<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 1995
REGISTRATION NO. 33-57471
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONTINENTAL CABLEVISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4841 04-2370836
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
THE PILOT HOUSE, LEWIS WHARF, BOSTON, MA 02110
(617) 742-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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AMOS B. HOSTETTER, JR.
CONTINENTAL CABLEVISION, INC.
THE PILOT HOUSE, LEWIS WHARF
BOSTON, MA 02110
(617) 742-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPY TO:
PATRICK K. MIEHE, ESQ.
SULLIVAN & WORCESTER
ONE POST OFFICE SQUARE
BOSTON, MA 02109
(617) 338-2800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the reorganization of Providence Journal Company pursuant to the
Plan of Reorganization of Providence Journal Company and the merger of a
subsidiary of Providence Journal Company with and into Continental Cablevision,
Inc. pursuant to the Amended and Restated Agreement and Plan of Merger
described in the accompanying Joint Proxy Statement-Prospectus have been
satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE>
CONTINENTAL CABLEVISION, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN THE JOINT PROXY STATEMENT-PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
<TABLE>
<CAPTION>
CAPTION IN JOINT PROXY STATEMENT-
ITEMS IN FORM S-4 PROSPECTUS
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<C> <S>
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Cover Page of Registration
Statement; Cross Reference
Sheet; Outside Front Cover
Page of Joint Proxy
Statement-Prospectus
Item 2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front and Outside
Back Cover Pages of Joint
Proxy Statement-
Prospectus; Table of
Contents; Available
Information; Information
Incorporated by Reference
Item 3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Summary; Certain
Considerations Relating to
the Transactions
Item 4. Terms of the Transaction..................... Summary; Certain
Considerations Relating to
the Transactions; Pre-
Merger Transactions; The
Merger; Description of New
Providence Journal Capital
Stock; Description of
Continental Capital Stock;
Comparison of Rights of
Stockholders of Providence
Journal and New Providence
Journal; Comparison of
Rights of Stockholders of
Providence Journal and
Continental; Certain
Federal Income Tax
Considerations
Item 5. Pro Forma Financial Information.............. Summary; Description of
Continental
Item 6. Material Contacts with the Company Being
Acquired..................................... Terms of the Merger
Agreement; Pre-Merger
Item 7. Additional Information Required for Transactions
Reoffering by Persons and Parties Deemed to
Be Underwriters.............................. *
Item 8. Interests of Named Experts and Counsel....... Experts
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. *
B. INFORMATION ABOUT THE REGISTRANT
Item 10.Information With Respect to S-3 Registrants... *
Item 11.Incorporation of Certain Information by
Reference.................................... *
Item 12.Information With Respect to S-2 or S-3
Registrants.................................. *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPTION IN JOINT PROXY STATEMENT-
ITEMS IN FORM S-4 PROSPECTUS
----------------- ---------------------------------
<C> <S>
Item 13.Incorporation of Certain Information by
Reference.................................... *
Item 14.Information With Respect to Registrants Other
Than S-3 or S-2 Registrants.................. Joint Proxy Statement-
Prospectus Cover Page;
Summary; Description of
Continental
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15.Information With Respect to S-3 Companies..... *
Item 16.Information With Respect to S-2 or S-3
Companies.................................... *
Item 17.Information with Respect to Companies Other
Than S-3 or S-2 Companies.................... Joint Proxy Statement-
Prospectus Cover Page;
Summary; Description of
Providence Journal and New
Providence Journal;
Description of Providence
Journal Cable Television
Business
D. VOTING AND MANAGEMENT INFORMATION
Item 18.Information if Proxies, Consents or
Authorizations Are to Be Solicited........... Joint Proxy Statement-
Prospectus Cover Page;
Summary; The Special
Meetings; Certain
Considerations Relating to
the Transactions; Pre-
Merger Transactions;
Proposal to Approve and
Adopt the Continental
Recapitalization Amendment,
Election of Continental
Directors and Ratification
of Appointment of
Accountants; Rights of
Dissenting Stockholders
Item 19.Information if Proxies, Consents or
Authorizations Are Not to be Solicited in an
Exchange Offer............................... *
</TABLE>
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* Omitted because inapplicable or answer is in the negative.
<PAGE>
CONTINENTAL CABLEVISION, INC.
April , 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting in Lieu of the Annual
Meeting of Stockholders (the "Continental Special Meeting") of Continental
Cablevision, Inc. ("Continental") to be held on April , 1995 at a.m. local
time, at the offices of Sullivan & Worcester, One Post Office Square, Boston,
Massachusetts 02109.
At the Continental Special Meeting, stockholders will be asked to approve and
adopt an Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger of a subsidiary of Providence Journal
Company ("Providence Journal"), which, following an internal corporate
restructuring of Providence Journal and its subsidiaries, will own all of
Providence Journal's cable television businesses ("Restructured PJC"), with and
into Continental (the "Merger").
As a result of the Merger, all outstanding shares of common stock of
Restructured PJC will be converted into shares of Continental Class A Common
Stock and Continental Series B Cumulative Redeemable Preferred Stock, which
will be a newly authorized series of Continental's Preferred Stock with the
terms and preferences described in the accompanying Joint Proxy Statement-
Prospectus ("Continental Series B Preferred Stock"). Assuming that no
adjustments have been made to the amount of consideration to be paid to
Restructured PJC stockholders, as described below, and after giving effect to
the stock dividend specified in the accompanying Joint Proxy Statement-
Prospectus (which will have the effect of causing each outstanding share of
Continental Class A Common Stock and Continental Class B Common Stock to become
25 shares of such class of stock), Continental would issue to stockholders of
Restructured PJC an aggregate of 28,260,309 shares of Continental Class A
Common Stock and 4,987,113 shares of Continental Series B Preferred Stock,
representing values of $548,250,000 and $96,750,000, respectively, or $19.40
per share of Continental Class A Common Stock and Continental Series B
Preferred Stock. The value of $19.40 per share of Continental Class A Common
Stock and Continental Series B Preferred Stock was arrived at by Continental
and Providence Journal as a result of arm's length negotiations between the
parties and does not necessarily reflect the price at which shares will trade
following the consummation of the Merger.
The shares of Continental Class A Common Stock to be issued in the Merger
will be reduced if certain cable subsidiaries of Providence Journal in which
there are currently minority interests outstanding are not wholly owned at the
time of the Merger. If none of these minority interests were purchased by the
time of the Merger, the maximum number of shares of Continental Class A Common
Stock that Continental would be required to issue would be 25,404,639.
As a result of the Merger and assuming that no reductions are made due to
minority interests remaining outstanding, the Providence Journal stockholders
would receive shares representing in the aggregate approximately 16.2% of the
outstanding Continental Common Stock (treating the Continental Series A
Preferred Stock as if it were converted into Continental Class B Common Stock)
and 100% of the Continental Series B Preferred Stock, representing, in the
aggregate, 2.3% of the voting power of Continental.
The Merger is subject to, among other things, the approvals of various
governmental entities and other third parties, including the Federal
Communications Commission, and will not be consummated until those approvals
have been obtained. In addition, the stockholders of Providence Journal must
approve the Merger and related transactions (which include, among other things,
its internal corporate restructuring). As a result, it is expected that the
Merger will be completed during the third quarter of 1995.
Your Board of Directors has carefully considered the terms of the proposed
Merger and believes that the Merger and related transactions are in the best
interests of and fair to Continental and its stockholders. The Board has
unanimously approved the Merger and the related transactions and recommends
that stockholders vote FOR that proposal.
<PAGE>
In order to permit Continental to issue shares of Continental stock to the
Restructured PJC stockholders as provided in the Merger Agreement and to effect
the Continental stock dividend described above, Continental stockholders will
also be asked to approve and adopt an amendment to the Restated Certificate of
Incorporation of Continental (the "Continental Recapitalization Amendment"),
which increases the total number of authorized shares of Class A Common Stock,
Class B Common Stock and Preferred Stock available for issuance by Continental.
The Board has unanimously approved the Continental Recapitalization Amendment
and recommends that stockholders vote FOR that proposal.
The stockholders will also be asked to elect four Class C Directors of
Continental to serve a three-year term and to ratify the appointment by the
Board of Directors of Deloitte & Touche LLP as Continental's independent
auditors for the current fiscal year ending December 31, 1995.
The accompanying Joint Proxy Statement-Prospectus sets forth the respective
voting rights of holders of shares of Continental stock with respect to these
matters. We hope you will be able to attend the meeting. However, even if you
anticipate attending in person, we urge you to complete, sign, date and return
the enclosed proxy card promptly to ensure that your shares will be represented
at the Continental Special Meeting. If you do attend, you will, of course, be
entitled to vote in person.
Thank you, and I look forward to seeing you at the meeting.
Sincerely,
[Signature]
Amos B. Hostetter, Jr.
Chairman of the Board and Chief
Executive Officer
<PAGE>
CONTINENTAL CABLEVISION, INC.
NOTICE OF SPECIAL MEETING
IN LIEU OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL , 1995
TO THE STOCKHOLDERS OF CONTINENTAL CABLEVISION, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting in Lieu of the Annual Meeting
of Stockholders (the "Continental Special Meeting") of Continental Cablevision,
Inc. ("Continental"), will be held on April , 1995 at a.m. local time at
the offices of Sullivan & Worcester, One Post Office Square, Boston,
Massachusetts 02109, for the purpose of considering and voting upon the
following matters:
(1) A proposal to approve and adopt the Amended and Restated Agreement
and Plan of Merger, dated as of November 18, 1994 (the "Merger Agreement"),
by and among Continental, Providence Journal Company ("Providence
Journal"), The Providence Journal Company (a newly formed subsidiary of
Providence Journal, which ultimately will hold the non-cable businesses and
assets of Providence Journal), King Holding Corp. and King Broadcasting
Company ("KBC"), and each of the transactions contemplated thereby,
including the merger (the "Merger") of KBC, which at the time of the Merger
will hold all of Providence Journal's cable television businesses and
assets, with and into Continental, upon the terms and subject to the
conditions set forth in the Merger Agreement, as more fully described in
the accompanying Joint Proxy Statement-Prospectus. A copy of the Merger
Agreement is attached as Annex I to the accompanying Joint Proxy Statement-
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Prospectus and certain related documents are attached as exhibits thereto.
(2) A proposal to approve and adopt an amendment to the Restated
Certificate of Incorporation of Continental (the "Continental
Recapitalization Amendment") to increase the total number of authorized
shares of capital stock of Continental from 17,700,000 to 825,000,000,
including an increase in (a) the number of authorized shares of Common
Stock, $.01 par value per share ("Continental Common Stock"), from
15,000,000 to 625,000,000, of which 425,000,000 will be shares of Class A
Common Stock with one vote per share ("Continental Class A Common Stock")
and 200,000,000 will be shares of Class B Common Stock with ten votes per
share ("Continental Class B Common Stock"), and (b) the number of
authorized shares of Continental Preferred Stock, $.01 par value per share
("Continental Preferred Stock"), from 2,700,000 to 200,000,000, of which
1,142,858 are currently designated Series A Convertible Preferred Stock
("Continental Series A Preferred Stock") and of which 4,987,113 will be
designated Series B Cumulative Redeemable Preferred Stock upon consummation
of the Merger.
(3) The election of four Class C Directors of Continental to serve a
three-year term.
(4) The ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP as Continental's independent auditors for the current
fiscal year ending December 31, 1995.
(5) Such other business as may properly come before the Continental
Special Meeting or any adjournments or postponements thereof.
The proposals described in items (1) and (2) above are hereinafter
collectively referred to as the "Continental Proposals".
The Continental Board of Directors has fixed the close of business on April
15, 1995 as the record date for the determination of stockholders entitled to
notice of and to vote at the Continental Special Meeting and any adjournments
or postponements thereof. Only stockholders of record at the close of business
on such date are entitled to notice of and to vote at such meeting. A list of
Continental stockholders entitled to vote at the Continental Special Meeting or
any adjournments or postponements thereof will be available for examination for
any purpose germane to the Continental Special Meeting, during ordinary
business hours, at the principal executive offices of Continental located at
The Pilot House, Lewis Wharf, Boston, Massachusetts 02110, for 10 days prior to
the Continental Special Meeting.
<PAGE>
Shares of the Continental Class A Common Stock, Continental Class B Common
Stock, and Continental Series A Preferred Stock are the only securities of
Continental whose holders are entitled to vote upon the Continental Proposals
and the other proposals to be presented at the Continental Special Meeting.
Each proposal shall be voted upon separately by the Continental stockholders
entitled to vote at the Continental Special Meeting; however, failure of the
stockholders to approve either of the Continental Proposals will result in the
abandonment by Continental of the Merger.
Continental stockholders entitled to vote at the Continental Special Meeting
have a right to dissent to the Merger and, if the Merger is consummated, to
obtain payment for their shares of Continental stock by complying with the
provisions of Section 262 of the Delaware General Corporation Law ("Section
262"). A copy of Section 262 is attached as Annex IV to the accompanying Joint
--------
Proxy Statement-Prospectus.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Continental Special
Meeting, is requested to sign, date and return the enclosed Proxy without delay
in the enclosed postage-paid return envelope. You may revoke your Proxy at any
time prior to its exercise. Any stockholder present at the Continental Special
Meeting or at any adjournments or postponements thereof may revoke his or her
Proxy and vote personally on each matter brought before the Continental Special
Meeting.
By Order of the Board of Directors,
[Signature]
Robert B. Luick, Secretary
April , 1995
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT AND EACH OF THE TRANSACTIONS CONTEMPLATED
THEREBY, FOR THE PROPOSAL TO APPROVE AND ADOPT THE CONTINENTAL RECAPITALIZATION
AMENDMENT, FOR THE ELECTION OF DIRECTORS OF CONTINENTAL AND FOR EACH OF THE
OTHER PROPOSALS BEING SUBMITTED TO THE CONTINENTAL SPECIAL MEETING.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
PROVIDENCE JOURNAL COMPANY
April , 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Providence Journal Special Meeting") of Providence Journal Company
("Providence Journal") to be held on April , 1995 at 11:00 a.m. at the offices
of Providence Journal, 75 Fountain Street, Providence, Rhode Island.
At the Providence Journal Special Meeting, stockholders will be asked to
approve and adopt: (1) a Plan of Reorganization (the "Plan of Reorganization")
for the internal corporate restructuring of Providence Journal and its
subsidiaries, as well as the internal transactions that comprise the Plan of
Reorganization including: (i) the consolidation of all the existing businesses
of Providence Journal into a wholly owned subsidiary ("Restructured PJC") and
the dissolution of Providence Journal and (ii) the transfer of all the
businesses of Restructured PJC other than its cable television operations to a
new corporation ("New Providence Journal") and the distribution to the existing
stockholders of Providence Journal of all of the outstanding shares of New
Providence Journal (the "PJC Spin Off") and (2) an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") providing for the merger
(the "Merger") of Restructured PJC, which will hold all of the existing cable
television businesses of Providence Journal, with and into Continental
Cablevision, Inc. ("Continental"). In addition, the stockholders will be asked
to approve the Providence Journal Cable Division Sale Bonus Plan, which
provides incentives to a group of executives of Providence Journal's cable
television division in order to maximize the operating performance of the cable
business pending completion of the Merger, with bonuses payable only if the
Merger is consummated. The maximum amount of the bonuses payable pursuant to
the Providence Journal Cable Division Sale Bonus Plan is $5,200,000.
As a result of the Merger, all outstanding shares of common stock of
Restructured PJC will be converted into either all shares of Continental's
Class A common stock ("Continental Class A Common Stock") or, at Continental's
option, a combination of Continental Class A Common Stock and Continental
Series B Cumulative Redeemable Preferred Stock ("Continental Series B Preferred
Stock"). Assuming no adjustments are made in the amount of consideration
provided in the Merger Agreement, as described below, and that Continental
elects to issue Continental Series B Preferred Stock, and giving effect to the
Continental stock dividend specified in the accompanying Joint Proxy Statement-
Prospectus (which will have the effect of splitting the Continental common
stock on a 25-for-1 basis), Continental will issue to our stockholders an
aggregate of 28,260,309 shares of Continental Class A Common Stock and
4,987,113 shares of Continental Series B Preferred Stock, representing values
of $548,250,000 and $96,750,000, respectively, or $19.40 per share of
Continental Class A Common Stock and Continental Series B Preferred Stock.
Based on the foregoing, but subject to the effects of the option being granted
to our stockholders to elect between Continental Class A Common Stock and
Continental Series B Preferred Stock, as more fully described in the
accompanying Joint Proxy Statement-Prospectus, the Merger would result in the
stockholders of Providence Journal receiving approximately 329.95 shares of
Continental Class A Common Stock and approximately 58.23 shares of Continental
Series B Preferred Stock per share, representing an aggregate estimated value
of $7,530.65 per share, of Providence Journal common stock that was outstanding
on March 15, 1995. The value of $19.40 per share of Continental Class A Common
Stock and Continental Series B Preferred Stock was arrived at by Continental
and Providence Journal as a result of arm's length negotiations between the
parties and does not necessarily reflect the price at which such shares will
trade following the consummation of the Merger.
The shares of Continental Class A Common Stock to be issued in the Merger
will be reduced if certain cable subsidiaries of Providence Journal in which
there are currently minority interests outstanding are not wholly owned at the
time of the Merger. If none of these minority interests were purchased by the
time of the Merger, the maximum reduction in the consideration to be paid in
Continental Class A Common Stock would be $55,400,000, and the Merger would
result in the stockholders of Providence Journal receiving approximately 296.61
shares of Continental Class A Common Stock and approximately 58.23 shares of
<PAGE>
Continental Series B Preferred Stock per share, representing an aggregate
estimated value of $6,883.83 per share, of Providence Journal common stock that
was outstanding on March 15, 1995.
As a result of the Merger and assuming that no reductions are made due to
minority interests remaining outstanding, the Providence Journal stockholders
would receive shares representing, in the aggregate, approximately 16.2% of the
outstanding Continental Common Stock (treating the Continental Series A
Preferred Stock as if it were converted into Continental Class B Common Stock)
and 100% of the Continental Series B Preferred Stock, representing, in the
aggregate, 2.3% of the voting power of Continental.
As a result of the reorganization, New Providence Journal will own all the
businesses and assets of Providence Journal unrelated to its cable television
business. Each stockholder of Providence Journal at the time the Plan of
Reorganization is carried out will receive, through a distribution by
Restructured PJC, one share of Class A Common Stock of New Providence Journal
for each share of Providence Journal Class A Common Stock held and one share of
Class B Common Stock of New Providence Journal for each share of Providence
Journal Class B Common Stock held.
The Plan of Reorganization and the Merger are subject, among other things, to
approvals by various governmental entities and other third parties, including
the Federal Communications Commission, and will not be consummated until those
approvals have been obtained. In addition, the stockholders of Continental must
approve the Merger. We do not expect the Plan of Reorganization and the Merger
to be completed until the third quarter of 1995. PURSUANT TO RULES PROMULGATED
BY THE SECURITIES AND EXCHANGE COMMISSION, EACH OF THE THREE INTERNAL
TRANSACTIONS THAT COMPRISES THE PLAN OF REORGANIZATION MUST BE VOTED UPON
SEPARATELY. FAILURE OF THE STOCKHOLDERS OF PROVIDENCE JOURNAL TO APPROVE ANY OF
THOSE TRANSACTIONS WILL RESULT IN THE FAILURE OF THE PLAN OF REORGANIZATION TO
BE ADOPTED. FURTHER, THE APPROVAL OF EACH OF THE PLAN OF REORGANIZATION AND THE
MERGER IS CONDITIONED UPON THE APPROVAL OF THE OTHER; THEREFORE, FAILURE OF THE
STOCKHOLDERS OF PROVIDENCE JOURNAL TO APPROVE THE PLAN OF REORGANIZATION OR THE
MERGER WILL RESULT IN THE ABANDONMENT BY PROVIDENCE JOURNAL OF BOTH THE PLAN OF
REORGANIZATION AND THE MERGER.
Your Board of Directors has carefully considered the terms of the proposed
Merger with Continental and believes that the Merger and the related Plan of
Reorganization, including the transactions contemplated by it, are in the best
interests of and fair to Providence Journal and its stockholders. The Board has
unanimously approved the Plan of Reorganization, the Merger and the several
related transactions and the Providence Journal Cable Division Sale Bonus Plan
and recommends that stockholders vote FOR each of the proposals.
The accompanying Joint Proxy Statement-Prospectus sets forth the respective
voting rights of stockholders of Providence Journal with respect to these
matters. We hope you will be able to attend the Providence Journal Special
Meeting. However, even if you anticipate attending in person, we urge you to
complete, sign, date and return the enclosed proxy card promptly to ensure that
your shares will be represented at the Providence Journal Special Meeting. If
you do attend, you will, of course, be entitled to vote in person.
Thank you, and I look forward to seeing you at the meeting.
Sincerely,
/s/ Stephen Hamblett
Stephen Hamblett
Chairman of the Board and
Chief Executive Officer
<PAGE>
PROVIDENCE JOURNAL COMPANY
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
TO BE HELD ON APRIL , 1995
TO THE STOCKHOLDERS OF PROVIDENCE JOURNAL COMPANY:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Providence Journal Special Meeting") of Providence Journal Company
("Providence Journal") will be held on April , 1995 at 11:00 a.m. local time
at the offices of Providence Journal, 75 Fountain Street, Providence, Rhode
Island, for the purpose of considering and voting upon the following matters:
(1) A proposal to approve and adopt a Plan of Reorganization of
Providence Journal (the "Plan of Reorganization"), providing for the
internal corporate restructuring of Providence Journal and its
subsidiaries, as described in the accompanying Joint Proxy Statement-
Prospectus, which consists of the internal transactions described in (2),
(3) and (4) below. A copy of the Plan of Reorganization is attached as
Annex II to the accompanying Joint Proxy Statement-Prospectus.
(2) A proposal to approve the contribution by King Holding Corp. ("KHC"),
a corporation that is 50% owned by Providence Journal and will be wholly
owned by Providence Journal prior to the internal restructuring, of all of
its assets (consisting solely of 100% of the outstanding capital stock of
King Broadcasting Company ("KBC")) to KBC in exchange for (i) KBC's
assumption of all KHC's liabilities and (ii) shares of KBC common stock,
which will then be distributed to Providence Journal, and the subsequent
dissolution of KHC (KBC thereby becoming a wholly owned subsidiary of
Providence Journal).
(3) A proposal to approve (a) the contribution by Providence Journal of
all of its businesses and assets to KBC (hereinafter referred to in this
proposal (3) and in proposal (4) below as "Restructured PJC") in exchange
for shares of common stock of Restructured PJC ("Restructured PJC Common
Stock") and Restructured PJC's assumption of all of the liabilities of
Providence Journal, (b) the dissolution of Providence Journal and (c) the
distribution of the shares of Restructured PJC Common Stock, the sole
remaining asset of Providence Journal, to the holders of Providence
Journal's common stock ("Providence Journal Common Stock") in proportion to
the class and number of shares of Providence Journal Common Stock so owned
by such holders.
(4) A proposal to approve the contribution by Restructured PJC of all of
its businesses and assets unrelated to its cable television businesses to
The Providence Journal Company ("New Providence Journal"), its newly
created wholly owned subsidiary, in exchange for which New Providence
Journal will assume all liabilities related to such businesses and assets
and issue to Restructured PJC a number of shares of New Providence
Journal's Class A common stock ("New Providence Journal Class A Common
Stock") and New Providence Journal's Class B common stock ("New Providence
Journal Class B Common Stock") equal to the number of outstanding shares of
Restructured PJC's Class A common stock ("Restructured PJC Class A Common
Stock") and Restructured PJC's Class B common stock ("Restructured PJC
Class B Common Stock"), respectively. Restructured PJC will then distribute
one share of New Providence Journal Class A Common Stock to the holder of
each share of Restructured PJC Class A Common Stock and one share of New
Providence Journal Class B Common Stock to the holder of each share of
Restructured PJC Class B Common Stock, each as outstanding immediately
prior to such distribution.
(5) A proposal to approve and adopt the Amended and Restated Agreement
and Plan of Merger dated as of November 18, 1994 ( the "Merger Agreement"),
by and among Continental Cablevision, Inc. ("Continental"), Providence
Journal, KHC, KBC and New Providence Journal, and each of the transactions
contemplated thereby, including the merger (the "Merger") of KBC, which at
the time of the Merger will hold all of Providence Journal's cable
television businesses and assets, with and into
<PAGE>
Continental, upon the terms and subject to the conditions set forth in the
Merger Agreement, as more fully described in the accompanying Joint Proxy
Statement-Prospectus. A copy of the Merger Agreement is attached as Annex I
-------
to the accompanying Joint Proxy Statement-Prospectus and certain related
documents are attached as exhibits thereto.
(6) A proposal to approve and adopt the Providence Journal Cable Division
Sale Bonus Plan, which provides compensation bonuses to certain executives
of Providence Journal's cable television operations upon and subject to the
consummation of the Merger.
(7) Such other business as may properly come before the Providence
Journal Special Meeting or any adjournments or postponements thereof.
(The proposals described in items (1), (2), (3), (4) and (5) are hereinafter
collectively referred to as the "Providence Journal Proposals".)
While each of the transactions described in items (2), (3) and (4) is an
element of, and is included in, the Plan of Reorganization, rules promulgated
by the Securities and Exchange Commission require that each be voted upon
separately. Failure of the stockholders of Providence Journal to approve any of
the elements that comprises the Plan of Reorganization will result in the
failure of the Plan of Reorganization to be adopted. Further, failure of the
stockholders of the Providence Journal to approve either the Plan of
Reorganization or the Merger will result in the abandonment by Providence
Journal of both the Plan of Reorganization and the Merger.
Stockholders should be aware that, in the event that the Plan of
Reorganization and Merger are approved, the following actions, among others,
will take place in connection with the consummation thereof:
(i) Providence Journal will incur indebtedness in a minimum principal
amount of $755,000,000, which, together with other indebtedness described
below, will be used to consummate the buyout of the 50% owners of KHC, to
purchase minority interests in certain cable subsidiaries not presently
wholly owned by Providence Journal, to pay transaction costs associated
with the Merger, to repay existing indebtedness and to pay certain deferred
compensation. This indebtedness will be an obligation of Continental after
the Merger.
(ii) New Providence Journal will also incur indebtedness required to meet
the foregoing obligations, among others, in the amount of approximately
$183,000,000. This indebtedness will remain an obligation of New Providence
Journal after the Merger.
The Providence Journal Board of Directors has fixed the close of business on
April , 1995 as the record date for the determination of stockholders entitled
to notice of and to vote at the Providence Journal Special Meeting and any
adjournments or postponements thereof. Only stockholders of record at the close
of business on such date are entitled to notice of and to vote at the
Providence Journal Special Meeting. A list of Providence Journal stockholders
entitled to vote at the Providence Journal Special Meeting will be available
for examination for any purpose germane to the Providence Journal Special
Meeting, during ordinary business hours, at the principal executive offices of
Providence Journal, 75 Fountain Street, Providence, Rhode Island 02902, for 10
days prior to the Providence Journal Special Meeting.
The holders of shares of Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock are entitled to vote upon the matters
to come before the Providence Journal Special Meeting, including the Providence
Journal Proposals. The required votes on the matters to come before the
Providence Journal Special Meeting are detailed in the accompanying Joint Proxy
Statement-Prospectus.
Providence Journal stockholders entitled to vote at the Providence Journal
Special Meeting have (i) a right to dissent to the Plan of Reorganization and
the Merger and (ii) if the Plan of Reorganization and the Merger are
consummated, to obtain payment for their shares of Providence Journal by
complying with the provisions of the Business Corporations Act of the State of
Rhode Island, as detailed in the accompanying Joint Proxy Statement-Prospectus.
<PAGE>
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Providence Journal
Special Meeting, is requested to promptly sign, date and return the enclosed
Proxy in the enclosed postage-paid return envelope. You may revoke your Proxy
at any time prior to its exercise. Any stockholder present at the Providence
Journal Special Meeting or any adjournments or postponements thereof may revoke
his or her Proxy and vote personally on each matter before the Providence
Journal Special Meeting.
By Order of the Board of Directors,
/s/ Harry Dyson
Harry Dyson, Secretary
April , 1995
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE PLAN OF REORGANIZATION, FOR EACH OF THE THREE PROPOSALS TO
APPROVE THE TRANSACTIONS THAT COMPRISE THE PLAN OF REORGANIZATION, FOR THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND FOR THE PROPOSAL TO
APPROVE AND ADOPT THE PROVIDENCE JOURNAL CABLE DIVISION SALE BONUS PLAN.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 5, 1995 PRELIMINARY COPIES
CONTINENTAL CABLEVISION, INC.
AND
PROVIDENCE JOURNAL COMPANY
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD APRIL , 1995
------------
CONTINENTAL CABLEVISION, INC.
PROSPECTUS
28,260,309 SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE
4,987,113 SHARES OF SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK, $.01 PAR
VALUE PER SHARE
------------
THE PROVIDENCE JOURNAL COMPANY
PROSPECTUS
38,689 SHARES OF CLASS A COMMON STOCK, $1.00 PAR VALUE PER SHARE
46,961 SHARES OF CLASS B COMMON STOCK, $1.00 PAR VALUE PER SHARE
------------
This Joint Proxy Statement-Prospectus (this "Joint Proxy Statement-
Prospectus") is being furnished to stockholders of Continental Cablevision,
Inc., a Delaware corporation ("Continental", which term includes its
consolidated subsidiaries unless the context indicates otherwise), and
Providence Journal Company, a Rhode Island corporation ("Providence Journal"),
in connection with the solicitation of proxies by the respective Boards of
Directors of such corporations for use, in the case of Continental, at its
Special Meeting in Lieu of the Annual Meeting of Stockholders and, in the case
of Providence Journal, at its Special Meeting of Stockholders (together, the
"Special Meetings") (including any adjournments or postponements of such
meetings) to be held on April , 1995 at the times and places and for the
purposes specified in the respective accompanying Notices of Special Meetings
and at any adjournments or postponements thereof. This Joint Proxy Statement-
Prospectus and forms of Proxy for the Special Meetings will be mailed to the
stockholders of Continental and Providence Journal on or about April , 1995.
(continued on next page)
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY STATEMENT-
PROSPECTUS. THE PROPOSED PLAN OF REORGANIZATION, MERGER AND RELATED
TRANSACTIONS DESCRIBED HEREIN ARE COMPLEX TRANSACTIONS. STOCKHOLDERS OF
CONTINENTAL AND PROVIDENCE JOURNAL ARE STRONGLY URGED TO CAREFULLY READ AND
CONSIDER THIS JOINT PROXY STATEMENT-PROSPECTUS IN ITS ENTIRETY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVEDBY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACYOF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TOTHE CONTRARY IS A CRIMINAL OFFENSE.
------------
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS APRIL , 1995
<PAGE>
This Joint Proxy Statement-Prospectus relates to the Amended and Restated
Agreement and Plan of Merger, dated as of November 18, 1994 (the "Merger
Agreement"), by and among Continental, Providence Journal, The Providence
Journal Company, a newly formed Delaware corporation ("New Providence
Journal"), King Holding Corp., a Delaware corporation ("KHC", a corporation
that will be wholly owned by Providence Journal), and King Broadcasting
Company, a Washington corporation ("KBC", a wholly owned subsidiary of KHC),
and certain related transactions. A copy of the Merger Agreement is attached
hereto as Annex I. Pursuant to the Merger Agreement, KBC, a subsidiary of
Providence Journal, which following an internal corporate restructuring of
Providence Journal and its subsidiaries will hold all of Providence Journal's
cable television businesses and assets ("Restructured PJC"), will merge with
and into Continental, and Continental will be the surviving corporation. (As
used in this Joint Proxy Statement-Prospectus, the term "KBC" will mean King
Broadcasting Company before the Restructuring, as defined below, and the term
"Restructured PJC" will mean King Broadcasting Company after the
Restructuring.)
At the Special Meeting in Lieu of the Annual Meeting of Stockholders of
Continental (the "Continental Special Meeting"), Continental stockholders will
be asked to consider and vote upon the following proposals: (i) the Merger
Agreement; (ii) an amendment to the Restated Certificate of Incorporation of
Continental (the "Continental Recapitalization Amendment") to increase the
total number of authorized shares of capital stock of Continental from
17,700,000 to 825,000,000, including an increase in (a) the number of
authorized shares of Common Stock, $.01 par value per share ("Continental
Common Stock"), from 15,000,000 to 625,000,000, of which 425,000,000 will be
shares of Class A Common Stock with one vote per share ("Continental Class A
Common Stock") and 200,000,000 will be shares of Class B Common Stock with ten
votes per share ("Continental Class B Common Stock") and (b) the number of
authorized shares of Preferred Stock, $.01 par value per share ("Continental
Preferred Stock"), from 2,700,000 to 200,000,000, of which 1,142,858 are
currently and will remain designated Series A Convertible Preferred Stock
("Continental Series A Preferred Stock") and, upon consummation of the Merger,
4,987,113 of which will be designated as Series B Cumulative Redeemable
Preferred Stock ("Continental Series B Preferred Stock"); (iii) the election of
four Class C Directors to serve a three-year term; and (iv) the ratification of
the appointment by the Board of Directors of Deloitte & Touche LLP as
Continental's independent public accountants for the current fiscal year ending
December 31, 1995. The proposals described in items (i) and (ii) above are
hereinafter collectively referred to as the "Continental Proposals".
Each of the proposals described in items (i) through (iv) above will be voted
upon separately by the holders of Continental Class A Common Stock, Continental
Class B Common Stock and Continental Series A Preferred Stock (collectively,
the "Continental Voting Stock"); however, failure of either the Merger
Agreement or the Continental Recapitalization Amendment to be approved by the
Continental stockholders will result in the abandonment by Continental of the
Merger (even if the Merger is separately approved). The proposal relating to
the approval and adoption of the Merger Agreement and each of the transactions
contemplated thereby must be approved by a majority of the votes entitled to be
cast by holders of the Continental Voting Stock, voting as a single class. The
proposal relating to the approval and adoption of the Continental
Recapitalization Amendment must be approved by 66 2/3% of the votes entitled to
be cast by the holders of the Continental Voting Stock, voting as a single
class, and separately by a majority of the votes entitled to be cast by holders
of the Continental Series A Preferred Stock. (See "Description of Continental
Capital Stock".)
At the Special Meeting of Stockholders of Providence Journal (the "Providence
Journal Special Meeting"), Providence Journal stockholders will be asked to
consider and vote upon the proposals listed below. The proposals described in
items (1), (2), (3), (4) and 5 below are hereinafter collectively referred to
as the "Providence Journal Proposals". The transactions described below will
occur in immediate succession.
(1) A proposal to approve and adopt a Plan of Reorganization of
Providence Journal (the "Plan of Reorganization"), which consists of the
internal transactions described in (2), (3), and (4) below (the
"Reorganization").
ii
<PAGE>
(2) A proposal to approve the contribution by KHC of all its assets
(consisting solely of 100% of the outstanding capital stock of KBC) to KBC
in exchange for shares of KBC Common Stock, which will be distributed to
Providence Journal, and KBC's assumption of all of KHC's liabilities and
the subsequent dissolution of KHC (KBC thereby becoming a direct wholly
owned subsidiary of Providence Journal).
(3) A proposal to approve (a) the contribution by Providence Journal of
all of its businesses and assets to KBC (hereinafter referred to in this
proposal (3) and in proposals (4) and (5) below as "Restructured PJC") in
exchange for shares of Restructured PJC Class A Common Stock, $1.00 par
value per share ("Restructured PJC Class A Common Stock"), and Restructured
PJC Class B Common Stock, $1.00 par value per share ("Restructured PJC
Class B Common Stock"; and, together with the Restructured PJC Class A
Common Stock, "Restructured PJC Common Stock"), and Restructured PJC's
assumption of all of the liabilities of Providence Journal, (b) the
dissolution of Providence Journal under the Rhode Island Business
Corporations Act ("RIBCA" or "Rhode Island Law") and (c) the distribution
of the shares of Restructured PJC Common Stock, the sole remaining asset of
Providence Journal, to Providence Journal shareholders, with one share of
Restructured PJC Class A Common Stock being distributed to the holder of
each share of Providence Journal Class A Common Stock, $2.50 par value per
share ("Providence Journal Class A Common Stock"), and one share of
Restructured PJC Class B Common Stock being distributed to the holder of
each share of Providence Journal Class B Common Stock, $2.50 par value per
share ("Providence Journal Class B Common Stock"; and, together with
Providence Journal Class A Common Stock, "Providence Journal Common
Stock"), each as outstanding immediately prior to such dissolution.
(4) A proposal to approve the contribution by Restructured PJC of all of
its businesses and assets unrelated to its cable television businesses (the
"PJC Non-Cable Business") to New Providence Journal, its newly created
wholly owned subsidiary (the "Contribution"). In exchange for such
contribution, New Providence Journal will assume all liabilities related to
such businesses and assets and issue to Restructured PJC a number of shares
of New Providence Journal Class A Common Stock, $1.00 par value per share
("New Providence Journal Class A Common Stock"), and New Providence Journal
Class B Common Stock, $1.00 par value per share ("New Providence Journal
Class B Common Stock"; and, together with New Providence Journal Class A
Common Stock, the "New Providence Journal Common Stock"), equal to the
number of shares of Restructured PJC Class A Common Stock and Restructured
PJC Class B Common Stock, respectively, outstanding immediately prior to
the Contribution. Restructured PJC (which, after the Contribution, will
hold only the former Providence Journal and KBC businesses and assets
related to cable television (the "PJC Cable Business")) will then
distribute the shares of New Providence Journal Common Stock, one share of
New Providence Journal Class A Common Stock to the holder of each share of
Restructured PJC Class A Common Stock and one share of New Providence
Journal Class B Common Stock to the holder of each share of Restructured
PJC Class B Common Stock, each as outstanding immediately prior to such
distribution (the "Distribution"). The Contribution and the Distribution
collectively constitute the "PJC Spin-Off".
(5) A proposal to approve and adopt the Merger Agreement, pursuant to
which Restructured PJC will merge (the "Merger") with and into Continental,
and each share of Restructured PJC Common Stock outstanding immediately
prior to the Merger will be converted into shares of Continental Class A
Common Stock and Continental Series B Preferred Stock.
(6) A proposal to approve and adopt the Providence Journal Cable Division
Sale Bonus Plan (the "Cable Division Sale Bonus Plan"), which provides
incentives in the form of bonuses to certain executives of Providence
Journal's cable television division upon and subject to the consummation of
the Merger.
Pursuant to rules promulgated by the Securities and Exchange Commission, each
of the three internal transactions that comprises the Plan of Reorganization
must be voted upon separately. Failure of the stockholders of Providence
Journal to approve any of these transactions will result in the failure of the
Plan of Reorganization. Further, the approval of each of the Plan of
Reorganization and the Merger is conditioned
iii
<PAGE>
upon the approval of the other; therefore failure of the stockholders of
Providence Journal to approve the Plan of Reorganization or the Merger will
result in the abandonment by Providence Journal of both the Plan of
Reorganization and the Merger. The affirmative vote of the holders of a
majority of the outstanding shares of both the Providence Journal Class A
Common Stock and the Providence Journal Class B Common Stock, with each class
voting separately, is required for approval of the Plan of Reorganization and
the proposals described in items (2), (3) and (4) above. The affirmative vote
of a majority of the votes of holders of the outstanding shares of the
Providence Journal Common Stock, voting together as a single class, is required
to approve the Merger. The affirmative vote of a majority of the votes of
holders of the outstanding shares of Providence Journal Common Stock, voting
together as a single class, is required to approve and adopt the Cable Division
Sale Bonus Plan; however, Providence Journal is seeking the approval of 75% of
such votes because failure to obtain such 75% approval could result in some or
all of the payments under the Cable Division Sale Bonus Plan being non-
deductible for federal income tax purposes to Providence Journal and in the
imposition of an excise tax on the recipients of such payments. Failure of the
stockholders of Providence Journal to approve any of the Providence Journal
Proposals will result in the abandonment by Providence Journal of both the Plan
of Reorganization and the Merger.
As described under "Rights of Dissenting Stockholders--Providence Journal",
holders of Providence Journal Common Stock who exercise and perfect dissenters'
rights under the RIBCA will be entitled to payment of the fair value of such
stockholders' shares of Providence Journal Common Stock and will not receive
shares of Restructured PJC Common Stock or, in turn, shares of Continental
Class A Common Stock, Continental Series B Preferred Stock or New Providence
Journal Common Stock as a result of the Merger or the PJC Spin-Off, as the case
may be. (See "Rights of Dissenting Stockholders--Providence Journal".)
Assuming no adjustments are made as described herein, the value ascribed
under the terms of the Merger Agreement to the Continental Class A Common Stock
and the Continental Series B Preferred Stock to be issued to the Providence
Journal stockholders (collectively the "Continental Merger Stock") is
$548,250,000 (or $19.40 per share of Continental Class A Common Stock) and
$96,750,000 (or $19.40 per share of Continental Series B Preferred Stock),
respectively, or an aggregate estimated value of $7,530.65 per share of
Providence Journal Common Stock that was outstanding on March 15, 1995. The
Continental Merger Stock valuation was arrived at by Continental and Providence
Journal as a result of arm's length negotiations between the parties and does
not necessarily reflect the price at which such shares will trade following the
completion of the Merger. (See "Certain Considerations Relating to the
Transactions--Certain Considerations Related to the Continental Merger Stock--
No Public Market; Possible Volatility of Stock Price".)
Assuming that the Merger and the foregoing transactions were consummated as
of the date hereof and all subsidiaries comprising the PJC Cable Business (the
"PJC Cable Subsidiaries") were wholly owned by Providence Journal, (i) the
holders of Providence Journal Common Stock would own Continental Class A Common
Stock representing in the aggregate approximately 16.2% of the outstanding
Continental Common Stock (treating the Continental Series A Preferred Stock as
if it were converted into Continental Class B Common Stock) and 100% of the
Continental Series B Preferred Stock and would hold an aggregate of 2.3% of the
voting power of Continental and (ii) each holder of Providence Journal Common
Stock would own the same number and class of shares in New Providence Journal
(which will then hold all of the PJC Non-Cable Business) as such holder owns in
Providence Journal immediately prior to the Restructuring. (See "The Merger--
Ownership of Continental Stock after the Merger" and "Ownership of New
Providence Journal after the PJC Spin-Off and the Merger".)
The Board of Directors of Providence Journal recommends that stockholders of
Providence Journal vote FOR each of the proposals, including the Providence
Journal Proposals, and the Board of Directors of Continental recommends that
stockholders of Continental vote FOR each of the proposals, including the
Continental Proposals.
iv
<PAGE>
This Joint Proxy Statement-Prospectus also constitutes a prospectus of
Continental with respect to the Continental Class A Common Stock and the
Continental Series B Preferred Stock to be issued in connection with the
Merger. At the effective time of the Merger (the "Effective Time"), the shares
of Continental Class A Common Stock and Continental Series B Preferred Stock
issued in connection with the Merger will be listed for trading in the over-
the-counter market and reported through the Nasdaq National Market ("NASDAQ")
or on a national securities exchange.
This Joint Proxy Statement-Prospectus also constitutes a prospectus of New
Providence Journal with respect to the New Providence Journal Class A Common
Stock and the New Providence Journal Class B Common Stock to be issued in
connection with the Contribution and the Distribution in accordance with the
terms of the Plan of Reorganization and the Merger Agreement. The shares of New
Providence Journal Class A Common Stock and New Providence Journal Class B
Common Stock issued in connection with the Contribution and the Distribution
will not be listed for trading on any securities exchange.
Because of the uncertainty of the timing of the receipt of the required
regulatory and other third-party approvals, if granted, the Restructuring, the
Contribution, the Distribution (the Contribution and the Distribution are
sometimes collectively referred to as the "PJC Spin-Off") and the Merger may
not be consummated for a number of weeks after the approval of such
transactions by the respective stockholders of Continental and Providence
Journal. Pursuant to the Merger Agreement, the respective Boards of Directors
of Continental and Providence Journal are soliciting stockholder approval at
this time in order to be in a position to consummate such transactions as soon
as practicable after the receipt of all necessary regulatory and other third-
party approvals.
All information contained in this Joint Proxy Statement-Prospectus relating
to Continental has been supplied by Continental, and all information contained
in this Joint Proxy Statement-Prospectus relating to Providence Journal and its
subsidiaries has been supplied by Providence Journal. The pro forma information
contained herein relating to Continental has been prepared by Continental and
includes historical financial information regarding Providence Journal that was
supplied to Continental by Providence Journal and KHC. The pro forma
information contained herein relating to New Providence Journal has been
prepared by Providence Journal and includes historical financial information
regarding Providence Journal.
This Joint Proxy Statement-Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Continental and Providence Journal on or
about April , 1995.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY STATEMENT-PROSPECTUS
OTHER THAN THOSE CONTAINED HEREIN, IN CONNECTION WITH THE SOLICITATION OF
PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY CONTINENTAL OR PROVIDENCE JOURNAL (OR ITS SUCCESSORS). THIS JOINT
PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF CONTINENTAL, PROVIDENCE JOURNAL OR NEW
PROVIDENCE JOURNAL SINCE THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS.
----------------
Until the date that is 25 days after the Effective Time all dealers effecting
transactions in the Continental Class A Common Stock and the Continental Series
B Preferred Stock whether or not participating in this distribution, may be
required to deliver a copy of this Joint Proxy Statement-Prospectus.
