.

If the Company does not file a registration statement for the Exchange Securities or a shelf registration for the Preferred Stock on or before April 12, 1993 it will be liable for liquidated damages under the Registration Rights Agreement. Therefore, your prompt response would be greatly appreciated.

If you have any questions, please do not hesitate to call either Gary I. Horowitz (212-455-7113), Gary I. Sheff (212-455-3985) or James H. Cohen (212-455-3974) of this office.

Sincerely,

Gary I. Horowitz

INQUIRY LETTER 2

SIMPSON THACHER & BARTLETT

425 LEXINGTON AVENUE

NEW YORK, N.Y. 10017-3909

TELEPHONE(212) 455-2000

April 05, 1993

Re: K-III Communications Corporation

Office of the Chief Counsel

Division of Corporation Finance

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Attention: Abigail Arms, Esq.

Deputy Chief Counsel

Martin Dunn, Esq.

Deputy General Counsel

Ladies and Gentlemen:

This letter supplements our letter to you dated March 8, 1993 (the "March 8 Letter") on behalf of our client, K-III Communications Corporation, and is in response to your request for additional information regarding potential subsequent purchasers of the Exchange Securities. Capitalized terms used herein have the meanings set forth in the March 8 Letter.

For the reasons stated below, Donaldson, Lufkin & Jenrette Securities Corporation (the "Initial Purchaser") has advised us that subsequent purchases of the Exchange Securities will likely be made only by institutions and other sophisticated investors. First, the features of the Preferred Stock make it highly unmarketable to "retail" investors. Dividends on the Preferred Stock are payable in-kind until May 1, 1998. In addition, the Preferred Stock is exchangeable, at the Companys option, into subordinated debt securities of the Company (the "Subordinated Debentures"), and interest on the Subordinated Debentures is also payable in-kind until May 1, 1998. Moreover, (i) prior to February 1, 1996, up to 50% of the Preferred Stock or the Subordinated Debentures, as the case may be, may be redeemed at the Companys option out of the proceeds of an initial public offering of the Companys Common Stock and (ii) on or after February 1, 1998, the Company may redeem, at its option, all of the outstanding Preferred Stock or Subordinated Debentures. Due to this high degree of complexity, the appeal of the Exchange Securities to retail investors is severely limited.

Second, after May 1, 1998, dividends on the Preferred Stock must be paid in cash in accordance with the terms thereof. However, the Companys present credit arrangements restrict the payment of cash dividends on the Preferred Stock. The Initial Purchaser has advised us that this uncertainty of cash returns makes the Exchange Securities unappealing to the typical retail investor.

Finally, in contrast to the situation where pay in-kind securities are issued as "cram-down" paper to retail investors in connection with a leveraged buy-out transaction, the Exchange Securities can only be purchased by individual investors who actively seek out securities of this type. For the reasons set forth above, we believe that only institutions and other sophisticated investors would seek such an investment.

As stated in the March 8 Letter, the Company will be liable for liquidated damages under the Registration Rights Agreement if it does not file a registration statement for the Exchange Securities or a shelf registration for the Preferred Stock by April 12, 1993. Therefore, your prompt response would be greatly appreciated.

If you have any questions, please do not hesitate to call either Gary I. Horowitz (212-455-7113) or Gary I. Sheff (212-455-3985) of this office.

Sincerely,

Gary I. Horowitz

STAFF REPLY LETTER

May 14, 1993

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: K-III Communications Corporation (the "Company")

Incoming letters dated March 8, 1993 and April 5, 1993

Based on the facts presented, it is the Divisions view that the holders of the privately placed securities described in your letters who exchange such securities for similar securities to be issued pursuant to a registered exchange offer ("Registered Securities") may resell the Registered Securities without compliance with the registration and prospectus delivery requirements of the Securities Act of 1933, provided that such holder acquires the Registered Securities in the ordinary course of its business and has no arrangement or understanding with any person to participate in the distribution of the Registered Securities. This position assumes that the holder is not affiliated with the Company. Further, prior to the effectiveness of the registration statement, the issuer should provide a supplemental letter to the staff that contains the statement and representation in the form set forth on pages 3-4 of your March 8th letter.

Because this position is based on the facts and representations contained in your letters, it should be noted that any different facts or conditions might require another result.

Sincerely,

Martin P. Dunn

Deputy Chief Counsel