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION...................................................... 1
INFORMATION INCORPORATED BY REFERENCE...................................... 1
SUMMARY.................................................................... 2
The Companies............................................................ 2
The Special Meetings..................................................... 3
Security Ownership of Management......................................... 4
The Continental Recapitalization Amendment and the Continental Stock
Split................................................................... 4
The Pre-Merger Transactions.............................................. 5
Ownership of New Providence Journal after the PJC Spin-Off and the
Merger.................................................................. 6
The Merger............................................................... 7
Continental Series B Preferred Stock Election............................ 8
Payment for Shares....................................................... 9
Working Capital Adjustment............................................... 9
Ownership of Continental Stock after the Merger.......................... 9
Recommendation of the Boards of Directors................................ 9
Opinion of Financial Advisor............................................. 10
Effective Time of Merger................................................. 10
Conditions to the Merger................................................. 10
NASDAQ Listing........................................................... 10
Acquisition Proposals.................................................... 11
Registration Rights...................................................... 11
Undertakings Regarding Public Offering................................... 11
Termination Fees and Expenses; Indemnification........................... 12
Corporate Governance..................................................... 12
Interests of Certain Persons............................................. 13
Certain Federal Income Tax Considerations................................ 13
Accounting Treatment..................................................... 13
Rights of Dissenting Stockholders........................................ 13
Voting Agreement......................................................... 14
Noncompetition Agreement................................................. 14
Comparison of Rights of Stockholders..................................... 14
Market Prices and Dividend Data.......................................... 15
Cable Division Sale Bonus Plan........................................... 15
Providence Journal Summary Consolidated Financial Data................... 16
New Providence Journal Summary Pro Forma Financial Data.................. 16
Providence Journal Cable Summary Combined Financial Data................. 17
Continental Summary Consolidated Historical Information.................. 19
Continental Summary Pro Forma Financial Data............................. 21
CERTAIN CONSIDERATIONS RELATING TO THE TRANSACTIONS........................ 22
Continental's Reasons for the Merger; Recommendation of Continental Board
of Directors............................................................ 22
Providence Journal's Reasons for the Reorganization and the Merger ...... 22
Recommendation of Providence Journal Board of Directors.................. 24
Opinion of Financial Advisor to Providence Journal....................... 26
Certain Considerations Related to the Continental Merger Stock........... 30
Certain Considerations Associated with the Reorganization and the Merger. 34
Certain Considerations Related to the New Providence Journal Common
Stock................................................................... 34
Interests of Certain Persons in the Transactions......................... 37
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
THE SPECIAL MEETINGS....................................................... 39
Matters to Be Discussed at the Special Meetings.......................... 39
Record Dates; Stock Entitled to Vote; Quorum............................. 40
Required Votes........................................................... 40
Solicitation and Voting of Proxies....................................... 41
Ownership of Continental Securities...................................... 42
Ownership of Providence Journal Securities............................... 46
PRE-MERGER TRANSACTIONS.................................................... 49
New Cable Indebtedness................................................... 49
Kelso Buyout............................................................. 49
Plan of Reorganization................................................... 50
Certain Intercompany Transactions........................................ 51
THE MERGER................................................................. 52
General Provisions....................................................... 52
Conditions Precedent..................................................... 56
Certain Covenants........................................................ 58
Representations and Warranties........................................... 64
Indemnification.......................................................... 64
Tax Matters.............................................................. 65
Certain Employee Matters................................................. 65
Termination.............................................................. 67
Regulatory and Other Third Party Approvals............................... 68
Amendment; Waiver........................................................ 69
Ancillary Agreements..................................................... 69
Ownership of Continental Stock after the Merger.......................... 70
Ownership of New Providence Journal Stock after the Reorganization and
the Merger.............................................................. 70
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................. 70
Federal Income Tax Consequences of Certain Transactions.................. 71
Backup Withholding....................................................... 72
PROPOSAL TO APPROVE AND ADOPT THE CONTINENTAL RECAPITALIZATION AMENDMENT,
ELECTION OF CONTINENTAL DIRECTORS AND RATIFICATION OF APPOINTMENT OF
ACCOUNTANTS............................................................... 73
PROPOSAL TO APPROVE AND ADOPT THE CABLE DIVISION SALE BONUS PLAN........... 74
Administration........................................................... 74
Review and Authorization................................................. 74
Eligibility to Receive Awards............................................ 74
Bonus Pool............................................................... 74
Conditions............................................................... 74
General Restrictions..................................................... 75
Amendment................................................................ 75
DESCRIPTION OF PROVIDENCE JOURNAL PUBLISHING BUSINESS...................... 76
General.................................................................. 76
Circulation and Pricing.................................................. 76
Advertising.............................................................. 76
Production and Raw Materials............................................. 77
Other Publishing Activities.............................................. 77
Acquisitions............................................................. 78
Competition.............................................................. 78
Employees................................................................ 79
Properties............................................................... 79
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF PROVIDENCE JOURNAL BROADCAST TELEVISION BUSINESS............ 79
General.................................................................. 79
Industry Background...................................................... 80
The Stations............................................................. 81
Competition in the Television Industry................................... 85
Programming Investments.................................................. 86
Local Marketing Agreements............................................... 87
Operating Strategy....................................................... 88
Acquisition Strategy..................................................... 88
Licensing and Regulation................................................. 89
Employees................................................................ 93
Properties............................................................... 93
DESCRIPTION OF PROVIDENCE JOURNAL AND NEW PROVIDENCE JOURNAL............... 94
Other Investments and Assets............................................. 94
Legal Proceedings........................................................ 94
Capitalization of Providence Journal and Pro Forma Capitalization of New
Providence Journal...................................................... 95
Selected Consolidated Financial Data of Providence Journal............... 96
Management's Discussion and Analysis of Financial Condition and Results
of Operation of Providence Journal...................................... 96
Unaudited Pro Forma Condensed Financial Statements....................... 105
Unaudited Pro Forma Condensed Balance Sheet.............................. 106
Unaudited Pro Forma Condensed Statements of Operations................... 107
Market Price of New Providence Journal Common Stock and Dividend Policy
of New Providence Journal............................................... 108
Executive Officers and Directors of Providence Journal and New Providence
Journal................................................................. 109
Compensation of New Providence Journal Directors......................... 112
Executive Compensation................................................... 113
Stock Incentive Plans of Providence Journal Assumed by New Providence
Journal................................................................. 117
Compensation Committee Report on Executive Compensation.................. 122
Stockholder Return Performance Graph..................................... 123
Certain Relationships and Related Transactions........................... 124
Ownership of Providence Journal Capital Stock and New Providence Journal
Capital Stock........................................................... 124
DESCRIPTION OF NEW PROVIDENCE JOURNAL COMMON STOCK......................... 125
New Providence Journal Common Stock...................................... 125
Certain Provisions in the New Providence Journal Certificate............. 126
NPJ Rights Agreement..................................................... 127
COMPARISON OF RIGHTS OF STOCKHOLDERS OF PROVIDENCE JOURNAL AND NEW PROVI-
DENCE JOURNAL............................................................. 129
DESCRIPTION OF PROVIDENCE JOURNAL CABLE TELEVISION BUSINESS................ 130
Business................................................................. 130
Cable Television Business................................................ 130
Development of Providence Journal Cable.................................. 131
Providence Journal Cable's Systems....................................... 133
Technological Developments............................................... 134
Franchises............................................................... 134
Programming.............................................................. 135
Competition.............................................................. 135
Properties............................................................... 137
Employees................................................................ 138
Legal Proceedings........................................................ 138
</TABLE>
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Selected Combined Financial Data of Providence Journal Cable............. 138
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Providence Journal Cable............................... 140
DESCRIPTION OF CONTINENTAL................................................. 145
Business................................................................. 145
Domestic Cable Television Business....................................... 145
Domestic Operating Strategy.............................................. 146
Regulatory Response...................................................... 150
Development of Continental and its Business.............................. 151
Domestic Continental Systems............................................. 152
Domestic Acquisitions and Investments.................................... 155
International Operations................................................. 157
Strategic Investments.................................................... 160
Competition.............................................................. 163
Properties............................................................... 165
Employees................................................................ 166
Legal Proceedings........................................................ 166
Capitalization........................................................... 167
Selected Consolidated Financial Information of Continental............... 168
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Continental............................................ 170
Unaudited Pro Forma Condensed Financial Statements....................... 180
Unaudited Pro Forma Condensed Balance Sheet.............................. 181
Market Price of Continental Common Stock and Dividend Policy of
Continental............................................................. 187
Directors, Executive Officers and Other Officers of Continental.......... 187
Executive Compensation................................................... 191
Compensation of Directors................................................ 194
Certain Transactions..................................................... 194
Beneficial Ownership of Continental Capital Stock After the Merger....... 195
DESCRIPTION OF CONTINENTAL CAPITAL STOCK................................... 199
Continental Common Stock................................................. 199
Unissued Continental Preferred Stock..................................... 201
Continental Series A Preferred Stock..................................... 201
Continental Series B Preferred Stock..................................... 204
DGCL and Certain Provisions of the Continental Restated Certificate and
the Continental
By-Laws................................................................. 210
Transfer Agent........................................................... 212
CONTINENTAL SHARES ELIGIBLE FOR FUTURE SALE................................ 212
General.................................................................. 212
Rule 144 and 145 Restrictions............................................ 213
Rule 701................................................................. 214
Outstanding Registration Rights.......................................... 214
DESCRIPTION OF CONTINENTAL INDEBTEDNESS.................................... 215
COMPARISON OF RIGHTS OF STOCKHOLDERS OF PROVIDENCE JOURNAL AND CONTINENTAL. 218
Rights To Purchase Or Redeem Shares...................................... 218
Required Vote for Certain Business Combinations.......................... 219
Charter Amendments....................................................... 220
By-Law Amendments........................................................ 220
</TABLE>
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Voting Rights.......................................................... 221
Rights Agreement....................................................... 221
Preemptive Rights...................................................... 221
Transferability of Shares.............................................. 221
Special Meetings....................................................... 222
Corporate Action Without A Meeting..................................... 222
Dividends.............................................................. 223
Liquidation............................................................ 223
Appraisal or Dissenters' Rights........................................ 223
Provisions Relating To Directors And Officers.......................... 224
Stockholder Nominations and Rights of Preferred Stockholders to Elect
Directors............................................................. 225
Removal................................................................ 225
Derivative Suits....................................................... 225
Conflict of Interest Transactions...................................... 225
State Anti-Takeover Statutes........................................... 226
LEGISLATION AND REGULATION............................................... 227
Cable Communications Policy Act of 1984................................ 227
Cable Television Consumer Protection and Competition Act of 1992....... 227
Federal Regulation..................................................... 228
Copyright Regulation................................................... 236
State and Local Regulations............................................ 236
Regulation of Telecommunications Activities............................ 237
RIGHTS OF DISSENTING STOCKHOLDERS........................................ 238
Continental............................................................ 238
Providence Journal..................................................... 240
PAYMENT AND DISTRIBUTION TO STOCKHOLDERS................................. 243
LEGAL MATTERS............................................................ 244
EXPERTS.................................................................. 244
INDEX TO FINANCIAL STATEMENTS............................................ F-1
ANNEXES:
Annex I-- Amended and Restated Agreement and Plan of Merger............ I-1
Annex II-- Plan of Reorganization...................................... II-1
Annex III-- Opinion of Financial Advisor to Providence Journal......... III-1
Annex IV-- Section 262 of the Delaware General Corporation Law......... IV-1
Annex V-- Sections 7-1.1-73 and 7-1.1-74 of the Rhode Island Business
Corporations Act...................................................... V-1
Annex VI-- Providence Journal Cable Division Sale Bonus Plan........... VI-1
</TABLE>
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DEFINITION CROSS REFERENCE SHEET
SET FORTH BELOW IS A LIST OF CERTAIN DEFINED TERMS USED IN THIS JOINT PROXY
STATEMENT-PROSPECTUS AND THE PAGE ON WHICH SUCH TERM IS DEFINED:
<TABLE>
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- ------------ ----
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12 7/8% Debt.............................................................. 182
1984 Cable Act............................................................ 134
1992 Cable Act............................................................ 22
1994 Credit Facility...................................................... 218
1995 Credit Facility...................................................... 175
401K Plan................................................................. 66
ABC....................................................................... 36
Accreted Value............................................................ 204
Aliens.................................................................... 90
Allowed Transferee........................................................ 205
ASCAP..................................................................... 238
Assumed Awards............................................................ 38
Assumed Options........................................................... 37
ATV....................................................................... 92
Audit Bureau.............................................................. 76
Base Price................................................................ 210
BBT....................................................................... 145
Bear Stearns.............................................................. 10
BED Partnerships.......................................................... 178
Bell Atlantic............................................................. 23
BMI....................................................................... 238
Boston Ventures Investors................................................. 190
Break-Up Fee.............................................................. 12
BV Co. III................................................................ 45
BV Co. IV................................................................. 45
Cable Division Sale Bonus Plan............................................ (iii)
Cable Employees........................................................... 65
CableLabs................................................................. 162
Cable LP.................................................................. 138
Cable Partners............................................................ 162
Callable Notes and Debentures............................................. 219
Capital Cities............................................................ 156
Caps...................................................................... 176
CBS....................................................................... 36
Class B Holder............................................................ 202
Class A Right............................................................. 127
Class B Right............................................................. 127
Closing................................................................... 57
Closing Date.............................................................. 35
CNN....................................................................... 130
Code...................................................................... 13
Co-Investment Agreement................................................... 45
Colony.................................................................... 17
Colony Cablevision........................................................ 17
Combined Company.......................................................... 27
Comcast................................................................... 28
<CAPTION>
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- ------------ ----
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Commission................................................................ 1
Communications Act........................................................ 37
Comparable Cable Companies................................................ 29
Consolidated Operating Income............................................. 218
Consolidated Total Debt................................................... 218
ContCable................................................................. 45
Continental............................................................... (i)
Continental ByLaws........................................................ 15
Continental Class A Common Stock.......................................... (ii)
Continental Class B Common Stock.......................................... (ii)
Continental Common Stock.................................................. (ii)
Continental Merger Stock.................................................. (iv)
Continental Named Executive Officers...................................... 193
Continental Preferred Stock............................................... (ii)
Continental Preferred Stock Investors..................................... 190
Continental Proposals..................................................... (ii)
Continental Proposed Transaction.......................................... 27
Continental Recapitalization Amendment.................................... (ii)
Continental Record Date................................................... 3
Continental Redeemable Common Stock....................................... 178
Continental Registration Statement........................................ 33
Continental Restated Certificate.......................................... 15
Continental Retirement Plan............................................... 195
Continental Rightsholders................................................. 216
Continental Series A Preferred Stock...................................... (ii)
Continental Series B Preferred Stock...................................... (ii)
Continental Special Meeting............................................... (ii)
Continental Stock Split................................................... 4
Continental Voting Stock.................................................. (ii)
Contribution.............................................................. (iii)
Contribution and Assumption Agreement..................................... 6
Copley/Colony............................................................. 7
Corporate Advisors........................................................ 45
Corporate Offshore Partners............................................... 45
Corporate Partners........................................................ 45
Cox....................................................................... 28
CPS....................................................................... 146
Credit Agreement Lenders.................................................. 218
CTAM...................................................................... 148
CTPAA..................................................................... 149
C-SPAN.................................................................... 130
Current Market Price...................................................... 210
DBS....................................................................... 2
Delaware Court............................................................ 240
DGCL or Delaware Law...................................................... 5
</TABLE>
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<TABLE>
<CAPTION>
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- ------------ ----
<S> <C>
DMA....................................................................... 80
Digital Cable Radio....................................................... 164
Directors Upon Default.................................................... 204
Distribution.............................................................. (iii)
Distribution Date......................................................... 127
Dynamic................................................................... 138
Dynamic Partnership....................................................... 7
E!........................................................................ 152
EEO....................................................................... 236
Effective Time............................................................ (v)
ERISA Affiliate........................................................... 66
ESPN...................................................................... 130
Eurodollar................................................................ 218
Exchange Act.............................................................. 1
Exchange Agent............................................................ 245
Expiration Date........................................................... 127
FASB...................................................................... 103
FCC....................................................................... 31
Fintelco.................................................................. 159
Floating Rate Debentures.................................................. 219
Fox....................................................................... 36
FPGT...................................................................... 45
GAAP...................................................................... 18
GMIMC..................................................................... 46
Goldman Sachs............................................................. 22
HBO....................................................................... 130
Hearst.................................................................... 156
Homes..................................................................... 2
Hospital Trust............................................................ 48
HSN....................................................................... 149
Issue Date................................................................ 206
IUP....................................................................... 112
IXC....................................................................... 162
Joint Proxy Statement-Prospectus.......................................... (i)
Journal................................................................... 76
Journal 401(k) Plan....................................................... 117
Junior Stock.............................................................. 209
KBC....................................................................... (ii)
Kelso Buyout.............................................................. 5
Kelso Partnerships........................................................ 5
KHC....................................................................... (ii)
King Videocable........................................................... 17
Lazard.................................................................... 22
LEC....................................................................... 161
Linkatel.................................................................. 37
LMA....................................................................... 87
Losses and Expenses....................................................... 57
Lowell Sun Companies...................................................... 78
Management Group.......................................................... 212
Mandatory Tender Offer.................................................... 178
Maximum Amount............................................................ 7
<CAPTION>
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- ------------ ----
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Maximum Severance......................................................... 117
Merger.................................................................... (iii)
Merger Agreement.......................................................... (ii)
MMDS...................................................................... 31
MTA....................................................................... 162
MTV....................................................................... 130
NASDAQ.................................................................... (v)
NBC....................................................................... 36
NCC....................................................................... 149
N-COM..................................................................... 153
NCTA...................................................................... 190
NEA....................................................................... 149
New Cable Indebtedness.................................................... 5
New Providence Journal.................................................... (ii)
New Providence Journal By-Laws............................................ 15
New Providence Journal Certificate........................................ 15
New Providence Journal Class A Common Stock............................... (iii)
New Providence Journal Class B Common Stock............................... (iii)
New Providence Journal Common Stock....................................... (iii)
Nielsen................................................................... 80
Non-Callable Notes and Debentures......................................... 219
Noncompetition Agreement.................................................. 14
North Central Cable....................................................... 173
Notes and Debentures...................................................... 219
NPJ New Indebtedness...................................................... 5
NPJ Rights Agreement...................................................... 15
NPT....................................................................... 146
Offering.................................................................. 11
Optus..................................................................... 160
Palmer.................................................................... 71
Palmer Systems............................................................ 71
Palm Springs System....................................................... 12
Parity Stock.............................................................. 207
PCS....................................................................... 162
Permitted Class B Transferee.............................................. 202
PJC Broadcasting Business................................................. 2
PJC Cable Business........................................................ (iii)
PJC Cable Subsidiaries.................................................... (iv)
PJC Non-Cable Business.................................................... (iii)
PJC Outstanding Shares.................................................... 7
PJC Publishing Business................................................... 2
PJC Spin-Off.............................................................. (iii)
Plan of Reorganization.................................................... (ii)
PPVN...................................................................... 164
Precedent CATV Transactions............................................... 28
Preferred Extraodinary Transaction........................................ 212
Preferred Stock Election.................................................. 8
Preferred Stock Election Form............................................. 54
Preferred Stock Purchase Agreement........................................ 203
</TABLE>
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- ------------ ----
<S> <C>
PrimeStar................................................................. 162
Providence Journal........................................................ (i)
Providence Journal Business Combination................................... 221
Providence Journal ByLaws................................................. 14
Providence Journal Cable.................................................. 9
Providence Journal Charter................................................ 14
Providence Journal Class A Common Stock................................... (iii)
Providence Journal Class B Common Stock................................... (iii)
Providence Journal Common Stock........................................... (iii)
Providence Journal Named Executive
Officers................................................................. 113
Providence Journal Nominees............................................... 12
Providence Journal Option Plans........................................... 37
Providence Journal Pension Plan........................................... 116
Providence Journal Proposals.............................................. (ii)
Providence Journal Record Date............................................ 3
Providence Journal Retirement Plans....................................... 38
Providence Journal Special Meeting........................................ (ii)
Providence Journal Stock Incentive Plans.................................. 37
Providence Journal Transactions........................................... 10
Prudential Notes.......................................................... 176
PSN....................................................................... 87
PTAR...................................................................... 91
QVC....................................................................... 149
RBOC...................................................................... 161
Redemption Notice......................................................... 209
Registrable Shares........................................................ 216
Registration Agreements................................................... 216
Registration Effective Date............................................... 33
Registration Rights Holders............................................... 11
Reorganization............................................................ (ii)
Requested Rulings......................................................... 71
Restricted Business....................................................... 14
Restricted Group.......................................................... 218
Restricted Subsidiaries................................................... 217
Restructured PJC.......................................................... (ii)
Restructured PJC Class A Common Stock..................................... (iii)
Restructured PJC Class B Common Stock..................................... (iii)
Restructured PJC Common Stock............................................. (iii)
Restructuring............................................................. (v)
RFP....................................................................... 162
RIBCA or Rhode Island Law................................................. (iii)
Rights.................................................................... 127
Rights Agreement.......................................................... 15
RSPA III.................................................................. 195
RSPA Offer................................................................ 195
SBA....................................................................... 45
SCV....................................................................... 159
Section 16(b) Period...................................................... 119
<CAPTION>
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- ------------ ----
<S> <C>
Section 74................................................................. 14
Section 262................................................................ 13
Securities Act............................................................. 1
Selling Stockholders....................................................... 179
Series A Certificate of Designation........................................ 203
Series B Certificate of Designation........................................ 194
Series A Redemption Price.................................................. 204
Series B Redemption Price.................................................. 209
SERP....................................................................... 195
Service.................................................................... 10
SFAS 109................................................................... 32
SFAS 114................................................................... 103
SFAS 115................................................................... 103
SFAS 119................................................................... 103
Shortfall Amount........................................................... 55
SMATV...................................................................... 136
Social Contract............................................................ 151
Special Meetings........................................................... (i)
StarSight.................................................................. 94
Stated Amount.............................................................. 209
Stations................................................................... 79
Stock Acquisition Date..................................................... 127
Stock For Loan Exchange.................................................... 195
Stock Liquidation Agreement................................................ 178
Subject Stockholders....................................................... 178
Summary Compensation Table................................................. 193
Superior Proposal.......................................................... 63
Swaps...................................................................... 176
TCG........................................................................ 161
TCI........................................................................ 23
Termination Date........................................................... 67
TVFN....................................................................... 37
The Sunshine Network....................................................... 164
Trading Day................................................................ 209
Transaction Consideration.................................................. 245
Trust...................................................................... 14
Turner..................................................................... 152
UHF........................................................................ 80
Unrestricted Subsidiaries.................................................. 218
USA........................................................................ 130
VCC........................................................................ 159
VCR........................................................................ 36
Vencap..................................................................... 45
VHF........................................................................ 80
Voting Agreement........................................................... 14
Westerly................................................................... 52
Working Capital............................................................ 9
Zing....................................................................... 164
</TABLE>
xiii
<PAGE>
AVAILABLE INFORMATION
Continental has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Continental Class
A Common Stock and Continental Series B Preferred Stock described in this Joint
Proxy Statement-Prospectus. New Providence Journal has filed with the
Commission a registration statement on Form S-4 under the Securities Act with
respect to the New Providence Journal Class A Common Stock and New Providence
Journal Class B Common Stock described in this Joint Proxy Statement-
Prospectus. Each of Continental and New Providence Journal will file with the
Commission a registration statement under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), with respect to the Continental Class A Common
Stock and Continental Series B Preferred Stock and New Providence Journal Class
A Common Stock and New Providence Journal Class B Common Stock, respectively.
Such registration statements and exhibits thereto can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials can be obtained
by mail from the public reference branch of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
Neither Continental nor Providence Journal is currently required to file any
reports with the Commission under the Exchange Act, and accordingly, no
information relating to Continental or Providence Journal is incorporated
herein by reference.
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SUMMARY
The following is a summary of certain information contained in this Joint
Proxy Statement-Prospectus. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information set
forth elsewhere in this Joint Proxy Statement-Prospectus and its Annexes, all
of which should be reviewed carefully.
THE COMPANIES
CONTINENTAL. Continental is currently the fifth largest cable television
system operator in the United States. Continental's five management regions
operate cable television systems in 16 states, principally in suburban areas
and mid-sized cities. As of December 31, 1994, Continental's systems and those
of its domestic affiliates passed approximately 5,383,000 occupied dwelling
units ("Homes") and provided cable service to approximately 3,081,000 basic
subscribers. Giving effect to the Merger and other pending acquisitions
described herein, Continental anticipates that it will become the third largest
cable television system operator in the United States, passing approximately
7,049,000 Homes and serving approximately 4,063,000 basic subscribers in 20
states. Continental also participates in cable television ventures outside of
the United States. Continental has acquired, subject to receipt of regulatory
approvals, an approximate 50% interest in the largest cable television system
operator in Argentina, which currently serves over 600,000 subscribers; has a
25% equity interest in a joint venture that is constructing a cable television
system to serve Singapore's approximately 820,000 households; and is pursuing
other international cable television and telecommunications investments,
including a joint venture in Australia, which will construct a network to
provide cable television, local telephone and a variety of advanced broadband
interactive services to business and residential customers. In addition,
Continental has made investments in the telecommunications and technology
industries, including companies offering competitive access telephony and
direct broadcast satellite ("DBS") service, and in various programming
ventures.
Continental was incorporated in the State of Delaware in 1963. Continental's
principal offices are located at The Pilot House, Lewis Wharf, Boston,
Massachusetts, and its telephone number is (617) 742-9500.
PROVIDENCE JOURNAL. Providence Journal is a diversified communications
company with operations and investments in several media and electronic
communications businesses. The principal areas of Providence Journal's
activities are newspaper publishing, television broadcasting and the operation
of cable television systems. Providence Journal's newspapers, known
collectively as the Journal, have the largest circulation in the Rhode Island
and Southeastern Massachusetts market (the "PJC Publishing Business"). In
television broadcasting, Providence Journal owns or partially owns and operates
nine network-affiliated television stations in geographically diverse markets,
including five stations serving areas, which are among the fifty largest
domestic television markets (the "PJC Broadcasting Business"). As of December
31, 1994, Providence Journal's owned or partially owned cable television
operations included systems passing approximately 1,253,000 Homes and serving
approximately 771,000 basic subscribers in nine states, making Providence
Journal the 16th largest multiple cable system operator in the United States.
Providence Journal was the founding partner of the Television Food Network and
is involved in various other programming ventures.
Providence Journal was incorporated in the State of Rhode Island in 1884. Its
principal executive offices are located at 75 Fountain Street, Providence,
Rhode Island, and its telephone number is (401) 277-7000. Unless the context
otherwise indicates, the term "Providence Journal" refers to Providence Journal
and its consolidated subsidiaries.
NEW PROVIDENCE JOURNAL. New Providence Journal was incorporated in the State
of Delaware on November 15, 1994 and is currently a wholly owned subsidiary of
Providence Journal. In the event the
2
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Providence Journal Proposals are approved by the required vote of stockholders
of Providence Journal, Providence Journal will transfer the PJC Publishing
Business, the PJC Broadcasting Business and all other assets and liabilities of
the PJC Non-Cable Business to New Providence Journal, the shares of which will
be distributed to the stockholders of Providence Journal in the PJC Spin-Off.
Following the Merger and the other transactions described in this Joint Proxy
Statement-Prospectus, New Providence Journal will be an independent company
engaged in the same businesses (other than as relating to the PJC Cable
Business) and having the same Board of Directors and management as Providence
Journal had prior to the consummation of the Merger and the other transactions
described herein. The principal executive offices of New Providence Journal are
located at 75 Fountain Street, Providence, Rhode Island, and its telephone
number is (401) 277-7000.
THE SPECIAL MEETINGS
CONTINENTAL. The Continental Special Meeting will be held at the offices of
Sullivan & Worcester, One Post Office Square, Boston, Massachusetts, 02109 on
April , 1995, beginning at local time. The purpose of the Continental
Special Meeting is to consider and vote upon the Continental Proposals and
certain other proposals. (See "The Special Meetings--Matters to Be Discussed at
the Special Meetings--Continental".)
The record date for the Continental Special Meeting is April 15, 1995 (the
"Continental Record Date"). Accordingly, holders of record of Continental
Voting Stock as of the Continental Record Date will be entitled to notice of,
and to vote at, the Continental Special Meeting.
The presence in person or by proxy of shares representing a majority of votes
entitled to be cast by holders of the Continental Voting Stock as of the
Continental Record Date is required to constitute a quorum for the transaction
of business at the Continental Special Meeting.
The Merger Agreement and each of the transactions contemplated thereby,
including the Merger, must be approved by a majority of the votes entitled to
be cast by the holders of the Continental Voting Stock, voting as a single
class. The Continental Recapitalization Amendment must be approved by 66 2/3%
of the votes entitled to be cast by the holders of Continental Voting Stock,
voting as a single class, and separately by a majority of the votes entitled to
be cast by the holders of the Continental Series A Preferred Stock. The
election of Directors will be determined by a plurality of the votes cast at
that Special Meeting by the holders of the Continental Voting Stock, voting as
a single class.
PROVIDENCE JOURNAL. The Providence Journal Special Meeting will be held at
the offices of Providence Journal on April , 1995, beginning at 11:00 a.m.
local time. The purpose of the Providence Journal Special Meeting is to
consider and vote upon the Providence Journal Proposals and the approval and
adoption of the Cable Division Sale Bonus Plan. (See "The Special Meetings--
Matters to Be Discussed at the Special Meetings--Providence Journal".)
The record date for the Providence Journal Special Meeting is April , 1995
(the "Providence Journal Record Date"). Accordingly, holders of record of
Providence Journal Common Stock as of the Providence Journal Record Date will
be entitled to notice of, and to vote at, the Providence Journal Special
Meeting.
The presence in person or by proxy of shares representing a majority of votes
entitled to be cast by holders of Providence Journal Common Stock as of the
Providence Journal Record Date is required to constitute a quorum for the
transaction of business at the Providence Journal Special Meeting.
The Plan of Reorganization (and each of its three components) must be
approved by the holders of a majority of the shares of both Providence Journal
Class A Common Stock and Providence Journal Class B Common Stock, with each
class voting separately. The Merger Agreement and each of the transactions
3
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contemplated thereby, including the Merger, must be approved by a majority of
the votes entitled to be cast by the holders of Providence Journal Common
Stock, voting as a single class. The affirmative vote of a majority of the
votes of holders of the outstanding shares of Providence Journal Common Stock,
voting together as a single class, is required to approve the Cable Division
Sale Bonus Plan; however, Providence Journal is seeking the approval of 75% of
such votes because failure to obtain such 75% approval could result in some or
all of the payments under the Cable Division Sale Bonus Plan being non-
deductible for federal income tax purposes to Providence Journal and in the
imposition of an excise tax on the recipients of such payments.
SECURITY OWNERSHIP OF MANAGEMENT
CONTINENTAL. Giving effect to the Continental Recapitalization Amendment and
the Continental Stock Split described below in "The Continental
Recapitalization Amendment and the Continental Stock Split", as of March 15,
1995, Directors and executive officers of Continental and their respective
affiliates may be deemed to be the beneficial owners of 91,373,425 shares of
the outstanding Continental Common Stock (treating the Continental Series A
Preferred Stock as if it were converted into Continental Class B Common Stock)
which constitute in the aggregate approximately 65.57% of the total votes
entitled to be cast by the holders of Continental Voting Stock. It is
anticipated that each of such Directors, executive officers and their
respective affiliates will vote their shares in favor of each of the
Continental Proposals and the other proposals. (See "The Special Meetings--
Ownership of Continental Securities" and "Description of Continental--
Beneficial Ownership of Continental Capital Stock After the Merger" and "The
Merger--Ancillary Agreements--Voting Agreement".)
PROVIDENCE JOURNAL. As of March 15, 1995, Directors and executive officers of
Providence Journal and their affiliates may be deemed to be the beneficial
owners of 6,610 shares of the outstanding Providence Journal Class A Common
Stock and 6,704 shares of the outstanding Providence Journal Class B Common
Stock, which constitutes in the aggregate approximately 14.8% of the total
votes entitled to be cast by the holders of Providence Journal Common Stock at
the Providence Journal Special Meeting. It is anticipated that each of such
Directors, executive officers and their affiliates will vote their shares in
favor of the Providence Journal Proposals and the Cable Division Sale Bonus
Plan. (See "The Special Meetings--Ownership of Providence Journal Securities"
and "The Merger--Ancillary Agreements--Voting Agreement".)
THE CONTINENTAL RECAPITALIZATION AMENDMENT AND THE CONTINENTAL STOCK SPLIT
The Continental Recapitalization Amendment provides for an increase in the
number of authorized shares of capital stock of Continental from 17,700,000 to
825,000,000, including an increase in (i) the number of authorized shares of
Continental Common Stock from 15,000,000 to 625,000,000, of which 425,000,000
will be shares of Continental Class A Common Stock (with one vote per share)
and 200,000,000 will be shares of Continental Class B Common Stock (with ten
votes per share), and (ii) the number of authorized shares of Continental
Preferred Stock from 2,700,000 to 200,000,000, of which 1,142,858 are currently
designated Continental Series A Preferred Stock and, upon consummation of the
Merger, of which 4,987,113 will be designated as Continental Series B Preferred
Stock. If the Continental Recapitalization Amendment is approved by the
Continental stockholders prior to the Effective Time, the Board of Directors of
Continental will declare a stock dividend in the form of (a) 24 shares of
Continental Class A Common Stock for each share of Continental Class A Common
Stock outstanding on the record date for such stock dividend and (b) 24 shares
of Continental Class B Common Stock for each share of Continental Class B
Common Stock outstanding on the record date for such stock dividend (the
"Continental Stock Split"). The result of the Continental Stock Split will be
that each share of Continental Common Stock currently outstanding will become
25 shares of Continental Common Stock prior to the consummation of the Merger.
No stock dividend will be declared in respect of shares of Continental Series A
Preferred Stock, but in accordance with their terms, the number of votes per
share of Continental Series A Preferred Stock and the number of shares of
4
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Continental Common Stock into which such shares may be converted will be
adjusted accordingly to reflect the Continental Stock Split. Except as noted
herein, the information in this Joint Proxy Statement-Prospectus regarding the
capital stock of Continental has been adjusted to reflect: (i) the Continental
Recapitalization Amendment and (ii) the Continental Stock Split.
THE PRE-MERGER TRANSACTIONS
GENERAL. Prior to and as a condition to the Merger, each of the following
transactions must be consummated. (See "Pre-Merger Transactions" for a more
complete description of these transactions.)
NEW INDEBTEDNESS. Prior to the Restructuring described below, Providence
Journal or one or more of the PJC Cable Subsidiaries will incur indebtedness in
a minimum principal amount of $755,000,000 (the "New Cable Indebtedness").
Immediately prior to the Contribution, Providence Journal will draw down the
$755,000,000 of New Cable Indebtedness in order to consummate the Kelso Buyout
(as defined below), to purchase minority interests in certain PJC Cable
Subsidiaries not presently wholly owned by Providence Journal or KHC, to pay
costs associated with the Merger and certain deferred compensation totalling
$70,000,000 and to repay existing indebtedness. Additional indebtedness
required to meet the foregoing obligations, among others, will be incurred by
New Providence Journal in a minimum principal amount of approximately
$183,000,000 (the "NPJ Indebtedness"). Following the Merger, New Providence
Journal will have no obligations or liabilities with respect to the New Cable
Indebtedness, and Continental will have no obligations or liabilities with
respect to the NPJ Indebtedness. (See "Pre-Merger Transactions--New
Indebtedness".)
KELSO BUYOUT. Kelso Investment Associates IV, L.P., Kelso Partners IV, L.P.
and Kelso Equity Partners II, L.P., each a Delaware limited partnership (the
"Kelso Partnerships"), presently own and control 50% of the capital stock of
KHC, which in turn owns and controls 100% of the capital stock of KBC.
Providence Journal will use a portion of the proceeds of the New Cable
Indebtedness, together with proceeds from the NPJ Indebtedness, to acquire all
shares of capital stock of KHC owned and controlled by the Kelso Partnerships
for a purchase price of $265,000,000, including $5,000,000 in transaction fees
(the "Kelso Buyout"). Following the Kelso Buyout, KHC will be a wholly owned
subsidiary of Providence Journal. (See "Pre-Merger Transactions--Kelso
Buyout".)
PLAN OF REORGANIZATION. In order to protect the tax-free nature of the Merger
to the holders of Providence Journal Common Stock, the Plan of Reorganization
provides, and the Merger Agreement requires, that Providence Journal reorganize
its corporate structure. The actions described in clauses (i) through (iii)
below together constitute the "Restructuring". (As used in the Joint Proxy
Statement-Prospectus, the term "KBC" shall mean King Broadcasting Company
before the Restructuring and the term "Restructured PJC" shall mean King
Broadcasting Company after the Restructuring.) Consequently, on or prior to the
Effective Time, each of the following transactions will occur in immediate
succession:
(i) KHC will contribute all of its assets (consisting solely of 100% of
the outstanding capital stock of KBC) to KBC in exchange for KBC's
assumption of all KHC's liabilities and obligations and for shares of
common stock of KBC, which will be distributed to Providence Journal in
exchange for and in redemption of all of KHC's outstanding capital stock.
KHC will then be dissolved pursuant to the General Corporation Law of the
State of Delaware (the "DGCL" or "Delaware Law"). As a result, KBC will
become a direct wholly owned subsidiary of Providence Journal.
(ii) Providence Journal will contribute all of its businesses and assets
to KBC (hereinafter referred to in clauses (iii) through (v) below as
"Restructured PJC") in exchange for shares of Restructured PJC Common
Stock, and KBC will assume all of the obligations and liabilities of
Providence Journal.
(iii) Providence Journal will commence dissolution proceedings under
applicable Rhode Island Law, and the Restructured PJC Common Stock, which
shall then be the sole remaining asset of
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Providence Journal, will be distributed to the holders of Providence
Journal Common Stock in proportion to the class and number of shares of
Providence Journal Common Stock so owned by such holders. As a result, each
holder of Providence Journal Common Stock immediately prior to the
Restructuring will own the same number and class of shares of Restructured
PJC Common Stock as such holder owned in Providence Journal.
(iv) Pursuant to the Contribution, Restructured PJC will contribute all
of the PJC Non-Cable Business and the liabilities related thereto to New
Providence Journal, its wholly owned subsidiary. In exchange for such
contribution, New Providence Journal will issue to Restructured PJC a
number of shares of New Providence Journal Class A Common Stock and New
Providence Journal Class B Common Stock equal to the number of outstanding
shares of Restructured PJC Class A Common Stock and Restructured PJC Class
B Common Stock, respectively.
(v) Pursuant to the Distribution, Restructured PJC will distribute one
share of New Providence Journal Class A Common Stock to the holder of each
share of Restructured PJC Class A Common Stock and one share of New
Providence Journal Class B Common Stock to the holder of each share of
Restructured PJC Class B Common Stock, each as outstanding immediately
prior to the Distribution. As a result, each holder of Providence Journal
Common Stock immediately prior to the Restructuring will own the same
number and class of shares in New Providence Journal as such holder owned
in Providence Journal.
The Contribution (and the assumption of liabilities by New Providence Journal
in connection with the Contribution) and the Distribution (the actions
described in clauses (iv) and (v) above) are hereinafter collectively referred
to as the "PJC Spin-Off". The terms of the PJC Spin-Off are contained in the
form of Contribution and Assumption Agreement, a copy of which is attached as
Exhibit B to the Merger Agreement (the "Contribution and Assumption
Agreement"). In connection with and as part of the PJC Spin-Off, New Providence
Journal will assume and agree to hold Restructured PJC harmless from all
liabilities of Restructured PJC other than the New Cable Indebtedness and
liabilities associated with the PJC Cable Business and Restructured PJC's
obligations under the Contribution and Assumption Agreement. Restructured PJC
will in turn agree to hold New Providence Journal harmless from such unassumed
liabilities, which will become liabilities of Continental pursuant to the
Merger.
Pursuant to the Contribution and Assumption Agreement, New Providence Journal
has agreed that for a period of four years from the Effective Time, it will not
(i) sell, transfer, assign or otherwise dispose of any material assets or (ii)
declare, set aside or pay any dividend or other distribution (with certain
exceptions) in respect of its capital stock, or redeem or otherwise acquire any
of its capital stock, if, as a result of any such transaction, New Providence
Journal would have a fair market value (determined as a sale on a private
market, going concern basis, free and clear of all liabilities) of less than:
(x) for the period to and including the first anniversary of the Effective
Time, $200,000,000, (y) for the period from such first anniversary to and
including the second anniversary of the Effective Time, $150,000,000 and (z)
for the period from such second anniversary to and including the fourth
anniversary of the Effective Time, $50,000,000, provided, however, that New
Providence Journal may proceed with any transaction which would otherwise be
prohibited by the foregoing if it provides security to Continental in form and
amount reasonably acceptable to Continental.
OWNERSHIP OF NEW PROVIDENCE JOURNAL AFTER THE PJC SPIN-OFF AND THE MERGER
Following the PJC Spin-Off and the Merger, holders of shares of Providence
Journal Common Stock immediately prior to the Restructuring who have not
exercised and perfected statutory dissenters' rights under the RIBCA will own
shares of New Providence Journal Common Stock constituting 100% of the equity
and voting power of New Providence Journal, in the same proportion (and of the
same class) as shares of Providence Journal Common Stock that such holders
owned immediately prior to the Restructuring. (See "Rights of Dissenting
Stockholders--Providence Journal" for a description of dissenters' rights
available to Providence Journal stockholders.)
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THE MERGER
The Merger Agreement provides that, subject to the requisite adoption and
approval by Continental's stockholders of the Continental Recapitalization
Amendment and the Merger, the requisite adoption and approval by the Providence
Journal stockholders of the Plan of Reorganization and the Merger and the
satisfaction or waiver of certain other conditions, at the Effective Time,
Restructured PJC (which, at the time of the Merger, will own only the PJC Cable
Business) will be merged with and into Continental, the separate existence of
Restructured PJC will cease, and Continental will continue as the surviving
corporation. As a result of the Merger, Continental will acquire the PJC Cable
Business and will assume the New Cable Indebtedness and substantially all of
the liabilities of Restructured PJC relating to the PJC Cable Business.
In the Merger, shares of Restructured PJC Common Stock outstanding
immediately prior to the Merger shall be converted into shares of Continental
Merger Stock. Giving effect to the Continental Stock Split, the number of
shares of Continental Class A Common Stock and of Continental Series B
Preferred Stock to be issued in exchange for each share of Restructured PJC
Common Stock will be determined by the following formulas (subject to the
effects of the Preferred Stock Election described below):
Class A Common Stock Formula: Maximum Amount
------------------------------------
$19.40 x PJC Outstanding Shares
Series B Preferred Stock Formu-
la: $96,750,000
------------------------------------
$19.40 x PJC Outstanding Shares
"Maximum Amount"............... means $548,250,000, which amount will be
reduced by the amount set forth opposite
each of the following PJC Cable Subsidiaries
(which are not currently wholly owned by
Providence Journal) if Restructured PJC does
not, directly or indirectly, wholly own such
PJC Cable Subsidiary at the Effective Time.
Subsidiary Reduction
---------- ---------
Copley/Colony, Inc. $42,610,000
Dynamic Cablevision of
Florida, Ltd. $11,300,000
California CATV Partners $ 1,490,000
"PJC Outstanding Shares"....... means the shares of Providence Journal
Common Stock outstanding immediately prior
to the Restructuring (other than shares
owned directly or indirectly by Providence
Journal as treasury stock or by any of its
subsidiaries).
As of the date of this Joint Proxy Statement-Prospectus, (i) Providence
Journal owns, directly or indirectly, the following percentage of equity
interests in each of the following PJC Cable Subsidiaries: (a) 50% of
Copley/Colony, Inc., ("Copley/Colony") and (b) 89.8% of Dynamic Cablevision of
Florida, Ltd. (the "Dynamic Partnership") and (ii) KHC owns, indirectly, 50% of
the equity interest in California CATV Partners. The value derived from the
Continental Merger Stock to be received by the Providence Journal stockholders
is the same as the values assigned to the minority interests in the PJC Cable
Subsidiaries shown above, based on a multiple of cash flow analysis. No
affiliates of Providence Journal or Continental own minority interests in the
above-listed PJC Cable Subsidiaries. Providence Journal anticipates that as of
the Effective Time it will have purchased the minority interests in each such
subsidiary, and each such subsidiary will be wholly owned by Restructured PJC,
although there can be no assurances in this regard.
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On March 6, 1995, Providence Journal completed the purchase of a 7% interest in
Vision Cable Company of Rhode Island, Inc., which, as a result, became a wholly
owned subsidiary of Providence Journal. Providence Journal has signed a letter
of intent with respect to the purchase of the 50% interest in Copley/Colony and
the purchase of the 50% interest in California CATV Partners. Purchase
agreements for each of these transactions are being negotiated and it is
anticipated that the purchase of these interests will be completed in the
second quarter of 1995. The limited partner in the Dynamic Partnership and
Providence Journal are currently in litigation concerning this transaction.
(See "Description of Providence Journal Cable Television Business--Legal
Proceedings".)
The Merger Agreement provides that no fractional shares of Continental Merger
Stock will be issued in connection with the Merger. In lieu of any such
fractional interests, each holder of Restructured PJC Common Stock entitled to
receive Continental Merger Stock pursuant to the Merger will be entitled to
receive an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying $19.40 by the fractional interest in the share of
Continental Class A Common Stock or Continental Series B Preferred Stock, as
the case may be, to which such holder would otherwise be entitled (after taking
into account all shares of Continental Class A Common Stock and/or Continental
Series B Preferred Stock being issued to such holder pursuant to the Merger
Agreement).
After giving effect to the Continental Stock Split and assuming that no
adjustment is made to the Maximum Amount, holders of Providence Journal Common
Stock will receive an aggregate of 28,260,309 shares of Continental Class A
Common Stock and 4,987,113 shares of Continental Series B Preferred Stock
pursuant to the Merger. (See "Description of Continental Capital Stock".)
The number of shares of Continental Merger Stock to be issued shall be
accordingly adjusted if between November 18, 1994 and the Effective Time the
outstanding shares of Continental Class A Common Stock or Providence Journal
Common Stock shall have been further changed into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
CONTINENTAL SERIES B PREFERRED STOCK ELECTION
If Continental Series B Preferred Stock is to be issued in connection with
the Merger, each of the Providence Journal stockholders will have the option to
elect, subject to certain limitations, the percentage of Continental Class A
Common Stock and Continental Series B Preferred Stock that such holder shall be
entitled to receive in respect of each share of Restructured PJC Common Stock
held by such holder of Providence Journal Common Stock immediately prior to the
Effective Time (the "Preferred Stock Election"). For a more detailed discussion
of the Preferred Stock Election, see "The Merger--General Provisions--Share
Exchange". The number of shares of Continental Class A Common Stock and
Continental Series B Preferred Stock to be exchanged for each share of
Restructured PJC Common Stock will be determined in accordance with such
procedure. For a discussion of the terms of the Continental Series B Preferred
Stock to be issued in the Merger, see "Description of Continental Capital
Stock--Continental Series B Preferred Stock".
Continental has reserved the right in the Merger Agreement not to issue any
shares of Continental Series B Preferred Stock to which the stockholders of
Restructured PJC otherwise would be entitled. If it elects not to issue
Continental Series B Preferred Stock, the Maximum Amount will be increased by
$96,750,000 (and the maximum number of shares of Continental Class A Common
Stock to be issued in the Merger will be 33,247,422). The Merger Agreement
provides that no later than 30 days prior to the date of mailing of this Joint
Proxy Statement-Prospectus to the holders of Providence Journal Common Stock,
Continental will notify Providence Journal of its election to issue or not
issue shares of Continental Series B Preferred Stock.
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PAYMENT FOR SHARES
For a description of the method of delivery of shares of Continental Class A
Common Stock and Continental Series B Preferred Stock to be issued in the
Merger and New Providence Journal Common Stock
to be issued in the PJC Spin-Off, see "Payment to Stockholders". STOCKHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
WORKING CAPITAL ADJUSTMENT
Immediately prior to the Effective Time and after giving effect to the PJC
Spin-Off, Restructured PJC will deliver to Continental a schedule setting forth
Restructured PJC's best estimate of the consolidated current assets minus
consolidated current liabilities, determined in accordance with generally
accepted accounting principles ("Working Capital"), of the PJC Cable
Subsidiaries as of the Effective Time. If such schedule determines that Working
Capital is greater than zero, Continental shall pay the excess to New
Providence Journal in immediately available funds; if the schedule determines
that Working Capital is less than zero, New Providence Journal shall pay the
difference to Continental in immediately available funds. Within 90 days after
the Effective Time, Continental shall deliver to New Providence Journal its
determination of the Working Capital as of the Effective Time and after giving
effect to the PJC Spin-Off. Within 10 days thereafter (or within 10 days of the
resolution of any dispute regarding such determination, which dispute, if not
resolved by Continental and New Providence Journal, will be resolved by an
independent certified public accounting firm mutually acceptable to Continental
and New Providence Journal, the decision of which shall be final and binding on
Continental and New Providence Journal), Continental shall pay to New
Providence Journal, or New Providence Journal shall pay to Continental, as the
case may be, in immediately available funds, any additional payment to which
such party would have been entitled at the Effective Time based on the final
determination of Working Capital. Based upon the financial statements of
Providence Journal's cable division ("Providence Journal Cable") as of December
31, 1994, the Working Capital deficit is estimated to be approximately
$10,000,000 as of such date. There can, however, be no assurances that the
actual Working Capital adjustment will equal or approximate this amount.
OWNERSHIP OF CONTINENTAL STOCK AFTER THE MERGER
Assuming that the Merger was consummated on the date hereof (and assuming
there are no adjustments to the Maximum Amount), holders of shares of
Restructured PJC Common Stock would own Continental Class A Common Stock
constituting 16.2% of the outstanding Continental Common Stock (treating the
Continental Series A Preferred Stock as if it were converted into Continental
Class B Common Stock) and 100% of the Continental Series B Preferred Stock. The
Continental Merger Stock represents an aggregate of 2.3% of the voting power of
Continental. Continental has reserved the right to issue additional shares of
its capital stock between the date hereof and the consummation of the Merger,
including, without limitation, in connection with other acquisitions by
Continental.
RECOMMENDATION OF THE BOARDS OF DIRECTORS
CONTINENTAL. The Board of Directors of Continental, by unanimous vote, has
approved and adopted (i) the Merger Agreement, each of the transactions
contemplated thereby relating to Continental, including the Merger, and (ii)
the Continental Recapitalization Amendment, and believes that such actions are
in the best interests of and fair to Continental and its stockholders.
Accordingly, the Continental Board of Directors recommends that Continental
stockholders vote FOR each of the proposals, including the Continental
Proposals. (See "Certain Considerations Relating to the Transactions--Reasons
for the Merger; Recommendation of Continental Board of Directors".)
PROVIDENCE JOURNAL. The Board of Directors of Providence Journal, by
unanimous vote, has approved and adopted (i) the Plan of Reorganization and the
Merger Agreement and each of the transactions
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contemplated thereby relating to Providence Journal, including the Merger, and
believes that such actions are in the best interests of and fair to Providence
Journal and its stockholders and (ii) the Cable Division Sale Bonus Plan.
Accordingly, the Providence Journal Board of Directors recommends that
Providence Journal stockholders vote FOR each of the proposals, including the
Providence Journal Proposals. (See "Certain Considerations Relating to the
Transactions--Providence Journal's Reasons for the Reorganization and the
Merger; Recommendation of Providence Journal Board of Directors".)
OPINION OF FINANCIAL ADVISOR
On November 15, 1994, Bear, Stearns & Co. Inc. ("Bear Stearns") rendered to
the Board of Directors of Providence Journal its oral opinion (which was
subsequently confirmed in writing) to the effect that, as of such date, the PJC
Spin-Off, the Kelso Buyout, the Merger and certain related transactions
(collectively, the "Providence Journal Transactions") in the aggregate were
fair, from a financial point of view, to the stockholders of Providence
Journal. Providence Journal paid a fee of $400,000 to Bear Stearns for
rendering its opinion in connection with the Providence Journal Transactions,
which will be credited against the transaction fee payable upon the
consummation of the Merger. The full text of Bear Stearns' opinion dated
1995, which sets forth assumptions made, matters considered and attendant
limitations, is attached hereto as Annex III to this Joint Proxy Statement-
Prospectus and is incorporated herein by reference. Providence Journal
stockholders are urged to, and should, read such opinion carefully in its
entirety. (See "Certain Considerations Relating to the Transactions--Opinion of
Financial Advisor to Providence Journal".)
EFFECTIVE TIME OF MERGER
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware and articles of merger
with the Secretary of State of the State of Washington in accordance with
applicable law, or at such later date as the certificate of merger and articles
of merger may specify. It is anticipated that, if approved by the stockholders
of both Continental and Providence Journal, the Merger will become effective in
the third quarter of 1995; however, as the Merger and the related transactions
are conditioned upon regulatory approvals and third party consents, no
assurances can be given as to when the consummation of the Merger will actually
occur.
CONDITIONS TO THE MERGER
Consummation of the Merger and each of the transactions contemplated thereby
is conditioned on, among other things, (i) approval of the Continental
Proposals by the holders of Continental Voting Stock and the Providence Journal
Proposals by the holders of Providence Journal Common Stock, (ii) the
incurrence of the New Cable Indebtedness and the NPJ Indebtedness and the
consummation of the Kelso Buyout, the Reorganization, (iii) the consents and/or
waivers from the relevant governmental entities under certain cable television
franchises issued to Providence Journal and its subsidiaries, (iv) no
injunction or order of any governmental authority remaining in effect which
prohibits or makes illegal any of the transactions contemplated by the Merger
Agreement or which could have a material adverse effect on the PJC Cable
Business or Continental, (v) Providence Journal's receipt from the Internal
Revenue Service (the "Service") of a private letter ruling and from its legal
counsel of an opinion as to certain tax matters, (vi) the performance by each
party to the Merger Agreement of its respective obligations thereunder and
(vii) the approval for listing of Continental Merger Stock on NASDAQ or a
national securities exchange. (See "The Merger--Conditions Precedent".)
NASDAQ LISTING
CONTINENTAL. Continental has agreed to list the Continental Merger Stock on
NASDAQ or a national securities exchange on or prior to the time of issuance.
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NEW PROVIDENCE JOURNAL. The shares of New Providence Journal Class A Common
Stock and New Providence Journal Class B Common Stock to be distributed to
stockholders of Providence Journal will not be listed on NASDAQ or a national
securities exchange.
ACQUISITION PROPOSALS
The Merger Agreement prohibits Providence Journal, its subsidiaries and their
respective officers, Directors, representatives and agents from, directly or
indirectly, knowingly encouraging, soliciting, initiating or participating in
any way in discussions or negotiations with, or knowingly providing any
confidential information to, any person (other than Continental or any
affiliate or associate of Continental and their respective Directors, officers,
employees, representatives and agents) concerning any merger, consolidation,
share exchange or similar transaction involving Providence Journal or any of
the PJC Cable Subsidiaries or certain purchases of any portion of the operating
assets of, or any equity interests in, the PJC Cable Subsidiaries. However,
Providence Journal's Board of Directors may (i) take and disclose to Providence
Journal's stockholders a position with respect to a tender offer for Providence
Journal Common Stock by a third party pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act, (ii) make such disclosure to Providence
Journal's stockholders as, in the judgment of Providence Journal's Board of
Directors with the written advice of outside counsel, may be required under
applicable law, (iii) respond to any unsolicited proposal or inquiry by
advising the person making such proposal or inquiry of the terms of the
provision summarized in this paragraph, and (iv) participate in discussions or
negotiations resulting from an unsolicited proposal if Providence Journal's
Board of Directors determines, with the written advice of outside counsel, that
it is required to do so in the exercise of its fiduciary duties. Providence
Journal has agreed to notify Continental promptly if any such proposal or
inquiry is received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated with, Providence Journal
and to furnish Continental with a copy of any proposal that Providence
Journal's Board of Directors has determined is a "Superior Proposal" (as
defined below under the caption "The Merger--Certain Covenants--Acquisition
Proposals").
REGISTRATION RIGHTS
Continental and New Providence Journal have agreed that on or prior to the
consummation of the Merger, they will enter into a registration rights
agreement relating to the Continental Class A Common Stock to be issued
pursuant to the Merger, the form of which has been agreed to by the parties.
Such agreement will provide for two demand registrations and unlimited (subject
to certain exceptions) "piggyback" registrations with respect to primary public
issuances by Continental of Continental Class A Common Stock; provided,
however, that such registration rights will not be available to any former
Providence Journal stockholder (collectively, the "Registration Rights
Holders") to the extent that shares of Continental Class A Common Stock are
then freely transferable by the Registration Rights Holder requesting a
registration in the manner contemplated by such request without violation of
the registration requirements of the Securities Act. Registration Rights
Holders will not be entitled to assign their rights under such registration
rights agreement.
UNDERTAKINGS REGARDING PUBLIC OFFERING
Continental has agreed in the Merger Agreement that it will use its best
efforts to consummate a registered public offering of shares of Continental
Class A Common Stock (which, at Continental's option, may be a primary offering
and/or a secondary offering) prior to the first anniversary of the Effective
Time for aggregate consideration (before underwriting discounts) of not less
than $150,000,000 (the "Offering"). Continental will not be required to
consummate the Offering if it has issued, on or before the first anniversary of
the Effective Time, shares of its capital stock for an aggregate consideration
of at least $1,000,000,000 pursuant to a binding agreement or agreements. The
Merger Agreement further provides that if Continental has failed (i) to enter
into such an agreement by the 180th day following the Effective Time or (ii) to
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commence the Offering prior to such date, Continental will file a registration
statement with respect to such Offering with the Commission within 60 days of
receipt of the written request of New Providence Journal, unless Continental's
investment banker advises Continental in writing, following receipt of such
written request, that because of market conditions it is not advisable for
Continental to conduct the Offering at that time, in which case Continental's
obligation to use its best efforts to conduct the Offering shall be extended
until such time as Continental's investment banker advises it in writing that
market conditions no longer render it inadvisable to conduct the Offering.
TERMINATION FEES AND EXPENSES; INDEMNIFICATION
The Merger Agreement may be terminated at any time prior to the Effective
Time by mutual written consent of Continental, Providence Journal and New
Providence Journal, or by either Continental or Providence Journal individually
under certain specified circumstances. If the Merger Agreement is terminated
under certain circumstances described under the caption "The Merger--
Termination Fees and Expenses; Option to Purchase Palm Springs System",
Providence Journal may be required to pay to Continental a termination fee of
$42,000,000 (the "Break-Up Fee") plus up to an additional $10,000,000 to
reimburse Continental for reasonable fees and expenses it has incurred in
connection with the Merger Agreement and each of the transactions contemplated
thereby. If the Merger Agreement is terminated under other circumstances,
either Continental or Providence Journal may be required to pay to the other an
amount of up to $10,000,000 as compensation for reasonable fees and expenses it
has incurred in connection with the Merger Agreement and each of the
transactions contemplated thereby. In addition, if the Merger Agreement is
terminated under circumstances in which Continental is entitled to the Break-Up
Fee, Providence Journal has granted to Continental the option to purchase the
cable television systems operated by Providence Journal and its subsidiaries in
Palm Springs, California and the surrounding communities (the "Palm Springs
System") at a purchase price of $68,500,000. (See "The Merger--Termination".)
The Merger Agreement provides for contractual indemnification by each of the
parties for various breaches of representations and warranties, misleading
statements or omissions, third party claims and stockholder suits. (See "The
Merger--Indemnification".)
CORPORATE GOVERNANCE
CONTINENTAL. All of the officers and Directors of Continental immediately
prior to the Effective Time will continue as officers and Directors after the
Effective Time. (See "Description of Continental--Directors, Executive Officers
and Other Officers of Continental".) Pursuant to the Merger Agreement, until
the Effective Time, Providence Journal will have the right to appoint two
persons who will be permitted to attend meetings of the Board of Directors of
Continental (the "Providence Journal Nominees"). The Merger Agreement further
provides that if, at any such meeting, (i) any resolution is approved by the
Continental Board of Directors by only one vote or, with respect to any
resolution pertaining to certain matters, two members of Continental's Board of
Directors vote against such resolution, and (ii) the Providence Journal
Nominees indicate that they would have voted against such resolution had they
been Directors of Continental, Continental has agreed to act upon such
resolution as though it had not been approved by the Continental Board of
Directors. At the Effective Time, the Providence Journal Nominees shall be
appointed to serve as Class C Directors for a three-year term. Following the
expiration of their term, the Continental Board of Directors has agreed to
exercise all authority under Delaware Law to nominate two persons designated by
New Providence Journal for one additional three-year term. (See "The Merger--
Certain Covenants--Certain Rights with Respect to Continental's Board of
Directors".)
NEW PROVIDENCE JOURNAL. All of the officers and Directors of Providence
Journal prior to the Effective Time are expected to serve as officers and
Directors of New Providence Journal immediately after the Effective Time. (See
"Description of Providence Journal and New Providence Journal--Executive
Officers and Directors of Providence Journal and New Providence Journal".)
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INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Board of Directors of Providence
Journal with respect to the Providence Journal Proposals and the Cable Division
Sale Bonus Plan, stockholders of Providence Journal should be aware that
certain members of Providence Journal management and its Board of Directors
have certain interests in the Reorganization and the Merger that may present
them with actual or potential conflicts of interest in connection with the
Merger. As of the Effective Time, New Providence Journal will assume the
following stock incentive plans of Providence Journal: (i) the 1994 Employee
Stock Option Plan; (ii) the 1994 Non-Employee Director Stock Option Plan; and
(iii) the Restricted Stock Unit Plan. Prior to the Effective Time, New
Providence Journal will also assume the following tax-qualified retirement
plans maintained by Providence Journal: (i) the Providence Journal Pension
Plan; (ii) the Journal Guild 401(k) Plan; and (iii) the Journal 401(k) Plan. In
addition, the Cable Division Sale Bonus Plan, designed to retain certain of
Providence Journal's cable executives and provide them with incentives to
maximize the operating performance of the PJC Cable Business pending
consummation of the Merger, provides for bonuses which are payable only if the
Merger is consummated. As of March 17, 1995 the total pool in which the 14
participants in the Cable Division Sale Bonus Plan are eligible to share is an
amount equal to $5.2 million, contingent upon the achievement of the plan
objectives. While not contingent upon the Reorganization or the Merger, the
Providence Journal Incentive Stock Unit Plan will be terminated and liquidated
upon the next independent appraisal of Providence Journal Class A Common Stock,
which is anticipated to be in mid-1995, but in any event, prior to the
consummation of the Merger. (See "Certain Considerations Relating to the
Transactions--Interests of Certain Persons in the Transactions" and
"Description of Providence Journal and New Providence Journal--Executive
Compensation--Providence Journal Incentive Stock Unit Plan".)
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
CONSUMMATION OF THE MERGER IS CONDITIONED ON THE RECEIPT OF A FAVORABLE
PRIVATE LETTER RULING FROM THE SERVICE THAT THE REORGANIZATION WILL QUALIFY AS
TAX-FREE REORGANIZATIONS AND DISSOLUTIONS UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), AND UPON RECEIPT OF AN OPINION OF EDWARDS &
ANGELL, COUNSEL TO PROVIDENCE JOURNAL, THAT THE MERGER WILL QUALIFY AS A TAX-
FREE REORGANIZATION UNDER THE CODE. (SEE "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS".)
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method of accounting.
Continental will be treated as the acquiror of the PJC Cable Business and, as a
result, the assets of the PJC Cable Business will be recorded at their
estimated fair values. (See "Description of Continental--Unaudited Pro Forma
Financial Statements" for a description of the adjustments expected to be
recorded to Providence Journal's financial statements.)
The Contribution will be recorded at historical cost and will not result in a
step-up in basis in the financial statements of New Providence Journal.
RIGHTS OF DISSENTING STOCKHOLDERS
CONTINENTAL. Pursuant to Delaware Law, any holder of Continental Voting Stock
(i) who files a demand for appraisal in writing prior to the vote taken at the
Continental Special Meeting and (ii) whose shares are not voted in favor of the
Merger, shall be entitled to appraisal rights under Section 262 of the DGCL
("Section 262"). (See "Rights of Dissenting Stockholders--Continental".)
PROVIDENCE JOURNAL. Pursuant to Rhode Island Law, any holder of Providence
Journal Common Stock (i) who files a written objection to the Plan of
Reorganization and the Merger prior to or at the Providence Journal Special
Meeting; (ii) who, within ten (10) days after the date on which the vote was
taken, makes written demand on Continental for payment of the fair value of the
stockholder's shares; and (iii) whose shares are not voted in favor of the Plan
of Reorganization and the Merger, shall be entitled to dissenting stockholders'
rights
13
<PAGE>
under Section 7-1.1-74 of RIBCA ("Section 74"). Holders of Providence Journal
Common Stock who exercise and perfect dissenters' rights under Section 74 will
be entitled to payment of the fair value of such stockholders' shares of
Providence Journal Common Stock. (See "Rights of Dissenting Stockholders--
Providence Journal" for a description of such rights, including a summary of
the steps which must be taken to comply with Section 74 and "The Merger
Agreement--General Provisions--Share Exchange" for a description of certain
provisions of the Merger Agreement pertaining to Providence Journal's
stockholders' dissenters' rights.)
VOTING AGREEMENT
In connection with the execution of the Merger Agreement, certain Directors
and executive officers of Providence Journal entitled to exercise voting power
with respect to an aggregate of 323 shares of Providence Journal Common Stock
(approximately 0.3% of the voting power of the outstanding Providence Journal
Common Stock), and Amos B. Hostetter, Jr. and Timothy P. Neher, as the trustees
of the Amos B. Hostetter, Jr. 1989 Trust (the "Trust") entitled to exercise
voting power with respect to an aggregate of 42,843,550 shares of Continental
Class B Common Stock (approximately 30.88% of the voting power (treating the
Continental Series A Preferred Stock as if it were converted into Continental
Class B Common Stock) of the Continental Voting Stock), entered into an
agreement (the "Voting Agreement") pursuant to which such stockholders agreed,
among other things, to vote all of their shares in the following manner. Such
Directors and executive officers of Providence Journal holding Providence
Journal Common Stock have agreed to vote (i) in favor of each of the Providence
Journal Proposals, (ii) against any proposal for any recapitalization, merger,
sale of assets or other business combination between Providence Journal or any
of the PJC Cable Subsidiaries and any person other than Continental, or any
other action which would result in the breach of any covenant, representation
or warranty in the Merger Agreement, or cause any conditions to the obligations
of Providence Journal under the Merger Agreement not to be fulfilled and
(iii) in favor of any other matter relating to the consummation of the
transactions contemplated by the Merger Agreement. The Trust agreed to vote (x)
in favor of each of the Continental Proposals, (y) against any action that
would result in a breach of any covenant, representation or warranty under the
Merger Agreement, or that would result in any of the conditions to the
obligations of Continental under the Merger Agreement not being fulfilled and
(z) in favor of any other matter relating to the consummation of the
transactions contemplated by the Merger Agreement. Execution of the Voting
Agreement was a condition to Continental and Providence Journal entering into
the Merger Agreement, and no compensation was paid to any person in
consideration for entering into such agreement. (See "The Merger--Ancillary
Agreements--Voting Agreement".)
NONCOMPETITION AGREEMENT
As a condition to the Merger, New Providence Journal must enter into an
agreement (the "Noncompetition Agreement") pursuant to which New Providence
Journal shall agree that, for a period of three years after the Effective Time,
neither it nor any of its subsidiaries will (or will attempt to), on its own
behalf or in the service or on behalf of others, (i) solicit for employment,
interfere with or entice away any of the Directors, officers, employees or
agents of Continental or any person who at any time on or after January 1, 1994
was an officer or employee of Providence Journal or the PJC Cable Subsidiaries
and who is employed by Continental following the Effective Time, (ii) subject
to certain exceptions, engage in any manner in the operation (in specified
geographical areas) of cable television systems providing the services provided
by Providence Journal, KBC and the PJC Cable Subsidiaries on the day prior to
the date the PJC Spin-Off is effected other than the business of developing or
creating programming (the "Restricted Business") or (iii) use or permit
Providence Journal's or New Providence Journal's name to be used in connection
with any Restricted Business in specified geographical locations. (See "The
Merger--Ancillary Agreements--Noncompetition Agreement".)
COMPARISON OF RIGHTS OF STOCKHOLDERS
The rights of holders of Providence Journal Common Stock currently are
governed by Rhode Island Law and the Charter ("Providence Journal Charter"),
the By-Laws ("Providence Journal By-Laws") and
14
<PAGE>
the Rights Agreement between Providence Journal and The First National Bank of
Boston, as Rights Agent (the "Rights Agreement"). Upon the consummation of the
Reorganization and the Merger, Providence Journal stockholders who do not
exercise and perfect their statutory dissenters' rights will become Continental
stockholders and New Providence Journal stockholders, and their rights will be
governed by the DGCL, the Continental Amended and Restated Certificate of
Incorporation (the "Continental Restated Certificate"), the Continental Amended
and Restated By-Laws (the "Continental By-Laws"), the New Providence Journal
Certificate of Incorporation (the "New Providence Journal Certificate"), the
New Providence Journal By-Laws (the "New Providence Journal By-Laws") and the
New Providence Journal Rights Agreement (the "NPJ Rights Agreement"). (See
"Description of New Providence Journal Capital Stock--NPJ Rights Agreement",
"Comparison of Rights of Stockholders of Providence Journal and New Providence
Journal" and "Comparison of Rights of Stockholders of Providence Journal and
Continental".)
MARKET PRICES AND DIVIDEND DATA
CONTINENTAL. No established public trading market exists for the Continental
Class A Common Stock or Continental Class B Common Stock, and accordingly, no
high and low bid information or quotations are available with respect to the
Continental Common Stock. The Continental Series B Preferred Stock is a new
issue, and no trading market currently exists for it. Continental has not paid
cash dividends on the Continental Common Stock and has no present intention of
so doing after the Merger. The payment of future dividends, if any, will be
determined by the Continental Board of Directors in light of conditions then
existing, including earnings, financial condition and requirements,
restrictions in financing agreements, business conditions and other factors.
Certain agreements, pursuant to which Continental has borrowed funds, contain
provisions that limit the amount of cash dividends and stock repurchases that
Continental may make. (See "Description of Continental Indebtedness".)
NEW PROVIDENCE JOURNAL. No established public trading market exists for the
Providence Journal Common Stock, and accordingly no high and low bid
information or quotations are available with respect to the Providence Journal
Common Stock.
The quarterly cash dividend per share paid on all Providence Journal Class A
Common Stock and Providence Journal Class B Common Stock in 1992, 1993 and 1994
was $23.65, $26.00 and $28.60, respectively. Following completion of the
Restructuring, the PJC Spin-Off and the Merger, New Providence Journal expects
to pay quarterly dividends on the New Providence Journal Common Stock at a rate
below the rate currently paid with respect to the Providence Journal Common
Stock. Although the initial dividend for New Providence Journal Common Stock
has not yet been established, management's review of factors being considered
in recommending a new dividend level would suggest that following the PJC Spin-
Off it would be appropriate to reduce the dividend level significantly. The
dividend reduction is intended to make additional funds available for
operations and investment in new business opportunities.
CABLE DIVISION SALE BONUS PLAN
The Board of Directors of Providence Journal is submitting to the
stockholders for their approval, the Cable Division Sale Bonus Plan. The Cable
Division Sale Bonus Plan is designed to retain certain of Providence Journal's
cable executives and to provide incentives to such executives to maximize
operating performance of the cable business pending completion of the Merger
with bonuses payable only if the Merger is consummated. No beneficiary of such
plan is an officer of Providence Journal. New Providence Journal will be
responsible for all payments required to be made under the Cable Division Sale
Bonus Plan. The amount of the bonuses payable pursuant to the Cable Division
Sale Bonus Plan is $5,200,000, an amount that may be reduced by up to 20%,
based upon a graduated scale, if the 1995 cash flow objective is not met.
15
<PAGE>
PROVIDENCE JOURNAL SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data provided below is derived from, and
should be read in conjunction with, the Consolidated Financial Statements of
Providence Journal Company and Subsidiaries for the years ended December 31,
1992 through December 31, 1994 contained elsewhere herein. The Statement of
Operations Data for all periods presented has been restated from previously
issued financial statements to reclassify the cable television operations and
net assets held for sale to discontinued operations. (See "Description of
Providence Journal--Management's Discussion and Analysis of Financial Condition
and Results of Operations of Providence Journal--Discontinued Operations".)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $169,840 $167,008 $173,579 $180,473 $192,291
Operating Loss.............. (16,437) (31,793) (9,773) (15,859) (10,696)
Other Income (Expense), net. (5,114) 28,790 28,968 (5,096) (8,165)
Income (Loss) from
Continuing Operations
Before Income Taxes........ (21,551) (3,003) 19,195 (20,955) (18,861)
Income (Loss) from
Continuing Operations...... (13,248) (6,619) 7,358 (15,190) (21,228)
Income (Loss) Per Common
Share from Continuing
Operations................. (132.26) (75.38) 85.53 (178.08) (250.09)
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets(1)............. $784,063 $594,098 $793,433 $775,685 $724,713
Net Assets of Discontinued
Cable Operations........... 36,924 39,603 380,385 385,165 354,923
Long-term Debt.............. 28,568 28,608 253,106 276,601 247,173
Stockholders' Equity........ 460,321 399,938 391,967 359,575 285,887
</TABLE>
- --------
(1) Includes amounts for discontinued operations.
NEW PROVIDENCE JOURNAL SUMMARY PRO FORMA FINANCIAL DATA
The following information has been derived from the pro forma condensed
consolidated balance sheet and statement of operations of Providence Journal
and KHC, after giving effect to the Restructuring, the PJC Spin-Off, the Merger
and the transactions contemplated thereby. The pro forma results are not
necessarily indicative of the results of operations that would have actually
been obtained had the transactions been consummated as of the dates indicated
in the pro forma balance sheet and statement of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $309,350
Operating Income......................................... 8,805
Other Expense, Net....................................... (19,506)
Loss from Continuing Operations before Income Taxes...... (10,701)
Loss from Continuing Operations.......................... (16,256)
Loss Per Share from Continuing Operations................ (191.52)
<CAPTION>
AS OF
DECEMBER 31, 1994
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total Assets............................................. $636,265
Long-term Debt........................................... 198,222
Stockholders' Equity..................................... 241,966
</TABLE>
16
<PAGE>
PROVIDENCE JOURNAL CABLE SUMMARY COMBINED FINANCIAL DATA
The following summary combined financial information for Providence Journal's
owned and partially owned cable businesses has been derived from the combined
financial statements of Providence Journal Cable, which consists of Colony
Communications, Inc. ("Colony") (a wholly owned subsidiary of Providence
Journal), the Colony Cablevision division ("Colony Cablevision") (a division of
Providence Journal), Copley/Colony (a 50% owned joint venture of Colony), and
King Videocable Company ("King Videocable") (a 50% owned joint venture of
Providence Journal). The combined statement of operations data for the years
ended December 31, 1992, 1993 and 1994 and the combined balance sheet data as
of December 31, 1992, 1993 and 1994 have been derived from the audited combined
financial statements of Providence Journal Cable contained elsewhere herein.
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA AND RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenues................................... $199,684 $281,593 $284,993
Operating, Selling, General and
Administrative Expenses................... 121,703 166,083 173,020
Depreciation and Amortization.............. 58,750 92,710 85,783
Allocation of Corporate Overhead(1)........ 6,513 9,651 11,034
-------- -------- --------
Operating Income........................... 12,718 13,149 15,156
Allocated Interest Expense from Parent
Companies(2).............................. (16,516) (39,938) (41,318)
Loss on Abandonment of Assets.............. -- (8,244) --
Other, Net................................. 591 (1,841) 555
-------- -------- --------
Income (loss) before Income Taxes and
Cumulative Effect of Change in Accounting
Principle................................. (3,207) (36,874) (25,607)
Provision for Income Taxes................. (694) 11,219 8,182
-------- -------- --------
Income (loss) before Change in Accounting
Principle................................. (3,901) (25,655) (17,425)
Cumulative Effect of Change in Accounting
Principle................................. 4,831 -- --
-------- -------- --------
Income (loss) before Minority Interests.... $ 930 $(25,655) $(17,425)
======== ======== ========
<CAPTION>
AS OF DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Total Assets............................... $867,150 $813,306 $777,102
Total Debt(3).............................. 611,885 593,073 574,821
Group Equity............................... 89,334 70,403 57,142
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(4).................................. $77,981 $115,510 $111,973
EBITDA as a % of Revenues.................. 39.1% 41.0% 39.3%
Net Cash Provided by Operating Activities.. 53,753 69,940 68,288
Capital Expenditures....................... 27,391 49,094 47,766
</TABLE>
17
<PAGE>
SUBSCRIBER DATA FOR PROVIDENCE JOURNAL CABLE SYSTEMS(5)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Homes Passed by Cable(6).................. 1,202,000 1,224,000 1,253,000
Number of Basic Subscribers(7)............ 722,000 738,000 771,000
Basic Penetration(8)...................... 60.0% 60.3% 61.5%
Number of Premium Subscriptions(9)........ 440,000 467,000 510,000
Premium Penetration(10)................... 61.0% 63.3% 66.2%
Monthly Revenue per Average
Basic Subscriber(11)...................... $30.78 $30.63 $29.44
</TABLE>
- --------
(1) Parent companies provided certain services to Providence Journal Cable,
including cash management, human resources, accounting, legal, tax and
other corporate services. Corporate overhead relating to these services
has been allocated to Providence Journal Cable. In the opinion of
management these charges have been made on a reasonable basis (individual
revenue to total revenue); however, these charges are not necessarily
indicative of the level of expenses that might have been incurred by
Providence Journal Cable on a stand-alone basis.
(2) Includes allocation of interest expense on amounts due to parent
companies.
(3) Includes long-term debt and amounts due to parent companies.
(4) Operating income before depreciation, amortization and allocation of
corporate overhead (EBITDA). Based on its experience in the cable
television industry, Providence Journal Cable believes that EBITDA and
related measures of cash flow serve as important financial analysis tools
for measuring and comparing cable television companies in several areas,
such as liquidity, operating performance and leverage. EBITDA should not
be considered by the reader as an alternative to operating or net income
(as determined in accordance with generally accepted accounting principles
("GAAP")) as an indicator of Providence Journal Cable's performance or as
an alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity.
(5) Subscriber data reflects 100% ownership of the PJC Cable Subsidiaries.
(6) Estimated dwelling units located sufficiently close to Providence Journal
Cable's cable plant to be practicably connected without any further
extension of principal transmission lines.
(7) A "basic subscriber" means a person who subscribes, at a minimum, to
Providence Journal Cable's basic tier, which consists of broadcast
television signals available locally off-air, local origination and
public, educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis, by dividing aggregate
bulk basic service revenues by the stated basic service rate. Bulk service
revenues include charges for bulk basic programming and bulk non-premium
cable programming services. Residential subscribers less courtesy accounts
are then added to the bulk equivalent to determine the total subscriber
number.
(8) Basic subscribers as a percentage of Homes passed by cable.
(9) Equals the number of premium services subscribed to by basic subscribers.
Premium services include only single channel services offered for a
monthly fee per channel and do not include packages of channels offered
for a single monthly fee.
(10) Premium subscriptions as a percentage of basic subscribers. A basic
subscriber may purchase more than one premium service, each of which is
counted as a separate premium subscription. This ratio may be greater than
100% if the average customer subscribes to more than one premium service.
(11) Subscriber revenue divided by the average number of basic subscribers for
Providence Journal Cable's combined systems during the twelve month period
ended December 31 for each year presented.
18
<PAGE>
CONTINENTAL SUMMARY CONSOLIDATED HISTORICAL INFORMATION
The summary consolidated historical financial information provided below is
derived from, and should be read in conjunction with, the Consolidated
Financial Statements of Continental for the years ended December 31, 1992
through December 31, 1994.
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA AND RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1992 1993 1994
----------- ----------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 1,113,475 $ 1,177,163 $1,197,977
Operating, Selling, General and
Administrative Expenses................ 625,145 649,571 672,884
Depreciation and Amortization........... 272,851 279,009 283,183
Non-Cash Stock Compensation(1).......... 9,683 11,004 11,316
Operating Income........................ 205,796 237,579 230,594
Interest Expense (Net).................. 296,031 282,252 315,541
Loss before Extraordinary Item and
Cumulative Effect of Accounting Change. (102,960) (25,774) (68,576)
Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends(2)..... -- -- --
<CAPTION>
AS OF DECEMBER 31,
------------------------------------
1992 1993 1994
----------- ----------- ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets............................ $ 2,003,196 $ 2,091,853 $2,483,639
Total Debt.............................. 3,011,669 3,177,178 3,449,907
Redeemable Common Stock................. 223,716 213,548 232,399
Stockholders' Equity (Deficiency)....... (1,486,231) (1,667,088) (1,688,334)
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1992 1993 1994
----------- ----------- ----------
<S> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(3)............................... $ 488,330 $ 527,592 $ 525,093
EBITDA as a % of Revenues............... 43.9% 44.8% 43.8%
Total Debt to EBITDA(3)................. 6.17 6.02 6.57
EBITDA to Total Interest Expense........ 1.65 1.87 1.66
Net Cash Provided from Operating
Activities............................. $ 215,045 $ 250,504 $ 236,304
Capital Expenditures.................... 145,189 185,691 300,511
</TABLE>
19
<PAGE>
SUBSCRIBER DATA FOR DOMESTIC CABLE SYSTEMS (4)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1990 1991 1992 1993 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Homes Passed by
Cable(5).............. 4,761,000 4,880,000 4,981,000 5,192,000 5,383,000
Number of Basic
Subscribers(6)........ 2,690,000 2,784,000 2,856,000 2,895,000 3,081,000
Basic Penetration(7)... 56.5% 57.0% 57.3% 55.8% 57.2%
Number of Premium
Subscriptions(8)...... 2,702,000 2,603,000 2,545,000 2,454,000 2,611,000
Premium Penetration(9). 100.4% 93.5% 89.1% 84.8% 84.7%
Monthly Revenue per
Average Basic
Subscriber(10)........ $31.29 $32.98 $34.46 $35.76 $35.29
</TABLE>
- --------
(1) This is the difference between the consideration paid by employees for
shares of Continental Common Stock under Continental's Restricted Stock
Purchase Program and the fair market value of such shares at the date of
issuance (as determined by Continental's Board of Directors), amortized
over such shares' vesting schedule. (See Note 11 to Continental's
Consolidated Financial Statements.)
(2) For purposes of this computation, earnings are defined to be income (loss)
from continuing operations before income taxes, minority interests and
fixed charges (excluding capitalized interest). Fixed charges are the sum
of (i) interest costs, (ii) interest component of rent expense and (iii)
amortization of deferred financing costs. The actual ratios of earnings to
combined fixed charges and preferred dividends are less than 1 to 1 for
each of the years presented. The actual deficiency of earnings to combined
fixed charges and preferred dividends was $107,425,000, $53,729,000 and
$120,899,000 respectively, for the years ended December 31, 1992, 1993 and
1994.
(3) Operating income before depreciation, amortization and non-cash stock
compensation. Based on its experience in the cable television industry,
Continental believes that EBITDA and related measures of cash flow serve
as important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA should not be considered by the reader as
an alternative to operating or net income (as determined in accordance
with GAAP) as an indicator of Continental's performance or as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Substantially all of
Continental's financing agreements contain covenants in which EBITDA is
used as a measure of financial performance. (See "Description of
Continental--Management's Discussion and Analysis of Financial Condition
and Results of Operations of Continental".)
(4) "Domestic Cable Systems" means Continental's systems owned and operated by
Continental in the United States. In reporting subscriber and other data
for Domestic Cable Systems not controlled or managed by Continental, only
that portion of data corresponding to Continental's percentage interest is
included.
(5) Estimated dwelling units located sufficiently close to Continental's cable
plant to be practicably connected without any further extension of
principal transmission lines.
(6) A "basic subscriber" means a person who subscribes, at a minimum, to
Continental's basic broadcast tier, which generally consists of broadcast
television signals available locally off-air, local origination and
public, educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis, by dividing aggregate
bulk-billed revenues by the stated basic broadcast tier rate. In reporting
subscriber and other data for systems not controlled or managed by
Continental, only that portion of data corresponding to Continental's
percentage ownership is included.
(7) Basic subscribers as a percentage of Homes passed by cable. Continental's
basic penetration for the year ended December 31, 1993 and 1994, reflects
the FCC's rate regulation rules adopted on April 1, 1993, which for the
first time provided a standardized definition of "households".
(8) Equals the number of premium services subscribed to by basic subscribers.
Premium services include only single channel services offered for a
monthly fee per channel and do not include packages of channels offered
for a single monthly fee.
(9) Premium subscriptions as a percentage of basic subscribers. A basic
subscriber may purchase more than one premium service, each of which is
counted as a separate premium subscription. This ratio may be greater than
100% if the average customer subscribes to more than one premium service.
(10) Revenue divided by the weighted average number of basic subscribers for
Continental's consolidated subsidiaries during the twelve month period
ended December 31 for each year presented.
20
<PAGE>
CONTINENTAL SUMMARY PRO FORMA FINANCIAL DATA
The following information has been derived from the unaudited pro forma
condensed financial statements included elsewhere herein. The following
unaudited Summary Pro Forma Balance Sheet Data has been prepared based upon the
historical consolidated balance sheets of Continental and Providence Journal
Cable as of December 31, 1994, and gives effect to the Merger and certain
related transactions including the assumption of the $755,000,000 in New Cable
Indebtedness; and various other acquisitions of cable television systems
completed and pending; in each instance as though each of such events had
occurred as of December 31, 1994. The following unaudited Summary Pro Forma
Statement of Operations Data for the year ended December 31, 1994 gives effect
to each of the foregoing as though each of such events had occurred at January
1, 1994. The pro forma results are not necessarily indicative of the combined
results of future operations and do not reflect any synergies and other cost
reductions that may result from the Merger.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
(IN
THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................................... $1,586,829
Operating Income................................................. 279,492
Interest Expense................................................. 389,006
Loss before Extraordinary Item................................... (83,600)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
1994
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total Assets.................................................. $ 4,728,199
Total Debt.................................................... 4,618,549
Stockholders' Equity (Deficiency)............................. (1,043,334)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1).................................................... $675,908
EBITDA to Total Interest Expense............................. 1.74
Total Debt to EBITDA(1)...................................... 6.83
Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends(2)................................................ --
</TABLE>
- --------
(1) Operating income before depreciation, amortization and non-cash stock
compensation. Based on its experience in the cable television industry,
Continental believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA should not be considered by the reader as
an alternative to operating or net income (as determined in accordance with
GAAP) as an indicator of Continental's performance or as an alternative to
cash flows from operating activities (as determined in accordance with
GAAP) as a measure of liquidity. Substantially all of Continental's
financing agreements contain covenants in which EBITDA is used as a measure
of financial performance. (See "Description of Continental--Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Continental".)
(2) For purposes of this computation, earnings are defined to be income (loss)
from continuing operations before income taxes, minority interests and
fixed charges (excluding capitalized interest). Fixed charges are the sum
of (i) interest costs, (ii) interest component of rent expenses, and (iii)
amortization of deferred financing costs. The pro forma ratio of earnings
to combined fixed charges and preferred dividends is less than 1 to 1 for
the period presented. The pro forma deficiency of earnings to combined
fixed charges and preferred dividends would have been $153,760,000 for the
year ended December 31, 1994. Such pro forma ratio reflects the
consummation of the Merger and the issuance of the Continental Series B
Preferred Stock.
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CERTAIN CONSIDERATIONS RELATING TO THE TRANSACTIONS
CONTINENTAL'S REASONS FOR THE MERGER; RECOMMENDATION OF CONTINENTAL BOARD OF
DIRECTORS
At the meeting of the Board of Directors of Continental held on November 17,
1994, the Continental Board received a presentation by members of Continental
management and its legal advisors regarding, and reviewed the terms of, the
Merger Agreement and the transactions contemplated thereby. By unanimous vote
of Directors, the Continental Board determined that the Merger is fair to, and
in the best interests of, Continental and its stockholders, approved the Merger
and the Continental Recapitalization Amendment, and resolved to recommend that
stockholders of Continental vote FOR approval and adoption of the Merger
Agreement and each of the transactions contemplated thereby and FOR approval
and adoption of the Continental Recapitalization Amendment.
In reaching its determination, the members of the Continental Board
considered the following factors: (i) the Continental Board's familiarity with
and review of Continental's business, operations, financial condition, earnings
and prospects; (ii) the business, operations, financial condition and earnings
of the PJC Cable Business; (iii) the enhanced prospects and opportunities for
growth that the Merger makes possible, including increases in Continental's
operating scale and system clustering, which Continental believes are vital to
its long-term competitiveness; (iv) a variety of factors affecting and relating
to the overall strategic focus of Continental, including without limitation, an
increased subscriber base and growth in assets and operating income; (v) the
anticipated cost savings and efficiencies arising from the Merger; and (vi) the
terms of the Merger Agreement.
Continental was assisted in its deliberations and negotiations with respect
to the Merger and the related transactions by its investment advisor, Lazard
Freres & Co. ("Lazard"). Lazard advised Continental as to valuation matters
concerning both the PJC Cable Business and the Continental Class A Common Stock
and Continental Series B Preferred Stock. In considering the value of $19.40
per share ascribed to the Continental Common Stock in the Merger, members of
the Continental Board considered that the Continental Class A Common Stock had
most recently sold in privately negotiated transactions, including issuances by
Continental, at $19.40 per share, giving effect to the Continental Stock Split.
In view of the wide variety of factors considered by the Continental Board of
Directors, the Continental Board did not find it practicable to quantify or
otherwise attempt to assign relative weights to the specific factors considered
in making its determination. Consequently, the Continental Board did not
quantify the assumptions and results of its analyses in reaching its
determination that the Merger is fair to, and in the best interests of,
Continental and its stockholders. However, the Continental Board believed that
the factors described above supported its determination.
THE BOARD OF DIRECTORS OF CONTINENTAL UNANIMOUSLY RECOMMENDS THAT CONTINENTAL
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND FOR
APPROVAL AND ADOPTION OF THE CONTINENTAL RECAPITALIZATION AMENDMENT.
PROVIDENCE JOURNAL'S REASONS FOR THE REORGANIZATION AND THE MERGER.
BACKGROUND. Commencing in July 1991, Providence Journal undertook a
comprehensive strategic planning process that focused on its corporate
structure and the proper positioning of its business units. Goldman, Sachs &
Co. ("Goldman Sachs") was retained to assist management and the Board of
Directors in this process. By August 1993, the Board of Directors of Providence
Journal had determined that the creation of a stand-alone company to house the
PJC Cable Business, which would probably be widely owned following an initial
public offering, was in the best long-term strategic interest of Providence
Journal. This approach was deemed advisable for a number of business, financial
and operating reasons, including the following:
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. The PJC Cable Business would require expansion on a relatively near-term
basis and would have enhanced operating flexibility.
. Both debt and equity capital would be more easily raised at the lowest
possible cost in a stand-alone cable television company.
. Taking the cable television company public would open up the cable
television company to the public capital markets.
. A separate cable television company would be more likely to attract
strategic investors and would be in a better position to merge with other
companies whose operations are compatible.
. Even if the cable television company were to go public, the newspaper
business could remain in private hands and maintain its traditional
independence.
. A public cable television company would provide a marketable security for
approximately 60% of the value of Providence Journal.
An important ingredient in the anticipated success of the separate cable
television company was an enhanced ability to attract a strategic investor,
particularly a telecommunications company, which would provide capital and
expertise in telephony, digital switching and the handling of a continuous
stream of rapidly-occurring electronic transactions. In this connection,
Providence Journal retained Bear Stearns to concentrate its efforts on finding
such a strategic investor for the new cable television company.
In the fall of 1993, the proposed merger of Bell Atlantic Corporation ("Bell
Atlantic") and Tele-Communications, Inc. ("TCI"), as well as a number of other
announced cable television industry transactions, confirmed Providence
Journal's view that a repositioning of the PJC Cable Business was necessary in
order to remain competitive. The cable television industry was undergoing
significant change due to factors such as technological advances and increased
consumer demand for services. The deployment of fiber optic cable, advances in
the digitization of information and the expected deployment of new
technologies, such as "on-demand" programming, video games, home shopping and
interactive programming, as well as the opening of telecommunications services
to competition from the cable television industry, required new technical
expertise and substantial capital to build or upgrade physical plant. At the
same time, the adoption of the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") and the regulations subsequently
promulgated thereunder, adversely affected the financial characteristics of the
industry. In response to these factors, Providence Journal's objective was to
position the new cable television company to develop the necessary resources to
grow in the rapidly evolving cable television industry environment.
The effort to find an appropriate partner for the stand-alone cable
television company continued throughout late 1993 and the first several months
of 1994. The break-up of the Bell Atlantic/TCI deal and the promulgation of
increasingly stringent rate regulation by the FCC in early 1994, however,
resulted in a dampening of interest by telephone companies in cable television
investments. In addition, the relatively small size of the PJC Cable Business
made it difficult to arrange a suitable transaction with large telephone
companies. In an effort to address this problem, Providence Journal embarked on
a series of negotiations with other medium-sized cable television companies
with a view to forming joint ventures controlling enough cable television
subscribers to meet the operating scale requirements of the telephone
companies. These negotiations ultimately were not successful, as the mutual
valuations of the respective cable television companies involved proved
problematic.
THE MERGER. In June 1994, Providence Journal decided that any effort to
effect an initial public offering of the cable television company was not
appropriate under the then current market conditions and that a combination of
the PJC Cable Business with a strategic partner should be pursued. A detailed
Confidential Information Memorandum with respect to the PJC Cable Business was
prepared by Bear Stearns and Providence Journal's management in June and July,
1994. This Confidential Information Memorandum included a description of
various aspects of the PJC Cable Business including operating strategy, systems
and
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technology, sales and marketing, facilities, management, financial statements,
franchise information and clustering data. At the same time, Bear Stearns and
Providence Journal initiated discussions with the Kelso Partnerships regarding
the purchase by Providence Journal of their interest in KHC. The Confidential
Information Memorandum was distributed in August 1994 to interested parties. In
September 1994, business, financial and legal due diligence was conducted by
potential merger partners and a letter was distributed by Bear Stearns setting
forth the procedures and timetable for submission by merger partners of written
indications of interest. Written indications of interest were received from
three cable television companies on October 3, 1994, one of which was
Continental.
With the assistance of Bear Stearns, Providence Journal conducted a detailed
review of the advantages and disadvantages of each of the three proposals. A
special meeting of Providence Journal's Board of Directors was held on Friday,
October 7, 1994, at which Providence Journal's management compared the
indications of interest from the standpoint of their nominal value, likelihood
of closing, certainty that the indicated nominal value would be the actual
value received by stockholders, long-term prospects of the potential merger
partner and relative marketability of the stock of the potential merger
partner. One indication of interest was judged to be inadequate on price and
was not discussed in detail. After review of all facets of the remaining two
indications of interest, the Board of Directors authorized management to
continue its discussions and to select one of the potential merger partners to
negotiate with on an exclusive basis over the weekend. Management determined
that the Continental proposal was the most attractive. Management thereafter
negotiated with Continental throughout the weekend and reached agreement on a
letter of intent, which was signed on October 12, 1994. At a special meeting of
the Board of Directors on October 12th, Bear Stearns presented a detailed
summary of the proposed transaction and presented various valuation and
financial analyses, as detailed under "Opinion of Financial Advisor to
Providence Journal" below. The Board of Directors then approved in principle
the proposed transaction and, pursuant to the letter of intent, authorized
management to negotiate with Continental exclusively for a thirty-day period on
a definitive merger agreement.
On October 25, 1994 Providence Journal entered into a letter of intent with
the Kelso Partnerships to purchase their interest in KHC for $265 million,
including $5 million in transaction fees, contingent upon closing the proposed
transaction with Continental, and this letter of intent was approved by the
Board of Directors at a meeting on October 26, 1994. By mid-November,
negotiation of the merger agreement with Continental was nearly complete. On
November 15, 1994, at a special meeting Bear Stearns again presented to the
Board of Directors a thorough review of the business and financial aspects of
the proposed transaction with Continental and analysis of the fairness of the
transaction from a financial point of view, as detailed under "Opinion of
Financial Advisor to Providence Journal" below. Bear Stearns concluded that the
Providence Journal Transactions in the aggregate were fair, from a financial
point of view, to the stockholders of Providence Journal. Pursuant to the
Board's authorization, Providence Journal entered into a definitive merger
agreement with Continental on November 18, 1994.
RECOMMENDATION OF PROVIDENCE JOURNAL BOARD OF DIRECTORS.
At the meeting of the Board of Directors of Providence Journal held on
November 15, 1994, by unanimous vote of Directors, the Providence Journal Board
determined that the Merger is fair to, and in the best interests of, Providence
Journal and its stockholders, approved the Merger and resolved to recommend
that stockholders of Providence Journal vote FOR approval and adoption of the
Merger Agreement and each of the transactions contemplated thereby.
In reaching its determination, the Providence Journal Board considered the
following factors:
. THE PROVIDENCE JOURNAL BOARD'S FAMILIARITY WITH AND REVIEW OF PROVIDENCE
JOURNAL'S BUSINESS, OPERATIONS, FINANCIAL CONDITION, EARNINGS AND
PROSPECTS. The Providence Journal Board considered the growing capital
requirements of continued participation in the cable television business
in relation to the financial condition and current and probable future
earnings of its various businesses.
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The Providence Journal Board also took account of the long-standing
conservatism of Providence Journal's stockholders with regard to the
incurrence of large amounts of debt and their reluctance to support the
issuance of shares of capital stock to the public. In light of these
factors, the Providence Journal Board determined that its cable
operations could best be developed by a large cable television company
with greater access to capital.
. THE PROVIDENCE JOURNAL BOARD'S REVIEW OF THE BUSINESS, OPERATIONS,
FINANCIAL CONDITION, EARNINGS AND PROSPECTS OF CONTINENTAL, AND THE
ENHANCED OPPORTUNITIES FOR GROWTH THAT THE MERGER MAKES POSSIBLE. In
choosing Continental as its merger partner, the Providence Journal Board
considered and viewed favorably the excellent quality and reputation of
Continental's management, the strategic opportunities resulting from the
close clustering of Providence Journal's and Continental's cable
television systems, Continental's solid growth over an extended period
of time, the potential of Continental's developing foreign operations
and Continental's size and related access to capital. The Providence
Journal Board also determined that the PJC Cable Business, as combined
with Continental's cable operations, would be in a better position to
form strategic telecommunications alliances with others. In addition,
the Providence Journal Board noted the opportunities for increased
profitability of the PJC Cable Business resulting from better
programming discounts and management staffing efficiencies obtained
through the Merger.
. THE VALUE OF THE CONTINENTAL SECURITIES TO BE RECEIVED BY THE
STOCKHOLDERS OF PROVIDENCE JOURNAL IN THE MERGER, AS DETERMINED THROUGH
COMPARISON OF SELECTED PRECEDENT CABLE TELEVISION TRANSACTIONS AND
VARIOUS OTHER VALUATION AND FINANCIAL ANALYSES. As detailed under
"Providence Journal's Reasons for the Reorganization and the Merger"
above and under "Opinion of Financial Advisor to Providence Journal"
below, the Providence Journal Board received detailed presentations at
several special Board meetings with respect to the value of the
Continental Merger Stock to be received by the stockholders of
Providence Journal in the Merger. Bear Stearns concluded that the
Providence Journal Transactions in the aggregate were fair, from a
financial point of view, to the stockholders of Providence Journal.
During these presentations, members of the Providence Journal Board
posed various questions to the Bear Stearns representatives, and the
ensuing responses and discussions enhanced the Board's understanding of
the Merger and related transactions. These presentations were of
critical importance in assisting the Providence Journal Board to assess
such value, since the valuation of the securities of Continental and
Providence Journal, both of which are privately held, required
specialized financial expertise.
. OTHER POSSIBLE TRANSACTIONS AVAILABLE TO PROVIDENCE JOURNAL. As
discussed above under "Providence Journal's Reasons for the
Reorganization and the Merger", the Providence Journal Board carefully
reviewed proposals submitted by three potential merger partners. The
Providence Journal Board concluded that the Continental proposal offered
the highest price and was superior to the second highest proposal with
respect to the likelihood of closing and the long-term prospects of the
potential merger partner.
. THE TERMS OF THE MERGER AGREEMENT. The Providence Journal Board reviewed
with its counsel and with Bear Stearns the provisions of the Merger
Agreement and determined that its terms permitted Providence Journal to
achieve the tax-free disposition of the PJC Cable Business for
marketable securities in a manner that is fair to Providence Journal.
In view of the wide variety of factors considered by the Providence Journal
Board of Directors, the Providence Journal Board did not find it practicable to
quantify or otherwise attempt to assign relative weights to the specific
factors considered in making its determination. Consequently, the Providence
Journal Board did not quantify the assumptions and results of its analyses in
reaching its determination that the Merger is fair to, and in the best
interests of, Providence Journal and its stockholders. However, as a general
matter, the Providence Journal Board believed that all of the factors set forth
above supported its determination.
THE BOARD OF DIRECTORS OF PROVIDENCE JOURNAL UNANIMOUSLY RECOMMENDS THAT
PROVIDENCE JOURNAL STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE
PLAN OF REORGANIZATION, FOR EACH OF
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THE THREE PROPOSALS TO APPROVE THE TRANSACTION THAT COMPRISE THE PLAN OF
REORGANIZATION, FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND
FOR THE PROPOSAL TO APPROVE AND ADOPT THE CABLE DIVISION SALE BONUS PLAN.
OPINION OF FINANCIAL ADVISOR TO PROVIDENCE JOURNAL
Providence Journal selected Bear Stearns as its financial advisor in
connection with the Providence Journal Transactions and asked Bear Stearns to
render its opinion in connection with the Providence Journal Transactions based
on Bear Stearns' qualifications, expertise and reputation in providing advice
to companies in the media and communications industries as well as its
familiarity with Providence Journal. Bear Stearns is an internationally
recognized investment banking firm and is continually engaged in the valuation
of businesses and their securities and in rendering opinions in connection with
mergers and acquisitions and other purposes.
Bear Stearns rendered its oral opinion (which was subsequently confirmed in
writing) to the Board of Directors of Providence Journal to the effect that, as
of November 15, 1994, the Providence Journal Transactions in the aggregate were
fair, from a financial point of view, to the stockholders of Providence
Journal. The full text of Bear Stearns' opinion dated , 1995, is attached
as Annex III to this Joint Proxy Statement-Prospectus. Providence Journal
stockholders are urged to, and should, read such opinion carefully in its
entirety in conjunction with this Joint Proxy Statement-Prospectus for
assumptions made, matters considered and limits of the review by Bear Stearns.
Bear Stearns' opinion addresses only the fairness of the Providence Journal
Transactions from a financial point of view and does not constitute a
recommendation to any stockholder of Providence Journal as to how such
stockholder should vote on the Providence Journal Proposals. The summary of
Bear Stearns' opinion set forth in this Joint Proxy Statement-Prospectus is
qualified in its entirety by reference to the full text of such opinion.
In rendering its opinion, Bear Stearns, among other things: (i) reviewed this
Joint Proxy Statement-Prospectus in substantially the final form to be sent to
the stockholders of Providence Journal; (ii) reviewed the Plan of
Reorganization, the Merger Agreement (including the terms of the Continental
Merger Stock), the Contribution and Assumption Agreement, the Registration
Rights Agreement, the Stock Purchase Agreement with the Kelso Partnerships, the
letters of intent or stock purchase agreements with the minority interests in
the PJC Cable Subsidiaries, and the related schedules of such agreements; (iii)
reviewed certain audited and unaudited financial statements of Providence
Journal, Colony, Copley/Colony, Colony Cablevision and KHC and certain pro
forma financial information for the PJC Cable Business and New Providence
Journal; (iv) reviewed certain operating and financial information of
Providence Journal, the PJC Cable Business and KHC, including projections for
the PJC Cable Business and KBC, provided to Bear Stearns by the managements of
Providence Journal, the PJC Cable Business and KBC; (v) reviewed Continental's
audited financial statements for the years ended December 31, 1991 through
1994; (vi) reviewed certain operating and financial information of Continental,
including projections, provided to Bear Stearns by Continental's management;
(vii) met with certain members of the senior managements of Providence Journal,
the PJC Cable Business, KBC and Continental to discuss each company's or
division's respective operations, historical financial statements and
prospects, recent actions taken by the FCC and the impact thereof on the PJC
Cable Business and Continental, and the amount and timing of potential
synergies and/or cost savings to Continental realizable as a result of the
Merger; (viii) reviewed the historical prices and volume of Continental's
privately-held common stock issued or traded in negotiated transactions, as
furnished to Bear Stearns by Continental; (ix) reviewed publicly available
financial data and stock market performance of publicly traded companies
engaged in businesses that Bear Stearns deemed generally comparable to the PJC
Cable Business, Continental and KBC, respectively; (x) reviewed the financial
terms of recent acquisitions of companies Bear Stearns deemed generally
comparable to the PJC Cable Business and KBC; and (xi) conducted such other
studies, analyses, inquiries and investigations as Bear Stearns deemed
appropriate.
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In rendering its opinion, Bear Stearns relied upon and assumed the accuracy
and completeness of the financial and other information provided to Bear
Stearns by Providence Journal, the PJC Cable Business and Continental, among
others, and the reasonableness of the assumptions made with respect to their
respective projected financial results. Bear Stearns did not assume any
responsibility for such information and Bear Stearns relied upon the assurances
of the managements of Providence Journal, the PJC Cable Business and
Continental that they are unaware of any facts that would make the information
provided to Bear Stearns incomplete or misleading. With respect to the
projected financial results of the PJC Cable Business, KBC and Continental that
were furnished to Bear Stearns, Bear Stearns assumed that such financial
projections had been reasonably prepared by Providence Journal, the PJC Cable
Business and Continental, respectively, on bases reflecting the best currently
available estimates and good faith judgments of the future competitive,
operating and regulatory environments and related financial performance. Bear
Stearns also relied, without independent verification, upon the assessment of
the senior managements of Providence Journal, the PJC Cable Business and
Continental regarding the impact on the PJC Cable Business and Continental,
respectively, of recent actions taken by the FCC and the amount and timing of
potential synergies and/or cost savings to Continental realizable as a result
of the Merger. Bear Stearns, with Providence Journal's approval, assumed that
the PJC Spin-Off and the Merger will qualify as tax-free reorganizations as
contemplated by the Merger Agreement. In arriving at its opinion, Bear Stearns
did not perform, and was not furnished with, any independent appraisal of the
assets of Providence Journal, the PJC Cable Business or Continental. Bear
Stearns did not express any opinion as to the price or range of prices at which
the shares of Continental Merger Stock will trade subsequent to the
consummation of the Merger. Bear Stearns' opinion is necessarily based on
economic, market and other conditions, and the information made available to
it, as of the date of the opinion.
As part of its engagement, Bear Stearns assisted Providence Journal in
identifying and contacting various knowledgeable and qualified buyers which
were given the opportunity to make a thorough evaluation of the PJC Cable
Business in preparation for the submission of a proposal to acquire the PJC
Cable Business. As a result of these efforts, Providence Journal received
various indications of interest regarding possible business transactions
involving the PJC Cable Business, which Bear Stearns assessed and reviewed with
the senior management and the Board of Directors of Providence Journal.
The following is a summary of certain of the financial and valuation analyses
presented by Bear Stearns to the Board of Directors of Providence Journal on
November 15, 1994, in connection with Bear Stearns' opinion. Bear Stearns
analyzed the Merger based on the consideration to be received by Providence
Journal stockholders (taking into account both the Continental Merger Stock and
the New Cable Indebtedness to be assumed by Continental), using various
methodologies, and the PJC Spin-Off based on the pro forma financial statements
of New Providence Journal, giving effect to the Providence Journal
Transactions.
VALUATION OF CONTINENTAL PROPOSAL. The transactions contemplated by the
Merger Agreement include, among other things, (i) the merger of Restructured
PJC, which will own the PJC Cable Business, with and into Continental in a tax-
free reorganization, (ii) Continental's assumption of the New Cable
Indebtedness, and (iii) the issuance of the Continental Merger Stock, comprised
of 28,260,309 shares of Continental Class A Common Stock having a nominal value
of $548,250,000 and 4,987,113 shares of Continental Series B Preferred Stock
having a nominal value of $96,750,000 (or 33,247,422 shares of Continental
Class A Common Stock having a nominal value of $645,000,000 if Continental
elects not to issue Continental Series B Preferred Stock), in exchange for all
of the outstanding shares of Restructured PJC Common Stock. For purposes of
this summary of Bear Stearns' analyses, the foregoing is referred to as the
"Continental Proposed Transaction" and the combination of Continental and the
PJC Cable Business pursuant to the Merger Agreement is referred to as the
"Combined Company." In connection with its review and analysis of the
Continental Proposed Transaction, Bear Stearns estimated the enterprise value
of the PJC Cable Business under the Continental Proposed Transaction by adding
the estimated public market value of the Continental Merger Stock (i.e., the
Continental Class A Common Stock and Continental Series B Preferred Stock) to
be issued to Providence Journal stockholders and the New Cable Indebtedness to
be assumed by the Combined
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Company and subtracting the cash payment expected to be made by New Providence
Journal to Continental to account for the negative Working Capital of the PJC
Cable Business. Bear Stearns was required to estimate the public market value
of the Continental Merger Stock on a fully distributed public market trading
basis as Continental did not have any publicly traded equity securities. In
performing its valuation analyses, Bear Stearns estimated the public market
value of the Combined Company's core domestic cable television systems
(including both Continental's existing systems as well as the PJC Cable
Business) using a range of enterprise value to EBITDA multiples of 9.0x to 9.5x
based on estimated EBITDA for 1994, as adjusted for certain expected effects of
the Merger, and estimated the value of Continental's programming investments,
international investments, other telecommunications assets and other assets
using a variety of methodologies, including multiples of EBITDA and
subscribers, other publicly available independent valuations and/or discounted
cash flow analyses, as deemed appropriate by Bear Stearns. As a result of these
analyses, Bear Stearns estimated that the Continental Class A Common Stock had
a fully distributed public market trading value which ranged from $16.50 to
$19.40 per share and the Continental Series B Preferred Stock had a fully
distributed public market trading value of $19.40 per share. Bear Stearns noted
that this analysis was specific to a given point in time and expressed no
opinion as to the price or range of prices at which the shares of Continental
Merger Stock would trade subsequent to the consummation of the Merger. Based on
Bear Stearns' estimated public market valuation of the Continental Merger Stock
(i.e., the Continental Class A Common Stock and Continental Series B Preferred
Stock), and taking into account the New Cable Indebtedness to be assumed by the
Combined Company in the Merger and the cash payment expected to be made by New
Providence Journal to Continental to account for the negative Working Capital
of the PJC Cable Business, Bear Stearns estimated that the enterprise value of
the PJC Cable Business under the Continental Proposed Transaction ranged from
$1,306 million to $1,388 million (or $1,291 million to $1,388 million if no
shares of Continental Series B Preferred Stock were issued). Bear Stearns
estimated that the aggregate market value, on a fully distributed public market
trading basis, of the Continental Series B Preferred Stock to be received by
Providence Journal stockholders, if issued, was approximately $97 million, or
$1,130 per share of Providence Journal Common Stock. Bear Stearns estimated
that the aggregate market value, on a fully distributed public market trading
basis, of the Continental Class A Common Stock to be received by Providence
Journal stockholders ranged from $466 million to $548 million (or $548 million
to $645 million if no shares of Continental Series B Preferred Stock were
issued), or $5,441 to $6,401 (or $6,401 to $7,531 if no shares of Continental
Series B Preferred Stock were issued) per share of Providence Journal Common
Stock. Bear Stearns noted that due to the relatively fixed nature of the
valuation of the Continental Series B Preferred Stock versus the wider range of
valuation of the Continental Class A Common Stock, the valuation of the
Continental Proposed Transaction varied based on the form of consideration
(i.e., depending on whether or not any shares of Continental Series B Preferred
Stock were issued).
ANALYSIS OF SELECTED PRECEDENT CABLE TELEVISION TRANSACTIONS. Bear Stearns
reviewed and analyzed the publicly available financial terms of five selected
recent merger and acquisition transactions in the cable television industry
which, in Bear Stearns' judgment, were reasonably comparable to the Merger, and
compared the financial terms of such transactions to those of the Merger for
purposes of this analysis. The five transactions that were then pending were
(i) the acquisition of the cable television assets of The Times Mirror Company
by Cox Cable Communications, Inc. ("Cox"); (ii) the acquisition of domestic
cable television assets of Maclean Hunter Limited from Rogers Communications by
Comcast Corporation ("Comcast"); (iii) the acquisition of the Wisconsin and
Alabama cable television assets of the Crown Media subsidiary of Hallmark
Cards, Inc. by Marcus Cable Co.; (iv) the acquisition of Wometco Cable
(excluding Georgia Cable) by US West Inc.; and (v) the acquisition of TeleCable
Corporation by TCI (collectively, the "Precedent CATV Transactions"). Bear
Stearns reviewed the prices paid (or to be paid) in the Precedent CATV
Transactions and analyzed various operating and financial information and
implied valuation multiples and ratios. Bear Stearns noted that none of the
Precedent CATV Transactions was identical to the Merger and that, accordingly,
any analysis of the Precedent CATV Transactions necessarily involved complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that would necessarily affect the acquisition
value of the PJC Cable Business versus the acquisition values of the companies
to which the PJC Cable Business was being compared. Bear Stearns
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advised the Board of Directors of Providence Journal that, in considering and
analyzing the Precedent CATV Transactions, the Board of Directors of Providence
Journal should consider the size, demographic and economic characteristics of
the markets of each cable company and the competitive environment in which it
operates. Bear Stearns' analysis of the Precedent CATV Transactions indicated
that the range of enterprise value to EBITDA multiples was 9.1x to 12.1x with a
harmonic mean (the reciprocal of the arithmetic mean of reciprocals) of 11.0x,
as compared to a range of imputed enterprise value to EBITDA multiples for the
PJC Cable Business of 12.1x to 13.0x based on Bear Stearns' estimate of the
enterprise value of the PJC Cable Business under the Continental Proposed
Transaction, as described above, and estimated EBITDA for 1994 for the PJC
Cable Business.
ANALYSIS OF SELECTED PUBLICLY TRADED CABLE TELEVISION COMPANIES. Bear Stearns
compared certain operating and financial information for each of the PJC Cable
Business and Continental to certain publicly available operating, financial,
trading and valuation information of seven selected cable television companies,
which, in Bear Stearns' judgment, were comparable to the PJC Cable Business and
Continental for purposes of this analysis. These companies included Adelphia
Communications Corporation, Cablevision Systems Corporation, Century
Communications Corporation, Comcast, Falcon Cable Systems Company, TCA Cable
TV, Inc., and TCI (collectively, the "Comparable Cable Companies"). Bear
Stearns' analysis of the Comparable Cable Companies indicated that (i) the
Comparable Cable Companies were trading in a range of adjusted enterprise value
(enterprise value less the value of non-consolidated cable investments and non-
cable assets) to EBITDA multiples for 1994, as estimated from publicly
available information, of 8.1x to 9.8x with a harmonic mean of 8.6x and (ii)
certain of the Comparable Cable Companies, which, in Bear Stearns' judgment,
were more comparable to the PJC Cable Business and Continental based on size,
asset quality and markets served (i.e., Comcast and TCI), were trading in a
range of adjusted enterprise value to EBITDA multiples for 1994, as estimated
from publicly available information, of 9.1x to 9.8x with a harmonic mean of
9.4x. This compared to a range of imputed enterprise value to EBITDA multiples
for the PJC Cable Business of 12.1x to 13.0x based on Bear Stearns' estimate of
the enterprise value of the PJC Cable Business under the Continental Proposed
Transaction, as described above, and estimated EBITDA for 1994 for the PJC
Cable Business.
DISCOUNTED CASH FLOW CALCULATIONS. Bear Stearns performed theoretical
discounted cash flow calculations based on the projections provided by the
management of the PJC Cable Business. In performing the discounted cash flow
calculations, Bear Stearns utilized discount rates reflecting the estimated
weighted average cost of capital of the PJC Cable Business (ranging from 10% to
12%) and blended terminal value multiples of EBITDA ranging from 10.2x to
10.7x. Based on these calculations, Bear Stearns derived a theoretical
enterprise value for the PJC Cable Business ranging from $1,000 million to
$1,200 million, as compared to Bear Stearns' estimate of the enterprise value
of the PJC Cable Business under the Continental Proposed Transaction of $1,291
million to $1,388 million. Bear Stearns noted that the aforementioned
discounted cash flow calculations were highly dependent on the projections
provided by the management of the PJC Cable Business and the assumptions made
with regard to terminal value and may be less relevant than other valuation
analyses for purposes of valuing the PJC Cable Business.
RELATIVE CONTRIBUTION ANALYSIS. Bear Stearns reviewed and analyzed the
relative contributions of each of the PJC Cable Business and Continental to the
Combined Company based on certain historical and projected operating and
financial information (based on projections for the PJC Cable Business and
Continental prepared by their respective managements) including, among other
things, revenue, EBITDA and basic subscribers. Such analysis did not take into
account any potential synergies and/or cost savings that might be realized as a
result of the Merger. Such analysis indicated that the PJC Cable Business would
contribute approximately 19.1%, 17.0% and 21.4% to the Combined Company's
revenue, EBITDA and basic subscribers, respectively, for 1994 on a pro forma
basis. Bear Stearns noted that the PJC Cable Business's percentage of the
Combined Company's estimated enterprise value (i.e., 18.9%) and the fully
diluted percentage of the Combined Company's equity securities to be owned by
Providence Journal stockholders after the Merger (i.e., 18.9%) compared
reasonably and is in line with the aforementioned contribution percentages.
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OTHER ANALYSES. Bear Stearns conducted such other financial and valuation
analyses as it deemed necessary with respect to Providence Journal, the PJC
Cable Business, New Providence Journal, Continental and the Combined Company.
In addition, Bear Stearns reviewed, analyzed and compared certain operating and
financial information and valuation multiples and ratios of selected precedent
television broadcasting transactions and selected comparable publicly traded
television broadcasting companies to similar data for KBC for purposes of
reviewing and analyzing the Kelso Buyout.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Bear Stearns' opinion. In arriving at its opinion, Bear Stearns
considered the results of all such reviews, calculations and analyses. The
analyses were prepared solely for purposes of providing its opinion as to the
fairness of the Providence Journal Transactions in the aggregate, from a
financial point of view, to the stockholders of Providence Journal and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. The
foregoing summary does not purport to be a complete description of the analysis
performed by Bear Stearns. As described above, Bear Stearns' opinion and
presentation to the Board of Directors of Providence Journal was one of many
factors taken into consideration by the Board of Directors of Providence
Journal in making its determination to approve the Merger Agreement.
Pursuant to a letter agreement, dated May 20, 1993, and a subsequent
amendment to such letter, dated August 2, 1994, Providence Journal agreed to
pay Bear Stearns (i) an initial cash fee of $100,000; (ii) a quarterly retainer
fee of $75,000; (iii) a fee of $400,000 for rendering its opinion in connection
with the Providence Journal Transactions; and (iv) a transaction fee of
approximately $7,000,000, payable upon the consummation of the Merger, which
will be reduced by the fees paid to date. Providence Journal also has agreed to
reimburse Bear Stearns for its reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of counsel, and to indemnify Bear Stearns and
certain related persons against certain liabilities in connection with the
engagement of Bear Stearns, including certain liabilities under the federal
securities laws.
CERTAIN CONSIDERATIONS RELATED TO THE CONTINENTAL MERGER STOCK
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. The value
ascribed under the terms of the Merger Agreement to the Continental Merger
Stock is $19.40 per share of Continental Class A Common Stock and Continental
Series B Preferred Stock. The Continental Merger Stock valuation was arrived at
by Continental and Providence Journal as a result of arm's length negotiations
between the parties and does not necessarily reflect the price at which a
similar number of such shares would be sold to a third party in a private
transaction or the price at which such shares would trade following the
consummation of the Merger.
Although it is a condition to the consummation of the Merger that the
Continental Class A Common Stock and the Continental Series B Preferred Stock
will be accepted for listing on NASDAQ or a national securities exchange, there
can be no assurance that a significant public market for the Continental Class
A Common Stock or Continental Series B Preferred Stock will develop or be
sustained or that, if such market develops, the market price for the
Continental Class A Common Stock or Continental Series B Preferred Stock will
equal or exceed the price at which such shares were valued as of the date of
the Merger Agreement, which value was determined by arm's length negotiations.
In addition, the stock market in recent years has experienced price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of a specific company. These fluctuations could adversely
affect the market price of the Continental Class A Common Stock and Continental
Series B Preferred Stock. (See "The Merger--Certain Covenants--Registration
Rights" and "The Merger--Certain Covenants--Undertakings Regarding Public
Offering".)
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NO INTENTION TO PAY DIVIDENDS. Continental does not intend to pay cash
dividends on its common stock in the foreseeable future. In addition, under the
terms of certain of Continental's outstanding financing agreements, Continental
is subject to certain restrictions on paying cash dividends on its capital
stock, including the Continental Series B Preferred Stock. (See "Description of
Continental Indebtedness" for a discussion of such restrictions.)
REGULATION AND COMPETITION IN THE CABLE TELEVISION INDUSTRY. The cable
television industry is subject to extensive regulation on the federal, state
and local levels. Many aspects of such regulations are currently the subject of
judicial proceedings and administrative or legislative proposals. The 1992
Cable Act has significantly expanded the scope of cable television regulation.
The Federal Communications Commission ("FCC") was required to complete a number
of rule-making proceedings under the 1992 Cable Act, the majority of which,
including certain of those related to rate regulation, have been completed.
While Continental is currently unable to predict the ultimate effect of this
legislation, Continental believes that a number of provisions in the 1992 Cable
Act relating to, among other things, rate regulation, are likely to have an
adverse effect, potentially material, on the cable television industry and on
Continental's business in the future. In particular, pursuant to the 1992 Cable
Act, the FCC has adopted regulations that permit franchising authorities to set
rates for basic service and the provision of cable-related equipment. To the
extent that existing rates are found to exceed those permitted by the FCC,
franchising authorities will be able to require cable television systems to
reduce the rates and provide refunds for up to a one-year period initially
calculated from the effective date of the FCC's regulations. The FCC will also,
upon a complaint by a customer or franchising authority, determine whether
rates for regulated non-basic service tiers (except for services offered on a
per-channel or per program basis) are unreasonable and, if so found, reduce
such rates and provide refunds from the date of such complaint. In addition,
the FCC's regulations, as they now stand, will limit Continental's ability to
increase revenues by increasing rates for regulated services. In addition, it
is possible that, pursuant to further review by the franchising authorities and
the FCC, certain additional rate reductions may be required. Various cable
operators have initiated litigation challenging certain aspects of the 1992
Cable Act. The outcome of this litigation cannot be predicted. Further,
Continental believes that the regulation of the cable television industry,
including the rates charged for regulated services under present FCC rules and
the cable industry's restructuring of rates and services in response to the
1992 Cable Act, remains a matter of interest in Congress, the FCC and other
regulatory authorities. There can be no assurance as to what, if any, future
actions such legislative and regulatory authorities may take or the effect
thereof on Continental or the PJC Cable Business. (See "Description of
Continental--Management's Discussion and Analysis of Financial Condition and
Results of Operations of Continental", "Description of Providence Journal--
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Providence Journal" and "Legislation and Regulation".)
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
The 1992 Cable Act prohibits franchising authorities from granting exclusive
cable television franchises and from unreasonably refusing to award additional
competitive franchises; it also permits municipal authorities to operate cable
television systems in their communities without a franchise. Therefore, there
is a potential for competition with Continental's cable television systems from
these sources, as well as from other distribution systems capable of delivering
television programming to homes such as Multi-channel Multi-point Distribution
Service ("MMDS") and DBS services. Recent court and administrative decisions
have removed certain of the restrictions that have limited entry into the cable
television business by other potential competitors, such as telephone
companies, and proposals recently under consideration by Congress and cases
currently pending in the courts could result in the elimination of other such
restrictions. Continental cannot predict the extent to which competition will
materialize from other cable television operators, other distribution systems
for delivering television programming to the home or other potential
competitors, or the extent of its effect on Continental or the PJC Cable
Subsidiaries. (See "Description of Providence Journal Cable Television
Business--Competition", "Description of Continental--Competition" and
"Legislation and Regulation".)
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SUBSTANTIAL LEVERAGE AND HISTORY OF LOSSES. Continental is highly leveraged
due to the substantial indebtedness it has incurred over time primarily to
finance acquisitions and expand its operations and, to a lesser extent, to
repurchase shares of its capital stock. As of December 31, 1994, Continental's
aggregate debt was $3,449,907,000. After giving effect to the Merger and
certain other acquisitions described herein, as of December 31, 1994,
Continental's aggregate debt on a pro forma basis would have been
$4,618,549,000. Continental may incur additional indebtedness to make
investments, acquisitions and capital expenditures in the future and to satisfy
its obligations in 1998 and 1999 under its stockholder liquidity program, among
other things. (See "Description of Continental--Management's Discussion and
Analysis of Financial Condition and Results of Operations of Continental--
Capital Resources--Recent Stock Repurchases and 1998-1999 Share Repurchase
Program".) Continental anticipates that, in light of the amount of its existing
indebtedness, it will continue to have substantial leverage for the foreseeable
future.
Continental has a history of net losses, which have contributed to its
stockholders' deficiency of $1,688,334,000 as of December 31, 1994. Continental
reported net losses from continuing operations, before extraordinary items and
the cumulative effect of the change in accounting for income taxes, of
$25,774,000 and $68,576,000 for the years ended December 31, 1993 and 1994,
respectively. After giving effect to the Merger and certain other acquisitions
described herein, Continental would have reported a loss from continuing
operations before extraordinary item of $83,600,000 for the year ended December
31, 1994 (See "Description of Continental--Unaudited Pro Forma Condensed
Financial Statements".) The high level of depreciation and amortization
associated with Continental's acquisitions and capital expenditures related to
continued construction and rebuilding of Continental's systems and interest
costs related to its financing activities will cause Continental to continue to
report net losses for the foreseeable future. Effective January 1, 1993,
Continental implemented the provisions of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109") and recognized an additional
charge of $184,996,000 for deferred income taxes for the year ended December
31, 1993. (See "Description of Continental--Selected Consolidated Financial
Information of Continental" and "Description of Continental--Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Continental".)
Historically, cash generated from Continental's operating activities in
conjunction with borrowings and proceeds from private equity issuances has been
sufficient to meet its debt service, stock repurchase obligations and
acquisition, investment and capital expenditure requirements. Continental
believes that cash generated from operating activities, together with
borrowings from existing and future credit facilities and proceeds from future
equity issuances, will be sufficient to meet its future debt service
requirements and stock repurchase obligations, and to make anticipated
acquisitions, investments and capital expenditures. However, there can be no
assurances in this regard. Continental anticipates that it will offer shares of
its capital stock in a private or public offering in the future. (See "The
Merger--Undertakings Regarding Public Offering".) There can be no assurances in
this regard or that any such future equity issuance would be at a price per
share equal to or greater than the price per share ascribed to the Continental
Class A Common Stock or the Continental Series B Preferred Stock under the
terms of the Merger Agreement. Furthermore, there can be no assurances that the
terms available for any future debt financing would be favorable to
Continental. (See "Description of Continental--Management's Discussion and
Analysis of Financial Condition and Results of Operations of Continental--
Liquidity and Capital Resources".)
POTENTIAL FOR EARLY REDEMPTION OF CERTAIN SECURITIES. Continental is required
to repurchase in late 1998 or early 1999 a maximum of 16,684,150 shares of the
Continental Common Stock from certain stockholders at a purchase price
determined in accordance with a formula based upon the then current fair market
value of the Continental Common Stock. (See "Description of Continental--
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Continental--Liquidity and Capital Resources--Recent Stock
Repurchases and 1998-1999 Share Repurchase Program".) In the event Continental
is unable to repurchase such shares, it is obligated at the request of certain
of such stockholders to use its best efforts (subject to compliance with
applicable laws and regulations) to cause the sale of all or substantially all
of the assets of Continental and, following the consummation of such sale, to
liquidate Continental. In addition,
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holders of certain of Continental's outstanding debt securities may, under
certain circumstances, require Continental to redeem such securities as a
result of any such share repurchase. All shares of Continental Common Stock
would share equally in the proceeds of liquidation, after all payments are made
or set aside for holders of indebtedness and Continental Preferred Stock
(including the Continental Series B Preferred Stock); provided, however, there
can be no assurance that any such liquidation proceeds would remain following
payments to holders of indebtedness and Continental Preferred Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Upon the consummation of the Merger, giving
effect to the Continental Recapitalization Amendment and the Continental Stock
Split, there will be 36,895,209 shares of Continental Class A Common Stock,
109,289,675 shares of Continental Class B Common Stock, 1,142,858 shares of
Continental Series A Preferred Stock and 4,987,113 shares of Continental Series
B Preferred Stock outstanding. Of such shares, the 28,260,309 shares of
Continental Class A Common Stock and 4,987,113 shares of Continental Series B
Preferred Stock to be issued to Providence Journal stockholders pursuant to the
Merger will be freely tradeable without restriction or registration under the
Securities Act, except for shares issued to current "affiliates" of Providence
Journal, who are subject to the limitations imposed by Rule 145 under the
Securities Act. The remaining shares of Continental Class A Common Stock, all
of the shares of Continental Class B Common Stock and all of the shares of
Continental Series A Preferred Stock are currently outstanding and are
"restricted securities" as they have not been registered under the Securities
Act.
Only the Continental Class A Common Stock and the Continental Series B
Preferred Stock will be listed and traded in the public market. Treating the
Continental Class B Common Stock and the Continental Series A Preferred Stock
as if all outstanding shares thereof were converted into Continental Class A
Common Stock, (i) there would be 143,444,475 shares of restricted Continental
Class A Common Stock outstanding (excluding any unvested shares granted as part
of incentive compensation to officers of Continental and its subsidiaries) and,
(ii) of such shares, (x) immediately following the effective date (the
"Registration Effective Date") of the Registration Statement for the
Continental Merger Stock, of which this Joint Proxy Statement-Prospectus forms
a part (the "Continental Registration Statement"), 45,383,450 shares would be
eligible for sale without regard to volume or certain other limitations under
Rule 144 of the Securities Act and (y) beginning 90 days after the Registration
Effective Date, 93,910,000 shares would be eligible for sale, subject to
compliance with volume and other limitations under Rule 144. The remaining
shares of currently outstanding Continental Class A Common Stock or shares of
Continental Class A Common Stock issuable upon conversion of currently
outstanding convertible securities (including the outstanding shares of
Continental Class B Stock) would become eligible for sale at various times
thereafter. In addition, certain Continental stockholders have demand or
"piggyback" registration rights with respect to certain of their shares. (See
"Continental Shares Eligible for Future Sale--Outstanding Registration
Rights".)
No predictions can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price for
the Continental Class A Common Stock or the Continental Series B Preferred
Stock prevailing from time to time. Sales of substantial amounts of shares of
Continental Class A Common Stock or Continental Series B Preferred Stock in the
public market could adversely affect the market price of the Continental Class
A Common Stock or the Continental Series B Preferred Stock.
VOTING CONTROL OF CONTINENTAL; DILUTION. The Continental Class A Common Stock
and Continental Series B Preferred Stock entitle their holders to one vote per
share on all matters submitted generally to a vote of Continental's
stockholders, while the Continental Class B Common Stock entitles its holders
to 10 votes per share. Accordingly, the holders of the Continental Class B
Common Stock, including the holders of the Continental Series A Preferred
Stock, which vote as if they had converted into Continental Class B Common
Stock, will have sufficient voting power to determine the outcome of most
matters submitted to the stockholders for approval. After giving effect to the
Continental Stock Split, the holders of Continental Series A Preferred Stock
will vote as if they had converted each of their shares into 25 shares of
Continental Class B Common Stock (i.e., 250 votes per share of Continental
Series A Preferred Stock). If the holders of the
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Continental Series A Preferred Stock transfer their shares to persons other
than certain permitted transferees, the new holders will vote as if each of
their shares of Continental Series A Preferred Stock had been converted into 25
shares of Continental Class A Common Stock (i.e., 25 votes per share of
Continental Series A Preferred Stock). (See "Description of Continental Capital
Stock".) Assuming that the Merger and the related transactions were consummated
as of the date hereof and all PJC Cable Subsidiaries were wholly owned by
Providence Journal, the holders of Providence Journal Common Stock would own
16.2% of the Continental Common Stock (treating the Continental Series A
Preferred Stock as if it were converted into Continental Class B Common Stock)
and 100% of the Continental Series B Preferred Stock and would hold an
aggregate of 2.3% of the voting power of Continental. As a result of these
issuances, the existing holders of Continental Common Stock and Continental
Series A Preferred Stock will incur dilution in their ownership of Continental
and in their voting power. However, management of Continental believes that
this dilution in equity ownership is offset by the benefits of expanded
operating scale and system clusters and the resultant efficiencies generating
therefrom. Nevertheless, there can be no assurances in this regard.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF CONTINENTAL'S RESTATED
CERTIFICATE AND BY-LAWS. Certain provisions of the Continental Restated
Certificate and the Continental By-Laws could have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
acquiring, a majority of the outstanding capital stock of Continental and could
make it more difficult to consummate certain types of transactions involving an
actual or potential change in control of Continental, such as a merger, tender
offer or proxy contest. The most significant of these is the disparate voting
rights of the Continental Class B Common Stock and the Continental Series A
Preferred Stock described above. The Continental Restated Certificate also
provides for three classes of Directors to be elected on a staggered basis--one
class each year--which enables existing management to exercise significant
control over Continental's affairs. Certain institutional investors have the
right, under certain circumstances, to designate nominees to stand for election
to Continental's Board of Directors. Pursuant to the Continental Restated
Certificate, shares of Continental Preferred Stock may be issued in the future
without further stockholder approval and upon such terms and conditions, and
having such rights, privileges and preferences, as the Board of Directors may
determine. (See "Description of Continental--Directors, Executive Officers and
Other Officers of Continental".)
RELIANCE ON KEY PERSONNEL. Continental's success is partially dependent upon
the continued availability of the services of certain key individuals,
including Amos B. Hostetter, Jr., Chairman of the Board of Directors and Chief
Executive Officer of Continental. Continental does not have employment
contracts with, nor does it maintain key man insurance on, any of its executive
officers.
RISKS ASSOCIATED WITH INTERNATIONAL INVESTMENTS. Continental has made
investments in foreign cable companies and intends to continue to consider
investments in companies located outside the United States. (See "Description
of Continental--International Operations".) Such investments are subject to
risks and uncertainties relating to the indigenous political, social and
economic structures of those countries. Risks specifically related to
investments in foreign companies may include risks of fluctuations in currency
valuation, expropriation, confiscatory taxation and nationalization, increased
regulation and approval requirements and governmental policies limiting returns
to foreign investors.
CERTAIN CONSIDERATIONS ASSOCIATED WITH THE REORGANIZATION AND THE MERGER
Consummation of the Reorganization, the Merger and related transactions are
conditioned upon the receipt of a favorable ruling from the Service and an
opinion of counsel to Providence Journal as to certain of the federal income
tax consequences to the transactions. (See "Certain Federal Income Tax
Considerations".)
CERTAIN CONSIDERATIONS RELATED TO THE NEW PROVIDENCE JOURNAL COMMON STOCK
STAND-ALONE COMPANY. New Providence Journal was recently incorporated in
Delaware for the purpose of effecting the Reorganization and the Merger and
does not have any operating history. However, the PJC Publishing Business and
the PJC Broadcasting Business have substantial operating histories. (See
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"Description of Providence Journal Publishing Business" and "Description of
Providence Journal Broadcast Television Business".)
REDUCTION IN COMMON STOCK DIVIDEND PAYMENT. Following completion of the
Reorganization and the Merger, New Providence Journal expects to pay quarterly
dividends on the New Providence Journal Common Stock at a rate below the rate
currently paid with respect to Providence Journal Common Stock. Although the
initial dividend for New Providence Journal has not yet been established,
management's review of factors being considered in recommending a new dividend
level would suggest that following the Merger it would be appropriate to reduce
the dividend level significantly. The dividend reduction is intended to provide
additional funds for operations and investment in new business opportunities.
New Providence Journal's dividend policy will be subject to the exercise by the
New Providence Journal Board of Directors of its fiduciary obligations and the
exercise of the Board's business judgment in connection with, among other
things, any and all requirements of Delaware or other applicable law, any and
all covenants, restrictions or limitations in connection with any financing for
New Providence Journal, New Providence Journal's future earnings, capital
requirements, financial condition and other factors.
INDEMNIFICATION FOR TAX LIABILITIES AND TAX MATTERS. The Merger Agreement
provides that New Providence Journal will retain responsibility for all federal
and state income tax liabilities of Providence Journal and its subsidiaries for
periods ending on or before the closing of the transactions contemplated by the
Merger Agreement ( the "Closing Date"), including income tax liabilities
resulting from any failure of the Reorganization and the Merger to qualify as
tax-free reorganizations under the Code, unless such failure to qualify is the
result of certain actions by Continental. New Providence Journal will indemnify
Continental for all such tax liabilities. (See "Certain Federal Income Tax
Considerations".)
DEPENDENCE ON CERTAIN EXTERNAL FACTORS. The operating results of both the PJC
Publishing Business and the PJC Broadcasting Business are primarily dependent
on advertising revenues which, in turn, depend on national and local economic
conditions, the relative popularity of Providence Journal's publications and
programming, the demographic characteristics of Providence Journal's markets,
the activities of competitors and other factors which will be outside of New
Providence Journal's control.
RELIANCE ON KEY PERSONNEL. Providence Journal's success is partially
dependent upon the continued availability of the services of certain key
individuals, including Stephen Hamblett, Chairman of the Board and Chief
Executive Officer of Providence Journal. Providence Journal does not have
employment contracts with, nor does it maintain key man insurance, on any of
its executive officers.
SUBSTANTIAL LEVERAGE. After completion of the Reorganization and the Merger,
New Providence Journal will have consolidated indebtedness of approximately
$200,000,000, an amount that represents a significant portion of New Providence
Journal's overall borrowing capacity. The degree to which New Providence
Journal is leveraged could have important consequences to holders of the New
Providence Journal Common Stock including, but not limited to, the following:
(i) New Providence Journal's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited; (ii) a significant portion of New
Providence Journal's cash flow from operations will be dedicated to the payment
of the principal of, and interest on, its debt; (iii) the agreements governing
New Providence Journal's long-term debt may contain certain restrictive
financial and operating covenants that could limit New Providence Journal's
ability to compete as well as its ability to expand; (iv) as compared to a less
leveraged entity, New Providence Journal may be more vulnerable to economic
downturns, unable to withstand competitive pressures and less flexible in
responding to changing business and economic conditions. The ability of New
Providence Journal to satisfy its debt obligations will be dependent on the
future operating performance of New Providence Journal, which could be affected
by changes in economic conditions and other factors, including factors beyond
the control of New Providence Journal. If stockholders were to require
increases in dividends, share repurchases or other actions to provide
stockholder liquidity, such actions would further adversely affect New
Providence Journal's operations and growth. New Providence Journal anticipates
that it will have substantial leverage for the foreseeable future.
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NO PRIOR OR EXPECTED PUBLIC MARKET FOR COMMON STOCK. Prior to the
consummation of the Reorganization and the Merger, there has been no public
market for the New Providence Journal Common Stock. The New Providence Journal
Common Stock will not be listed on any securities exchange. It is not
anticipated that an active trading market will develop for the New Providence
Journal Common Stock after completion of the Reorganization and the Merger. If
any market develops, prices for the New Providence Journal Common Stock will be
determined in the marketplace and may be influenced by many factors, including
the operating performance of New Providence Journal, the depth and liquidity of
the market for the New Providence Journal Common Stock, investor perception of
New Providence Journal and general economic and market conditions.
DECLINING NEWSPAPER CIRCULATION. Providence Journal's principal newspaper,
The Providence Journal-Bulletin, has experienced declining circulation since
1990. Providence Journal believes that this decline is attributable to a number
of factors, including growing reliance upon television and other electronic
media for news and other current information and an influx of non-English
speaking residents into the newspaper's geographic market. There can be no
assurance that this decline in circulation will not continue at the same or at
an accelerated pace in the future. If this decline continues, the operations
and financial condition of New Providence Journal could be materially adversely
affected.
INCREASING NEWSPRINT COSTS. Newsprint costs have historically accounted for
between 16% and 24% of the total direct expenses of Providence Journal's
newspapers. Newsprint prices move in cycles associated with the capacity of
paper mills and newspaper industry demand. Currently newsprint prices are
increasing significantly, and industry analysts expect this trend to continue
at least through 1995. There can be no assurance as to when or at what level
such increases will cease. If such increases continue for a substantial period
of time at sufficiently high levels, the operations and financial condition of
New Providence Journal could be materially adversely affected.
NETWORK AFFILIATION; RELIANCE ON NETWORK PROGRAMMING. Four of Providence
Journal's nine owned or partially owned television stations are currently
affiliated with the National Broadcasting Company Incorporated ("NBC")
television network, three are affiliated with the Fox Broadcasting Company
("Fox"), one is affiliated with the American Broadcasting Company ("ABC")
television network and one is affiliated with the CBS, Inc. ("CBS") television
network. Providence Journal's television viewership levels are materially
dependent upon programming provided by these major networks. There can be no
assurance that such programming will achieve or maintain satisfactory
viewership levels in the future. Each of Providence Journal's stations is a
party to an affiliation agreement with one of the networks giving the station
the right to rebroadcast programs transmitted by the network. Under the
affiliation agreements, the networks possess, in the event of a material breach
by the station and in certain other similar circumstances, the right to
terminate the agreement on prior written notice. Although New Providence
Journal expects that it will be able to renew its network affiliation
agreements, no assurance can be given that such renewals will be obtained. The
non-renewal or termination of one or more of the network affiliation agreements
could have a material adverse effect on New Providence Journal's operations.
COMPETITION IN THE TELEVISION INDUSTRY; IMPROVEMENTS AND INNOVATIONS IN
TECHNOLOGY. The television broadcasting industry has become increasingly
competitive in recent years with the growth of cable television, new broadcast
networks, satellite dishes, MMDS, pay-per-view programs and the proliferation
of video cassette recorders ("VCRs") and VCR movie rentals. These changes have
fractionalized television viewing audiences, and this trend is likely to
continue in the future. In addition, technological developments such as DBS,
"high definition" and "interactive" television may impose additional costs and
competitive pressures on New Providence Journal. In addition to competing with
other media outlets for audience share, Providence Journal's stations also
compete for advertising revenues, which will comprise the primary source of
revenues for New Providence Journal. Providence Journal's stations compete for
such advertising revenues with other television stations in their respective
markets, as well as with other advertising media, such as newspapers, radio
stations, magazines, outdoor advertising, transit advertising, yellow page
directories, direct
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mail and local cable television systems. Providence Journal's television
stations are located in highly competitive markets. Accordingly, New Providence
Journal's results of operations will be dependent upon the ability of each
station to compete successfully in its market, and there can be no assurance
that any one of New Providence Journal's stations will be able to maintain or
increase its current audience share or advertising revenue share. To the extent
that certain of its competitors have or may, in the future, obtain greater
resources than New Providence Journal, New Providence Journal's ability to
compete successfully in its broadcasting markets may be impeded.
GOVERNMENT REGULATIONS. Providence Journal's television operations are
subject to significant regulation by the FCC under the Communications Act of
1934, as amended (the "Communications Act"). A television station may not
operate without the authorization of the FCC. Approval of the FCC is required
for the issuance, renewal and transfer of station operating licenses. In
particular, New Providence Journal's business will be dependent upon its
continuing to hold television broadcasting licenses from the FCC, which are
issued for terms of five years. While in the vast majority of cases such
licenses are renewed by the FCC, there can be no assurance that New Providence
Journal licenses will be renewed at their expiration dates, or, if renewed,
that the renewal terms will be for five years. The non-renewal or revocation of
one or more of New Providence Journal's FCC licenses could have a material
adverse effect on New Providence Journal's operations. Congress and the FCC
currently have under consideration and may in the future adopt new laws,
regulations and policies regarding a wide variety of matters which could,
directly or indirectly, affect the operations and ownership of New Providence
Journal's broadcast properties. New Providence Journal is unable to predict the
impact which any such laws or regulations may have on its operations.
RISKS ASSOCIATED WITH NEW BUSINESSES. Providence Journal has invested amounts
which are significant in the aggregate in various start-up businesses,
including Television Food Network, G.P. (a cable television network) ("TVFN")
and Linkatel Pacific, L.P. (an alternate access telephone company
("Linkatel")), and intends to make more of such investments in the future. The
prospects of such businesses, which will be held by New Providence Journal,
must be considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business in an emerging and evolving
industry characterized by new market entrants, intense competition and new and
rapidly evolving technology.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
TREATMENT OF CERTAIN EMPLOYEE STOCK OPTION AND INCENTIVE COMPENSATION
ARRANGEMENTS. Effective as of the Effective Time, New Providence Journal will
assume the following stock incentive plans of Providence Journal: (i) the 1994
Employee Stock Option Plan; (ii) the 1994 Non-Employee Director Stock Option
Plan; and (iii) the Restricted Stock Unit Plan (collectively, the "Providence
Journal Stock Incentive Plans"). For a description of certain aspects of the
Providence Journal Stock Incentive Plans, see "Description of Providence
Journal and New Providence Journal--Stock Incentive Plans of Providence Journal
Assumed by New Providence Journal".
TREATMENT OF OUTSTANDING STOCK OPTIONS. In connection with the
Reorganization, New Providence Journal will assume the 1994 Employee Stock
Option Plan and the 1994 Non-Employee Director Stock Option Plan (the
"Providence Journal Option Plans"). In addition, as of the Effective Time, each
stock option outstanding under either of the Providence Journal Option Plans
that is not exercised prior to the Effective Time will be assumed by New
Providence Journal (the "Assumed Options"). The vesting schedule of Assumed
Options will not be affected by the Reorganization and the Merger. All
references in the Assumed Options to Providence Journal and Providence Journal
Class A Common Stock will be deemed to refer to New Providence Journal and New
Providence Journal Class A Common Stock.
Pursuant to the adjustment provisions of the Providence Journal Option Plans,
the aggregate number and class of shares that may be issued under the
Providence Journal Option Plans and the number and class of and/or price of
shares subject to the Assumed Options will be adjusted, as deemed appropriate
in the discretion of the Executive Committee, to prevent the dilution or
enlargement of rights of any participant under the Providence Journal Option
Plans.
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<PAGE>
TREATMENT OF OUTSTANDING RESTRICTED STOCK. In connection with the
Reorganization, New Providence Journal will assume the Providence Journal
Restricted Stock Unit Plan and will assume each restricted stock unit award
that is subject to vesting conditions under the Providence Journal Restricted
Stock Unit Plan (the "Assumed Awards"). All references in the Assumed Awards to
Providence Journal and Providence Journal Class A Common Stock will be deemed
to refer to New Providence Journal and New Providence Journal Class A Common
Stock. The vesting schedule of Assumed Awards will not be affected by the
Reorganization and the Merger. Pursuant to certain provisions of the Providence
Journal Restricted Stock Unit Plan, participants will be entitled to
adjustments in the number of units in order to make the awards for New
Providence Journal participants comparable to the awards for current
participants, given the structure and size of New Providence Journal.
TREATMENT OF PROVIDENCE JOURNAL RETIREMENT PLANS. Prior to the Merger, New
Providence Journal will assume the following tax-qualified retirement plans
maintained by Providence Journal: (i) the Providence Journal Retirement Plan;
(ii) the Journal Guild 401(k) Plan, a qualified profit-sharing plan providing
supplementary pension benefits for members of the Providence Journal Newspaper
Guild; and (iii) the Journal 401(k) Plan (collectively, the "Providence Journal
Retirement Plans"). The foregoing plans cover the employees of most of
Providence Journal's operating units. Participants in the Providence Journal
Retirement Plans who become employees of New Providence Journal will continue
as participants following the Reorganization and the Merger, and their service
and salary, if applicable, with Providence Journal prior to the Effective Time
will be counted in determining eligibility, benefits and vesting under the
Providence Journal Retirement Plans when assumed by New Providence Journal.
PROVIDENCE JOURNAL INCENTIVE STOCK UNIT PLAN. While not contingent upon the
Reorganization or the Merger, the Providence Journal Incentive Stock Unit Plan
will be terminated and liquidated upon the next independent appraisal of
Providence Journal Class A Common Stock which is anticipated to be in mid-1995,
but in any event, prior to the consummation of the Merger. (See "Description of
Providence Journal and New Providence Journal--Executive Compensation--
Providence Journal Incentive Stock Unit Plan".)
TREATMENT OF PROVIDENCE JOURNAL CABLE DIVISION EMPLOYEES. The Cable Division
Sale Bonus Plan is designed to retain certain of Providence Journal's cable
executives and to provide incentives to such executives to maximize the
operating performance of the cable business pending completion of the Merger
with bonuses payable only if the Merger is consummated. Those eligible to
receive awards under the Cable Division Sale Bonus Plan are certain key
officers of the PJC Cable Business. Subject to certain conditions, the
participants are eligible to receive a share of a bonus pool in the following
amount: (i) $2.1 million if the 1994 cash flow objective of $123.6 million for
the PJC Cable Business is achieved, and (ii) 50% of any 1994 cash flow in
excess of the 1994 cash flow objective. As of the date hereof, eligible
employees would receive $5.2 million, subject to downward adjustment by a
maximum of 20%, based upon a graduated scale, if the 1995 cash flow objective
of $123.6 million is not met (pro rated for the portion of 1995 which has
elapsed at the time of the Closing of the Merger). Any significant unforeseen
changes that might positively or negatively affect the cash flow of the PJC
Cable Business, such as new statutes or regulations, will be excluded from the
performance measurement. Bonus payments will be pro-rated for actual
performance with respect to the 1995 objective. The Cable Division Sale Bonus
Plan supersedes any other award that the participant may be eligible for
pursuant to any other long-term incentive plan of Providence Journal or the PJC
Cable Business. New Providence Journal shall be responsible for all payments
made under the Cable Division Sale Bonus Plan.
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<PAGE>
THE SPECIAL MEETINGS
MATTERS TO BE DISCUSSED AT THE SPECIAL MEETINGS
GENERAL. This Joint Proxy Statement-Prospectus is being furnished by
Providence Journal to holders of shares of Providence Journal Common Stock and
by Continental to holders of shares of Continental Voting Stock in connection
with the solicitation of proxies from such stockholders for use at the
Providence Journal Special Meeting and the Continental Special Meeting,
respectively.
CONTINENTAL. At the Continental Special Meeting or any adjournments or
postponements thereof, holders of shares of Continental Voting Stock will be
asked to approve and adopt the following proposals: (i) the approval and
adoption of the Merger Agreement and each of the transactions contemplated
thereby relating to Continental, including the Merger of Restructured PJC with
and into Continental; (ii) the approval and adoption of the Continental
Recapitalization Amendment to increase the number of authorized shares of
capital stock of Continental from 17,700,000 to 825,000,000, including an
increase in the number of authorized shares of Continental Common Stock from
15,000,000 to 625,000,000, of which 425,000,000 will be shares of Continental
Class A Common Stock (with one vote per share) and 200,000,000 will be shares
of Continental Class B Common Stock (with ten votes per share), and an increase
in the number of authorized shares of Continental Preferred Stock from
2,700,000 to 200,000,000, of which 1,142,858 are currently designated
Continental Series A Preferred Stock and, upon consummation of the Merger,
4,987,113 of which will be designated as Continental Series B Preferred Stock;
(iii) the election of four Class C Directors to serve a three-year term; and
(iv) the ratification of the appointment by the Board of Directors of Deloitte
& Touche LLP as Continental's independent public accountants for the current
fiscal year ending December 31, 1995. The holders of the Continental Series A
Preferred Stock currently vote as if they had converted their shares into
Continental Class B Common Stock (currently, ten votes per share; after giving
effect to the Continental Recapitalization Amendment and the Continental Stock
Split, 250 votes per share). Such stockholders will also consider and vote upon
such other matters as may properly be brought before the Continental Special
Meeting.
THE BOARD OF DIRECTORS OF CONTINENTAL HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE CONTINENTAL RECAPITALIZATION AMENDMENT AND RECOMMENDS A VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, FOR APPROVAL AND ADOPTION OF
THE CONTINENTAL RECAPITALIZATION AMENDMENT AND FOR APPROVAL AND ADOPTION OF
EACH OF THE OTHER PROPOSALS BEING SUBMITTED AT THE CONTINENTAL SPECIAL MEETING.
PROVIDENCE JOURNAL. At the Providence Journal Special Meeting or any
adjournments or postponements thereof, holders of Providence Journal Common
Stock will be asked to approve and adopt the following proposals: (i) the Plan
of Reorganization, (ii) the dissolution of KHC, (iii) the dissolution of
Providence Journal (iv) the PJC Spin-Off (each of which comprises the Plan of
Reorganization), (v) the Merger Agreement and (vi) the Cable Division Sale
Bonus Plan. Such stockholders will also consider and vote upon such other
matters as may properly be brought before the Providence Journal Special
Meeting.
THE BOARD OF DIRECTORS OF PROVIDENCE JOURNAL HAS UNANIMOUSLY APPROVED THE
PLAN OF REORGANIZATION, THE MERGER AGREEMENT AND THE CABLE DIVISION SALE BONUS
PLAN AND RECOMMENDS THAT PROVIDENCE JOURNAL STOCKHOLDERS VOTE FOR THE PROPOSAL
TO APPROVE AND ADOPT THE PLAN OF REORGANIZATION, FOR EACH OF THE THREE
PROPOSALS TO APPROVE THE TRANSACTIONS THAT COMPRISE THE PLAN OF REORGANIZATION,
FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND FOR THE PROPOSAL
TO APPROVE AND ADOPT THE CABLE DIVISION SALE BONUS PLAN.
39
<PAGE>
RECORD DATES; STOCK ENTITLED TO VOTE; QUORUM
CONTINENTAL. The Continental Record Date for the determination of shares of
those holders of Continental Voting Stock entitled to notice of, and to vote
at, the Continental Special Meeting is April 15, 1995. Only holders of record
of shares of Continental Voting Stock at the close of business on the
Continental Record Date will be entitled to notice of, and to vote at, the
Continental Special Meeting or any adjournments or postponements thereof. As of
the Continental Record Date (adjusting for the Continental Stock Split), there
were 8,634,900 shares of Continental Class A Common Stock, 109,289,675 shares
of Continental Class B Common Stock, and 1,142,858 shares of Continental Series
A Preferred Stock outstanding, entitled to vote and held by 416 holders of
record.
The presence in person or by proxy of shares representing a majority of votes
(693,623,076 votes) entitled to be cast by holders of Continental Voting Stock
issued and outstanding and entitled to vote as of the Continental Record Date
is required to constitute a quorum for the transaction of business at any
meeting of stockholders. Abstentions and broker non-votes are included in the
determination of the number of shares of Continental Voting Stock present and
voting.
PROVIDENCE JOURNAL. The Providence Journal Record Date for the determination
of shares of those holders of Providence Journal Common Stock entitled to
notice of, and to vote at, the Providence Journal Special Meeting is ,
1995. Only holders of record of shares of Providence Journal Common Stock at
the close of business on the Providence Journal Record Date will be entitled to
notice of, and to vote at, the Providence Journal Special Meeting or any
adjournments or postponements thereof. As of the Providence Journal Record
Date, there were 37,728 shares of Providence Journal Class A Common Stock (with
one vote per share) and 46,961 shares of Providence Journal Class B Common
Stock (with four votes per share) outstanding, entitled to vote and held by
approximately 470 holders of record.
The presence in person or by proxy of shares representing a majority of votes
(112,787 votes) entitled to be cast by holders of Providence Journal Common
Stock issued and outstanding and entitled to vote as of the Providence Journal
Record Date is required to constitute a quorum for the transaction of business
at any meeting of stockholders.
REQUIRED VOTES
CONTINENTAL. The affirmative vote of a majority of the votes (693,623,076
votes, adjusting for the Continental Stock Split) of holders of the outstanding
shares of the Continental Voting Stock, voting together as a class, are the
only votes of Continental stockholders required to approve the Merger under the
DGCL and the Continental Restated Certificate and the Continental By-Laws. The
affirmative vote or action by written consent of 66 2/3% of the votes
(924,830,766 votes, adjusting for the Continental Stock Split) of holders of
the outstanding shares of the Continental Voting Stock, voting together as a
class, and a separate vote or action by written consent of a majority of the
votes (142,857,251 votes, adjusting for the Continental Stock Split) of holders
of the outstanding shares of the Continental Series A Preferred Stock are the
only votes of Continental stockholders required to approve the Continental
Recapitalization Amendment. The affirmative vote or action by written consent
of a plurality of the votes cast by holders of Continental Voting Stock at the
Continental Special Meeting, voting together as a class, is required to elect
Directors. Abstentions and broker non-votes are considered present for purposes
of determining a quorum. Abstentions and broker non-votes do not affect the
election of the Directors. Abstentions and broker non-votes will have the same
effect as a vote against the Merger and the Continental Recapitalization
Amendment.
Each proposal shall be voted upon separately by the Continental stockholders
entitled to vote at the Continental Special Meeting; however, failure of either
the Merger Agreement or the Continental Recapitalization Amendment to be
approved by the Continental stockholders will result in the abandonment by
Continental of the Merger.
PROVIDENCE JOURNAL. The affirmative vote of the holders of a majority of the
outstanding shares of both the Providence Journal Class A Common Stock and the
Providence Journal Class B Common Stock, with each class voting separately, is
required for approval of the Plan of Reorganization and for each of the three
40
<PAGE>
components of the Plan of Reorganization as to which Providence Journal
stockholders are entitled to vote. The affirmative vote or action by written
consent of a majority of the votes of holders of the outstanding shares of the
Providence Journal Common Stock, voting together as a single class, is required
to approve the Merger. The affirmative vote or action by written consent of a
majority of the votes of holders of the outstanding shares of Providence
Journal Common Stock, voting together as a single class, is required to approve
and adopt the Cable Division Sale Bonus Plan; however, Providence Journal is
seeking the approval of 75% of such votes because failure to obtain such 75%
approval could result in some or all of the payments under the Cable Division
Sale Bonus Plan being non-deductible for federal income tax purposes to
Providence Journal and in the imposition of an excise tax on the recipients of
such payments. Abstentions and broker non-votes are both counted as shares
represented in person or by proxy and entitled to vote for purposes of a
quorum. While abstentions are counted in the universe of shares represented in
person or by proxy and entitled to vote on the Providence Journal Proposals and
the other proposals, broker non-votes are not so counted.
All matters to come before the Providence Journal Special Meeting shall be
voted upon separately, including the separate elements of the Providence
Journal Proposals. However, failure of the stockholders of Providence Journal
to approve either the Plan of Reorganization or the Merger will result in the
abandonment by Providence Journal of both the Plan of Reorganization and the
Merger.
SOLICITATION AND VOTING OF PROXIES
CONTINENTAL. Stockholders of record on the Continental Record Date are
entitled to cast their votes, in person or by properly executed proxy, at the
Continental Special Meeting. All shares represented at the Continental Special
Meeting by properly executed proxies received prior to or at the Continental
Special Meeting and not properly revoked will be voted at the Continental
Special Meeting in accordance with the instructions indicated in such proxies.
If no instructions are indicated, such proxies will be voted FOR approval of
the Continental Proposals and the other proposals. The Board of Directors of
Continental does not know of any matters, other than the matters described in
the Continental Notice of Special Meeting attached to this Joint Proxy
Statement-Prospectus, that will come before the Continental Special Meeting.
If a quorum is not present at the time the Continental Special Meeting is
convened, or if for any other reason Continental believes that additional time
should be allowed for the solicitation of proxies or for the satisfaction of
conditions to the Merger or the transactions contemplated thereby, Continental
may adjourn the Continental Special Meeting with a vote of the holders of a
majority of the voting power represented by the Continental Voting Stock
present at such meeting. If Continental proposes to adjourn the Continental
Special Meeting, the persons named in the enclosed proxy card will vote all
shares for which they have voting authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted in the following manner. Proxies may
be revoked by (i) filing with the Secretary of Continental, at or before the
Continental Special Meeting, a written notice of revocation bearing a date
later than the date of the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of Continental
at or before the Continental Special Meeting or (iii) attending the Continental
Special Meeting and voting in person (although attendance at the Continental
Special Meeting will not in and of itself constitute revocation of a proxy).
Any written notice revoking a proxy should be sent to Continental Cablevision,
Inc., The Pilot House, Lewis Wharf, Boston, Massachusetts 02110, Attention: P.
Eric Krauss, Vice President and Treasurer.
Proxies are being solicited by and on behalf of the Continental Board of
Directors. All expenses of this solicitation, including the cost of preparing
and mailing this Joint Proxy Statement-Prospectus (except for printing costs,
which will be shared with Providence Journal), will be borne by Continental. In
addition to solicitation by use of the mails, proxies may be solicited by
Directors, officers and employees of Continental in person or by telephone,
telegram or other means of communication. Such Directors, officers and
employees
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<PAGE>
will not be additionally compensated, but may be reimbursed for out-of-pocket
expenses in connection with such solicitation. Arrangements will be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of Continental Voting Stock held of record by
such persons, and Continental may reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
PROVIDENCE JOURNAL. Stockholders of record on the Providence Journal Record
Date are entitled to cast their votes, in person or by properly executed proxy,
at the Providence Journal Special Meeting. All shares represented at the
Providence Journal Special Meeting by properly executed proxies received prior
to or at the Providence Journal Special Meeting and not properly revoked will
be voted at the Providence Journal Special Meeting in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
proxies will be voted FOR approval of the Providence Journal Proposals and FOR
approval of the Cable Division Sale Bonus Plan. The Board of Directors of
Providence Journal does not know of any matters, other than the matters
described in the Providence Journal Notice of Special Meeting attached to this
Joint Proxy Statement-Prospectus, that will come before the Providence Journal
Special Meeting.
If a quorum is not present at the time the Providence Journal Special Meeting
is convened, or if for any other reason Providence Journal believes that
additional time should be allowed for the solicitation of proxies or for the
satisfaction of conditions to the Merger or the transactions contemplated
thereby, Providence Journal may adjourn the Providence Journal Special Meeting
with a vote of the holders of a majority of the voting power represented by the
Providence Journal Common Stock present at such meeting. If Providence Journal
proposes to adjourn the Providence Journal Special Meeting, the persons named
in the enclosed proxy card will vote all shares for which they have voting
authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted in the following manner. Proxies may
be revoked by (i) filing with the Secretary of Providence Journal, at or before
the Providence Journal Special Meeting, a written notice of revocation bearing
a date later than the date of the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of Providence
Journal at or before the Providence Journal Special Meeting or (iii) attending
the Providence Journal Special Meeting and voting in person (although
attendance at the Providence Journal Special Meeting will not in and of itself
constitute revocation of a proxy). Any written notice revoking a proxy should
be sent to Providence Journal Company, 75 Fountain Street, Providence, Rhode
Island 02902, Attention: Harry Dyson, Secretary.
Proxies are being solicited by and on behalf of the Providence Journal Board
of Directors. All expenses of this solicitation, including the cost of
preparing and mailing this Joint Proxy Statement-Prospectus (except for
printing costs, which will be shared with Continental), will be borne by
Providence Journal. In addition to solicitation by use of the mails, proxies
may be solicited by Directors, officers and employees of Providence Journal in
person or by telephone, telegram or other means of communication. Such
Directors, officers and employees will not be additionally compensated but may
by reimbursed for out-of-pocket expenses in connection with such solicitation.
Arrangements will be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of Providence
Journal Common Stock held of record by such persons, and Providence Journal may
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
OWNERSHIP OF CONTINENTAL SECURITIES
The following table provides information as of March 15, 1995 (giving effect
to the Continental Recapitalization Amendment and the Continental Stock Split),
with respect to the shares of Continental Common Stock and the Continental
Series A Preferred Stock beneficially owned by (i) each person known by
Continental to own more than 5% of the outstanding Continental Common Stock or
Continental Series A Preferred Stock, (ii) each Director of Continental, (iii)
each executive officer required to be identified in the Summary Compensation
Table of Continental and (iv) by all Directors and executive officers of
Continental as a group. The number of shares beneficially owned by each
Director or executive officer is
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<PAGE>
determined according to rules of the Commission, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and also any
shares which the individual or entity has the right to acquire within 60 days
of March 15, 1995 through the exercise of an option, conversion feature or
similar right. Except as noted below, each holder has sole voting and
investment power with respect to all shares of Continental Common Stock or
Continental Series A Preferred Stock listed as owned by such person or entity.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PERCENTAGE OF SHARES OF PERCENTAGE
SHARES OF OUTSTANDING CONTINENTAL OF OUTSTANDING
CONTINENTAL SHARES OF PREFERRED SHARES OF
COMMON STOCK(1) CONTINENTAL STOCK(2) CONTINENTAL AGGREGATE
BENEFICIALLY COMMON BENEFICIALLY PREFERRED VOTING
NAME OWNED STOCK OWNED STOCK POWER
---- --------------- ------------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
Amos B. Hostetter, Jr.(3). 45,272,425 38.39% -- -- 32.63%
Timothy P. Neher(4)....... 1,671,725 1.42 -- -- 1.21
Michael J. Ritter......... 589,900 * -- -- *
Roy F. Coppedge, III(5)..... 7,514,075 6.37 -- -- 5.12
Jonathan H. Kagan(6)...... 28,571,450 19.50 1,142,858 100.00% 20.59
Robert B. Luick(7)........ 229,575 * -- -- *
Henry F. McCance(8)....... 258,125 * -- -- *
Lester Pollack(6)......... 28,571,450 19.50 1,142,858 100.00 20.59
Vincent J. Ryan(9)........ 5,719,825 4.85 -- -- 4.12
William T. Schleyer....... 766,200 * -- -- *
Jeffrey T. Delorme........ 391,525 * -- -- *
Nancy Hawthorne........... 209,325 * -- -- *
Directors and Executive
Officers as a Group (13
persons)(6).............. 91,373,425 62.37 1,142,858 100.00 65.57
H. Irving Grousbeck(10)... 10,033,000 8.51 -- -- 7.23
Boston Ventures Company
Limited Partnership III
Boston Ventures Limited
Partnership III(11).... 3,034,525 2.57 -- -- 2.19
Boston Ventures Limited
Partnership IIIA(11)... 799,825 * -- -- *
Boston Ventures Company
Limited Partnership IV
Boston Ventures Limited
Partnership IV(11)..... 2,381,725 2.02 -- -- 1.42
Boston Ventures Limited
Partnership IVA(11).... 1,298,000 1.10 -- -- *
---------- ----- -----
Total as a group...... 7,514,075 6.37 -- -- 5.12
LFCP Corp. and Corporate
Advisors, L.P.(12)
Corporate Partners,
L.P.(12)............... 18,223,825 13.39 728,953 63.78 13.14
Mellon Bank, N.A., as
Trustee for
First Plaza Group
Trust(12)(13)........ 4,285,725 3.51 171,429 15.00 3.09
The State Board of
Administration of
Florida(12)............ 1,902,100 1.59 76,084 6.66 1.37
Vencap Holdings (1992)
Pte Ltd(12)............ 1,785,700 1.49 71,428 6.25 1.29
Corporate Offshore
Partners, L.P.(12)..... 1,302,675 1.09 52,107 4.56 *
ContCable Co-Investors,
L.P.(12)............... 1,071,425 * 42,857 3.75 *
---------- ----- --------- ------ -----
Total as a group...... 28,571,450 19.50%(14) 1,142,858 100.00% 20.59%
</TABLE>
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<PAGE>
- --------
*Less than 1% of class.
(1) The number of shares of Continental Common Stock beneficially owned by
each listed holder reflects the number of such shares held giving effect
to the Continental Recapitalization Amendment and the Continental Stock
Split. The number of shares of Continental Common Stock currently
beneficially owned by a person identified in the table as of March 15,
1995 (before giving effect to the Continental Recapitalization Amendment
and the Continental Stock Split) can be obtained by dividing the number of
shares of Continental Common Stock listed in the table as being owned by
such person by 25. The Continental Stock Split will not affect the
percentage of outstanding shares of Continental Common Stock, the voting
power or the number or percentage of outstanding shares of Continental
Series A Preferred Stock. The Continental Common Stock includes
Continental Class A Common Stock, which has one vote per share, and
Continental Class B Common Stock, which has ten votes per share. As the
number of shares of Continental Class A Common Stock represents 7.32% of
the Continental Common Stock and less than 1% of the voting power of the
Continental Common Stock, the Continental Class A Common Stock has not
been shown as a separate class of stock, but rather Continental Common
Stock has been treated as one class. Every greater than 5% beneficial
owner of Continental Class B Common Stock would be a greater than 5%
beneficial owner of Continental Class A Common Stock.
(2) Under the rules for determining beneficial ownership promulgated by the
Commission, each holder of Continental Series A Preferred Stock is deemed
to own currently that number of shares of Continental Common Stock into
which the Continental Series A Preferred Stock is convertible. The
Continental Series A Preferred Stock is presently convertible into
Continental Common Stock on a one-for-one basis and will be convertible
into Continental Common Stock on a 25-for-one basis following the
Continental Stock Split. The table therefore shows the number of shares of
Continental Series A Preferred Stock owned by each holder in the column for
the Continental Series A Preferred Stock and includes that number of shares
in the column for Continental Common Stock into which the Continental
Series A Preferred Stock would be convertible after giving effect to the
Continental Recapitalization Amendment and the Continental Stock Split.
(3) Mr. Hostetter has shared voting and investment power as to 42,843,550
shares of Continental Common Stock held by the Trust of which Messrs.
Hostetter and Neher are the sole trustees. Mr. Hostetter has shared voting
and investment power as to a further 446,400 shares of Continental Common
Stock; as to 223,200 of such shares, he disclaims beneficial ownership.
Additionally, Mr. Hostetter disclaims beneficial ownership of 550,000
shares of Continental Common Stock with respect to which his wife acts as a
trustee with Mr. Neher and 38,950 shares of Continental Common Stock held
by him as custodian for four minor children. The shares listed in the table
as being beneficially owned by Mr. Hostetter include those as to which Mr.
Hostetter has shared voting and/or investment power and those as to which
Mr. Hostetter disclaims beneficial ownership. Mr. Hostetter's address is
The Pilot House, Lewis Wharf, Boston, Massachusetts 02110.
(4) Mr. Neher has shared voting and investment power as to 550,000 shares of
Continental Common Stock with respect to which he acts as a trustee with
Mrs. Hostetter, and as to 42,843,550 shares of Continental Common Stock
with respect to which he acts as a trustee with Mr. Hostetter. Mr. Neher
disclaims beneficial ownership as to such shares, and the table does not
indicate such shares as being beneficially owned by Mr. Neher. (See
footnote (3) above.) Additionally, Mr. Neher disclaims beneficial ownership
as to 165,000 shares with respect to which he acts as trustee and 55,000
shares held by his wife as custodian for their children, which are included
in the table as being beneficially owned by Mr. Neher.
(5) All the shares listed in the table as beneficially owned by Mr. Coppedge
are held by the four limited partnerships described in footnote (11) below.
Mr. Coppedge, a partner of each of the general partners of the limited
partnerships and a Director of Boston Ventures Management, Inc., which
manages the investments of the four limited partnerships, has shared voting
and investment power as to these shares. Mr. Coppedge is entitled to
beneficial ownership of an indeterminate number of these shares and
disclaims beneficial ownership as to the balance. Mr. Coppedge's address is
c/o Boston Ventures Management, Inc., 21 Custom House Street, Boston,
Massachusetts 02110.
44
<PAGE>
(6) All shares listed in the table as being beneficially owned by Mr. Pollack
and Mr. Kagan are beneficially owned by Corporate Advisors, L.P.
("Corporate Advisors"). (See footnote (12) below.) Mr. Pollack may be
deemed to have shared voting and investment power over such shares as the
Chairman and Treasurer and as a Director of LFCP Corp., and Mr. Kagan may
be deemed to have shared voting and investment power over such shares as
the President of LFCP Corp. LFCP Corp. is the sole general partner of
Corporate Advisors and a wholly owned subsidiary of Lazard. Mr. Pollack and
Mr. Kagan are both general partners of Lazard. Mr. Pollack's and Mr.
Kagan's address is c/o Corporate Advisors, L.P., One Rockefeller Plaza, New
York, New York 10020. Mr. Pollack and Mr. Kagan disclaim beneficial
ownership of all such shares.
(7) The shares listed in the table as being beneficially owned by Mr. Luick
include 73,800 shares owned by Mr. Luick's daughter and 37,500 shares with
respect to which she acts as trustee for Mr. Luick's grandchildren. Mr.
Luick disclaims beneficial ownership of these shares.
(8) The shares listed in the table as being beneficially owned by Mr. McCance
include 225,000 shares held by Greylock Limited Partnership, of which Mr.
McCance is a general partner. Mr. McCance has shared voting and investment
power as to these shares, is entitled to beneficial ownership of an
indeterminate number of these shares and disclaims beneficial ownership as
to the balance. Of the remaining shares, Mr. McCance disclaims beneficial
ownership as to 12,500 shares with respect to which his wife acts as
trustee for his daughter and 12,500 shares held by his daughter.
(9) Mr. Ryan holds 136,250 shares of Continental Common Stock. The remaining
shares of Continental Common Stock listed in the table as being
beneficially owned by Mr. Ryan are held by Schooner Capital Corporation
(and its subsidiaries), over which Mr. Ryan has shared voting and
investment power as the Chairman and principal stockholder.
(10) All of these shares are subject to the Stock Liquidation Agreement
pursuant to which Mr. Grousbeck must sell such shares to Continental in
either 1998 or 1999. (See "Description of Continental--Management's
Discussion and Analysis of Financial Condition and Results of Operations
of Continental--Liquidity and Capital Resources--Recent Stock Repurchases
and 1998-1999 Share Repurchase Program".) Mr. Grousbeck's address is Room
382, Graduate School of Business, Stanford University, Stanford,
California 94305.
(11) These four limited partnerships may be deemed to be a "group" of persons
acting together for the purpose of acquiring, holding, voting or disposing
of shares of Continental Common Stock. Boston Ventures Company Limited
Partnership III ("BV Co. III"), as the sole general partner of each of
Boston Ventures Limited Partnership III and Boston Ventures Limited
Partnership IIIA, is deemed to be the beneficial owner of the shares held
by such limited partnerships and to have shared voting and investment
power with respect to such shares. Boston Ventures Company Limited
Partnership IV ("BV Co. IV"), as the sole general partner of each of
Boston Ventures Limited Partnership IV and Boston Ventures Limited
Partnership IVA, is deemed to be the beneficial owner of the shares held
by such limited partnerships and to have shared voting and investment
power with respect to such shares. BV Co. III disclaims beneficial
ownership of the shares beneficially owned by BV Co. IV; and BV Co. IV
disclaims beneficial ownership of the shares beneficially owned by BV Co.
III. Mr. Coppedge may be deemed to beneficially own all such shares. (See
footnote (5).)
(12) These stockholders may be deemed to be a "group" of persons acting
together for the purpose of acquiring, holding, voting or disposing of
shares of Continental Series A Preferred Stock. Corporate Advisors is the
general partner of Corporate Partners, L.P. ("Corporate Partners") and
Corporate Offshore Partners, L.P. ("Corporate Offshore Partners") and has
sole voting and investment power as to the shares held by them. Corporate
Advisors serves as investment manager over a certain investment management
account for The State Board of Administration of Florida ("SBA") and has
sole voting and dispositive power with respect to the shares of
Continental Series A Preferred Stock held by SBA. Pursuant to a Co-
Investment Agreement dated as of April 27, 1992 (the "Co-Investment
Agreement") by and among Corporate Advisors, Corporate Partners, Corporate
Offshore Partners, First Plaza Group Trust ("FPGT"), Vencap Holdings
(1992) Pte. Ltd. ("Vencap") and ContCable Co-Investors, L.P.
("ContCable"), Corporate Advisors has sole voting and dispositive power
with respect to the
45
<PAGE>
shares held by Vencap and ContCable. The address of Corporate Advisors,
Corporate Partners, Corporate Offshore Partners, FPGT, SBA, ContCable and
Vencap is: c/o Corporate Advisors, L.P., One Rockefeller Plaza, New York,
New York 10020. (See footnote (6) above.)
(13) Mellon Bank, N.A. acts as the trustee for FPGT, a trust under and for the
benefit of certain employee benefit plans of General Motors Corporation
and its subsidiaries. The shares listed in the table may be deemed to be
beneficially owned by General Motors Investment Management Corporation
("GMIMC"), a wholly owned subsidiary of General Motors Corporation.
GMIMC's principal business is providing investment advice and investment
management services with respect to the assets of certain employee benefit
plans of General Motors Corporation and its subsidiaries and with respect
to the assets of certain direct and indirect subsidiaries of General
Motors Corporation and associated entities. GMIMC is serving as FPGT's
investment manager with respect to these shares, and, in that capacity, it
has the sole power to direct Mellon Bank, N.A. as to the voting and
disposition of these shares. Because of its limited role as trustee,
Mellon Bank, N.A. disclaims beneficial ownership of these shares. Pursuant
to the Co-Investment Agreement, FPGT is obligated, subject to its
fiduciary duties under the Employee Retirement Income Security Act of
1974, as amended, (i) to transfer shares held by it only in a transaction
in which the other parties to the Co-Investment Agreement participate on a
pro rata basis and (ii) to exercise all voting and other rights with
respect to such shares in the same manner as is done by Corporate Advisors
on behalf of Corporate Partners and Corporate Offshore Partners.
(14) The percentage ownership for the group assumes the conversion of shares of
Continental Series A Preferred Stock into Continental Common Stock by all
members of the group. The percentage ownership for each individual member
of the group assumes conversion by only that stockholder.
OWNERSHIP OF PROVIDENCE JOURNAL SECURITIES
The following table sets forth information as of March 15, 1995 with respect
to the shares of Providence Journal Class A Common Stock and Providence Journal
Class B Common Stock beneficially owned by (i) each person known by Providence
Journal to own beneficially more than 5% of either class of Providence Journal
Common Stock; (ii) each Director of Providence Journal; (iii) each executive
officer required to be identified in the Summary Compensation Table of
Providence Journal and (iv) all Directors and executive officers of Providence
Journal as a group. The number of shares beneficially owned by each Director or
executive officer is determined according to rules of the Commission, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting power or investment power.
As a consequence, several persons may be deemed to be the "beneficial owners"
of the same shares. Except as noted below, each holder has sole voting and
investment power with respect to shares of Providence Journal Class A Common
Stock and/or Providence Journal Class B Common Stock listed as owned by such
person or entity. When a person is a "co-trustee" or one of a number of
Directors he or she has shared voting and investment power. Each share of
Providence Journal Class A Common Stock carries one vote and each share of
Providence Journal Class B Common Stock carries four votes.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES OF OUTSTANDING SHARES OF OUTSTANDING
PROVIDENCE PROVIDENCE PROVIDENCE PROVIDENCE
JOURNAL JOURNAL JOURNAL JOURNAL
NAME AND ADDRESS CLASS A CLASS A CLASS B CLASS B AGGREGATE
OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK VOTING POWER
------------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Rhode Island Hospital
Trust National Bank(1). 9,392 24.9% 12,886 27.4% 27.0%
One Hospital Trust
Tower
Providence, RI 02903
Fiduciary Trust Company
International (2)...... 2,494 6.6% 3,124 6.7% 6.6%
Two World Trade Center
New York, NY 10048
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES OF OUTSTANDING SHARES OF OUTSTANDING
PROVIDENCE PROVIDENCE PROVIDENCE PROVIDENCE
JOURNAL JOURNAL JOURNAL JOURNAL
NAME AND ADDRESS CLASS A CLASS A CLASS B CLASS B AGGREGATE
OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK VOTING POWER
------------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Southland
Communications, Inc... 2,416 6.4% 2,092 4.5% 4.8%
127 Dorrance Street
Providence, RI 02903
Helen D. Buchanan (3).. 2,380 6.3% 2,248 4.8% 5.0%
c/o Manasett Corpora-
tion
127 Dorrance Street
Providence, RI 02903
Murray S. Danforth, III
(4)................... 2,428 6.4% 2,308 4.9% 5.2%
c/o Manasett Corpora-
tion
127 Dorrance Street
Providence, RI 02903
Esther E. M. Mauran
(5)................... 2,660 7.1% 2,402 5.1% 5.4%
c/o Manasett Corpora-
tion
127 Dorrance Street
Providence, RI 02903
Frank Mauran, III (6).. 4,414 11.7% 4,700 10.0% 10.3%
c/o Manasett Corpora-
tion
127 Dorrance Street
Providence, RI 02903
Pauline C. Metcalf (7). 3,020 8.0% 2,839 6.0% 6.4%
c/o Manasett Corpora-
tion
127 Dorrance Street
Providence, RI 02903
Jane P. Watkins (8).... 2,353 6.2% 2,476 5.3% 5.4%
c/o Manasett Corpora-
tion
127 Dorrance Street
Providence, RI 02903
<CAPTION>
NAME OF DIRECTOR/
EXECUTIVE OFFICER (9)
---------------------
<S> <C> <C> <C> <C> <C>
Stephen Hamblett....... 156 0.4% 148 0.3% 0.3%
Trygve E. Myhren....... 3 0% -- -- 0%
F. Remington Ballou.... 24 0.1% 24 0.1% 0.1%
Henry P. Becton........ 1 0% -- -- 0%
Fanchon M. Burnham
(10).................. 358 0.9% 376 0.8% 0.8%
Peter B. Freeman....... 300 0.8% 400 0.9% 0.8%
Benjamin P. Harris,
III................... 30 0.1% 48 0.1% 0.1%
John W. Rosenblum...... 1 0% -- -- 0%
Henry D. Sharpe, Jr.
(11).................. 4 0% -- -- 0%
W. Nicholas Thorndike
(12).................. 5,016 13.3% 5,400 11.5% 11.8%
John W. Wall........... 38 0.1% 72 0.2% 0.1%
Patrick R. Wilmerding.. 550 1.5% 300 0.6% 0.8%
James F. Stack......... 2 0% -- -- 0%
John A. Bowers......... 1 0% -- -- --
Jack C. Clifford....... -- -- -- -- --
Directors and Executive
Officers as a Group
(21 Persons).......... 6,610 17.5% 6,704 14.3% 14.8%
</TABLE>
47
<PAGE>
- --------
(1) Rhode Island Hospital Trust National Bank ("Hospital Trust"), as a
fiduciary, possesses shared or sole voting and investment power under a
number of wills, trusts and agency arrangements. A substantial majority of
the shares so held are reflected elsewhere in this table, and include some
of the shares reported as beneficially owned by Helen D. Buchanan, Frank
Mauran, III, Esther E. M. Mauran, Pauline C. Metcalf and Jane P. Watkins.
Also, Hospital Trust is a co-trustee of several trusts for the benefit of
the family of the late Michael P. Metcalf holding 1,325 shares of
Providence Journal Class A Common Stock and 1,616 shares of Providence
Journal Class B Common Stock.
(2) Fiduciary Trust Company International holds shares and acts as trustee
under trusts created by Henry D. Sharpe, Jr. (a Director of Providence
Journal) and his wife, Peggy Boyd Sharpe, for the benefit of members of
the Sharpe family and, in certain cases, designated charitable
organizations. Fiduciary Trust Company International shares voting and
investment power with Mr. Sharpe's children as to 300 shares of Providence
Journal Class A Common Stock; as to all other shares, Fiduciary Trust
Company International possesses sole voting and investment authority.
(3) Helen D. Buchanan is co-trustee with Hospital Trust and her daughter, Jane
P. Watkins, of the Helen M. Danforth 1935 Trust, which holds 2,216 shares
of Providence Journal Class A Common Stock and 2,216 shares of Providence
Journal Class B Common Stock; is co-trustee with Hospital Trust of the
Helen M. Danforth 1941 Trust, which holds 27 shares of Providence Journal
Class B Common Stock; is one of the Directors of two corporations holding
156 shares of Providence Journal Class A Common Stock and 5 shares of
Providence Journal Class B Common Stock; and holds 8 shares of Providence
Journal Class A Common Stock through a revocable trust.
(4) Murray S. Danforth, III owns 1,118 shares of Providence Journal Class A
Common Stock and 1,050 shares of Providence Journal Class B Common Stock;
is sole trustee of a trust for the benefit of his sister, which holds
1,130 shares of Providence Journal Class A Common Stock and 1,062 shares
of Providence Journal Class B Common Stock; is co-trustee of a trust for
the benefit of his sister which holds 164 shares of Providence Journal
Class B Common Stock; is one of four co-trustees of the Murray S.
Danforth, Jr. Grantor Trust No. 2 which holds 180 shares of Providence
Journal Class A Common Stock and 12 shares of Providence Journal Class B
Common Stock; and is co-trustee of the Manasett Corporation Retirement
Plan, which holds 20 shares of Providence Journal Class B Common Stock.
(5) Esther E. M. Mauran is one of the Directors of Southland Communications,
Inc., which owns the shares indicated in the foregoing table. In addition,
Mrs. Mauran owns 244 shares of Providence Journal Class A Common Stock and
310 shares of Providence Journal Class B Common Stock.
(6) Frank Mauran, III, the husband of Esther E. M. Mauran, owns outright 40
shares of Providence Journal Class B Common Stock; is co-trustee with
Hospital Trust (and another individual in one case) of several trusts
created by Mrs. Mauran's father, George P. Metcalf, for the benefit of
Mrs. Mauran and her sister, Pauline C. Metcalf, which trusts hold 3,484
shares of Providence Journal Class A Common Stock and 3,732 shares of
Providence Journal Class B Common Stock; and is co-trustee of the Esther
E. M. Mauran Family Trust, which holds 930 shares of Providence Journal
Class A Common Stock and 928 shares of Providence Journal Class B Common
Stock.
(7) Pauline C. Metcalf is one of the Directors of Southland Communications,
Inc., which owns the shares indicated in the foregoing table. In addition,
through a revocable trust, Ms. Metcalf owns 604 shares of Providence
Journal Class A Common Stock and 747 shares of Providence Journal Class B
Common Stock.
(8) Jane P. Watkins owns outright 117 shares of Providence Journal Class A
Common Stock and 260 shares of Providence Journal Class B Common Stock; is
a co-trustee with Hospital Trust and her mother, Helen D. Buchanan, of the
Helen M. Danforth 1935 Trust, which holds 2,216 shares of Providence
Journal Class A Common Stock and 2,216 shares of Providence Journal Class
B Common Stock; and is co-trustee with Mr. Howland of a trust created by
Mrs. Buchanan which holds 20 shares of Providence Journal Class A Common
Stock.
48
<PAGE>
(9) None of the executive officers or Directors of Providence Journal presently
has options or other rights according them power to acquire shares within
60 days; however, see "Description of Providence Journal--Executive
Compensation" with respect to plans for the termination of Providence
Journal's Incentive Stock Unit Plan and rights to acquire shares under
Providence Journal's Restricted Stock Unit Plan.
(10) Fanchon M. Burnham owns outright 109 shares of Providence Journal Class A
Common Stock and 147 shares of Providence Journal Class B Common Stock.
She serves as a co-trustee of trusts for her brother, which hold 211
shares of Providence Journal Class A Common Stock and 189 shares of
Providence Journal Class B Common Stock. In addition, Mrs. Burnham's
children own a total of 38 shares of Providence Journal Class A Common
Stock and 40 shares of Providence Journal Class B Common Stock.
(11) In addition to the shares shown in the Table, the shares indicated as
beneficially owned by Fiduciary Trust Company International in the above
table are held by trusts for the benefit of Mr. Sharpe and members of his
family.
(12) W. Nicholas Thorndike owns outright 134 shares of Providence Journal Class
A Common Stock and 108 shares of Providence Journal Class B Common Stock.
He holds 29 shares of Providence Journal Class A Common Stock and 44
shares of Providence Journal Class B Common Stock as sole custodian for a
member of another family. He is a co-trustee of several trusts for the
benefit of members of another family holding 2,482 shares of Providence
Journal Class A Common Stock and 3,156 shares of Providence Journal Class
B Common Stock. Mr. Thorndike is one of the Directors of Southland
Communications, Inc., which owns the shares indicated in the foregoing
table.
PRE-MERGER TRANSACTIONS
Prior to and as a condition to the Merger, certain transactions, including
those that make up the Plan of Reorganization of Providence Journal, must be
consummated. Several of the steps stipulated in the Plan of Reorganization are
mechanical in nature and are designed to meet conditions imposed in the Merger
Agreement or to properly position Providence Journal and its subsidiaries to
take advantage of favorable tax treatment.
NEW INDEBTEDNESS
Prior to the Reorganization, Providence Journal or one or more of the PJC
Cable Subsidiaries will incur the New Cable Indebtedness in a minimum principal
amount of $755 million. Providence Journal anticipates that the proceeds of the
New Cable Indebtedness will be used as follows: approximately $244 million will
be applied to discharge existing indebtedness of Providence Journal,
approximately $294 million will be applied to discharge existing indebtedness
of KBC, approximately $265 million (including $5 million in transaction fees)
will be used to consummate the Kelso Buyout, approximately $65 million will be
used to purchase the interests in certain PJC Cable Subsidiaries not presently
wholly owned by Providence Journal or KHC and approximately $70 million will be
used to pay costs associated with the Merger and certain deferred compensation.
(See "The Merger--General Provisions--Share Exchange".) In addition, New
Providence Journal will incur the NPJ Indebtedness in the amount of
approximately $183 million in order to meet the foregoing obligations, among
others. New Providence Journal will have no obligations or liabilities with
respect to the New Cable Indebtedness. Continental will have no obligations or
liabilities with respect to the NPJ Indebtedness.
KELSO BUYOUT
The Kelso Partnerships presently own and control 50% of the capital stock of
KHC, which in turn owns and controls 100% of the capital stock of KBC.
Providence Journal will use $265 million ($260 million of
49
<PAGE>
which is for the purchase price and $5 million of which is to cover transaction
costs) of the proceeds of the New Cable Indebtedness and the NPJ Indebtedness
to consummate the Kelso Buyout. Following the Kelso Buyout, KHC will be a
wholly owned subsidiary of Providence Journal.
PLAN OF REORGANIZATION
The description below is qualified in its entirety by reference to the
complete text of the Plan of Reorganization, a copy of which is attached hereto
as Annex II and incorporated herein by reference.
RESTRUCTURING. In order to protect the tax-free nature of the Merger to the
holders of Providence Journal Common Stock, the Plan of Reorganization
provides, and the Merger Agreement requires, that Providence Journal reorganize
its corporate structure. The actions described in clauses (i) through (iii)
below together constitute the Restructuring. (As used in this Joint Proxy
Statement-Prospectus, the term "KBC" shall mean King Broadcasting Company
before the Restructuring, and the term "Restructured PJC" shall mean King
Broadcasting Company after the Restructuring.) Consequently, on or prior to the
Effective Time, each of the following transactions will occur in immediate
succession:
(i) KHC will contribute all of its assets (consisting solely of 100% of
the outstanding capital stock of KBC) to KBC in exchange for KBC's
assumption of all liabilities and obligations and for shares of common
stock of KBC, which shall be distributed to Providence Journal in exchange
for and in redemption of all of KHC's outstanding capital stock. KHC will
then be dissolved pursuant to the DGCL. As a result, KBC will become a
direct wholly owned subsidiary of Providence Journal;
(ii) Providence Journal will contribute all of its businesses and assets
to KBC in exchange for shares of Restructured PJC Common Stock, and KBC
will assume all of the obligations and liabilities of Providence Journal;
and
(iii) Providence Journal will commence dissolution proceedings under
applicable Rhode Island Law, and the Restructured PJC Common Stock, which
shall then be the sole remaining asset of Providence Journal, will be
distributed to the holders of Providence Journal Common Stock in proportion
to the class and number of shares of Providence Journal Common Stock so
owned by such holders. As a result, subject to exercise by such holders of
their dissenters' rights under Rhode Island Law, each holder of Providence
Journal Common Stock immediately prior to the Restructuring will own the
same number and class of shares of Restructured PJC Common Stock as such
holder owned in Providence Journal. (See "Rights of Dissenting
Stockholders".)
PJC SPIN-OFF. New Providence Journal, which currently is a wholly owned
subsidiary of Providence Journal and, after giving effect to the Restructuring,
will be a wholly owned subsidiary of Restructured PJC, was recently organized
for purposes of the transactions contemplated by the Plan of Reorganization and
the Merger Agreement. Before the Restructuring, New Providence Journal will own
no assets and will not conduct any business activities other than in connection
with the transactions contemplated by the Plan of Reorganization and the Merger
Agreement. Immediately after the Restructuring and prior to the Merger
(pursuant to the Contribution), Restructured PJC will transfer to New
Providence Journal as a capital contribution all of Restructured PJC's right,
title and interest in the PJC Non-Cable Business and all other assets of
Restructured PJC, but excluding (i) the PJC Cable Business, (ii) sufficient
cash to pay Restructured PJC's expenses relating to the transactions
contemplated by the Merger Agreement and the Cable Division Sale Bonus Plan and
(iii) Restructured PJC's rights under the Contribution and Assumption
Agreement. In exchange, New Providence Journal will issue to Restructured PJC
(a) a number of shares of New Providence Journal Class A Common Stock equal to
the number of shares of Restructured PJC Class A Common Stock then outstanding
and (b) a number of shares of New Providence Journal Class B Common Stock equal
to the number of shares of Restructured PJC Class B Common Stock then
outstanding.
New Providence Journal will assume and hold Restructured PJC and its
subsidiaries, officers and Directors harmless from all debts, liabilities and
all other obligations of Restructured PJC, excluding the New Cable
Indebtedness, substantially all of the liabilities associated with the PJC
Cable Business and
50
<PAGE>
Restructured PJC's rights under the Contribution and Assumption Agreement.
Pursuant to the Contribution and Assumption Agreement, New Providence Journal
has agreed that, for a period of four years from the Effective Time, it will
not (i) sell, transfer, assign or otherwise dispose of any material assets or
(ii) declare, set aside or pay any dividend or other distribution (with
certain exceptions) in respect of its capital stock, or redeem or otherwise
acquire any of its capital stock, if, as a result of any such transaction, New
Providence Journal would have a fair market value (determined as a sale on a
private market, going concern basis, free and clear of all liabilities) of
less than: (x) for the period to and including the first anniversary of the
Effective Time, $200,000,000, (y) for the period from the first anniversary of
the Effective Time to and including the second anniversary of the Effective
Time, $150,000,000 and (z) for the period from the second anniversary of the
Effective Time to and including the fourth anniversary of the Effective Time,
$50,000,000, provided, however, that New Providence Journal may proceed with
any transaction that would otherwise be prohibited by the foregoing if it
provides security to Continental in form and amount reasonably acceptable to
Continental.
As part of the Contribution, Restructured PJC will agree to hold New
Providence Journal and its subsidiaries, officers and Directors harmless from
substantially all debts, liabilities or obligations of Restructured PJC, to
the extent they arise out of, or are based upon or otherwise relate to, the
PJC Cable Business or its assets or the New Cable Indebtedness.
Notwithstanding the foregoing, New Providence Journal will be responsible
for all federal and state income tax liabilities of Providence Journal and its
subsidiaries for periods ending on or before the Closing Date, and Continental
will be responsible for all such liabilities pertaining to the PJC Cable
Business for periods ending thereafter. (See "The Merger--Tax Matters".) In
addition, New Providence Journal will be responsible for certain liabilities
associated with the PJC Cable Business relating to employee benefits. (See
"The Merger--Certain Employee Matters".)
Immediately after the Contribution, Restructured PJC will distribute one
share of New Providence Journal Class A Common Stock to the holder of each
share of Restructured PJC Class A Common Stock and one share of New Providence
Journal Class B Common Stock to the holder of each share of Restructured PJC
Class B Common Stock, each as outstanding immediately prior to the
Distribution. As a result, each holder of Providence Journal Common Stock
immediately prior to the Restructuring will own the same number and class of
shares in New Providence Journal as such holder owned in Providence Journal
immediately prior to the Distribution. The Contribution, the Distribution and
the assumption of liabilities by New Providence Journal and Restructured PJC
in connection with the Contribution collectively constitute the PJC Spin-Off.
The terms of the PJC Spin-Off are set forth in the Plan of Reorganization and,
in addition, are to be governed by the Contribution and Assumption Agreement,
a copy of which is attached as Exhibit B to the Merger Agreement. For a
description of the method of delivery of shares of New Providence Journal
Common Stock as a result of the PJC Spin-Off, see "Payments to Stockholders".
In order to facilitate a streamlined exchange of certificates in connection
with the PJC Spin-Off and the Merger and to avoid requiring that certificates
representing shares of Providence Journal Common Stock be exchanged for
certificates representing shares of Restructured PJC Common Stock prior to the
PJC Spin-Off and the Merger, the certificates representing shares of
Providence Journal Class A Common Stock and Providence Journal Class B Common
Stock immediately prior to the dissolution of Providence Journal shall be
deemed, without any action on the part of Restructured PJC or its
stockholders, to represent the equivalent number of shares of Restructured PJC
Class A Common Stock and Restructured PJC Class B Common Stock issued in
connection with such dissolution.
CERTAIN INTERCOMPANY TRANSACTIONS
Providence Journal has agreed to cause one of two alternative intercompany
transactions to occur prior to the Effective Time. The determination as to
which alternative transaction will be consummated by
51
<PAGE>
Providence Journal is dependent upon the scope and substance of the private
letter ruling from the Service, which Providence Journal has requested and
which ruling is a condition to the obligations of the parties to consummate
the Merger. The first alternative consists of the following transactions: (i)
all of Providence Journal's cable systems and the stock of King Videocable
shall be contributed to Colony, a wholly owned subsidiary of Providence
Journal, and (ii) Westerly Cable Television, Inc., a wholly owned subsidiary
of Colony ("Westerly"), shall be merged with and into Colony. In the second
alternative, (i) all of Providence Journal's systems will be retained by
Restructured PJC and (ii) Westerly shall be merged with and into Colony, and
(iii) either the cable assets of Westerly shall be distributed to Providence
Journal, or Colony will be merged with and into Providence Journal. Each of
these intercompany transactions is intended to be tax-free to Providence
Journal and its stockholders, and consummation of one of these alternatives is
necessary for the PJC Spin-Off to be tax-free. (See "Certain Federal Income
Tax Considerations" for a description of the ruling requested from the Service
relating to the first alternative.) Neither of these internal intercompany
transactions will adversely affect Providence Journal or its stockholders.
THE MERGER
The following description of certain provisions of the Merger Agreement and
the exhibits and schedules thereto is only a summary and does not purport to
be complete. This description is qualified in its entirety by reference to the
complete text of the Merger Agreement, a conformed copy of which is attached
hereto as Annex I and incorporated herein by reference.
GENERAL PROVISIONS
SHARE EXCHANGE. The Merger Agreement provides that, subject to the requisite
adoption and approval by Continental's stockholders of the Merger and the
Recapitalization Amendment and approval by Providence Journal's stockholders
of the Plan of Reorganization and the Merger and certain related transactions
and the satisfaction or waiver of certain other conditions, at the Effective
Time, Restructured PJC (which, at the time of the Merger, will own only the
PJC Cable Business) will be merged with and into Continental, the separate
existence of Restructured PJC will cease, and Continental will continue as the
surviving corporation. As a result of the Merger, Continental will acquire the
PJC Cable Business and will assume the New Cable Indebtedness and
substantially all of the liabilities of Restructured PJC relating to the PJC
Cable Business, and shares of Restructured PJC Common Stock outstanding
immediately prior to the Merger shall be converted into shares of Continental
Merger Stock.
Pursuant to the Merger Agreement and after giving effect to the Continental
Stock Split, by virtue of the Merger and without any action on the part of the
holder of any shares of capital stock:
(i) Each share of the capital stock of Restructured PJC issued and
outstanding immediately prior to the Merger and owned directly or
indirectly by Restructured PJC as treasury stock, by New Providence Journal
or by any of their respective subsidiaries shall be cancelled, and no
consideration shall be delivered in exchange therefor;
(ii) Each share of the capital stock of Continental issued and
outstanding immediately prior to the Merger shall remain outstanding; and
(iii) Each share of Restructured PJC Common Stock outstanding immediately
prior to the Merger shall be converted into and shall become the number of
fully paid and nonassessable shares of Continental Class A Common Stock and
the number of fully paid and nonassessable shares of Continental Series B
Preferred Stock determined in accordance with the following formulas
(subject to the effects of the Preferred Stock Election described below):
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Class A Common Stock
Formula: Maximum Amount
-------------------------------------
$19.40 x PJC Outstanding Shares
Series B Preferred Stock
Formula: $96,750,000
-------------------------------------
$19.40 x PJC Outstanding Shares
"Maximum Amount"........ means $548,250,000, which amount will be reduced
by the amount set forth opposite each of the
following PJC Cable Subsidiaries (which are not
currently wholly owned by Providence Journal) if
Restructured PJC does not, directly or indirectly,
wholly own such PJC Cable Subsidiary at the
Effective Time:
SUBSIDIARY REDUCTION
---------- -----------
Copley/Colony, Inc. $42,610,000
Dynamic Cablevision of
Florida, Ltd. $11,300,000
California CATV Partners $ 1,490,000
"PJC Outstanding
Shares"................ means the shares of Providence Journal Common
Stock outstanding immediately prior to the
Restructuring (other than shares owned directly or
indirectly by Providence Journal as treasury stock
or by any of its subsidiaries).
As of the date of this Joint Proxy Statement-Prospectus, (i) Providence
Journal owns, directly or indirectly, the following approximate percentage of
equity interests in each of the following PJC Cable Subsidiaries: (a) 50% of
Copley/Colony and (b) 89.8% of the Dynamic Partnership, and (ii) KHC owns,
indirectly, 50% of the equity interest in California CATV Partners. The value
derived from the Continental Merger Stock to be received by the Providence
Journal stockholders is the same as the values assigned to the minority
interests in the PJC Cable Subsidiaries shown above, based on a multiple of
cash flow analysis. No affiliates of Providence Journal or Continental own
minority interests in the above-listed PJC Cable Subsidiaries. Providence
Journal anticipates that, as of the Effective Time it will have purchased the
minority interests in each such subsidiary, and each such subsidiary will be
wholly owned by Restructured PJC, although there can be no assurances in this
regard. On March 6, 1995 Providence Journal completed the purchase of a 7%
interest in Vision Cable Company of Rhode Island, Inc., which as a result,
became a wholly owned subsidiary of Providence Journal. Providence Journal has
signed a letter of intent with respect to the purchase of the 50% interest in
Copley/Colony and the purchase of the 50% interest in California CATV Partners.
Purchase agreements for each of these transactions are being negotiated, and it
is anticipated that the purchase of these interests will be completed early in
the second quarter of 1995. The limited partner in the Dynamic Partnership and
Providence Journal are currently in litigation concerning this transaction.
(See "Description of Providence Journal Cable Television Business--Legal
Proceedings".)
The holder of any shares of Providence Journal Common Stock outstanding
immediately prior to the Distribution that has validly exercised such holder's
dissenters' rights under applicable Rhode Island Law shall not be entitled to
receive, in respect of the shares of Providence Journal Common Stock as to
which such holder has validly exercised dissenters' rights, shares of
Restructured PJC Common Stock or, in turn, Continental Merger Stock and New
Providence Journal Common Stock unless and until such holder shall have failed
to perfect, or shall have effectively withdrawn or lost, such holder's right to
payment for such holder's shares of Providence Journal Common Stock under such
Rhode Island Law. In such event, such holder shall be entitled to receive the
Continental Merger Stock and New Providence Journal Common Stock such holder
would have been entitled to had such holder not exercised dissenters' rights.
Providence Journal, Continental and New Providence Journal have reached certain
agreements relating to any such exercise of dissenters' rights, including
Continental's agreement, as the surviving corporation of the Merger, to pay any
amount payable to any such stockholder who becomes entitled under the Rhode
Island Law to payment for
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such holder's shares of Providence Journal Common Stock and New Providence
Journal's agreement to reimburse Continental for all such payments. After New
Providence Journal has so reimbursed Continental, any Continental Merger Stock
that would have been issued to the stockholder receiving payment from
Continental shall be issued to New Providence Journal. (See "Rights of
Dissenting Stockholders--Providence Journal" for further information
concerning Providence Journal's stockholders' rights to dissent, including a
discussion of the mechanics of perfecting such rights.)
The Merger Agreement provides that no fractional shares of Continental
Merger Stock will be issued in connection with the Merger. In lieu of any such
fractional interests, each holder of Restructured PJC Common Stock entitled to
receive Continental Merger Stock pursuant to the Merger will be entitled to
receive an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying $19.40 by the fractional interest in the share of
Continental Class A Common Stock or Continental Series B Preferred Stock, as
the case may be, to which such holder would otherwise be entitled (after
taking into account all shares of Continental Class A Common Stock and
Continental Series B Preferred Stock being issued to such holder pursuant to
the Merger Agreement).
After giving effect to the Continental Stock Split and assuming that no
adjustment is made to the Maximum Amount, holders of Providence Journal Common
Stock will receive an aggregate of 28,260,309 shares of Continental Class A
Common Stock and 4,987,113 shares of Continental Series B Preferred Stock.
(See "Description of Continental Capital Stock".)
The number of shares of Continental Merger Stock to be issued shall be
further adjusted if between November 18, 1994 and the Effective Time the
outstanding shares of Continental Class A Common Stock, Continental Series B
Preferred Stock or Providence Journal Common Stock shall have been further
changed into a different number of shares or a different class, by reason of
any stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
Continental has reserved the right in the Merger Agreement not to issue any
shares of Continental Series B Preferred Stock to which the stockholders of
Restructured PJC would otherwise be entitled. If it elects not to issue
Continental Series B Preferred Stock, the Maximum Amount will be increased by
$96,750,000 (and the maximum number of shares of Continental Class A Common
Stock to be issued in the Merger would be 33,247,422). The Merger Agreement
provides that no later than 30 days prior to the date of mailing of this Joint
Proxy Statement-Prospectus to the stockholders of Providence Journal,
Continental will notify Providence Journal of its election to issue or not
issue shares of Continental Series B Preferred Stock in connection with the
Merger. (See "Ancillary Agreements--Certain Effects of Voting Agreement" for a
description of certain agreements between Continental and Providence Journal
affecting the Voting Agreement if Continental elects to issue Continental
Series B Preferred Stock pursuant to the Merger.) The number of shares of
Continental Class A Common Stock and Continental Series B Preferred Stock to
be exchanged for each share of Restructured PJC Common Stock will be
determined in accordance with the procedure described below.
If Continental Series B Preferred Stock is to be issued in connection with
the Merger, accompanying this Joint Proxy Statement-Prospectus to Providence
Journal's stockholders will be a form of election (the "Preferred Stock
Election Form") to be completed and returned to Providence Journal by each
such stockholder on or prior to the date of the Providence Journal Special
Meeting. The Preferred Stock Election Form will permit each holder of
Providence Journal Common Stock to elect between the percentage of Continental
Class A Common Stock and Continental Series B Preferred Stock that such holder
of Providence Journal Common Stock shall be entitled to receive pursuant to
the Merger in respect of each share of Restructured PJC Common Stock held by
such holder of Providence Journal Common Stock. For example, a holder of
Providence Journal Common Stock may elect to receive 100% Continental Class A
Common Stock or 100% Continental Series B Preferred Stock in respect of each
share of Providence Journal Common Stock owned by such holder on the date of
the Providence Journal Special Meeting. Any holder of Providence Journal
Common Stock who fails to complete the Preferred Stock Election Form will be
deemed to have elected to receive 100% Continental Class
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A Common Stock in respect of each share of Providence Journal Common Stock held
by such holder. The amount of Continental Class A Common Stock and Continental
Series B Preferred Stock that would otherwise be issued to each holder of
Providence Journal Common Stock in accordance with the formula described above
shall be adjusted to give effect to the election by such holder (which election
shall be irrevocable and binding upon any and all subsequent transferees of
such shares and the holder of the shares of Restructured PJC Common Stock
issued in respect of such shares) and the other holders of Providence Journal
Common Stock; provided, however, (i) if the holders of Providence Journal
Common Stock elect to receive less than 4,987,113 shares of Continental Series
B Preferred Stock (the difference between such amounts being referred to herein
as the "Shortfall Amount"), then, in addition to any shares of Continental
Series B Preferred Stock issued to each such stockholder as a result of such
stockholder's election, shares of Continental Series B Preferred Stock equal to
the Shortfall Amount shall be issued to all holders of Restructured PJC Common
Stock, pro rata in accordance with the percentage of Restructured PJC Common
Stock held by each such holder at the Effective Time, and (ii) the maximum
number of shares of Continental Series B Preferred Stock to be issued by
Continental pursuant to the Merger shall in no event exceed 4,987,113, so that
if the holders of Providence Journal Common Stock elect to receive in excess of
4,987,113 shares of Continental Series B Preferred Stock, then the shares of
Continental Series B Preferred Stock a holder of Providence Journal Common
Stock will receive in the Merger shall be reduced proportionately (based upon
the amount of Continental Series B Preferred Stock elected by such stockholder
as compared to the amount of Continental Series B Preferred Stock elected by
all holders of Providence Journal Common Stock) and the shares of Continental
Class A Common Stock such stockholder shall receive shall be correspondingly
increased.
For a description of the method of delivery of shares of Continental Class A
Common Stock and Continental Series B Preferred Stock to be issued in the
Merger and New Providence Journal Common Stock to be issued in the
Distribution, see "Payments to Stockholders". PROVIDENCE JOURNAL STOCKHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
WORKING CAPITAL ADJUSTMENT. Immediately prior to the Effective Time and after
giving effect to the PJC Spin-Off, Restructured PJC will deliver to Continental
a schedule setting forth Restructured PJC's best estimate of the Working
Capital of the PJC Cable Subsidiaries as of the Effective Time. If such
schedule indicates that such Working Capital is greater than zero, Continental
shall pay the excess to New Providence Journal in immediately available funds;
if the schedule indicates that such Working Capital is less than zero, New
Providence Journal shall pay the difference to Continental in immediately
available funds. Within 90 days after the Effective Time, Continental shall
deliver to New Providence Journal its determination of the Working Capital as
of the Effective Time and after giving effect to the PJC Spin-Off. Within 10
days thereafter (or within 10 days of the resolution of any dispute regarding
such determination, which dispute, if not resolved by Continental and New
Providence Journal, will be resolved by an independent certified public
accounting firm mutually acceptable to Continental and New Providence Journal,
the decision of which shall be final and binding on Continental and New
Providence Journal), Continental shall pay to New Providence Journal, or New
Providence Journal shall pay to Continental, as the case may be, in immediately
available funds, any additional payment to which such party would have been
entitled at the Effective Time based on the final determination of Working
Capital. Based upon the financial statements of Providence Journal Cable as of
December 31, 1994, the Working Capital deficit is estimated to be approximately
$10,000,000 as of such date. There can be no assurances that the actual Working
Capital adjustment will equal or approximate this amount.
CERTIFICATE OF INCORPORATION AND BY-LAWS; DIRECTORS. The Merger Agreement
provides that the Continental Restated Certificate and the Continental By-Laws,
each as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation and By-Laws of the surviving corporation. In
addition, the Directors of Continental immediately prior to the Effective Time
and Messrs. Stephen Hamblett and Trygve Myhren (or such replacement nominees
reasonably acceptable to Continental that Providence Journal may designate)
will be the Directors of the surviving corporation and the officers of
Continental immediately prior to the Effective Time will be the officers of the
surviving corporation. From and after the
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Effective Time, the Merger will have all the effects provided by applicable
law. (See "Certain Covenants--Certain Rights with Respect to Continental's
Board of Directors".)
EFFECTIVE TIME OF MERGER. The Merger will become effective upon the filing of
a certificate of merger with the Secretary of State of the State of Delaware
and articles of merger with the Secretary of State of the State of Washington
in accordance with applicable law, or at such later date as the certificate of
merger and articles of merger may specify.
CONDITIONS PRECEDENT
CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES. The respective obligations of
Providence Journal, New Providence Journal, KHC and KBC, on the one hand, and
Continental, on the other hand, to consummate the transactions contemplated by
the Merger Agreement are subject to the requirements that:
(i) the Providence Journal Proposals shall have been approved and adopted
by the stockholders of Providence Journal;
(ii) the Continental Proposals shall have been approved and adopted by
the stockholders of Continental;
(iii) the New Cable Indebtedness shall have been incurred by Providence
Journal or one or more of the PJC Cable Subsidiaries; the NPJ Indebtedness
shall have been incurred; the Restructuring and the PJC Spin-Off shall have
been consummated in accordance with the terms of the Merger Agreement, and
the Kelso Buyout shall have been consummated in accordance with the terms
of the agreement between Providence Journal and the Kelso Partnerships;
(iv) all notices to, or permits, consents, waivers, approvals,
authorizations and orders of, third parties that are material to the
conduct of the business of the surviving corporation and its subsidiaries
after the Effective Time and governmental authorizations and approvals
required with respect to the transactions contemplated by the Merger
Agreement shall have been filed or obtained and be in full force and
effect; provided, however, that this condition shall not apply with respect
to any authorization, consent, waiver, order or approval necessary for the
transfer of control of any cable television franchise if the condition
described in subparagraph (vi) set forth below under the caption
"Conditions to Obligations of Continental" shall have been satisfied or
waived by Continental;
(v) no federal, state or foreign governmental authority or other agency
or commission or court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary or permanent)
that remains in effect and has the effect of making the transactions
contemplated by the Merger Agreement illegal or otherwise prohibiting such
transactions or questions the validity or the legality of the transactions
contemplated by the Merger Agreement and could reasonably be expected to
materially and adversely affect the value of the PJC Cable Business or
Continental taken as a whole;
(vi) the Continental Registration Statement and New Providence Journal's
Registration Statement (of which this Joint Proxy Statement-Prospectus
forms a part) shall have been declared effective under the Securities Act,
and no stop orders with respect thereto shall have been issued;
(vii) Providence Journal shall have received (a) from the Service a
private letter ruling that the transactions constituting the Restructuring
will qualify as tax-free reorganizations and dissolutions under the
applicable Sections of the Code and that the PJC Spin-Off will qualify as a
tax-free reorganization under Sections 368(a)(1)(D) and 355 of the Code,
and (b) an opinion of Edwards & Angell, counsel to Providence Journal, that
the Merger will qualify as a tax-free reorganization under Section 368 of
the Code; and
(viii) no nationwide moratorium on commercial banking activities and no
general suspension of trading for more than one business day in securities
on any United States national securities exchange or over-the-counter
market shall have occurred and be continuing.
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CONDITIONS TO OBLIGATIONS OF PROVIDENCE JOURNAL, NEW PROVIDENCE JOURNAL, KHC
AND KBC. The obligations of Providence Journal, New Providence Journal, KHC and
KBC to effect the transactions contemplated by the Merger Agreement are subject
to the satisfaction, on or prior to the date upon which the closing (the
"Closing") of the transactions contemplated by the Merger Agreement shall
occur, of the following additional conditions:
(i) the representations and warranties of Continental in the Merger
Agreement or in any other document delivered pursuant thereto shall be true
and correct in all material respects on and as of the Closing Date with the
same effect as if made on and as of the Closing Date, and at the Closing,
Continental shall have delivered to New Providence Journal a certificate to
that effect;
(ii) each of the obligations of Continental to be performed on or before
the Closing Date pursuant to the terms of the Merger Agreement shall have
been duly performed in all material respects on or before the Closing Date,
and at the Closing, Continental shall have delivered to New Providence
Journal a certificate to that effect;
(iii) Providence Journal and New Providence Journal shall have received
an opinion from Sullivan & Worcester, counsel to Continental, dated the
Closing Date, in form and substance reasonably satisfactory to Providence
Journal, New Providence Journal and their counsel; and
(iv) the Continental Class A Common Stock and Continental Series B
Preferred Stock shall have been approved for listing on NASDAQ or a
national securities exchange, subject to official notice of issuance.
Notwithstanding the foregoing, any failure of any representation or warranty
of Continental to be true and correct as of the Closing Date will not excuse
Providence Journal, New Providence Journal, KHC and KBC from their obligations
under the Merger Agreement (a) if (i) the aggregate amount of all damages,
liabilities, obligations, losses, deficiencies, demands, claims, penalties,
assessments, judgments, actions, proceedings and suits of whatever kind and
nature (including reasonable attorneys' fees and expenses, "Losses and
Expenses") that could reasonably be expected to arise as a result of the
failure of such representations and warranties to be true and correct as of the
Closing Date would not exceed $10 million or (ii) in the event such Losses and
Expenses exceed $10 million but are less than $100 million, Continental
indemnifies New Providence Journal against all such Losses and Expenses in
excess of $10 million on terms and conditions reasonably satisfactory to New
Providence Journal, and (b) if such failure relates to any subsidiary or any
system acquired by Continental after November 18, 1994, unless such failure,
individually or in the aggregate, would have a material adverse effect on
Continental and its subsidiaries taken as a whole.
CONDITIONS TO OBLIGATIONS OF CONTINENTAL. The obligations of Continental to
effect the transactions contemplated by the Merger Agreement are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
(i) the representations and warranties of Providence Journal and New
Providence Journal contained in the Merger Agreement or in any other
document delivered pursuant thereto shall be true and correct in all
material respects on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and at the Closing, New Providence
Journal shall have delivered to Continental a certificate to that effect;
(ii) each of the obligations of Providence Journal, New Providence
Journal, KHC and KBC to be performed on or before the Closing Date pursuant
to the terms of the Merger Agreement shall have been duly performed in all
material respects on or before the Closing Date, and at the Closing, New
Providence Journal shall have delivered to Continental a certificate to
that effect;
(iii) Restructured PJC shall have no assets except (a) all of the capital
stock of the PJC Cable Subsidiaries, (b) the contract rights created under
the Contribution and Assumption Agreement, (c) cash sufficient to pay
Providence Journal's, KHC's and KBC's expenses related to the transactions
contemplated by the Merger Agreement, (d) Providence Journal's systems and
the assets of Westerly or
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Colony to the extent that the second alternative under "Certain Covenants--
Certain Intercompany Transactions" is consummated, and (e) other immaterial
assets related to the PJC Cable Business;
(iv) Restructured PJC shall have no liabilities except (a) liabilities
associated with the operations of the PJC Cable Subsidiaries or the cable
operations of Restructured PJC, (b) the New Cable Indebtedness and (c) the
contractual obligations created under the Contribution and Assumption
Agreement;
(v) Continental shall have received an opinion of Edwards & Angell, dated
as of the Closing Date, in form and substance reasonably satisfactory to
Continental and its counsel;
(vi) Providence Journal shall have obtained the consent, waiver or other
approval of governmental authorities having authority over at least 95% of
Providence Journal's and the PJC Cable Subsidiaries' basic subscribers;
provided, however, that basic subscribers served under franchises that do
not require any such consent, waiver or other approval are to be included
in such percentage, and provided, further, that such condition shall not be
deemed to be satisfied until the earlier to occur of (a) 30 days following
the date such percentage is obtained, (b) the date on which the condition
would be satisfied if the required percentage were 100% or (c) December 31,
1995;
(vii) Restructured PJC and New Providence Journal shall have entered into
the Noncompetition Agreement with Continental;
(viii) New Providence Journal shall have delivered to Continental a
certificate signed by the Chief Executive Officer and the Chief Financial
Officer of New Providence Journal certifying that there are no outstanding
options to acquire any capital stock of New Providence Journal and, as to
the number of PJC Outstanding Shares, indicating the class and series of
such shares; and
(ix) Neither Restructured PJC nor Continental shall be required to assume
or otherwise be liable for any obligation or duty of Providence Journal
under the Rights Agreement and the holders of the rights thereunder shall
not have any rights to acquire any shares of Restructured PJC Common Stock
or Continental Merger Stock pursuant thereto. The Rights Agreement is
identical in substance to the NPJ Rights Agreement. For a description of
the NPJ Rights Agreement, see "Description of New Providence Journal Common
Stock--NPJ Rights Agreement".
Notwithstanding the foregoing, any failure of any representation or warranty
of Providence Journal or New Providence Journal to be true and correct as of
the Closing Date (other than a representation or warranty as to capitalization)
will not excuse Continental from its obligations under the Merger Agreement if
(i) the aggregate amount of all Losses and Expenses that could reasonably be
expected to arise as a result of the failure of such representations and
warranties to be true and correct would not exceed $5 million or (ii) in the
event such Losses and Expenses exceed $5 million but are less than $50 million,
New Providence Journal indemnifies Continental against all such Losses and
Expenses in excess of $5 million on terms and conditions reasonably
satisfactory to Continental.
CERTAIN COVENANTS
INTERIM OPERATIONS OF PROVIDENCE JOURNAL, KHC AND KBC. Pursuant to the Merger
Agreement, Providence Journal has agreed, among other things, that from the
date thereof to the Effective Time (except as contemplated by the Merger
Agreement and except for Providence Journal's operation of its systems, which
is governed by the provisions relating to the operation of the PJC Cable
Subsidiaries described below) none of Providence Journal, KHC or KBC will,
without the prior written consent of Continental:
(i) amend the Providence Journal Charter, the Providence Journal By-Laws,
the Rights Agreement, KHC's Certificate of Incorporation or By-laws or
KBC's Articles of Incorporation or By-laws;
(ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any of its capital
stock, except for (A) on the part of Providence Journal, dividends declared
and paid, or redemptions or other acquisitions made, consistent with the
terms described in a schedule to the Merger Agreement, or in connection
with certain stock and option plans of Providence Journal and (B) KHC
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and KBC may declare cash dividends to their respective stockholders;
provided, however, that if Continental elects to issue Continental Series B
Preferred Stock pursuant to the Merger, then no such redemption or
acquisition may be made after the Preferred Stock Election;
(iii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution of any shares of its capital stock;
(iv) except to the extent transferred to or assumed by New Providence
Journal pursuant to the PJC Spin-Off, make any acquisition of the assets of
third parties, except through a subsidiary other than a PJC Cable
Subsidiary;
(v) except to the extent any of the following are transferred to or
assumed by New Providence Journal pursuant to the PJC Spin-Off, (a) create,
incur or assume any long-term debt not currently outstanding (including
obligations in respect of capital leases), (b) assume, guarantee, endorse
or otherwise become liable or responsible for the obligations of any other
person or entity, (c) enter into any material agreement, commitment or
understanding, (d) make any acquisition of the stock or other equity
interests, by means of merger, consolidation or otherwise, of any person or
entity or (e) make any loans, advances or capital contributions to, or
investments in, any person or entity other than a subsidiary;
(vi) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any other equity securities or amend any of the terms of any
such securities or agreements outstanding on the date of the Merger
Agreement; provided that up to 9,000 shares of Providence Journal Common
Stock may be issued in connection with certain stock and option plans of
Providence Journal;
(vii) terminate, amend, modify or waive compliance with any of the
provisions, terms or conditions of the Contribution and Assumption
Agreement directly or indirectly respecting the assets or the liabilities
retained by Restructured PJC or affecting the rights or obligations of
Restructured PJC from and after the Effective Time; or
(viii) take or agree to take any of the foregoing actions or any actions
that would (a) make any representation or warranty of Providence Journal or
New Providence Journal contained in the Merger Agreement untrue or
incorrect as of the date made or as of the Closing Date, (b) result in any
of the conditions to Closing in the Merger Agreement not being satisfied or
(c) be inconsistent with the terms of the Merger Agreement or the
transactions contemplated thereby.
In addition, Providence Journal has agreed in the Merger Agreement that it
will use its best efforts to cause all of the PJC Cable Subsidiaries to be
wholly owned by Providence Journal and its subsidiaries as of the Closing Date.
INTERIM OPERATIONS OF PJC CABLE SUBSIDIARIES. Pursuant to the Merger
Agreement, Providence Journal has agreed that, except as contemplated by the
Merger Agreement, from the date thereof to the Effective Time, it will conduct
its operation of Providence Journal's systems and will cause each of the PJC
Cable Subsidiaries to conduct its operations, according to the ordinary and
usual course of business and consistent with past practices. Providence Journal
has also agreed that (without the prior written consent of Continental) it
shall not (with respect to its systems) and it shall not permit any of the PJC
Cable Subsidiaries to:
(i) amend its charter or bylaws or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the ownership of any
PJC Cable Subsidiary, except as permitted by the Merger Agreement;
(ii) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any other equity securities or amend any of the terms of any
securities or agreements outstanding on the date of the Merger Agreement;
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any of its
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securities; provided, however, that (a) any such subsidiary may declare and
pay dividends that are payable to any other such subsidiary and (b) any
such subsidiary may declare and pay dividends to Providence Journal in an
aggregate amount not to exceed the consolidated adjusted net income of the
PJC Cable Subsidiaries for the period from November 18, 1994 to the Closing
Date (for purposes of this covenant, the PJC Cable Subsidiaries'
consolidated adjusted net income for such period means their consolidated
net income determined in accordance with GAAP and (a) increased by the sum
of (1) the amount of depreciation and amortization deductions taken during
such period and (2) the amount of accrued but unpaid consolidated income
taxes deducted in calculating such consolidated net income to the extent
not otherwise paid pursuant to tax sharing arrangements, and (b) decreased
by the sum of (1) the greater of (X) the amount of capital expenditures to
be made during such period in accordance with the capital expenditure
budget attached as a schedule to the Merger Agreement or (Y) the amount of
capital expenditures actually made by the PJC Cable Subsidiaries during
such period);
(iv) (a) create, incur or assume any long-term debt not currently
outstanding (including obligations in respect of capital leases), (b)
assume, guarantee, endorse or otherwise become liable or responsible for
the obligations of any other person or entity, or (c) make any loans,
advances or capital contributions to, or investments in, any person or
entity other than a PJC Cable Subsidiary;
(v) acquire, sell, lease or dispose of any assets material to such PJC
Cable Subsidiary, other than sales of inventory and equipment in the
ordinary and usual course of business consistent with past practice;
(vi) mortgage, pledge or subject to any lien, lease, security interest or
other charge or encumbrance any of its properties or assets, tangible or
intangible, material to such PJC Cable Subsidiary;
(vii) subject to certain exceptions, fail to make expenditures in an
aggregate of at least $4,583,334 per month (of which no less than
$3,160,667 per month shall be expended on PJC Cable Subsidiaries other than
King Videocable and its subsidiaries) on capital improvements to the
systems owned and operated by the PJC Cable Subsidiaries in accordance with
Providence Journal's past practices;
(viii) without the prior consent of Continental, which is not to be
withheld or delayed unreasonably, (a) except as required by applicable law
or as disclosed to Continental in writing prior to the date of the Merger
Agreement, implement any rate change, retiering or repackaging of cable
television programming offered by any such subsidiary, (b) except as
disclosed to Continental in writing prior to the date of the Merger
Agreement, make any cost-of-service or hardship election under the rules
and regulations adopted under the 1992 Cable Act or (c) amend any franchise
or agree to make any payments or commitments, including commitments to make
future capital improvements or provide future services, in connection with
obtaining any authorization, consent, order or approval or any governmental
authority necessary for the transfer of control of any franchise;
(ix) (a) grant any material increases in the compensation of any of its
Directors, officers or key employees, except in the ordinary course of
business consistent with past practice, (b) pay or agree to pay any
pension, retirement allowance or other material employee benefit not
required or contemplated by any of the existing benefit, severance, pension
or employment plans, agreements or arrangements as in effect on the date of
the Merger Agreement to any such Director, officer or key employee, whether
past or present, (c) enter into any new or materially amend any existing
employment agreement with any such Director, officer or key employee,
except for employment agreements with new employees entered into in the
ordinary course of business consistent with past practice, (d) enter into
any new or materially amend any existing severance agreement with any such
Director, officer or key employee or (e) except as may be required to
comply with applicable law, become obligated under any new pension plan or
arrangement, welfare plan or arrangement, multi-employer plan or
arrangement, employee benefit plan or arrangement, severance plan or
arrangement, benefit plan or arrangement, or similar plan or arrangement,
which was not in existence on the date of the Merger Agreement, or amend
any such plan or arrangement in existence on the date of the Merger
Agreement, if such amendment would have the effect of enhancing or
accelerating any benefits thereunder; provided, however, that Providence
Journal shall not be deemed to have breached subparagraphs (b), (c) or (d)
of this provision if any such
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payment, agreement or amendment prohibited thereby is, in the case of a
prohibited payment, paid in its entirety by Providence Journal prior to the
Closing Date or, in the case of a prohibited amendment or agreement, such
amendment or agreement will not impose continuing obligations on
Continental or any of its subsidiaries after the effectiveness of the
Merger;
(x) enter into any contract, arrangement or understanding requiring the
purchase of equipment, materials, supplies or services for the expenditure
of greater than $1 million per year, which is not cancellable without
penalty on 30 days' or less notice;
(xi) enter into any collective bargaining agreement or any successor
collective bargaining agreement to any existing collective bargaining
agreement; or
(xii) take or agree to take any of the foregoing actions or any actions
that would (a) make any representation or warranty of Providence Journal or
New Providence Journal contained in the Merger Agreement untrue or
incorrect as of the date when made or as of the Closing Date, (b) result in
any of the conditions in the Merger Agreement not being satisfied or (c) be
inconsistent with the terms of the Merger Agreement or the transactions
contemplated thereby.
INTERIM OPERATIONS OF CONTINENTAL. Except as contemplated by the Merger
Agreement, during the period from the date thereof to the Effective Time,
Continental has agreed to conduct its operations according to its ordinary and
usual course of business and consistent with past practices, keep available the
services of its current officers and employees and preserve its relationships
with customers, franchising authorities, suppliers and others having business
dealings with it with the objective that the goodwill and on-going business of
Continental shall not be impaired in any material respect at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
contemplated by the Merger Agreement, Continental has agreed it will not,
without the prior written consent of Providence Journal:
(i) amend the Continental Restated Certificate or the Continental By-
Laws;
(ii) declare, set aside or pay any dividend or other distribution (except
(a) in the form of shares of capital stock of Continental or (b) any
dividend required to be paid by the terms of any preferred stock of
Continental which was not outstanding on November 18, 1994) in respect of
its capital stock, or redeem or otherwise acquire any of its equity
securities other than (I) repurchases of up to 16,684,150 shares of
Continental Common Stock which are subject to Continental's 1998-1999 Share
Repurchase Program or (II) other repurchases of shares of Continental
capital stock for an aggregate amount not to exceed $50,000,000; or
(iii) take or agree to take any of the foregoing actions or any actions
that would (a) except as otherwise permitted under the Merger Agreement,
make any representation or warranty of Continental contained in the Merger
Agreement untrue or incorrect as of the date when made or as of the Closing
Date, (b) result in any of the conditions to Closing in the Merger
Agreement not being satisfied or (c) be inconsistent with the terms of the
Merger Agreement or the transactions contemplated thereby.
CERTAIN RIGHTS WITH RESPECT TO CONTINENTAL'S BOARD OF DIRECTORS. The Merger
Agreement provides that at the Effective Time, Continental's Board of Directors
will be expanded by two persons and the Providence Journal Nominees will be
designated as Directors of Continental with a term of approximately three
years. Providence Journal has designated Stephen Hamblett and Trygve Myhren as
the Providence Journal Nominees; however, the Merger Agreement permits
Providence Journal to change the Providence Journal Nominees from time to time
prior to the Restructuring. In addition, Continental has agreed that, at the
expiration of the initial term of such nominees, Continental's Board of
Directors will exercise all authority under applicable law to nominate for
membership on such Board for an additional three year term two persons
designated by New Providence Journal who are reasonably acceptable to
Continental and its Board of Directors. New Providence Journal also has the
right to designate a successor reasonably satisfactory to Continental and its
Board of Directors to fill any vacancy resulting from the inability of any of
its designees to serve on such Board for any reason.
The Merger Agreement provides that, until the Effective Time (at which time
the Providence Journal Nominees will become Continental Directors), the
Providence Journal Nominees shall be entitled to notice
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of and to attend all meetings of Continental's Board of Directors and shall be
given copies of all materials prepared for and distributed at or prior to such
meetings. The Merger Agreement further provides that prior to the Effective
Time (i) if any resolution is approved by the Continental Board by only one
vote or (ii) if any resolution pertaining to an Extraordinary Transaction (as
defined below) is approved by the Continental Board and at least two members of
such Board vote against such resolution, then, if the Providence Journal
Nominees state in writing that they would have voted against such resolution if
they had been members of Continental's Board of Directors, Continental will act
upon such resolution as though it had not been approved by its Board of
Directors. An "Extraordinary Transaction" is defined in the Merger Agreement to
mean (x) any proposed issuance by Continental of Continental Class A Common
Stock (other than certain issuances to Continental's employees) at a price per
share less than $485.00 (or, after giving effect to the Continental Stock
Split, $19.40) or (y) any proposed acquisition or disposition by Continental or
any of its subsidiaries of assets having a fair market value of more than
$500,000,000 that, in the reasonable judgment of the Providence Journal
Nominees and Providence Journal's investment banker, is reasonably likely to
cause the per share value of the Continental Class A Common Stock to be less
than $485.00 (or, after giving effect to the Continental Stock Split, $19.40).
COMMISSION FILINGS. The Merger Agreement provides that, as promptly as
practicable after the date thereof, Providence Journal, New Providence Journal
and Continental shall prepare and file any filings required to be filed by each
under the Securities Act, the Exchange Act or any other federal or state laws
relating to the transactions contemplated by the Merger Agreement and will use
their best efforts to respond to any comments of the Commission or any other
appropriate government official with respect thereto. In addition, Providence
Journal, New Providence Journal and Continental have agreed to cooperate with
each other and provide to each other all information necessary in order to
prepare such filings, including this Joint Proxy Statement-Prospectus,
Continental's and New Providence Journal's Registration Statements as to which
this Joint Proxy Statement-Prospectus forms a part and any other registration
statement of Continental under the Securities Act and the Exchange Act in
connection with any other registered public offering by Continental.
REGISTRATION RIGHTS. Continental and New Providence Journal have agreed that,
on or prior to the consummation of the Merger, they will enter into a
registration rights agreement relating to the Continental Class A Common Stock
to be issued pursuant to the Merger, the form of which has been agreed to by
the parties. Such agreement will provide for two demand registrations and
unlimited (subject to certain exceptions) "piggyback" registrations with
respect to primary public issuances by Continental of Continental Class A
Common Stock; provided, however, that such registration rights will not be
available to any Registration Rights Holder to the extent that shares of
Continental Class A Common Stock are then freely transferable by the
Registration Rights Holder requesting a registration in the manner contemplated
by such request without violation of the registration requirements of the
Securities Act. Registration Rights Holders shall not be entitled to assign
their rights under such registration rights agreement. (See "Continental Shares
Eligible for Future Sale".)
UNDERTAKINGS REGARDING PUBLIC OFFERING. Continental has agreed in the Merger
Agreement that, except as described in the immediately following sentence, it
will use its best efforts to consummate an Offering of shares of Continental
Class A Common Stock (which, at Continental's option, may be a primary offering
and/or a secondary offering) prior to the first anniversary of the Effective
Time for aggregate consideration (before underwriting discounts) of not less
than $150,000,000. Continental will not be required to consummate the Offering
if it has issued, on or before the first anniversary of the Effective Time,
shares of its capital stock for an aggregate consideration of at least
$1,000,000,000 pursuant to a binding agreement or agreements. The Merger
Agreement further provides that if Continental has failed (i) to enter into
such an agreement by the 180th day following the Effective Time or (ii) to
commence the Offering prior to such date, Continental will file a registration
statement with respect to such Offering with the Commission within 60 days of
receipt of the written request of New Providence Journal, unless Continental's
investment banker advises Continental in writing, following receipt of such
written request, that because of market conditions it is not advisable for
Continental to conduct the Offering at that time, in which case Continental's
obligation
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to use its best efforts to conduct the Offering shall be extended until such
time as Continental's investment banker advises it in writing that market
conditions no longer render it inadvisable to conduct the Offering.
AMENDMENT TO PROVIDENCE JOURNAL'S RIGHTS AGREEMENT. Providence Journal's
Rights Agreement provides that if at any time after a Stock Acquisition Date
(as such term is defined in the Rights Agreement), Providence Journal is
acquired in a merger, each holder of a right under the Rights Agreement shall
have the right to receive stock in the acquiring company, based on an
allocation set forth in the Rights Agreement. Every holder of Providence
Journal Common Stock holds rights in a proportionate amount equal to his, her
or its ownership of Providence Journal Common Stock.
In accordance with the Merger Agreement, Providence Journal entered into an
amendment to the Rights Agreement to provide that (i) the Merger Agreement and
the consummation of the transactions contemplated thereby (including, without
limitation, the Reorganization and the Merger) are not events that would (a)
permit the Rights Holders to exercise the rights to acquire shares of
Providence Journal Common Stock or (b) require Providence Journal to exchange
any or all of the outstanding rights for shares of Providence Journal Common
Stock; (ii) certain sections of the Rights Agreement will not apply to the
Merger or the transactions contemplated thereby and (iii) effective upon the
Restructuring, the Rights Agreement will be terminated and will have no further
force and effect. Providence Journal has further agreed not to take any action
resulting in the application of the provisions of the Rights Agreement to the
Merger and the transactions contemplated thereby. (See "Description of New
Providence Journal Common Stock--NPJ Rights Agreement" for a description of the
NPJ Rights Agreement, which is identical in substance to the Rights Agreement.)
ACQUISITION PROPOSALS. The Merger Agreement prohibits Providence Journal, its
subsidiaries and their respective officers, Directors, representatives and
agents from, directly or indirectly, knowingly encouraging, soliciting,
initiating or participating in any way in discussions or negotiations with, or
knowingly providing any confidential information to, any person (other than
Continental or any affiliate or associate of Continental and their respective
Directors, officers, employees, representatives and agents) concerning any
merger, consolidation, share exchange or similar transaction involving
Providence Journal or any of the PJC Cable Subsidiaries or any purchase (other
than in the ordinary course of business) of any portion of the operating assets
of, or any equity interests in, the PJC Cable Subsidiaries. However, Providence
Journal's Board of Directors may (i) take and disclose to Providence Journal's
stockholders a position with respect to a tender offer for Providence Journal
Common Stock by a third party pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act, (ii) make such disclosure to Providence Journal's
stockholders as, in the judgment of Providence Journal's Board of Directors
with the written advice of outside counsel, may be required under applicable
law, (iii) respond to any unsolicited proposal or inquiry by advising the
person making such proposal or inquiry of the terms of the provision summarized
in this paragraph, and (iv) participate in discussions or negotiations
resulting from an unsolicited proposal if Providence Journal's Board of
Directors determines, with the written advice of outside counsel, that it is
required to do so in the exercise of its fiduciary duties.
Providence Journal has agreed to notify Continental promptly if any such
proposal or inquiry is received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated with,
Providence Journal and to furnish Continental with a copy of any proposal that
Providence Journal's Board of Directors has determined is a "Superior Proposal"
(as defined below). Providence Journal's Board of Directors may respond to any
Superior Proposal and may provide information to, and negotiate with, any
person in connection therewith if Providence Journal's Board of Directors
determines, with the advice of outside counsel, that it is required to do so in
the exercise of its fiduciary duties. A "Superior Proposal" is defined in the
Merger Agreement to mean a bona fide, written, unsolicited proposal relating to
a possible transaction described in the preceding paragraph by any person other
than Continental that, in the reasonable good faith judgment of Providence
Journal's Board of Directors, with the advice of outside financial advisers, is
reasonably likely to be consummated and is financially more favorable to the
stockholders of Providence Journal than the terms of the transactions
contemplated by the Merger Agreement.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Providence Journal, New Providence Journal and Continental. The representations
and warranties of the parties shall not survive beyond the Closing Date, except
that the representations and warranties made by Providence Journal and New
Providence Journal with respect to capitalization shall survive indefinitely.
The representations of Providence Journal and New Providence Journal are made
with respect to those companies, KHC, KBC and the PJC Cable Subsidiaries and
relate generally to: due organization, qualification and authority; absence of
violations of, among other things, their respective charter documents, by-laws,
certain contracts, and law; required consents and approvals of governmental
authorities; approval by the Boards of Directors of Providence Journal, New
Providence Journal, KHC and KBC of the Merger Agreement and the transactions
contemplated thereby and, in the case of Providence Journal, receipt of the
opinion of Bear Stearns as to the fairness of the PJC Spin-Off and the Merger;
the capital structure of Providence Journal, New Providence Journal, KHC and
KBC; the accuracy of information, including financial statements, contained in
the Merger Agreement; the absence of certain material changes or undisclosed
liabilities; compliance with applicable laws, franchises and material
agreements; taxes; litigation; employee benefits; labor matters; title to
properties; and brokers and finders.
The representations of Continental are made with respect to itself and its
subsidiaries and relate generally to: due organization, qualification and
authority; absence of violations of, among other things, their respective
charter documents, by-laws, certain contracts and law; required consents and
approvals of governmental authorities; approval by the Board of Directors of
Continental of the Merger Agreement and the transactions contemplated thereby;
the capital structure of Continental; the accuracy of information, including
financial statements, contained in the Merger Agreement; the absence of certain
material changes or undisclosed liabilities; compliance with applicable laws,
franchises and material agreements; taxes; litigation; title to properties;
employee benefits; labor matters; and brokers and finders.
INDEMNIFICATION
Pursuant to the Merger Agreement:
(a) Continental will indemnify, defend and hold harmless New Providence
Journal, each of its subsidiaries, and their respective successors-in-
interest, and each of their respective past and present officers and
Directors against Losses and Expenses to the extent they are based upon
or arise out of any untrue or inaccurate representation made by
Continental in the Merger Agreement relating to its capitalization, or
any untrue or allegedly untrue statement of material fact contained, or
any omission or alleged omission to state a material fact required to
be stated, or necessary to make any such statements, in the light in
which they were made, not misleading, in any document filed with the
Commission in connection with the Merger Agreement or any of the
transactions contemplated thereby, provided that Continental was
responsible for such statement or omission;
(b) Providence Journal (and from and after the Effective Time, New
Providence Journal) will indemnify, defend and hold harmless
Continental, each of its subsidiaries, and their respective successors-
in-interest, and each of their respective past and present officers and
Directors against Losses or Expenses to the extent they (i) arise out
of or relate to any of the assets received or liabilities assumed by
New Providence Journal in connection with the PJC Spin-Off or the
operations of any of the PJC Non-Cable Businesses contributed to New
Providence Journal pursuant to the PJC Spin-Off, (ii) are based upon
any untrue or inaccurate representation made by Providence Journal and
New Providence Journal in the Merger Agreement relating to the
capitalization of Providence Journal, New Providence Journal, KHC, KBC
or, any of the PJC Cable Subsidiaries, (iii) are based upon inaccurate
information in the officers certificates relating to capitalization to
be delivered by New Providence Journal, (iv) arise from the failure of
Providence Journal to comply with its covenant relating to capital
expenditures described under paragraph (vii)
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of "Certain Covenants--Interim Operations of the PJC Cable Subsidiaries"
or to comply with certain other covenants in the Merger Agreement
regarding its stock and option plans or (v) are based upon or arise out
of any untrue or allegedly untrue statement of material fact contained,
or any omission or alleged omission to state a material fact required to
be stated, or necessary to make any such statements, in the light in
which they were made, not misleading, in any document filed with the
Commission in connection with the Merger Agreement or any of the
transactions contemplated thereby, or any other registration statement
filed on behalf of Continental, provided that New Providence Journal or
Providence Journal was responsible for such statement or omission;
(c) Restructured PJC will indemnify, defend and hold harmless New
Providence Journal, each of its subsidiaries and their respective
successors-in-interest and each of their respective past and present
officers and Directors against Losses and Expenses arising out of or in
connection with the business operations of the PJC Cable Subsidiaries
and the assets and liabilities retained by Restructured PJC pursuant to
the PJC Spin-Off;
(d) except in certain circumstances, Providence Journal (and from and after
the Effective Time, New Providence Journal) and Continental have each
agreed to indemnify and hold harmless the other against all Losses and
Expenses to the extent they are based upon or arise out of any suit,
action or proceeding by the holders of the indemnifying party's debt or
equity securities as a result of, or in connection with, the Merger
Agreement and the transactions contemplated thereby; and
(e) Providence Journal (and from and after the Effective Time, New
Providence Journal) has agreed to indemnify and hold harmless
Continental against any and all Losses or Expenses to the extent they
are based upon or arise out of any action or claim of any nature
whatsoever asserted by (i) any holder of any of the equity securities
of the PJC Cable Subsidiaries or (ii) any holder of any of the equity
securities of KHC or KBC, including, without limitation, any action or
claim asserted in connection with or relating to the purchase by
Providence Journal or the PJC Cable Subsidiaries of the equity
securities of any such holder.
TAX MATTERS
New Providence Journal will be responsible for all federal and state income
tax liabilities of Providence Journal and its subsidiaries for periods ending
on or before the Closing Date including, generally, such income tax liabilities
resulting from the failure of the Reorganization and the Merger to qualify as
tax-free reorganizations under the Code, unless such failure to qualify is the
result of certain actions by Continental. Continental will be responsible for
all federal and state income tax liabilities of Continental and its
subsidiaries for periods ending both before and after the Closing Date. (See
"Certain Federal Income Tax Considerations".)
CERTAIN EMPLOYEE MATTERS
Providence Journal, New Providence Journal or Restructured PJC, as
applicable, have agreed to continue coverage of employees thereof under
existing group health plans through the Effective Time and to reimburse covered
employees thereof for eligible health care expenses and services incurred
through the Effective Time in accordance with the terms of any such plan.
As a result of the transactions contemplated by the Merger Agreement, as of
the Effective Time, Continental will become the employer of all employees of
the PJC Cable Subsidiaries as of the Effective Time (other than any corporate,
regional or divisional employee that Continental has informed Restructured PJC
not less than 30 days prior to the Effective Time it does not wish to employ
following the Effective Time), including any such employee who is on an
approved leave of absence or short-term disability leave as of the Effective
Time ("Cable Employees") and will continue current benefits to their covered
dependents. As such, Continental shall be responsible for:
(i) payments under the so-called "Employee Continuation Plans" adopted by
the PJC Cable Subsidiaries to the extent such payments are owed to
system level employees formerly employed by
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any PJC Cable Subsidiary (and New Providence Journal will be responsible
for (a) any benefits payable under any such Employee Continuation Plan
to any corporate, regional and divisional personnel, or to any other
person not described in this clause (i) and (b) all other severance
benefits and payments which may be owed to any Cable Employee);
(ii) establishing, to the extent it does not already maintain, a defined
contribution plan that is intended to meet the qualification
requirements of Code Section 401(a), to provide for elective deferrals
under the rules of Section 401(k) ("a 401(k) Plan"), and that covers
the Cable Employees, subject to minimum eligibility service
requirements permitted under the Code (and New Providence Journal
shall cause each Cable Employee to be able to choose between a
distribution to such employee of such employee's account balance as of
the Effective Time in any 401(k) Plan or the direct transfer of such
account balance to the Continental 401(k) Plan, and the Continental
401(k) Plan shall accept all such direct transfers, including any such
direct transfer subject to any loan to the Cable Employee who is a
participant, which loan shall thereafter be treated under
Continental's 401(k) Plan, except to the extent the terms of such loan
are not compatible with applicable law, including ERISA);
(iii) subject to reasonable eligibility requirements, providing coverage
under a comprehensive group health care plan (which plan, subject to
certain conditions, shall provide benefits that are comparable to
those provided to such Cable Employees under an existing group health
plan prior to the Effective Time or comparable to Continental's
existing plans), which health plan shall give credit to Cable
Employees for deductibles, co-payments and similar amounts which any
such Cable Employee had paid or satisfied for the fiscal year in
which the Effective Time occurs; and
(iv) subject to reasonable eligibility requirements, providing coverage
under retirement plans qualified under Code Section 401(a) and welfare
benefit plans, within the meaning of ERISA, providing other than
health benefits, including life insurance, vacation, accidental death
and dismemberment insurance and short and long-term disability
benefits, to all Cable Employees, taking into account for eligibility
and vesting purposes under such plans the service accrued by any such
Cable Employee while an employee of Providence Journal or any of its
affiliates as determined under ERISA ("ERISA Affiliates"), in each
case providing benefits that are comparable to those provided to Cable
Employees prior to the Effective Time or comparable to Continental's
existing plans.
Except as otherwise assumed by Continental as described above, effective as
of the Effective Time, New Providence Journal will accept all past, present and
future liabilities and responsibilities as plan sponsor, within the meaning of
ERISA, of any Company Employee Plan (as defined in the Merger Agreement), and
as employer under any other benefit arrangement, including employment and
consulting agreements, arrangements providing for insurance coverage and
workers' compensation benefits, incentive bonus and deferred bonus
arrangements, arrangements providing for termination allowance, severance, and
similar benefits, equity compensation plans, deferred compensation plans, and
compensation policies and practices maintained by Providence Journal or any of
its ERISA Affiliates covering employees of Providence Journal and their
beneficiaries as of the Effective Time. In addition, New Providence Journal
shall assume and be solely responsible for:
(i) payment of all retiree medical benefits to Cable Employees who, as of
the Effective Time, are receiving or who are entitled to receive
retiree medical or life insurance benefits;
(ii) the provision of benefits required under the provisions of COBRA to
any Cable Employees or other qualified beneficiaries, within the
meaning of Section 4980B(g) of the Code, with respect to whom a
qualifying event within the meaning of Section 4980B(f)(3) of such
Code has occurred prior to the Effective Time;
(iii) payment of all long-term disability income benefits to all Cable
Employees who, as of the Effective Time, are receiving long-term
disability benefits or are disabled as of the Effective Time and as a
result of such disability become eligible for long-term disability
income benefits as determined in accordance with long-term disability
coverage provisions that on or prior to the Effective Time are
applicable to the Cable Employees; and
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(iv) the provision and payment of the following benefits for any Cable
Employee who is on a leave of absence or short-term disability leave
as of the Effective Time until such Cable Employee returns to active
employment from such leave: (A) medical and dental benefits for the
period after the Effective Time until such benefits are no longer
required to be made available under COBRA; (B) life and accidental
death benefits for a period of not more than six months following the
Effective Time; and (C) short and long-term disability benefits for a
period of not more than three months following the Effective Time;
provided, that Continental shall from time to time, within 30 days of
receipt by Continental of invoices and other documentation reasonably
satisfactory to Continental, reimburse New Providence Journal for the
reasonable, direct costs incurred in providing the benefits referred
to in this clause (iv).
Continental and New Providence Journal have agreed to cooperate, and to cause
their respective subsidiaries to cooperate, in a complete, diligent and timely
manner to provide each other with such compensation, service and other
pertinent census data as may be required by either of them for purposes of
calculating or effecting the distribution of benefits to which any Cable
Employee may be entitled under any employee benefit plan established,
maintained or contributed to by either of them.
TERMINATION
GENERAL. The Merger Agreement may be terminated and the transactions
contemplated thereby, including the Merger, abandoned at any time prior to the
Closing Date (i) by mutual written consent duly authorized by the Boards of
Directors of Providence Journal, New Providence Journal and Continental, (ii)
by either Continental or Providence Journal if the stockholders of Continental
fail to approve the Continental Proposals or if the stockholders of Providence
Journal fail to approve the Providence Journal Proposals, (iii) by either
Providence Journal or Continental, provided the terminating party has not
breached its obligations under the Merger Agreement, if the Merger is not
consummated by December 31, 1995 (the "Termination Date"), (iv) by Providence
Journal, provided it has not breached any of its obligations under the Merger
Agreement, if Continental fails to perform any covenant in the Merger Agreement
and fails to cure such failure within 20 business days after written notice by
Providence Journal of such failure, or if any condition to the obligations of
Providence Journal and New Providence Journal has not been satisfied prior to
the Termination Date, (v) by Continental, provided it has not breached any of
its obligations under the Merger Agreement, if (1) Providence Journal or New
Providence Journal fails to perform any covenant in the Merger Agreement and
fails to cure such failure within 20 business days after written notice by
Continental of such failure, (2) any condition to the obligations of
Continental has not been satisfied prior to the Termination Date, or (3) the
Providence Journal Board of Directors materially modifies or withdraws its
approval of the Providence Journal Proposals or its recommendation of the
Providence Journal Proposals to the stockholders of Providence Journal and (vi)
by Providence Journal, whether or not the conditions to its obligations under
the Merger Agreement have been satisfied, if its Board of Directors determines,
with the written advice of counsel provided to Continental, that it may be
required to do so in the exercise of its fiduciary duties.
If the Merger Agreement is terminated for any reason set forth above, the
Merger Agreement will become null and void and there will be no liability on
the part of any party thereto, or the Directors, officers or stockholders of
any such party, except that (a) the parties' indemnification obligations with
respect to misstatements or omissions in filings or in any other registration
filed with the Commission on behalf of Continental, (b) certain provisions with
respect to the reimbursement of expenses and (c) the payment by Providence
Journal of a termination fee and Continental's option to acquire the Palm
Springs System under certain circumstances, as described below, shall survive.
TERMINATION FEES AND EXPENSES; OPTION TO PURCHASE PALM SPRINGS SYSTEM. If the
Merger Agreement is terminated (a) by Continental after the Board of Directors
of Providence Journal has either materially modified or withdrawn its approval
and recommendation of the Providence Journal Proposals, (b) by Providence
Journal after its Board of Directors has determined with the written advice of
counsel, that it may be required to terminate the Merger Agreement in the
exercise of its fiduciary duties or (c) by
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Continental or Providence Journal if the Providence Journal Proposals are not
approved by the stockholders of Providence Journal after the Board of Directors
of Providence Journal has materially modified or withdrawn its approval and
recommendation of any of such transactions, then Providence Journal will pay to
Continental the Break-up Fee plus up to an additional $10,000,000 to reimburse
Continental for reasonable fees and expenses it has incurred in connection with
the Merger Agreement and each of the transactions contemplated thereby. In
addition, if the Merger Agreement is terminated by Continental (provided it has
not breached any of its obligations under the Merger Agreement) (i) if
Providence Journal or New Providence Journal fails to perform any of its
covenants thereunder and such failure remains uncured for 20 business days
after written notice thereof from Continental or (ii) as a result of the
failure of any condition to its obligations under the Merger Agreement (other
than as a result of the failure of a condition to all parties' obligations to
proceed with the Merger or (except in certain circumstances) the failure of the
condition requiring certain governmental consents to the transfer to
Continental of the franchises held by Providence Journal or its subsidiaries),
then Providence Journal will pay Continental an amount (not to exceed
$10,000,000) equal to the actual reasonable fees and expenses paid or payable
by or on behalf of Continental in connection with the Merger or any of the
transactions contemplated thereby.
If the Merger Agreement is terminated (a) by Providence Journal (provided it
has not breached any of its obligations under the Merger Agreement) (i) if
Continental fails to perform any of its covenants thereunder and such failure
remains uncured for 20 business days after written notice by Providence Journal
thereof or (ii) as a result of the failure of any condition to the obligations
of Providence Journal or New Providence Journal to be satisfied prior to the
Termination Date (other than as a result of the failure of a condition to all
parties' obligations to proceed with the Merger) or (b) by Continental as a
result of the refusal of one or more governmental authorities to consent to the
transfer of control of one or more franchises of Providence Journal or its
subsidiaries to Continental for reasons relating to the qualifications or
fitness of Continental, Continental will pay Providence Journal an amount (not
to exceed $10,000,000) equal to the actual reasonable fees and expenses paid or
payable by or on behalf of Providence Journal and New Providence Journal in
connection with the PJC Spin-Off, the Merger and the transactions contemplated
thereby.
In the event that Continental becomes entitled to the Break-Up Fee,
Providence Journal has granted to Continental or any nominee of Continental an
option to purchase all of the right, title and interest of Providence Journal
and its subsidiaries in and to the Palm Springs System, together with all
associated assets, free and clear of all liabilities and obligations of
Providence Journal and its subsidiaries. The purchase price payable by
Continental for the Palm Springs System shall be $68,500,000, and the option
must be exercised by Continental no later than 45 days following the date on
which Continental becomes entitled to a Break-Up Fee. In connection with any
such exercise, Providence Journal has agreed to (i) indemnify Continental or
its nominee for breaches of representations and warranties made by Providence
Journal pertaining to title to the Palm Springs System (which indemnification
obligation shall survive indefinitely) and (ii) use its best efforts to obtain
all authorizations, consents, orders, waivers or approvals necessary or
desirable for the transfer of the Palm Springs System to Continental or such
nominee and to make any filings required by any governmental authority or
applicable law.
Notwithstanding the foregoing, in certain circumstances Continental's right
to a Break-Up Fee and to purchase the Palm Springs System will be deemed void
and of no force or effect, subject to reinstatement ab initio if certain other
events occur. (See "Ancillary Agreements--Certain Effects of Voting Agreement"
below.)
REGULATORY AND OTHER THIRD PARTY APPROVALS
Consummation of the Merger requires (a) consents and/or waivers from the
relevant governmental authorities under certain franchises issued to Providence
Journal and its subsidiaries and (b) consent of the FCC to the transfer of
control of certain licenses issued by the FCC to Providence Journal or its
subsidiaries.
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AMENDMENT; WAIVER
Subject to applicable law, (a) the Merger Agreement may be amended at any
time (including after the approval of the Providence Journal Proposals and
after the approval of the Continental Proposals) by an instrument in writing
signed on behalf of all of the parties thereto and (b) the parties may extend
the time for performance of any of the obligations of the other parties to the
Merger Agreement and may waive inaccuracies in the representations and
warranties or compliance with any of the agreements or conditions for their
respective benefit therein.
ANCILLARY AGREEMENTS
In accordance with the terms of the Merger Agreement, the following ancillary
agreements have been or will be entered into.
NONCOMPETITION AGREEMENT. As a condition to the Merger, New Providence
Journal must enter into the Noncompetition Agreement, pursuant to which New
Providence Journal will agree that, for a period of three years after the
Effective Time, neither it nor any of its subsidiaries will (or will attempt
to), on its own behalf or in the service or on behalf of others, (i) solicit
for employment, interfere with or endeavor to entice away any of the Directors,
officers, employees or agents of Continental or any person who at any time on
or after January 1, 1994 was an officer or employee of Providence Journal or
the PJC Cable Subsidiaries and who is employed by Continental following the
Effective Time, (ii) subject to certain exceptions, engage in any manner
(including as a stockholder, partner, principal, agent, consultant or
otherwise) in the operation of any Restricted Business in the franchise areas
served by Continental or Restructured PJC at the Effective Time (provided,
however, that New Providence Journal or any subsidiary thereof may hold 5% or
less of any class of securities registered pursuant to the Exchange Act of any
corporation which is engaged in the Restricted Business, or passive investments
in partnerships or joint ventures representing 5% or less of any class of any
equity interests therein), or (iii) use or permit Providence Journal's or New
Providence Journal's name to be used in connection with any Restricted Business
in such franchise areas.
VOTING AGREEMENT. In connection with the execution of the Merger Agreement,
Directors and executive officers of Providence Journal entitled to exercise
voting power with respect to an aggregate of 323 shares of Providence Journal
Common Stock (approximately 0.3% of the voting power of the outstanding
Providence Journal Common Stock), and Amos B. Hostetter, Jr. and Timothy P.
Neher, as the trustees of the Trust entitled to exercise voting power with
respect to an aggregate of 42,843,550 shares of Continental Class B Common
Stock (approximately 30.88% of the voting power of the Continental Voting
Stock), entered into the Voting Agreement pursuant to which such stockholders
agreed, among other things, to vote all of their shares in the following
manner: Certain of the Directors and executive officers holding Providence
Journal Common Stock agreed to vote (i) in favor of each of the Providence
Journal Proposals, (ii) against any proposal for any recapitalization, merger,
sale of assets or other business combination between Providence Journal or any
of the PJC Cable Subsidiaries and any person other than Continental, or any
other action which would result in the breach of any covenant, representation
or warranty in the Merger Agreement, or cause any conditions to the obligations
of Providence Journal under the Merger Agreement not to be fulfilled and (iii)
in favor of any other matter relating to the consummation of the transactions
contemplated by the Merger Agreement. The Trust agreed to vote (x) in favor of
each of the Continental Proposals, (y) against any action that would result in
a breach of any covenant, representation or warranty under the Merger
Agreement, or that would result in any of the conditions to the obligations of
Continental under the Merger Agreement not being fulfilled and (z) in favor of
any other matter relating to the consummation of the transactions contemplated
by the Merger Agreement. In addition, such Providence Journal stockholders and
the Trust each agreed not to enter into any voting agreement or grant a proxy
or power of attorney that is inconsistent with the Voting Agreement, and each
such Providence Journal stockholder has agreed not to transfer ownership of any
of its Providence Journal Common Stock unless the transferee agrees in writing
to be bound by the terms and conditions of the Voting Agreement. The Trust
agreed not to transfer ownership of more than 10% of its Continental Class B
Common Stock unless the transferee agrees in writing to be bound by the terms
and conditions of the Voting Agreement. In addition, if, at any time prior to
the Effective
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Time, the holders of at least 50.1% of the combined voting power of the
Continental Voting Stock have become parties to the Voting Agreement, no
Continental stockholder party thereto may transfer ownership of its shares of
Continental Voting Stock if, after giving effect to such transfer, such
percentage of stockholders of Continental would no longer be bound by the terms
of the Voting Agreement.
Execution of the Voting Agreement was a condition to Continental and
Providence Journal entering into the Merger Agreement, and no compensation was
paid to any person in consideration for entering into such agreement.
CERTAIN EFFECTS OF VOTING AGREEMENT. The Merger Agreement further provides
that, if Continental elects to issue shares of Continental Series B Preferred
Stock in connection with the Merger, then after the Registration Statement of
which this Joint Proxy Statement-Prospectus forms a part becomes effective,
Providence Journal will use its best efforts to cause the holders of not less
than an aggregate of 50.1% of the voting power of each class of Providence
Journal Common Stock to agree to be bound by the terms of the Voting Agreement.
If (a) Providence Journal is successful in obtaining such agreements and (b)
stockholders of Continental holding not less than an aggregate of 66 2/3% of
the combined voting power of Continental Voting Stock have agreed to be bound
by the terms of the Voting Agreement then, from and after such date, the
provisions of the Merger Agreement described above under the caption
"Termination--Termination Fees and Expenses; Option to Purchase Palm Springs
System" shall be deemed null and void and of no further force and effect,
provided, however, that if, at any time prior to the approval by Providence
Journal's stockholders of the Providence Journal Proposals, (i) the
enforceability of the Voting Agreement or any of the joinder agreements thereto
by any of the Providence Journal stockholders is challenged in any respect,
(ii) any provision of any such agreement is breached in any respect, or (iii)
such agreements, taken in the aggregate, cease to represent the obligations of
the holders of at least 50.1% of the voting power of each class of Providence
Journal Common Stock, then such provisions shall be reinstated ab initio into
the Merger Agreement.
OWNERSHIP OF CONTINENTAL STOCK AFTER THE MERGER
Assuming that the Merger was consummated on the date hereof (and assuming
there are no adjustments to the Maximum Amount), holders of shares of
Restructured PJC Common Stock would own Continental Class A Common Stock
constituting 16.2% of the outstanding Continental Common Stock (treating the
Continental Series A Preferred Stock as if it were converted into Continental
Class B Common Stock) and 100% of the Continental Series B Preferred Stock,
representing an aggregate of 2.3% of the voting power of Continental.
Continental has reserved the right to issue additional shares of its capital
stock between the date hereof and the consummation of the Merger, including,
without limitation, in connection with other acquisitions by Continental.
OWNERSHIP OF NEW PROVIDENCE JOURNAL STOCK AFTER THE REORGANIZATION AND THE
MERGER
Following the Reorganization and the Merger, holders of shares of Providence
Journal Common Stock immediately prior to the Reorganization who have not
exercised and perfected statutory dissenters' rights under the RIBCA will own
shares of New Providence Journal Common Stock constituting 100% of the equity
and voting power of New Providence Journal, in the same proportion (and of the
same class) as shares of Providence Journal Common Stock as of such date. (See
"Rights of Dissenting Stockholders--Providence Journal" for a description of
dissenters' rights available to Providence Journal's stockholders.)
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax consequences
of the Reorganization, the Merger and the transactions contemplated thereby.
The tax treatment of a stockholder may vary depending upon his particular
situation, and certain stockholders (including individuals who hold restricted
stock of Providence Journal, individuals who hold options in respect of
Providence Journal Common Stock, insurance
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companies, tax-exempt organizations, financial institutions or broker-dealers,
and persons who are neither citizens nor residents of the United States, or who
are foreign corporations, foreign partnerships or foreign estates or trusts as
to the United States) may be subject to special rules not discussed below.
EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE TRANSACTIONS DESCRIBED
HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN TRANSACTIONS
Consummation of the Reorganization, the Merger and the transactions
contemplated thereby are conditioned upon the receipt of a favorable ruling
from the Service as to certain of the federal income tax consequences of
certain transactions in connection with the Reorganization and the receipt of
an opinion of Edwards & Angell, counsel to Providence Journal, as to the
qualification of the Merger as a tax-free reorganization under Section
368(a)(1)(A). Specifically, Providence Journal has requested rulings to the
following effect (and related rulings as to the tax basis of assets) from the
Service (the "Requested Rulings"):
(1) The transfer of all assets of KHC to KBC in exchange for stock of KBC,
followed by the dissolution of KHC (so that Providence Journal will own
all of the stock of KBC), will be a reorganization described in Code
Section 368(a)(1)(D).
(2) The transfer of all assets of Providence Journal to KBC in exchange for
stock of KBC, followed by the dissolution of Providence Journal (so
that former Providence Journal stockholders will own shares of
Restructured PJC), will be a reorganization described in Code Section
368(a)(1)(C) or (D).
(3) The transfer of the systems that were acquired by Providence Journal in
1992 from Palmer Communications, Inc. ("Palmer") serving the areas in
and around Naples, Florida and Palm Springs, California (the "Palmer
Systems") and the stock of King Videocable to Colony will be a
transaction described in Code Section 351.
(4) The Contribution and the Distribution will be a reorganization
described in Code Sections 368(a)(1)(D) and 355.
(5) Stockholders of Providence Journal will recognize no gain or loss (and
will not have to include any amounts in income) in the transactions
described above. They will apportion the basis of their Providence
Journal shares between the New Providence Journal shares and
Restructured PJC shares received in proportion to their relative fair
market values. The holding period for New Providence Journal shares and
Restructured PJC shares received in exchange for or with respect to
Providence Journal shares will include the holding period for the
Providence Journal shares, provided the Providence Journal shares were
held as a capital asset.
(6) No gain or loss will be recognized by Providence Journal, KHC, KBC,
Westerly, New Providence Journal or Colony in the transactions
described above.
It is a condition to the parties' obligations to consummate the transaction
contemplated by the Merger Agreement that Providence Journal receive the
Requested Rulings from the Service (except with respect to the Requested Ruling
set forth in Clause (3) above). A ruling from the Service, while generally
binding on the Service, may under certain circumstances be revoked or modified
by the Service retroactively. Providence Journal is currently not aware of any
facts or circumstances that would cause the Service, in the event that it gives
the Requested Rulings, to revoke or modify the Requested Rulings received by
Providence Journal from the Service as to the federal income tax consequences
of the transactions described above.
The Requested Rulings received from the Service are based on the assumption
that the Merger will qualify as a tax-free reorganization under Section
368(a)(1)(A) of the Code. The Service takes the position that the consequences
of a transaction such as the Merger are adequately established in the tax law,
and it therefore will not issue a "comfort" ruling as to whether such a
transaction qualifies as a reorganization under
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Section 368(a)(1)(A). Therefore, Providence Journal has not requested a ruling
that the Merger will qualify as a tax-free reorganization under Section
368(a)(1)(A). Instead, consummation of the Reorganization, the Merger and the
transactions contemplated thereby is conditioned upon the receipt of the
opinion of Edwards & Angell, counsel to Providence Journal, to the effect that:
(i) The Merger will qualify as a reorganization under Section 368
(a)(1)(A) of the Code.
(ii) Except for any cash received in lieu of fractional shares, a
stockholder will not recognize any income, gain or loss as a result of the
receipt of Continental Class A Common Stock or Continental Series B
Preferred Stock in the Merger.
(iii) A stockholder's tax basis for shares of Continental Class A Common
Stock and Continental Series B Preferred Stock received in the Merger,
including any fractional share interest for which cash is received, will
equal the allocable portion of such stockholder's basis in the Providence
Journal Common Stock held immediately before the Merger.
(iv) A stockholder's holding period for the shares of Continental Class A
Common Stock and Continental Series B Preferred Stock received in the
Merger, including any fractional share interest for which cash is received,
will include the period during which the shares of Providence Journal
Common Stock were held, provided such shares were held as capital assets.
An opinion of counsel is not binding on the Service or the courts. Further,
the opinion of Edwards & Angell will be based on, among other things, current
law and certain representations as to factual matters made by, among others,
Providence Journal, New Providence Journal and Continental which, if incorrect
in certain material respects, would jeopardize the conclusions reached by
counsel in its opinion. Neither Providence Journal, New Providence Journal nor
Continental is currently aware of any facts and circumstances which would cause
any such representations made by it to Edwards & Angell to be untrue or
incorrect in any material respect. In addition, Continental has agreed to
certain restrictions on its future actions to provide further assurances that
the Reorganization and the Merger will be tax-free.
If the Merger were not to qualify under Section 368(a)(1)(A) of the Code, or
if the PJC Spin-Off were not to qualify under Sections 368(a)(1)(D) and 355 of
the Code, Restructured PJC would recognize gain equal to the excess of the fair
market value of the New Providence Journal Common Stock distributed to its
stockholders over Restructured PJC's basis in the assets transferred to New
Providence Journal in the Contribution. Any resulting corporate income tax on
such gain would be payable by Continental, as the successor to Restructured
PJC. New Providence Journal has agreed to indemnify Continental for such tax
liability unless the failure of the Reorganization and the Merger to qualify
under those sections of the Code is the result of Continental's breach of the
covenants referred to in the preceding paragraph. In addition, if the
Reorganization and the Merger fail to qualify under those sections of the Code,
each Restructured PJC stockholder who received shares of New Providence Journal
Common Stock would be generally treated as if it had received a taxable
distribution in an amount equal to the fair market value on the date of
distribution of the New Providence Journal Common Stock it received. Further,
if the Merger fails to qualify as a tax-free reorganization, each Restructured
PJC stockholder who receives shares of Continental Merger Stock would recognize
gain or loss equal to the difference between the fair market value of the
Continental Merger Stock received and its basis in the shares of Restructured
PJC Common Stock surrendered.
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of New Providence Journal Common
Stock and Continental Merger Stock may be subject to backup withholding at the
rate of 31% with respect to dividends and proceeds of redemption, unless such
stockholder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. Any amount withheld under these rules will be
credited against the stockholder's federal income tax liability. New Providence
Journal or Continental may require holders of New Providence Journal Common
Stock or Continental Merger Stock to establish an exemption from backup
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withholding or to make arrangements satisfactory to New Providence Journal or
Continental with respect to the payment of backup withholding. A stockholder
who does not provide New Providence Journal or Continental with his or her
current taxpayer identification number may be subject to penalties imposed by
the Service.
PROPOSAL TO APPROVE AND ADOPT THE CONTINENTAL RECAPITALIZATION AMENDMENT,
ELECTION OF CONTINENTAL DIRECTORS AND RATIFICATION OF APPOINTMENT OF
ACCOUNTANTS
One of the purposes of the Continental Special Meeting is the approval of the
Continental Recapitalization Amendment. The Board of Directors of Continental
approved the Continental Recapitalization Amendment at a meeting held on
November 17, 1994 and found that it was in the best interests of Continental
and its stockholders. The Continental Recapitalization Amendment provides for
an increase in the total number of authorized shares of capital stock of
Continental from 17,700,000 to 825,000,000, including an increase in the number
of authorized shares of Continental Common Stock from 15,000,000 to
625,000,000, of which 425,000,000 will be shares of Continental Class A Common
Stock (with one vote per share) and 200,000,000 will be shares of Continental
Class B Common Stock (with ten votes per share), and an increase in the number
of authorized shares of Continental Preferred Stock from 2,700,000 to
200,000,000, of which 1,142,858 are currently designated Continental Series A
Preferred Stock. Approval of the Continental Recapitalization Amendment by the
Continental stockholders is a condition to the Merger and required by the
Merger Agreement. If the Continental Recapitalization Amendment is approved by
the Continental stockholders, the Board of Directors of Continental will
declare a stock dividend of 24 shares of Continental Class A Common Stock for
each outstanding share of Continental Class A Common Stock outstanding on the
record date for such stock dividend and 24 shares of Continental Class B Common
Stock for each outstanding share of Continental Class B Common Stock
outstanding on the record date for such stock dividend, resulting in every
share of Continental Common Stock currently outstanding becoming 25 shares of
Continental Common Stock prior to the consummation of the Merger. Shares of
Continental Series A Preferred Stock will not receive any stock dividend, but
their conversion feature and voting rights will be adjusted to reflect the
Continental Stock Split.
Another purpose of the Continental Special Meeting is the election of four
persons to serve a three-year term as Class C Directors in accordance with the
Continental Restated Certificate and the Continental By-Laws. It is proposed
that proxies for the Continental Special Meeting not limited to the contrary
will be voted to elect Amos B. Hostetter, Jr., Henry F. McCance, Lester Pollack
and Roy F. Coppedge, III as the Class C Directors. Messrs. Hostetter, McCance,
Pollack and Coppedge are presently Class C Directors. If some unexpected
occurrence should make necessary, in the judgment of the Board of Directors,
the substitution of some other person for any of the nominees, it is the
intention of the persons named in the proxy for the Continental Special Meeting
to vote for the election of such other person as may be designated by the Board
of Directors. Each of the Class C Directors elected at the Continental Special
Meeting shall serve until the 1998 Annual Meeting and until his successor is
elected and qualified.
Finally, at the Continental Special Meeting, the Continental stockholders
will be asked to ratify the selection by the Board of Directors of Deloitte &
Touche LLP as Continental's independent auditors for the current fiscal year
ending December 31, 1995. The firm has been the accountants for Continental
since 1974. Although Continental is not required to submit the ratification and
approval of the selection of its accountants to a vote of stockholders, the
Board of Directors believes it is a sound policy and in the best interests of
the stockholders to do so.
The 1996 Annual Meeting of Continental is expected to be held on or about May
16, 1996. Stockholder proposals must be received by Continental on or before
January 17, 1996 to be considered for inclusion in the proxy statement and
presented at the 1996 Annual Meeting of Continental.
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PROPOSAL TO APPROVE AND ADOPT
THE CABLE DIVISION SALE BONUS PLAN
The Board of Directors of Providence Journal is submitting to the
stockholders for their approval, the Cable Division Sale Bonus Plan. The Cable
Division Sale Bonus Plan was designed to retain certain of Providence Journal's
cable executives and to provide incentives to such executives to maintain the
operating performance of the PJC Cable Business pending completion of the
Merger with bonuses payable only if the Merger is consummated. No beneficiary
of the Cable Division Sale Bonus Plan is an officer of Providence Journal. The
text of the Cable Division Sale Bonus Plan is annexed hereto as Annex VI, and
the following summary is qualified in its entirety by the actual provisions of
the Cable Division Sale Bonus Plan. New Providence Journal will be responsible
for all payments required to be made under the Cable Division Sale Bonus Plan.
ADMINISTRATION
The Cable Division Sale Bonus Plan will be administered by the Vice President
of Human Resources of Providence Journal, who shall not be a participant in
such plan. The administrator shall have authority to interpret the provisions
of the Cable Division Sale Bonus Plan and to decide all questions of fact
arising in its application, to provide all necessary information to the
Executive Committee of the Board of Directors of Providence Journal, and to
communicate to plan participants concerning the administration of the Cable
Division Sale Bonus Plan. The administrator, with the concurrence of the Chief
Executive Officer, shall make recommendations for awards under the Cable
Division Sale Bonus Plan to the Executive Committee of the Providence Journal
Board.
REVIEW AND AUTHORIZATION
All recommendations for awards to be made by the administrator pursuant to
the provisions of the Cable Division Sale Bonus Plan are subject to review and
approval by the Executive Committee of the Providence Journal Board.
ELIGIBILITY TO RECEIVE AWARDS
Participants in the Cable Division Sale Bonus Plan shall be limited to those
officers and other key executive employees of the PJC Cable Business who
continue to be employed by the PJC Cable Business through the Merger and are in
positions in which their decisions, actions and counsel significantly affect
the operation of the PJC Cable Business. Subject to achieving certain
objectives and meeting certain conditions, participants will share in a "Bonus
Pool" based upon a weighing of salary and years of service. As of March 23,
1995, 14 persons were eligible to receive awards under the Cable Division Sale
Bonus Plan.
BONUS POOL
Subject to certain conditions described below, the participants are eligible
to receive a share of a bonus pool in the following amount: (i) $2.1 million if
the 1994 cash flow objective of $123.6 million for the PJC Cable Business is
achieved, and (ii) 50% of any 1994 cash flow in excess of the 1994 cash flow
objective. The amount of the bonus pool is currently $5,200,000. The bonus pool
may be reduced by a maximum of 20%, based upon a graduated scale, if the 1995
cash flow objective of $123.6 million is not met (pro rated for the portion of
1995 which has elapsed at the time of the Closing).
CONDITIONS
Any bonus awards earned out of the bonus pool will be distributed to the
participants only upon satisfaction of the following additional conditions:
(i) The closing of a sale, merger or other disposition of the PJC Cable
Business; and
(ii) The participant remaining in the employment of the PJC Cable
Business through the date of the closing of such sale, merger or other
disposition.
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GENERAL RESTRICTIONS
(a) Individuals receiving awards pursuant to the Cable Division Sale Bonus
Plan may not receive any other awards pursuant to any other long-term incentive
plan of Providence Journal or the PJC Cable Business.
(b) Significant unforeseen changes, such as new statutes or regulations that
positively or negatively affect the cash flow of the PJC Cable Business, will
be excluded from the performance measurements used in determining achievement
of the 1994 and 1995 objectives.
(c) Nothing in the Cable Division Sale Bonus Plan shall confer upon any
person the right to continue in the employment of the PJC Cable Business nor
shall any right that Providence Journal or the PJC Cable Business may have to
terminate the employment of such person be affected.
AMENDMENT
The Board may terminate or amend the Cable Division Sale Bonus Plan at any
time. The termination or amendment of the Cable Division Sale Bonus Plan shall
not, without the consent of a participant, adversely affect the participant's
rights under an award previously granted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND THE ADOPTION OF
THE CABLE DIVISION SALE BONUS PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY TO THE CONTRARY IN THEIR PROXIES.
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DESCRIPTION OF PROVIDENCE JOURNAL PUBLISHING BUSINESS
In the event the Providence Journal Proposals described in this Joint Proxy
Statement-Prospectus receive the requisite vote of stockholders of Providence
Journal, the PJC Non-Cable Business, including the PJC Publishing Business,
will be transferred to New Providence Journal. Accordingly, the discussion set
forth below of the PJC Publishing Business also serves as a discussion of the
publishing business of New Providence Journal in the event the Reorganization,
the Merger and the transactions contemplated thereby are consummated.
GENERAL
Providence Journal publishes (i) Monday through Friday, the morning
Providence Journal and The Evening Bulletin, (ii) the Saturday Providence
Journal-Bulletin, and (iii) The Providence Sunday Journal (collectively the
"Journal") in Providence, Rhode Island. The Journal is primarily distributed by
home delivery throughout Rhode Island and Southeastern Massachusetts. Founded
in 1820, the morning Providence Journal is the oldest continuously published
daily newspaper in the United States. The largest newspaper in the Rhode Island
and Southeastern Massachusetts market, the Journal maintains its market
position through effective reporting, dedication to public service, quality
printing and efficient distribution. The Journal has received numerous awards
over the years for its coverage of both local and national issues, including a
Pulitzer Prize in 1994, its fourth.
On March 22, 1995, Providence Journal announced that the morning Providence
Journal and The Evening Bulletin will be consolidated as the Providence
Journal-Bulletin, a morning newspaper. The consolidated newspaper will first
appear on June 5, 1995. Initially, a substantial portion of the anticipated $6
million in savings from this consolidation will be reinvested to improve local
news coverage. Circulation is expected to drop temporarily but recover once
readers become aware of the expanded local news, although there can be no
assurances in this regard.
CIRCULATION AND PRICING
The following table shows the average net paid daily, Saturday and Sunday
circulation of the Journal for the twelve-month periods ended March 31 in each
of the years 1990 through 1994, as reported by the Audit Bureau of Circulation
(the "Audit Bureau"), an independent agency that audits the circulation of most
U.S. newspapers and magazines on an annual basis, and as estimated by the
Journal for the nine-month period ended December 31, 1994.
<TABLE>
<CAPTION>
AVERAGE NET PAID CIRCULATION
------------------------------
DAILY SATURDAY SUNDAY
--------- --------------------
<S> <C> <C> <C>
1990.................. 203,600 189,600 264,700
1991.................. 202,200 188,900 265,000
1992.................. 197,100 186,400 268,100
1993.................. 192,500 182,700 269,100
1994.................. 188,200 179,600 268,800
April 1, 1994-Dec. 31,
1994................. 185,700 173,000 267,800
</TABLE>
Approximately 75% of the Monday through Saturday circulation was home-delivered
in calendar year 1994. Approximately 68% of the Sunday circulation was home-
delivered in calendar year 1994. (See "Certain Considerations Relating to the
Transactions--Certain Considerations Related to New Providence Journal Common
Stock".)
The suggested newsstand price of the Journal is $.50 on weekdays and Saturday
and $1.75 on Sunday. The rate charged to subscribers for home delivery of the
daily and Sunday newspapers is $3.60 per week.
ADVERTISING
Approximately three-quarters of the revenue of the Journal is derived from
the sale of advertising (historically between 70% and 80% of the Journal's
revenues).
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The following table sets forth the Journal's advertising linage for fiscal
years 1990 through 1994.
<TABLE>
<CAPTION>
RETAIL CLASSIFIED NATIONAL
----------------- --------------- --------------
WEEKDAY SUNDAY WEEKDAY SUNDAY WEEKDAY SUNDAY TOTAL
--------- ------- ------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1990................ 1,200,900 389,300 463,900 233,600 50,300 38,100 2,376,100
1991................ 997,400 296,000 403,300 173,500 41,300 34,100 1,945,600
1992................ 1,082,100 364,500 366,700 168,500 34,200 31,000 2,047,000
1993................ 1,113,700 381,100 371,600 168,900 37,000 32,600 2,104,900
1994................ 1,069,500 331,100 310,000 209,800 47,600 31,800 1,999,800
</TABLE>
Historically, retail advertising has accounted for approximately 62%,
classified advertising 29%, and national advertising 9% of the total
advertising revenue for the Journal. Retail advertising appears throughout the
Journal and is comprised of display advertising from local merchants, such as
grocery and department stores, and national retail advertisers that have local
outlets. Classified advertising is comprised of display and agate line
advertisements which are listed together in sequence by the nature of the
advertisement, such as automobile, employment and real estate and appear in the
classified section of the Journal. National advertising is comprised of
advertisements from national distributors and manufacturers that appear
throughout the Journal. The Journal also contains preprint advertisements which
are advertising inserts that are provided to the Journal for distribution both
in the Journal and through the mail. Preprint advertising revenue is derived
primarily from retail and national advertisers and accounted for 20% of the
total Journal advertising revenue in calendar year 1994.
The Journal increased advertising rates for most categories of retail and
classified advertising by approximately 3% in 1993 and 3% in 1994.
PRODUCTION AND RAW MATERIALS
In 1987, Providence Journal opened a new newspaper flexographic printing and
distribution plant in Providence, Rhode Island. The use of flexography, a
water-based printing process, improves printing quality and prevents newspaper
ink from rubbing off onto the reader's hands. The facility is also equipped
with computer control-driven systems, which shut down presses within five
copies of the specified production number, thereby significantly reducing the
number of unusable copies.
Direct expenses consist primarily of newsprint costs, which have historically
accounted for between 16% to 24% of the Journal's total direct expenses. In
1994, the Journal used approximately 34,000 metric tons of newsprint.
Management reduced the number of newsprint suppliers to five from eight in 1992
and has entered into contracts with these suppliers resulting in favorable
pricing and continuity of supply. The Journal currently receives discounts of
up to 20% off list price for newsprint supplies. Additional cost savings have
been achieved by the implementation of quality controls, reductions in
inventory and the positioning of Providence Journal as a just-in-time inventory
customer.
Newsprint expenses are considered variable to the extent that usage varies
depending on advertising linage. Newsprint prices move in cycles associated
with the capacity of paper mills and newspaper demand. When national
advertising linage levels declined beginning in 1988, suppliers began offering
substantial discounts of between 10% and 18% from list price, which grew over
time to 40% discounts. Newsprint prices are now once again increasing
significantly because of increased demand and constricted supply. Industry
analysts expect newsprint pricing increases to continue through 1996. (See
"Certain Considerations Relating to the Transactions--Certain Considerations
Relating to the New Providence Journal Common Stock".)
OTHER PUBLISHING ACTIVITIES
TOWN CRIER. In 1993, Providence Journal launched the Town Crier, a weekly
newspaper referred to in the industry as a "shopper," containing coupons and
advertisements directed at consumers, in two suburban communities adjacent to
Providence, Rhode Island. In connection with this project, Providence Journal
entered into a multi-year management contract with Shopper Enterprises, Inc., a
firm based in Minnesota which specializes in operating shoppers, to develop,
operate and manage the Town Crier and other shoppers for Providence Journal in
and near the Rhode Island market.
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LOWELL SUN. In 1990, Providence Journal provided financing to Lowell Sun
Publishing Company (the publisher of the Sun, a daily newspaper serving the
Lowell, Massachusetts area) and Lowell Sun Realty Company (collectively, the
"Lowell Sun Companies") in the amount of approximately $26 million, and agreed
to provide a $6.5 million revolving credit facility to the Lowell Sun
Companies, secured by a lien on the assets of Lowell Sun Companies, plus a
pledge of a controlling interest in their stock. In connection with this
financing, Providence Journal received a warrant to acquire up to a 41.67%
interest in the Lowell Sun Companies. The warrant is exercisable by Providence
Journal during a two year period, which commenced September 28, 1993. The
warrant exercise price is determined by a formula based upon the outstanding
amount of the financing as a percentage of the valuation of the Lowell Sun
Companies. Providence Journal's management has made no determination as to
whether it will exercise this warrant.
ELECTRONIC PUBLISHING. During 1994, Providence Journal entered into a two
year agreement with Prodigy Services Company providing for the creation of a
local on-line service owned by Providence Journal to be offered in conjunction
with the national Prodigy service. The local on-line service will include, on
an exclusive basis for Rhode Island and certain areas in Massachusetts, news,
features and advertising similar to that appearing in the Journal. The new
service is scheduled to begin operation in the second quarter of 1995.
The Journal has also developed a number of fax-on-demand services providing
material ranging from old Journal newspaper articles to current information on
sports, weather and other subjects of general interest. The Journal has also
developed and expanded Journal Line, a voice information service, the New
England Wire Service, which electronically provides editorial content to area
newspapers, and Journal Telemarketing, a telemarketing sales division
providing services to a range of customers.
ACQUISITIONS
The PJC Publishing Business plans to pursue attractive acquisition
opportunities as they become available. In addition to expansion into
electronic publishing, referred to above, the PJC Publishing Business is
interested in, and actively reviews, potential acquisitions of daily and
weekly newspapers and shoppers.
COMPETITION
The Journal has five daily newspaper competitors in the state, whose names,
circulation levels and headquarter locations are provided below. None of these
competitors has a market share (based on circulation) greater than 6% of the
Rhode Island market.
The following table shows the net paid circulation in Rhode Island of the
Journal and its five competitors for 1993 and the percentage such Rhode Island
circulation represents of each newspaper's total circulation, based on
information supplied by the Audit Bureau.
<TABLE>
<CAPTION>
RHODE ISLAND NEWSPAPERS
1993 NET PAID CIRCULATION STATISTICS
---------------------------------------------------
DAILY SUNDAY
------------------------- -------------------------
RHODE ISLAND RHODE ISLAND
AS A AS A
NET PAID % OF TOTAL NET PAID % OF TOTAL
NEWSPAPER RHODE ISLAND DAILY RHODE ISLAND SUNDAY
AND LOCATION CIRCULATION CIRCULATION CIRCULATION CIRCULATION
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
The Journal ............ 176,400 92% 242,800 91%
Providence, RI
The Times............... 21,000 91% N/A
Pawtucket, RI
Woonsocket Call......... 20,700 78% 20,400 78%
Woonsocket, RI
Daily News.............. 15,200 99% N/A
Newport, RI
Westerly Sun............ 9,100 73% 9,300 74%
Westerly, RI
Kent County Daily Times. 9,000 100% N/A
W. Warwick, RI
</TABLE>
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The Journal also encounters competition in varying degrees from Boston and
other Massachusetts newspapers, nationally circulated newspapers, television,
radio, magazines and other advertising media, including direct mail advertising
and yellow pages.
EMPLOYEES
The PJC Publishing Business employs 815 persons on a full time basis and 682
on a part-time and/or temporary basis, the equivalent of 1,234 full time
persons. Approximately 40% of such employees are represented by labor unions
under collective bargaining agreements. A new collective bargaining agreement
with one of these unions, the Providence Newspaper Guild, was recently executed
after protracted negotiations. This agreement is effective retroactively to
January 1, 1994 and will expire on December 31, 1996. The Newspaper Printing
Pressman's Union is in the third year of a ten-year contract. The Providence
Typographical Union is in the eighth year of a ten-year contract. Providence
Journal contributes to and maintains various employee benefit or retirement
plans for employees of its publishing business and contributes to some union
plans pursuant to its collective bargaining agreements.
PROPERTIES
The Journal owns and occupies the following buildings in Providence, Rhode
Island:
<TABLE>
<CAPTION>
LOCATION AND USE SQUARE FOOTAGE
---------------- --------------
<S> <C>
75 Fountain Street--Corporate Headquarters................... 205,635
210 Kinsley Avenue--Production/Printing....................... 168,000
119 Harris Avenue--Printing & Storage......................... 119,700
135 Harris Avenue--Storage.................................... 81,000
196 Kinsley Avenue--Paper Warehouse........................... 32,558
280 Kinsley Avenue--Inserting................................. 25,440
288 Kinsley Avenue--Circulation............................... 22,573
</TABLE>
The Corporate Headquarters at 75 Fountain Street also provides general and
administrative support and serves as headquarters for Providence Journal's
broadcast television division. The Journal also leases various regional
distribution centers and news and advertising offices. The Journal considers
its owned and leased properties suitable and adequate for its current
activities.
DESCRIPTION OF PROVIDENCE JOURNAL BROADCAST TELEVISION BUSINESS
In the event the Providence Journal Proposals described in this Joint Proxy
Statement-Prospectus receive the requisite vote of stockholders of Providence
Journal, the PJC Non-Cable Business, including the PJC Broadcasting Business,
will be transferred to New Providence Journal. Accordingly, the discussion set
forth below of the PJC Broadcasting Business also serves as a discussion of the
broadcast television business of New Providence Journal in the event the
Restructuring, the PJC Spin-Off, the Merger and the transactions contemplated
thereby are consummated.
GENERAL
Providence Journal owns or partially owns and operates nine network-
affiliated television stations (the "Stations") in geographically diverse
markets, including five in the fifty largest domestic television markets, as
measured by the number of television households. On a pro forma basis, for the
year ended December 31, 1994, Providence Journal had net revenues from its
broadcast operations of $171 million. Providence Journal has been involved in
the PJC Broadcasting Business since 1978 when it acquired an independent
station in Philadelphia, Pennsylvania.
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INDUSTRY BACKGROUND
There are a limited number of channels available for broadcasting in any one
geographic area, and the license to operate a television station is granted by
the FCC. Television stations can be distinguished by the frequency over which
they broadcast. Television stations that broadcast over the very high frequency
("VHF") band (channels 2-13) of the radio spectrum generally have some
competitive advantage over television stations that broadcast over the ultra-
high frequency ("UHF") band (channels above 13) of the spectrum because VHF
stations usually have better signal coverage and lower transmission costs.
However, the improvement of UHF transmitters and receivers, the complete
elimination from the marketplace of VHF-only receivers and the expansion of
cable television systems have reduced the VHF signal advantage.
Television station revenues are primarily derived from local, regional and
national advertising and, to a lesser extent, from network compensation and
revenues from studio rental and commercial production activities. Advertising
rates are set based upon a variety of factors, including a program's popularity
among the demographic groups that an advertiser wishes to attract, the number
of advertisers competing for the available time, the size and demographic make-
up of the market served by the station and the availability of alternative
advertising media in the market area. Because broadcast television stations
rely on advertising revenues, they are sensitive to cyclical changes in the
economy. The size of advertisers' budgets, which are affected by broad economic
trends, affect the broadcast industry in general and the revenues of individual
broadcast television stations.
All television stations in the country are grouped into approximately 210
generally recognized television markets that are ranked in size according to
various formulae based upon actual or potential audience. Each market is
designated as an exclusive geographic area consisting of all counties in which
the home-market commercial stations receive the greatest percentage of total
viewing hours. A. C. Nielsen Company, a national audience measuring service
("Nielsen"), periodically publishes data on estimated audiences for television
stations in various markets throughout the country. The estimates are expressed
in terms of the percentage of the total potential audience in the market
viewing a particular station (referred to in the industry as the station's
"rating") and of the percentage of households using television, that are
actually viewing the particular station (referred to in the industry as the
station's "share"). Nielsen provides such data on the basis of total television
households and selected demographic groupings in the market. Each specific
geographic market is called a designated market area ("DMA") by Nielsen.
Until recently, three major broadcast networks, CBS, ABC, and NBC, dominated
broadcast television. Fox has established a "network" of independent stations
whose operating characteristics are similar to those of the major network-
affiliated stations, although the hours of network programming produced by Fox
for its affiliates are less than those produced by CBS, ABC and NBC. In recent
years, Fox has effectively evolved into the fourth major broadcast network.
Warner Brothers and Paramount have each launched new television networks.
The affiliation by a television station with one of the four major networks
has a significant impact on the composition of the station's programming,
revenues, expenses and operations. A typical network affiliate receives the
majority of each day's programming from the network. This programming, along
with cash payments (referred to in the industry as "network compensation"), is
provided to the affiliate by the network in exchange for a substantial majority
of the advertising time sold during the airing of network programs. The network
then sells this advertising time for its own account. The affiliate retains the
revenues from advertising time sold adjoining network programs and during
programs produced by the affiliate or purchased from non-network sources. In
acquiring programming to supplement programming supplied by the affiliated
network, network affiliates compete primarily with other affiliates and
independent stations in their markets. Cable systems generally do not compete
with local stations for programming, although various national cable networks
from time to time have acquired programs that would have otherwise been offered
to local television stations.
In contrast to a station affiliated with one of the major networks, an
independent station purchases or produces all of the programming that it
broadcasts, resulting in generally higher programming costs. The
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independent station may, however, retain its entire inventory of advertising
time and all of the revenues obtained therefrom. However, under barter
arrangements, which are becoming increasingly popular with network affiliates
and independents alike, a national program distributor may receive advertising
time in exchange for the programming it supplies, with the station paying a
reduced fee for such programming.
In May 1994, New World Communications Group announced plans to switch up to
twelve of its current or planned network-affiliated stations to the Fox
network. Eight of such stations were affiliated with CBS, representing
approximately 10% of the CBS viewing audience. A great deal of switching
activity then ensued among the networks to regain lost markets. Scripps-Howard
Broadcasting Co. entered into a ten-year affiliation agreement with ABC for
five of its stations, including two of its UHF stations in markets that were
lost by ABC to Fox. Meredith Corp. switched two of its stations, one an
independent and one an NBC affiliate, to CBS as part of CBS's effort to replace
lost markets. In July 1994, CBS entered into ten-year affiliation agreements
with three stations owned by Westinghouse Electric Corp.'s Group W broadcasting
unit in the cities of Boston, Philadelphia and Baltimore, replacing two NBC
affiliates and one ABC affiliate, respectively, in those markets. These
developments are part of a continuing trend of affiliation realignments and
long-term strategic relationships occurring in various markets around the
country. Providence Journal believes that these developments have increased the
willingness of certain networks to extend the term of, or provide other
benefits in connection with, affiliation agreements. Providence Journal has
recently reached agreement with NBC to extend its affiliation agreements
(covering five of Providence Journal's Stations) for seven years. This re-
alignment has had no direct effect on any of the Stations.
THE STATIONS
The following table sets forth general information for each of the Stations
and the markets they serve, based on July 1994 Nielsen audience surveys. The
Stations are listed in order of their 1993 market revenues.
<TABLE>
<CAPTION>
NUMBER OF 1993
COMMERCIAL TV STATION MARKET
CHANNEL/ DMA STATIONS IN RANK IN STATION REVENUE(5)
STATION/MARKET AREA AFFILIATION FREQUENCY RANK(1) MARKET(2) MARKET(3) SHARE(4) (IN THOUSANDS)
- ------------------- ----------- --------- ------- ------------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
KING*................... NBC 5/VHF 12 10 1 23 $213,831
Seattle, WA
KGW*.................... NBC 8/VHF 25 7 3 18 117,020
Portland, OR
WCNC.................... NBC 36/UHF 28 6 3 9 92,267
Charlotte, NC
WHAS.................... ABC 11/VHF 50 5 1 22 66,829
Louisville, KY
KHNL*................... Fox 13/VHF 69 9 3 10 56,912
Honolulu, HI
KASA.................... Fox 2/VHF 49 10 4 8 56,246
Albuquerque, NM
KMSB.................... Fox 11/VHF 81 6 1 9 39,975
Tucson, AZ
KREM*................... CBS 2/VHF 75 4 1 22 36,930
Spokane, WA
KTVB*................... NBC 7/VHF 125 5 1 27 $ 19,762
Boise, ID
</TABLE>
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- --------
* These Stations are owned 50% by the Kelso Partnerships, whose interest will
be purchased by Providence Journal in the Kelso Buyout. (See "Pre-Merger
Transactions--Kelso Buyout".)
(1) Ranking of DMA served by the Station among all DMAs, measured by the number
of television households.
(2) Represents the number of television stations broadcasting in the DMA,
excluding public stations. Does not include national cable channels.
(3) Ranking of the Stations among all commercial television broadcast stations
in its DMA, measured by station Nielsen share.
(4) Represents the number of television sets tuned to the Station as a
percentage of the number of television sets in use for Sunday-Saturday 7:00
a.m.-1:00 a.m.
(5) Represents gross national, local, regional and political revenues,
excluding network and barter revenues, for all commercial television
stations in the DMA, based on actual local market reporting, as compiled by
independent public accounting firms and reported by Nielsen.
KING-SEATTLE, WA. KING operates in the Seattle/Tacoma market, the twelfth
largest television market in the United States, with approximately 1.43 million
television households and a population of approximately 3.7 million. In 1993,
the Seattle/Tacoma market totaled approximately $31 billion in retail sales.
There are ten licensed commercial television stations in Seattle/Tacoma (five
VHF stations and five UHF stations) and two public stations. Three network
affiliates are VHF (including KING), one network affiliate is UHF, two
independents are VHF and the other four independents are UHF. KING has been an
NBC affiliate since 1959, and its current affiliation agreement expires in
2001.
KING maintains a strong community focus, which is demonstrated through an
unusually high level of locally-produced programming, editorials and public
affairs programs and campaigns. The quality of these programs has earned KING
numerous national and local awards in the areas of entertainment, news,
education and public service. In 1992, KING was recognized as "Station of the
Year" by the Broadcast Pioneers, an organization of broadcasters.
Seattle is experiencing steady growth. The greater Seattle area continues to
attract a healthy and diverse mix of economic entities that employ an equally
diverse workforce in all trades, professions and positions. The headquarters of
numerous major companies, including the Boeing Company, Microsoft Corporation
and the Weyerhaeuser Company, are located in Seattle.
KGW-PORTLAND, OR. KGW operates in the Portland market, the twenty-fifth
largest television market in the United States, with approximately 900,000
television households and a population of approximately 2.3 million. In 1993,
the Portland market totaled approximately $19 billion in retail sales. There
are seven licensed commercial television stations in the Portland market (four
VHF stations and three UHF stations) and one public station. Three network
affiliates are VHF (including KGW), the Fox station is UHF, one independent
station is VHF and the other two independent stations are UHF. KGW has been an
NBC affiliate since 1959, and its current affiliation agreement expires in
2001.
KGW's news, public affairs, documentaries and special campaigns are well
recognized, and the Station's coverage of the Portland Rose Festival is
distributed to stations throughout the West. The Station's tradition of
community service has resulted in the receipt of numerous awards. In 1994,
KGW's "News 8" captured five first place honors at the Oregon Associated Press
Broadcasters Awards, making it the most honored television news station in its
division.
Portland's strategic location, growing and diversified economy, superior
transportation services and abundant low-cost land zoned for business all
contribute to the growing number of businesses moving to the area. More than
3,000 manufacturing firms and 400 high technology companies are located in the
Portland area. The Port of Portland is also a leading international trade port,
importing and exporting a wide range of goods.
WCNC-CHARLOTTE, NC. WCNC operates in the Charlotte market, the twenty-eighth
largest television market in the United States, with approximately 775,000
television households and a population of
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approximately 2 million. In 1993, the Charlotte market totaled approximately
$14.7 billion in retail sales. There are six licensed commercial television
stations in Charlotte (two VHF and four UHF stations) and one public station.
Two network affiliates are VHF stations, two network affiliates are UHF
stations (including WCNC), and two independent stations are UHF stations. WCNC
has been an NBC affiliate since 1967, and its current affiliation agreement
expires in 2001.
WCNC has received numerous awards for service to its community, including the
Salvation Army Media Award, the Leukemia Society Excellence Award and the
Mothers Against Drunk Driving Community Education and Information Award.
Charlotte is a regional banking and insurance center, with NationsBank and
First Union Bank headquartered there. The Carolina Panthers, a new National
Football League franchise team, will be in Charlotte starting in August of
1995. A new stadium for the team will be opened in August, 1996 in downtown
Charlotte. The Station may carry a limited number of the Panther games.
WHAS-LOUISVILLE, KY. WHAS operates in the Louisville market, the fiftieth
largest television market in the United States, with approximately 533,000
television households and a population of approximately 1.4 million. In 1993,
the Louisville market totaled approximately $10.2 billion in retail sales.
There are five licensed commercial television stations in Louisville (two VHF
and three UHF stations) and one public station. Two network stations are VHF
(including WHAS), two network stations are UHF and the one independent station
is UHF. WHAS has been an ABC affiliate since 1990, and its current affiliation
agreement expires in September, 1995.
WHAS is a market leader in community service as well as in news ratings and
programming success. The WHAS Crusade for Children, the station's fund-raiser
for agencies which help special needs children, raised a record $3.7 million in
1994. The Station's news department won nearly every first place Associated
Press award in 1994, including Best Overall News Operation for the third year
in a row.
The Louisville economy continues its rapid growth, rising steadily since
1991. Unemployment is at 4.2%, or 1.5% lower than the national average.
Louisville continues to attract service industry headquarters to enhance its
traditional manufacturing base.
KHNL-HONOLULU, HI. KHNL operates in the Honolulu market, the sixty-ninth
largest market in the United States, with approximately 374,000 television
households and a population of approximately 1.1 million. In 1993, the Honolulu
market totaled approximately $12.1 billion in retail sales. There are nine
licensed commercial television stations in Honolulu (four VHF stations and five
UHF stations) and one public station. Three network stations are VHF and one
network station is UHF. One independent station is VHF (KHNL) and four
independent stations are UHF. KHNL has been a Fox affiliate since 1987 but will
become an NBC affiliate in 1995, and its affiliation agreement with NBC expires
in 2002.
KHNL has a strong sports orientation and averages over one hundred live
telecasts, many of which are satellite-fed to the mainland and presented on
Prime Ticket or Sports Channel. The Station has an exclusive contract for the
presentation of University of Hawaii sports events. KHNL currently carries no
local news but serves the Hawaiian market with regular specials and
documentaries, programs and campaigns directed toward youth and a strong focus
on the cultural heritage of the Hawaiian Islands.
Honolulu's economy is supported principally by tourism, sugar refining,
pineapple plantations and defense. The climate and natural environment make the
Hawaiian Islands a premier vacation destination. The tourist industry is
Hawaii's primary source of external income. In 1993 more than 6.1 million
visitors spent approximately $8.7 billion dollars in Hawaii.
For a description of the local marketing agreement relating to KHNL, see
"Local Marketing Agreements".
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KASA-ALBUQUERQUE/SANTA FE, NM. KASA operates in the Albuquerque/Santa Fe
market, the forty-ninth largest television market in the United States, with
approximately 530,000 television households and a population of 1.5 million. In
1993, the Albuquerque/Santa Fe market totaled approximately $10.4 billion in
retail sales. There are nine licensed commercial television stations in
Albuquerque/Santa Fe (four VHF stations and five UHF stations) and three public
stations. Three network affiliates are VHF stations (including KASA), two
network affiliates are UHF stations, one independent is a VHF station and three
independents are UHF stations. KASA has been a Fox affiliate since 1986, and
its current affiliation agreement expires in 1998.
KASA is the local sports and movie station, carrying on an exclusive basis
University of New Mexico football and basketball, as well as Western Athletic
Conference football and New Mexico State University basketball. KASA received
the award for "Promotion Affiliate of the Year" from the Fox network for the
1993-94 broadcast year.
The Albuquerque economy is growing at a solid pace, with retail sales up
significantly. Major employers include Sandia National Laboratory and Los
Alamos National Laboratory. In addition, Intel Corporation has a microchip
plant in the area, which was recently expanded to two million square feet.
Tourism is also important to the economy, particularly in Santa Fe.
KMSB-TUCSON, AZ. KMSB operates in the Tucson market, the eighty-first largest
television market in the United States, with approximately 323,000 television
households and a population of approximately 830,000. In 1993, the Tucson
market totaled approximately $6.2 billion in retail sales. There are six
licensed commercial television stations in Tucson (three VHF stations and three
UHF stations) and two public stations. Three network affiliates are VHF
stations (including KMSB), two network affiliates are UHF stations, and one
independent station is a UHF station. KMSB has been a Fox affiliate since 1986,
and its current affiliation agreement expires in 1998.
KMSB has positioned itself as the local sports and movie station. The Station
has a contract with the University of Arizona to telecast its athletic events,
including football, basketball, baseball and certain other sports. KMSB is also
active in community service. In October 1994, the Station was honored by "Time
for Tucson" for producing and airing a telethon which raised pledges from
companies and individuals to commit 650,000 hours of their time in support of
activities that would strengthen families and the community.
The Tucson economy is enjoying strong growth, spurred by the relocation of
more than three thousand employees of the Hughes Missile Division to the Tucson
market, but also supported by growth in the health/biochemical, optics,
computer software and environmental technology industries.
For a description of the local marketing agreement relating to KMSB, see
"Local Marketing Agreements".
KREM-SPOKANE, WA. KREM operates in the Spokane market, the seventy-fifth
largest television market in the United States, with approximately 342,000
television households and a population of approximately 890,000. In 1993, the
Spokane market totaled approximately $6.5 billion in retail sales. There are
four licensed commercial television stations in Spokane (three VHF stations and
one UHF station) and three public stations. Three network affiliates are VHF
stations (including KREM) and the Fox affiliate is a UHF station. KREM has been
a CBS affiliate since 1977, and its current affiliation agreement expires in
1996.
KREM has a strong tradition of service to the Spokane market and the vast
additional area that it serves, known as the Inland Empire. KREM is Spokane's
news leader and presents the market's only local early morning and noon
newscasts.
Spokane is the largest city in the United States between Seattle and
Minneapolis and north of Salt Lake City. Since its founding, Spokane has been
the economic and civic capital of the geographic region known as the Inland
Empire. Spokane has long been a leading presence in agriculture. In 1989, an
International Ag-Trade Center opened focusing the international marketplace's
attention on Spokane and Inland Empire commodities. The Spokane economy is also
dependent on service industries, wholesale and retail trade.
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KTVB-BOISE, ID. KTVB operates in the Boise market, the one hundred twenty-
fifth largest television market in the United States, with approximately
167,000 television households and a population of 452,000. In 1993, the Boise
market totaled approximately $3.1 billion in retail sales. There are five
licensed commercial television stations in Boise (all VHF stations) and one
public station. KTVB has been an NBC affiliate since 1953, and its current
affiliation agreement expires in 2001. KTVB's programming is simulcast through
its low power television station, KTFT-LP, located in Twin Falls, Idaho.
KTVB is the market leader in Boise, with news ratings and audience shares
which are more than double those of its nearest competitor as reported by
Nielsen. The Station also has an ambitious public affairs schedule with weekly
viewpoint programs and quarterly town hall live telecasts. KTVB's
accomplishments in news and public service are regularly recognized with local
and regional awards by the United Press, the Idaho Press Club and the Idaho
State Broadcasters Association.
Located in Southwest Idaho, Boise offers a unique balance of business,
government, cultural, and recreational opportunities. Several major national
and international corporations have chosen Boise for their headquarters. These
companies represent approximately $20.0 billion in annual sales and employ over
8,000 people. The city also has many other supporting and related businesses.
The Boise economy is dependent on agriculture, mining, timber products,
services, government, and corporate headquarters of various companies.
COMPETITION IN THE TELEVISION INDUSTRY
Competition in the television industry takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors that are material to a
television station's competitive position include signal coverage and assigned
frequency. The broadcasting industry is continually faced with technological
change and innovation, the possible rise in popularity of competing
entertainment and communications media, and governmental restrictions or
actions of federal regulatory bodies, including the FCC and the Federal Trade
Commission, any of which could have a material effect on the PJC Broadcasting
Business.
AUDIENCE. Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A majority of the daily
programming on the Stations is supplied by the network with which each Station
is affiliated. In those time periods, the Stations are totally dependent upon
the performance of the network programs in attracting viewers. There can be no
assurance that such programming will achieve or maintain satisfactory
viewership levels in the future. Non-network time periods are programmed by the
Station with a combination of self-produced news, public affairs and other
entertainment programming, including news and syndicated programs purchased for
cash, cash and barter, or barter only.
Independent stations, whose number has increased significantly over the past
decade, have also emerged as viable competitors for television viewership. Each
of Warner Brothers and Paramount has launched a new television network.
Providence Journal is unable to predict the effect, if any, that either network
will have on the future operating results of the PJC Broadcasting Business.
In addition, the development of methods of television transmission of video
programming other than over-the-air broadcasting, and in particular the growth
of cable television, has significantly altered competition for audience in the
television industry. These other transmission methods can increase competition
for a broadcasting station by bringing into its market distant broadcasting
signals not otherwise available to the station's audience and also by serving
as a distribution system for non-broadcast programming originated on the cable
system. Through the 1970s, television broadcasting enjoyed virtual dominance in
viewership and television advertising revenues because network-affiliated
stations competed only with each other in most local markets. Although cable
television systems were initially used to retransmit broadcast television
programming to paid subscribers in areas with poor broadcast signal reception,
significant increases in cable television penetration occurred throughout the
1970s and 1980s in areas that did not have signal reception problems. As the
technology of satellite program delivery to cable systems advanced in the late
1970s, development of programming for cable television accelerated
dramatically, resulting in the emergence
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of multiple, national-scale program alternatives and the rapid expansion of
cable television and higher subscriber growth rates. Historically, cable
operators have not sought to compete with broadcast stations for a share of the
local news audience. Recently, however, certain cable operators have elected to
compete for such audiences, and the increased competition could have an adverse
effect on the advertising revenues of the PJC Broadcasting Business.
Other sources of competition include home entertainment systems (including
VCR's and playback systems, videodiscs and television game devices), "wireless
cable" services, satellite master antenna television systems, low power
television stations, television translator stations and low-powered DBS video
distribution services. The stations also face competition from medium and high-
powered DBS services, which transmit programming directly to homes equipped
with special receiving antennas.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable channels and high-powered DBS (which commenced
operations in 1994), are expected to reduce the bandwidth required for
television signal transmission. These compression techniques, as well as other
technological developments, are applicable to all video delivery systems,
including over-the-air broadcasting, and have the potential to provide vastly
expanded programming to highly targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers for new
channels and encourage the development of increasingly specialized "niche"
programming. This ability to reach very narrowly defined audiences is expected
to alter the competitive dynamics for advertising expenditures. Providence
Journal is unable to predict the effect that these or other technological
changes will have on the broadcast television industry or the future results of
Providence Journal's operations.
PROGRAMMING. Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. The Stations compete against in-market broadcast station
competitors for exclusive access to off-network reruns (such as Roseanne) and
first-run product (such as Oprah) in their respective markets. Cable systems
generally do not compete with local stations for programming, although various
cable networks from time to time have acquired programs that might have
otherwise been purchased by local television stations. Competition for
exclusive news stories and features is also endemic to the television industry.
ADVERTISING. Advertising rates are based upon the size of the market in which
the Station operates, a program's popularity among the viewers that an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market served by the Station, the
availability of alternative advertising media in the market area, aggressive
and knowledgeable sales forces, and development of projects, features and
programs that tie advertiser messages to programming. In addition to competing
with other media outlets for audience share, the Stations also compete for
advertising revenues, which comprise their primary source of revenues. The
Stations compete for such advertising revenues with other television stations
in their respective markets, as well as with other advertising media, such as
newspapers, radio stations, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail and local cable systems.
Competition for advertising dollars in the broadcasting industry occurs
primarily within individual markets. The Stations are located in highly
competitive markets.
PROGRAMMING INVESTMENTS
Due in part to its position as a large commercial television group
broadcaster, Providence Journal has been provided with opportunities to invest
in programming joint ventures that it believes are not widely available.
Providence Journal has invested, and in the future intends to continue
selectively to invest, in programming joint ventures with the goal of gaining
greater control over sources of non-network programming, generating additional
profits and, in certain situations, obtaining successful non-network
programming on more attractive terms than would otherwise be available.
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Providence Journal is a limited partner with four other television group
broadcasters in Partners Stations Network, L.P. ("PSN"), a limited partnership
formed in early 1994 to develop and produce television programming for
broadcast on their own stations and for potential national distribution to
other television broadcast stations. The four other limited partners are
Malrite Communications Group, Inc., Pappas Telecasting Companies, Lin
Broadcasting and River City Broadcasting. Each limited partner has a 16%
interest, and the general partner, Lambert Television Management, Inc., has a
20% interest in PSN. The stations owned by PSN's five limited partners serve
markets accounting for approximately 20% of the television households in the
United States. Each of PSN's limited partners has a right of first access in
its respective television markets to the programs produced by PSN. Providence
Journal believes PSN to be a cost-effective testing ground for new programs and
a launch vehicle for successful syndicated programming. Before making a full-
season commitment to production, PSN will conduct short trials on its partners'
stations. Promising shows can then be introduced to a broader national
audience. PSN has produced and is currently testing several programs. As of
December 31, 1994, Providence Journal's total commitment, consisting of amounts
paid to date and current obligations, with respect to PSN, was approximately
$1.2 million. While the amount of its investments in programming joint ventures
has not been significant to date, Providence Journal anticipates that its
overall commitment to the production of television programming will increase in
the future.
Although Providence Journal's partners in PSN include experienced and
successful television program producers, Providence Journal has little
experience in selecting, developing, producing or investing in television
programs outside of local news and purchasing established syndicated
programming. The competition to produce successful television programming is
fierce, and many competitors in this area have substantially greater experience
and financial, creative and marketing resources than Providence Journal. Often
television programs created do not survive the pilot and testing phases and,
even among those that do, many do not attract sufficient audience share to be
successfully syndicated. There is no assurance that Providence Journal's
investment in PSN or future programming joint ventures will be profitable or
will result in lower overall programming costs. To the extent Providence
Journal commits broadcasting resources to air programming produced by such
joint ventures, Providence Journal may attract lower audience share compared to
programming that would otherwise have been broadcast, which could adversely
affect Providence Journal's revenues attributable to the PJC Broadcasting
Business.
LOCAL MARKETING AGREEMENTS
Independent stations sometimes do not have the management expertise or
operating efficiencies available to Providence Journal as a multiple-station
group broadcaster. Accordingly, these stand-alone stations often operate at
minimal profit or at a loss. In two of its markets, Providence Journal has
entered into local marketing agreements ("LMA's") with the owners of such
stand-alone stations pursuant to which Providence Journal provides operational
and marketing services and programming to such stations for its own account
(subject to certain FCC requirements regarding licensee control of the station)
and pays the station owner an agreed upon fee. In addition to providing
Providence Journal with an additional revenue stream, Providence Journal's LMA
strategy is intended to permit stations that otherwise might "go dark" or
operate marginally to add programming and public affairs coverage and
contribute to diversity in their respective markets.
Providence Journal entered into 10-year LMA's, pursuant to which it provides
marketing services and programming with KFVE-TV in Honolulu, Hawaii and KTTU-TV
in Tucson, Arizona in 1993 and 1991, respectively. Under its LMA in Tucson,
Providence Journal is required to pay a fixed periodic fee and incur
programming and operating costs relating to the LMA station, but retains all
advertising revenues. Under its LMA in Honolulu, Providence Journal incurs
programming and most operating costs and is required to pay a percentage of
revenue but retains all remaining revenue. Providence Journal believes that it
can significantly increase the likelihood of financial viability of the
stations served pursuant to an LMA by using Providence Journal's negotiating
expertise, operating efficiencies, including shared employees, and an
experienced and skilled management team, which will provide programming and
marketing support to the LMA stations. Providence Journal may also benefit from
the cross-marketing of programming, or the ability to time-shift
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certain programming, for example, to rebroadcast a local news program at an
earlier or later time to appeal to additional viewers. In consultation with the
LMA station owners, Providence Journal in 1994 arranged for these stations to
become affiliates of the new Paramount network.
OPERATING STRATEGY
Providence Journal's operating strategy for the PJC Broadcasting Business
focuses on increasing the operating income of the Stations through advertising
revenue growth and strict control of programming and operating costs. The
components of this strategy include the following:
TARGETED MARKETING. Providence Journal seeks to increase its advertising
revenues and broadcast operating income by expanding relationships with local
and national advertisers and attracting new advertisers through targeted
marketing techniques and carefully tailored programming. Providence Journal
works closely with advertisers to develop campaigns that match specifically
targeted audience segments with the advertisers' overall marketing strategies.
With this information, Providence Journal regularly refines its programming mix
among network, syndicated and locally-produced shows in a focused effort to
attract audiences with demographic characteristics desirable to advertisers.
STRONG LOCAL PRESENCE. Each Station seeks to achieve a distinct local
identity principally through the quality of its local news programming (except
for its three Fox affiliates, which do not provide news programming) and by
targeting specific audience groups with special programs and marketing events.
Each Station's local news franchise is the foundation of Providence Journal's
strategy to strengthen audience loyalty and increase revenue and broadcast
operating income for each Station. Strong local news generates high viewership
and results in higher ratings both for programs preceding and following the
news. In addition to local news, each Station utilizes special programming and
marketing events, such as prime time programming of local interest or sponsored
community events, to strengthen community relations and increase advertising
revenues. Providence Journal places a special emphasis on developing and
training its local sales staff to promote involvement in community affairs and
stimulate growth of local advertising sales.
PROGRAMMING. Providence Journal continually reviews its existing programming
inventory and seeks to purchase the most profitable and cost-effective
syndicated programs available for each time period. In developing its selection
of syndicated programming, management balances the cost of available syndicated
programs, their potential to increase advertising revenue and the risk of
reduced popularity during the term of the program contract. Providence Journal
seeks to purchase only those programs with contractual periods that permit
programming flexibility and which complement a Station's overall programming
strategy and counter competitive programming. Programs that can perform
successfully in more than one time period are more attractive due to the long
lead time and multi-year commitments inherent in program purchasing.
COST CONTROLS. Each Station emphasizes strict control of its programming and
operating costs as an essential factor in increasing broadcast operating
income. Providence Journal relies primarily on its in-house capabilities and
seeks to minimize its use of outside firms and consultants. Providence
Journal's size benefits each Station in negotiating favorable terms with
programming suppliers and other vendors. In addition, each Station reduces its
corporate overhead costs by utilizing the group benefits provided by Providence
Journal for all of the Stations, such as insurance and other employee group
benefit plans. Through strategic planning and annual budget processes,
Providence Journal continually seeks to identify and implement cost saving
opportunities at each of the Stations. Providence Journal closely monitors the
expenses incurred by each of the Stations and continually reviews the
performance and productivity of station personnel. Providence Journal has been
successful in reducing its costs without sacrificing revenues through efficient
use of its available resources.
ACQUISITION STRATEGY
Providence Journal believes that its ability to manage costs effectively
while enhancing the quality demanded by station viewers gives Providence
Journal an important advantage in acquiring and operating new stations. In
assessing acquisitions, Providence Journal targets stations for which it has
identified line
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item expense reductions that can be implemented upon acquisition. Providence
Journal emphasizes strict controls over operating expenses as it expands a
Station's revenue base with the goal of improving a Station's broadcast
operating income. Typical cost savings arise from reducing staffing levels,
substituting employee benefit programs, reducing dependence on outside
consultants and research firms and reducing travel and other non-essential
expenses. Providence Journal also develops specific proposals for revenue
enhancement utilizing management's significant experience in local and national
advertising.
Providence Journal plans to pursue favorable acquisition opportunities as
they become available. At such time that Providence Journal has acquired the
full number of stations it is permitted to own pursuant to FCC regulations,
Providence Journal's continued growth will be a function of its development of
its existing Stations, the substitution of stations in larger markets for
Providence Journal's smaller market Stations as a result of acquisitions and
divestitures, and additional acquisitions that may occur if the FCC expands the
number of stations that an operator may own. (See "Licensing and Regulation".)
There can be no assurances that further acquisitions will be consummated.
LICENSING AND REGULATION
The following is a brief discussion of certain provisions of the
Communications Act and of FCC regulations and policies that affect the PJC
Broadcasting Business. Reference should be made to the Communications Act, FCC
rules and the public notices and rulings of the FCC, on which this discussion
is based, for further information concerning the nature and extent of FCC
regulation of television broadcasting stations.
LICENSE RENEWAL, ASSIGNMENTS AND TRANSFERS. Television broadcasting licenses
are granted for a maximum of five years and are subject to renewal upon
application to the FCC. The FCC prohibits the assignment of a license or the
transfer of control of a broadcasting license without prior FCC approval. In
determining whether to grant or renew a broadcasting license, the FCC considers
a number of factors pertaining to the applicant, including compliance with
limitations on alien ownership, common ownership of broadcasting, cable and
newspaper properties, and compliance with character and technical standards.
During certain limited periods when a renewal application is pending, competing
applicants may file applications with the FCC for authorization to broadcast on
the television frequency being used by the renewal applicant. During the same
periods, petitions to deny license renewal may be filed by interested parties,
including members of the public. Such petitions may raise various issues before
the FCC. The FCC is required to hold evidentiary, trial-type hearings on
renewal applications if a competing application is filed against a renewal
application, or if a petition to deny renewal of such license raises a
"substantial and material question of fact" as to whether the grant of the
renewal application would be inconsistent with the public interest, convenience
and necessity.
MULTIPLE OWNERSHIP RULES AND CROSS OWNERSHIP RESTRICTIONS. On a national
level, the FCC rules generally prevent an entity or individual from having an
attributable interest in more than 12 regular television stations. On a local
level, the "duopoly" rules prohibit such interests in two or more television
stations with overlapping service areas. Additional cross-ownership
restrictions generally prohibit new television/radio, broadcast/daily newspaper
or television/cable combinations in the same market. The FCC generally applies
its ownership limits to "attributable" interests held by an individual,
corporation, partnership or other association. In the case of corporations
holding broadcast licenses, the interests of officers, directors and those who,
directly or indirectly, have the right to vote 5% or more of the corporation's
voting stock (or 10% or more of such stock in the case of insurance companies,
mutual funds, bank trust departments and certain other passive investors that
are holding stock for investment purposes only) are generally deemed to be
attributable, as are positions as an officer or director of a corporate parent
of a broadcast licensee.
Because of these multiple ownership rules and cross-ownership restrictions, a
purchaser of Providence Journal Common Stock who acquires an attributable
interest in Providence Journal may violate the FCC's rules if that purchaser
also has an attributable interest in other television or radio stations, or in
daily newspapers, depending on the number and location of those radio or
television stations or daily newspapers.
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Such a purchaser also may be restricted in the companies in which it may invest
to the extent that those investments give rise to an attributable interest. If
an attributable stockholder of Providence Journal violates any of these
ownership rules or if a proposed acquisition by Providence Journal would cause
such a violation, Providence Journal may be unable to obtain from the FCC one
or more authorizations needed to conduct the PJC Broadcasting Business and may
be unable to obtain FCC consents for certain future acquisitions. These
multiple ownership rules and cross-ownership restrictions will impose the same
restrictions on holders of New Providence Journal Common Stock as those imposed
on holders of Providence Journal Common Stock.
The FCC has initiated rule-making proceedings to consider proposals to relax
its television ownership restrictions, including ones that would permit the
ownership in some circumstances of two television stations with overlapping
services areas. The FCC may also consider in these proceedings whether to adopt
new restrictions on television LMAs. If the FCC were to decide that the
provider of services under an LMA should be treated as the owner of the station
and if it did not relax the duopoly rules, or if the FCC were to announce new
restrictions on LMAs, Providence Journal would be required to modify or
terminate its LMAs. Further, if the FCC were to find that one of Providence
Journal's LMA stations failed to maintain control over its operations, the
licensee of the LMA station and/or Providence Journal could be subject to
sanctions. Providence Journal is unable to predict the ultimate outcome of
possible changes to these FCC rules and the impact such changes may have on its
broadcasting operations.
ALIEN OWNERSHIP. Under the Communications Act, broadcast licenses may not be
granted to or held by any corporation having more than one-fifth of its capital
stock owned of record or voted by non-U.S. citizens (including a non-U.S.
corporation), foreign governments or their representatives (collectively,
"Aliens") or having an Alien as an officer or director. The Communications Act
also prohibits a corporation, without an FCC public interest finding, from
holding a broadcast license if that corporation is controlled, directly or
indirectly, by another corporation, any officer of which is an Alien, or more
than one-fourth of the directors of which are Alien, or more than one-fourth of
the capital stock of which is owned of record or voted by Aliens. The FCC has
issued interpretations of existing law under which these restrictions in
modified form apply to other forms of business organizations, including general
and limited partnerships. As a result of these provisions, Providence Journal,
which serves as a holding company for its various television station licensee
subsidiaries, cannot have more than 25% of its capital stock owned of record or
voted by Aliens, cannot have an officer who is an Alien and cannot have more
than one-fourth of the Providence Journal Board consisting of Aliens.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually relaxed or
eliminated many of the more formalized procedures it had developed to promote
the broadcast of certain types of programming responsive to the needs of a
station's community of license. Broadcast station licensees continued, however,
to be required to present programming that is responsive to community problems,
needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from viewers concerning a station's programming may
be considered by the FCC when it evaluates license renewal applications,
although such complaints may be filed, and generally may be considered by the
FCC, at any time. Stations also must follow various rules promulgated under the
Communications Act that regulate, among other things, children's television
programming, political advertising, sponsorship identifications, contest and
lottery advertising, obscene and indecent broadcasts, and technical operations,
including limits on radio frequency radiation. In addition, broadcast licensees
must develop and implement affirmative action programs designed to promote
equal employment opportunities, and must submit reports to the FCC with respect
to these matters on an annual basis and in connection with a license renewal
application.
SYNDICATED EXCLUSIVITY/TERRITORIAL EXCLUSIVITY. Effective January 1, 1990,
the FCC reimposed syndicated exclusivity rules and expanded the existing
network non-duplication rules. The syndicated exclusivity rules allow local
broadcast stations to require that cable operators black out certain
syndicated, non-network programming carried on "distant signals" (i.e., signals
of broadcast stations, including so-called
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superstations, that serve areas substantially removed from the local
community). The network non-duplication rules allow local broadcast network
affiliates to demand that cable television operators black out duplicative
network broadcast programming carried on more distant signals.
PRIME TIME ACCESS RULE. The FCC's prime time access rule (the "PTAR") also
places programming restrictions on affiliates of "networks". The PTAR restricts
affiliates of "networks" in the 50 largest television markets (as defined by
the PTAR) from broadcasting more than three hours of network programming during
the four hours of prime time. Five of the Stations are located in the nation's
50 largest television markets. The FCC has commenced a rule-making proceeding
to modify the PTAR so as to permit the broadcast, during prime time, of
programs originally broadcast by television networks. The FCC has not yet
decided whether it will modify the PTAR. Providence Journal cannot predict
whether the PTAR will be modified or eliminated or the effect any modification
or elimination of the PTAR would have on Providence Journal's programming or
operations.
RESTRICTIONS ON BROADCAST ADVERTISING. The advertising of cigarettes on
broadcast stations has been banned for many years. The broadcast advertising of
smokeless tobacco products has more recently been banned by Congress. Certain
Congressional committees have examined legislative proposals to eliminate or
severely restrict the advertising of beer and wine. Providence Journal cannot
predict whether any or all of the present proposals will be enacted into law
and, if so, what the final form of such law might be. The elimination of all
beer and wine advertising would have an adverse effect on the Stations'
revenues and operating income as well as the revenues and operating income of
other stations that carry beer and wine advertising.
OTHER PROGRAMMING RESTRICTIONS. Several bills previously introduced in
Congress have proposed to regulate or limit television programming involving
the depiction of violence. Such proposals would regulate such programming by,
for example, restricting the hours within which it can be broadcast, penalizing
broadcasters for excessive broadcasting of violence, or requiring the insertion
of a "chip" in television receivers that would permit television viewers to
block the reception of any program containing a required code indicating
violent content. Providence Journal cannot predict whether any such legislation
will become law or whether the passage of such laws would have any significant
effect on the operations of the PJC Broadcasting Business.
CABLE "MUST-CARRY" OR "RETRANSMISSION CONSENT" RIGHTS. The 1992 Cable Act
requires television broadcasters to make an election to exercise either certain
"must-carry" or "retransmission consent" rights in connection with their
carriage by cable television systems in the station's local market. If a
broadcaster chooses to exercise its must-carry rights, it may demand carriage
on a specified channel on cable systems within its DMA. Must-carry rights are
not absolute, and their exercise is dependent on variables such as the number
of activated channels on and the location and size of the cable system and the
amount of duplicative programming on a broadcast station. Under certain
circumstances, a cable system may decline to carry a given station. If a
broadcaster chooses to exercise its retransmission consent rights, it may
prohibit cable systems from carrying its signal, or permit carriage under a
negotiated compensation arrangement.
On April 8, 1993, a three-judge panel of the United States District Court for
the District of Columbia upheld the constitutionality of the must-carry
provisions of the 1992 Cable Act. In 1994, the Supreme Court ruled that the
must-carry provisions were "content neutral" and thus not subject to strict
scrutiny and that Congress' stated interests in preserving the benefits of
free, over-the-air local broadcast television, promoting the widespread
dissemination of information from a multiplicity of sources and promoting fair
competition in the market for television programming all qualify as important
governmental interests. However, the Court remanded the case to a lower federal
court with instructions to hold further proceedings with respect to evidence
that lack of the must-carry requirements would harm local broadcasting.
Failure to observe FCC rules and policies, including, but not limited to,
those discussed above, can result in the imposition of various sanctions,
including monetary forfeitures, the grant of short (i.e., less than the full
five-year) license renewal terms or, for particularly egregious violations, the
denial of a license renewal application or the revocation of a license.
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PROPOSED LEGISLATION AND REGULATIONS. The FCC has proposed the adoption of
rules for implementing Advanced Television ("ATV") in the United States.
Implementation of ATV will improve the technical quality of over-the-air
broadcast television. Under certain circumstances, however, conversion to ATV
operations may reduce a station's geographical coverage area. The FCC is
considering the implementation of a proposal that would allot a second
broadcast channel to each regular commercial television station for ATV
operation. Stations would be required to phase in their ATV operations on the
second channel, with a three-year period to build necessary ATV facilities and
a consecutive three-year period in which to begin operations. Such stations
would be required to surrender their non-ATV channel 15 years after the
commencement of the first three-year period. Implementation of ATV will impose
additional costs on television stations providing the new service due to
increased equipment costs. Providence Journal estimates that the adoption of
ATV would require average capital expenditures of approximately $2 million per
Station to provide facilities necessary to broadcast an ATV signal. The
conversion of a Station's equipment enabling it to produce and transmit ATV
programming would be substantially more expensive. The introduction of this new
technology will require that consumers purchase new receivers (television sets)
for ATV signals or, if available by that time, adapters for their existing
receivers. While Providence Journal believes that the FCC will authorize ATV in
the United States, Providence Journal cannot predict when such authorization
might be given or the effect such authorization might have on the PJC
Broadcasting Business.
In addition, the FCC is conducting an inquiry to consider proposals to
increase broadcasters' obligations under its rules implementing the Children's
Television Act of 1990, which requires television stations to present
programming specifically directed to the "educational and informational" needs
of children. The FCC also is conducting a rule-making proceeding to consider
the adoption of more restrictive standards for the exposure of the public and
workers to potentially harmful radio frequency radiation emitted by broadcast
station transmitting facilities. Other matters that could affect the Stations
include technological innovations affecting the mass communications industry
such as technical allocation matters, including assignment by the FCC of
channels for additional broadcast stations, low-power television stations and
wireless cable systems and their relationship to and competition with full-
power television broadcasting service.
The FCC has initiated a Notice of Inquiry proceeding seeking comment on
whether the public interest would be served by establishing limits on the
amount of commercial matter broadcast by television stations. No prediction can
be made at this time as to whether the FCC will impose any commercial limits at
the conclusion of its deliberations. Providence Journal is unable to determine
what effect, if any, the imposition of limits on the commercial matter
broadcast by television stations would have on the operations of the PJC
Broadcasting Business.
Congress and the FCC also have under consideration, or may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of the PJC Broadcasting Business and the Stations, result in
the loss of audience share and advertising revenues of the Stations, and affect
Providence Journal's ability to acquire additional broadcast stations or
finance such acquisitions. Such matters include, for example, (i) changes to
the license renewal process; (ii) imposition of spectrum use or other
governmentally imposed fees upon a licensee; (iii) proposals to expand the
FCC's equal employment opportunity rules and other matters relating to minority
and female involvement in broadcasting; (iv) proposals to increase the
benchmarks or thresholds for attributing ownership interest in broadcast media;
(v) proposals to change rules or policies relating to political broadcasting;
(vi) technical and frequency allocation matters, including those relative to
the implementation of ATV; (vii) proposals to restrict or prohibit the
advertising of beer, wine and other alcoholic beverages on broadcast stations;
(viii) changes in the FCC's cross-interest, multiple ownership, alien ownership
and cross-ownership policies; (ix) changes to broadcast technical requirements;
(x) proposals to allow telephone companies to deliver video programming to the
home; and (xi) proposals to limit the tax deductibility of advertising expenses
by advertisers.
Providence Journal cannot predict what other matters might be considered in
the future, nor can it judge in advance what impact, if any, the implementation
of any of these proposals or changes might have on the PJC Broadcasting
Business.
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The foregoing does not purport to be a complete discussion of all of the
provisions of the Communications Act or other Congressional Acts or the
regulations and policies promulgated by the FCC thereunder. Reference is made
to the Communications Act, other Congressional Acts, such regulations, and the
public notices promulgated by the FCC, on which the foregoing discussion is
based, for further information. There are additional FCC regulations and
policies, and regulations and policies of other federal agencies, that govern
political broadcasts, public affairs programming, equal employment
opportunities and other areas affecting the Station's businesses and
operations.
EMPLOYEES
As of December 31, 1994, the operations of the PJC Broadcasting Business had
approximately 953 full-time employees and 112 part-time employees, of which 12
were employed as corporate headquarters staff members and the balance were
employed at the operating subsidiary level in connection with the operation and
management of the Stations. Three hundred five of such employees are
represented by labor unions. Providence Journal considers its relations with
the employees of the PJC Broadcasting Business to be good.
PROPERTIES
Providence Journal maintains its corporate headquarters in Providence, Rhode
Island. Each of the Stations has facilities consisting of offices, studios,
sales offices and transmitter and tower sites. Transmitter and tower sites are
located to provide coverage of each Station's market. Providence Journal owns
the offices where its Stations are located and owns the property where its
towers and primary transmitters are located. Providence Journal leases the
remaining properties, consisting primarily of sales office locations and
microwave transmitter sites. While none of the properties owned or leased by
Providence Journal is individually material to the operations of the PJC
Broadcasting Business, if Providence Journal were required to relocate any of
its towers the cost could be significant because the number of sites in any
geographic area that permit a tower of reasonable height to provide good
coverage of the market is limited, and zoning and other land use restrictions,
as well as Federal Aviation Administration regulations, limit the number of
alternative sites or increase the cost of acquiring such properties for tower
sites.
Providence Journal believes that its properties are generally in good
condition and adequate and suitable for the operations of the Stations and the
PJC Broadcasting Business. Providence Journal has not received any notice that
it is in default under any of its property leases.
93
<PAGE>
DESCRIPTION OF PROVIDENCE JOURNAL AND NEW PROVIDENCE JOURNAL
If the Providence Journal Proposals described in this Joint Proxy Statement-
Prospectus receive the requisite vote of stockholders of Providence Journal
and the other conditions to the Reorganization and the Merger are satisfied or
waived, the PJC Non-Cable Business (including both the PJC Publishing Business
and the PJC Broadcasting Business) will be transferred to New Providence
Journal and the shares of New Providence Journal will be transferred to the
present stockholders of Providence Journal in the PJC Spin-Off. The discussion
set forth below regarding Providence Journal also serves as a discussion of
New Providence Journal in the event the Reorganization, the Merger and the
transactions contemplated thereby are consummated.
OTHER INVESTMENTS AND ASSETS
THE FOOD CHANNEL. On August 16, 1993, Providence Journal, through various
subsidiaries, successfully organized TVFN. TVFN is a Delaware general
partnership consisting of eight cable television operators and programmers and
one broadcast television partner. As of April 1, 1995, Providence Journal has
a 20.4% interest in TVFN and is a general partner in the managing general
partner of TVFN. TVFN owns and operates The Food Channel, a 24-hour cable
programming channel devoted to food, its preparation and related topics. As of
March 1, 1995, The Food Channel was available to approximately 11.1 million
cable subscribers throughout the United States.
LINKATEL. Providence Journal, through a subsidiary, owns a 42% interest in
Linkatel, a California partnership formed in 1993 to build, own and operate a
fiber-optic telecommunications alternate access network in the Los Angeles
basin. The construction of the Linkatel network has commenced and the first
segment of this network is expected to be operational in the first half of
1995.
STARSIGHT. In 1993 Providence Journal purchased a 4.85% interest in
StarSight Telecast, Inc., ("StarSight") a company engaged in developing and
marketing an on-screen interactive television program guide designed to
facilitate the identification, selection and recording of television
programming. Jack C. Clifford, Vice President--Broadcasting and Cable
Television of Providence Journal, is a member of the Board of Directors of
StarSight. StarSight's shares are listed on NASDAQ.
VIDEO PROGRAMMING. Providence Journal is actively reviewing opportunities to
participate in the creation and development of new cable television
programming services. In general, New Providence Journal will seek to enter
into partnerships and other relationships with companies or individuals having
specialized expertise with regard to the content of the programming.
BILTMORE HOTEL. Providence Journal also owns the Omni Biltmore Hotel and the
adjoining Washington Street Garage, two operating properties located in
Providence, Rhode Island.
LEGAL PROCEEDINGS
Providence Journal currently and from time to time is involved in litigation
incidental to the conduct of its businesses. Providence Journal is not a party
to any lawsuit or proceeding that, in management's opinion, is likely to have
a material adverse effect on the financial condition or results of operations
of Providence Journal taken as a whole.
94
<PAGE>
CAPITALIZATION OF PROVIDENCE JOURNAL AND PRO FORMA CAPITALIZATION OF NEW
PROVIDENCE JOURNAL
The following table sets forth the capitalization of Providence Journal and
the pro forma capitalization of New Providence Journal at December 31, 1994
after giving effect to the Restructuring, the PJC Spin-Off, the Merger and the
transactions contemplated thereby described in the Notes to the Pro Forma
Condensed Consolidated Balance Sheet and Statements of Operations included
elsewhere in this Joint Proxy Statement-Prospectus. This table should be read
in conjunction with the Notes referred to above and Providence Journal's
historical consolidated financial statements and related notes thereto in this
Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------
NEW PROVIDENCE
PROVIDENCE JOURNAL JOURNAL
HISTORICAL PRO FORMA
------------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Debt, including current installments......... $260,761 $199,810
Stockholders' Equity:
Providence Journal Common Stock:
Class A Common Stock, par value $2.50 per
share; authorized 600,000 shares; issued
38,369 shares............................. 96
Class B Common Stock, par value $2.50 per
share; authorized 300,000 shares; issued
47,281 shares............................. 118
Treasury Stock, at cost, 961 shares........ (7,448)
New Providence Journal Common Stock:
Pro Forma:
Class A Common Stock, par value $1.00 per
share; authorized 600,000 shares; issued
and outstanding 38,689 shares............. 38
Class B Common Stock, par value $1.00 per
share; authorized 300,000 shares; issued
and outstanding 46,961.................... 47
Additional Capital......................... 1,225 7,354
Retained Earnings.......................... 291,791 234,422
Unrealized Gain on Securities held for
sale, net................................. 105 105
-------- --------
Total Stockholders' Equity............... 285,887 241,966
-------- --------
Total Capitalization................... $546,648 $441,776
======== ========
</TABLE>
95
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF PROVIDENCE JOURNAL
The following selected consolidated financial data has been derived from the
consolidated financial statements of Providence Journal. The data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Providence Journal" and the consolidated
financial statements and notes thereto. The Statement of Operations for the
years ended December 31, 1990, 1991, 1992, 1993 and 1994 and the balance sheet
data as of the same dates have been derived from the audited consolidated
financial statements of Providence Journal.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $169,840 $167,008 $173,579 $180,473 $192,291
Operating Loss......... (16,437) (31,793) (9,773) (15,859) (10,696)
Interest, Fees and
Other Income.......... 11,900 38,964 46,751 4,832 5,223
Interest Expense....... (15,701) (10,102) (6,455) (2,578) (2,426)
Equity in Loss of
Affiliates............ (1,313) (72) (11,328) (7,350) (10,962)
Income (Loss) from
Continuing Operations
before Income Taxes... (21,551) (3,003) 19,195 (20,955) (18,861)
Income (Loss) from
Continuing Operations. (13,248) (6,619) 7,358 (15,190) (21,228)
Income (Loss) Per
Common Share From
Continuing Operations. (132.26) (75.38) 85.53 (178.08) (250.09)
Cash Dividends Paid Per
Common Share.......... 39.00 86.00 94.60 104.00 114.40
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets................. $784,063 $594,098 $793,433 $775,685 $724,713
Net Assets of Discontinued
Cable Television Operations
included in Total Assets.... 36,924 39,603 380,385 385,165 354,923
Long-term Debt............... 28,568 28,608 253,106 276,601 247,173
Stockholders' Equity......... 460,321 399,938 391,967 359,575 285,887
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PROVIDENCE JOURNAL
GENERAL. Providence Journal's continuing operations consist primarily of two
business segments--the PJC Publishing Business and the PJC Broadcasting
Business. The PJC Publishing Business publishes a seven-day metropolitan
newspaper with an average daily and Sunday circulation of 185,700 and 267,800,
respectively. The newspaper serves Rhode Island and Southeastern Massachusetts.
The PJC Broadcasting Business owns or partially owns the nine Stations, which
are in nine different markets. Four of the Stations are wholly owned and five
are partially owned through the Providence Journal's 50% interest in KHC, which
owns KBC. (See "Description of Providence Journal Broadcast Television
Business--The Stations".)
In November 1994, Providence Journal announced a definitive agreement,
pursuant to which it agreed to consummate the Merger with Continental in a tax-
free transaction valued at approximately $1.4 billion. The Merger, which
requires various regulatory approvals, is expected to be completed in the
second half of 1995. Accordingly, the PJC Cable Business has been classified as
a discontinued operation for all periods presented.
In order to complete the Merger, Providence Journal will purchase the 50%
interest in KHC owned by the Kelso Partnerships for $265 million (including
transaction costs), thus resulting in KHC being wholly owned by Providence
Journal. (See "Pre-Merger Transactions--Kelso Buyout".) Control of KHC's cable
systems will then be transferred to Continental in the Merger, and KHC's
broadcast stations will be owned entirely by New Providence Journal. The
unaudited pro forma condensed consolidated statements of
96
<PAGE>
operations for New Providence Journal contained herein have been prepared
assuming these transactions occurred on January 1, 1993 and, accordingly,
reflect the combined results of Providence Journal and KHC's broadcast stations
for all pro forma periods presented.
Other investments in affiliated companies include a 21% interest in TVFN
which develops cable television programming related to food, its preparation
and related topics; a 42% interest in Linkatel, formed to pursue the
development of alternative access networks; and a 50% interest in
Copley/Colony, engaged in cable television operations. Providence Journal's
interest in Copley/Colony will be transferred to Continental in the Merger.
These and other smaller investments have been accounted for using the equity
method and, combined with Providence Journal's 50% interest in KHC, represented
a combined investment of $93.1 million as of December 31, 1994.
The following table summarizes the equity in income (loss) of affiliated
companies on a disaggregated basis:
<TABLE>
<CAPTION>
% % %
OWNERSHIP 1992 OWNERSHIP 1993 OWNERSHIP 1994
--------- -------- --------- ------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
KHC.............. 50 $(12,602) 50 $(7,245) 50 $ (8,326)
Copley/Colony.... 50 1,314 50 438 50 1,192
TVFN............. 20 (1,391) 21 (3,848)
Linkatel......... 33 (128) 42 (509)
Other............ (40) 976 529
-------- ------- --------
Total.......... $(11,328) $(7,350) $(10,962)
======== ======= ========
</TABLE>
DISCONTINUED OPERATIONS. As noted above, the PJC Cable Business is expected
to be acquired by Continental. Income (loss) from the PJC Cable Business along
with allocated interest expense and income taxes, but excluding equity in
losses of KHC's and Copley/Colony's cable businesses, is therefore reported as
a discontinued operation for all periods presented. No corporate overhead has
been allocated to discontinued operations. Additionally, Providence Journal
sold its remaining investments in its cellular system and its paging subsidiary
in April 1994 for $10.7 million, recording a gain of $1.4 million net of tax.
Income (loss) from these businesses is reported as a discontinued operation.
Operating results of these discontinued operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1992 1993 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................ $112,334 $177,417 $177,953
Income (Loss) Before Income Taxes............... 4,510 (8,581) (2,644)
Income Taxes (Benefits)......................... 2,955 (1,087) 1,155
Income (Loss) from Discontinued Operations...... 1,555 (7,494) (3,799)
</TABLE>
OTHER ASSETS. In September 1990, Providence Journal loaned the Lowell Sun
Companies approximately $26 million and agreed to provide a $6.5 million
revolving credit facility. The loan and revolving credit facility are available
through March 1996 and bear interest at a floating rate of prime plus 1.25%.
The loan is secured by all the assets of the Lowell Sun Companies and a pledge
of the Lowell Sun Companies' stock. Providence Journal does not manage the
Lowell Sun Companies. As additional consideration for making the loan, the
Lowell Sun Companies granted Providence Journal a warrant to acquire a 41.67%
interest in the Lowell Sun Companies. The warrant is exercisable through
September 1995. Providence Journal's management has made no determination as to
whether it will exercise this warrant.
97
<PAGE>
Providence Journal also owns the Omni Biltmore Hotel and the adjoining
Washington Street Garage, two operating properties located in Providence, Rhode
Island. The carrying amount of these properties totaled $17.2 million at
December 31, 1994.
CONSOLIDATED RESULTS OF OPERATIONS. The following table summarizes Providence
Journal's financial results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1992 1993 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Publishing....................................... $120,516 $124,914 $127,893
Broadcast Television (1) ........................ 43,281 45,506 54,024
Other............................................ 9,782 10,053 10,374
-------- -------- --------
173,579 180,473 192,291
-------- -------- --------
Operating Income (Loss):
Publishing....................................... 10,590 9,891 9,233
Broadcast Television (1) ........................ (5,276) (2,213) 5,576
Other............................................ (646) (2,651) 881
Corporate........................................ (14,441) (20,886) (26,386)
-------- -------- --------
(9,773) (15,859) (10,696)
Other Income (Expense):
Interest, Fees and Other Income.................. 46,751 4,832 5,223
Interest Expense................................. (6,455) (2,578) (2,426)
Equity in Loss of Affiliates..................... (11,328) (7,350) (10,962)
-------- -------- --------
28,968 (5,096) (8,165)
Income (Loss) from Continuing Operations Before
Income Taxes.................................... 19,195 (20,955) (18,861)
Income Taxes (Benefits).......................... 11,837 (5,765) 2,367
-------- -------- --------
Income (Loss) from Continuing Operations......... 7,358 (15,190) (21,228)
Income (Loss) from Discontinued Operations, Net
of Tax.......................................... 1,555 (7,494) (3,799)
Loss on disposal of segments, net of tax......... -- -- (34,764)
-------- -------- --------
Income (Loss) Before Extraordinary Item and
Changes in Accounting Methods................... 8,913 (22,684) (59,791)
Extraordinary Item, Net of Tax .................. -- 1,551 --
Cumulative Effect of Changes in Accounting
Methods, Net of Tax............................. 1,257 -- --
-------- -------- --------
Net Income (Loss)................................ $ 10,170 $(21,133) $(59,791)
======== ======== ========
</TABLE>
- --------
(1) Includes only those subsidiaries which are wholly owned.
The PJC Publishing Business and the PJC Broadcasting Business experience both
seasonal and cyclical fluctuations in their respective quarterly and annual
operating results. Net revenues are generally highest in the fourth quarter of
each year because of increased expenditures by advertisers in anticipation of
holiday retail spending. Expenses are generally spread evenly throughout the
year. On a year-to-year basis, political revenues are cyclical, with the
highest revenues generally occurring during major election years. In addition,
special events such as the summer or winter Olympics may benefit the PJC
Broadcasting Business through an increased amount of advertising during or
adjacent to such events at increased rates. The impact of such events will
depend on which network carries them and which of the Stations are affiliated
with that network. In general, the PJC Broadcasting Business benefits from
geographic diversity while the PJC Publishing Business is dependent upon the
Southeastern New England region.
98
<PAGE>
1994 COMPARED WITH 1993. Revenues increased 6.5% during 1994 showing modest
growth in the PJC Publishing Business and significant growth in the PJC
Broadcasting Business. Operating loss decreased 32.6% from $(15.9) million to
$(10.7) million. The PJC Broadcasting Business showed an operating profit of
$5.6 million in 1994, as compared with an operating loss of $(2.2) million in
1993, while the PJC Publishing Business showed a $0.7 million, or 6.7% decline
in operating profit during the comparable period.
Corporate overhead increased from $20.9 million to $26.4 million, primarily
because of increases associated with executive compensation programs. During
the fourth quarter of 1994, a charge to corporate overhead of $13 million for
executive compensation related stock and incentive unit plans was recorded.
Additional deferred compensation expense was accrued with respect to the
Incentive Stock Unit Plan for senior executives. The increased accrual resulted
from an increase in the amount reflected for the value of the Providence
Journal Class A Common Stock and the Providence Journal Class B Common Stock
from $8,700 per share (based on a November 1993 appraisal) to $12,000 per share
in November 1994 (an estimated value for accounting purposes without specific
appraisal support). (See "Executive Compensation--Providence Journal Incentive
Stock Unit Plan" and "Executive Compensation--Aggregated SAR Exercises in Last
Fiscal Year and Year-End SAR Values" table, footnote (1)).
Other expense, net increased from $(5.1) million in 1993 to $(8.2) million in
1994, resulting primarily from a $(3.6) million increase in equity in loss of
affiliates. During 1994, equity in loss of affiliates of $(11) million included
$(4.4) million in losses from two development operations--TVFN and Linkatel--as
compared to $(1.5) million in losses from these affiliates in 1993. These
start-up businesses are expected to be unprofitable for the foreseeable future.
(See the table under "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Providence Journal--General".)
Interest expense charged to continuing operations was $2.4 million, net of
allocation to discontinued operations of $20.7 in 1994. Interest allocated to
discontinued operations was limited to the associated interest on debt to be
repaid in connection with the Merger.
Loss from continuing operations was $(21.2) million in 1994 compared to
$(15.2) million in 1993, reflecting the fluctuations discussed above and an
increase in income taxes of $8.1 million. During the fourth quarter of 1994,
Providence Journal agreed to a final settlement with the Service relating to
examinations of its income tax returns for the years 1984 through 1986. In
connection with this settlement, Providence Journal provided for an additional
income tax expense of $6 million, relating primarily to interest on settlements
and various contingencies on income tax exposures identified during on-going
examinations.
Income (loss) from discontinued operations consists primarily of the
operating results of the majority owned cable businesses, which are expected to
be acquired by Continental in the Merger. The decrease from a loss of $(7.5)
million in 1993 to $(3.8) million in 1994 reflects improved operating results,
mainly due to lower depreciation and amortization charged on recently acquired
cable television businesses. Loss on disposal of segments, of $(34.8) million
net of tax, includes severance, transaction costs and a provision for loss
during the phase-out period, including allocated interest.
1993 Compared with 1992. Revenues grew 4.0% between years showing modest
growth in both the PJC Publishing Business and the PJC Broadcasting Business.
Operating loss increased 62.2% from $(9.8) to $(15.9) million. The PJC
Broadcasting Business showed a substantial decrease in operating loss, from
$(5.3) million in 1992 to $(2.2) million in 1993, while the PJC Publishing
Business showed a $0.7 million or 6.6% decline in operating profit during the
comparable period. Also in 1992 and 1993, valuation adjustments based upon
appraised property values and discounted cash flow analyses were recorded
totaling $(.6) million and $(2.7) million respectively, which related to the
Omni Biltmore Hotel and adjoining Washington Street Garage.
Also contributing to the increase in operating loss was a $6.4 million or
44.6% increase in corporate overhead associated primarily with executive
compensation programs. During the fourth quarter of 1993, a charge to corporate
overhead of $4.8 million for executive compensation related stock and
retirement plans was recorded. Providence Journal established a Restricted
Stock Unit Plan for key executives in the fourth
99
<PAGE>
quarter of 1993. Also, additional deferred compensation was accrued in
connection with the Incentive Stock Unit Plan for senior executives because the
appraised value of Providence Journal Class A Common Stock and Providence
Journal Class B Common Stock increased from $7,200 per share in November 1992
to $8,700 per share in November 1993.
Interest, fees and other income decreased $41.9 million from 1992 to 1993. In
1992, Providence Journal earned $31.5 million in interest income on a six-year
term loan of $205.5 million advanced to Palmer. This note was settled in full
in connection with the acquisition of the Palmer Systems in December 1992.
(Operations from this acquisition have been classified as discontinued
operations in the accompanying financial statements from the date of purchase
forward.) In addition, other income decreased $5.8 million in 1993 as compared
to 1992 primarily as a result of decreased management and transaction fees paid
to Providence Journal by KHC.
Equity in loss of affiliates decreased from $(11.3) million in 1992 to $(7.4)
million in 1993, primarily reflecting the improvement in KHC's financial
results.
Interest expense charged to continuing operations decreased from $6.5 million
in 1992 to $2.6 million in 1993. Interest expense totaled $17.5 million and
$24.4 million for 1992 and 1993, respectively, of which $11 million and $21.8
million has been reclassified to discontinued operations in 1992 and 1993,
respectively. Interest expense has been allocated to discontinued operations
based upon amounts borrowed to fund the PJC Cable Subsidiaries' acquisitions.
Such debt is intended to be repaid as part of the transactions contemplated
herein.
Loss from continuing operations was $(15.2) million in 1993 as compared to
income of $7.4 million in 1992. This significant change in net income (loss)
between years reflects the fluctuations discussed above, but primarily the
reduction in interest income on the Palmer note receivable. Effective income
tax rates fluctuated from a tax rate of 61.7% in 1992 compared to a benefit
rate of 27.5% in 1993. Effective rates fluctuated from 34% primarily because of
state income taxes and equity in loss of KHC which is not deductible for tax
purposes.
Income (loss) from discontinued operations decreased from income of $1.6
million in 1992 to a loss of $(7.5) million in 1993 because of the acquisition
of the Palmer Systems in December 1992.
In 1992, net income of $10.2 million includes the net cumulative effect of
changes in accounting for post-retirement benefits ($2.1 million charge) and
accounting for income taxes ($3.4 million benefit). Net loss in 1993 of $(21.1)
million includes the extraordinary gain of $1.6 million on early extinguishment
of debt.
ANALYSIS BY SEGMENT
Publishing Segment. The following table sets forth certain operating and
other data for the years ended December 31, 1992, 1993 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1992 1993 1994
-------- -------- --------
(IN THOUSANDS, EXCEPT CIRCULATION)
<S> <C> <C> <C>
Revenues:
Advertising.......................... $ 87,879 $ 93,149 $ 95,078
Circulation.......................... 32,263 31,028 30,887
Other................................ 374 737 1,928
-------- -------- --------
120,516 124,914 127,893
Operating Expense...................... 99,539 103,597 107,462
Depreciation........................... 10,387 11,426 11,198
-------- -------- --------
Operating Income....................... $ 10,590 $ 9,891 $ 9,233
======== ======== ========
Average Net Paid Circulation(1)
Daily................................ 197,100 192,500 188,200
Sunday............................... 268,100 269,100 268,800
</TABLE>
- --------
(1) For the twelve-month periods ended March 31 in each of the years presented,
as reported by the Audit Bureau. (See "Description of Providence Journal
Publishing Business--Circulation and Pricing".)
100
<PAGE>
The PJC Publishing Business publishes seven days a week: the Providence
Journal and The Evening Bulletin Monday through Friday; the Providence Journal-
Bulletin on Saturday; and The Providence Sunday Journal on Sunday. Advertising
revenue represents 72% to 75% of total revenue for the PJC Publishing Business,
including retail and classified advertising. Advertising revenues have
increased a compound average growth rate of 4% annually over the last two
years, mostly due to price increases.
Average net paid daily circulation has declined 4.5% since 1992. This decline
has primarily been in The Evening Bulletin. Average net paid Sunday circulation
has remained relatively flat. The modest increases in advertising revenue and
declines in circulation revenue have, in part, been a function of the local
Rhode Island economy, particularly impacted in 1991 by the nationwide recession
and the Rhode Island credit union crises.
The PJC Publishing Business has taken steps to address the declining
readership of its newspapers by improving customer service and continued
improvement in content, especially local news coverage. New on-line services
and advertising media services are also continually being designed and
developed. During 1994, a development effort was started to offer a local on-
line news service in conjunction with Prodigy Services Company. The new service
is scheduled to begin operation in the second quarter of 1995. Additionally,
the PJC Publishing Business launched the Town Crier in 1993, a weekly newspaper
for shoppers composed entirely of advertising. Other user-fee based services
include Journal library research services, fax information services and
telemarketing. Revenue from these new development efforts has increased to $1.9
million for 1994 as compared to $.7 million in the prior year.
Operating expenses increased 3.7% in 1994 as compared with 1993, primarily as
a result of the development efforts discussed above. Operating expenses in 1993
compared to 1992 increased 4.1% and were impacted by a 10% increase in
newsprint and ink (which represents approximately 13% of total operating
expenses). Newsprint prices are expected to increase significantly in 1995. The
Journal implemented newsprint conservation programs to help offset rising price
increases.
Depreciation and amortization increased in 1993 compared with 1992,
reflecting a capital improvement program targeted toward cost reduction
improvements; e.g., energy efficiency, automation, additional press capacity.
Additionally, several of the Journal's operating facilities were renovated
during these years.
Publishing Outlook. Publishing results in 1995 are expected to be impacted by
two critical factors: The Rhode Island economy and the sharp increases in
newsprint prices anticipated throughout the industry. Newsprint expense, which
is the largest single expense item for the PJC Publishing Business, currently
represents approximately 13% of operating costs. The average newsprint price
per ton is expected to rise more than 27% in 1995. Modest newsprint price
increases over the prior year began in the third quarter of 1994 but are not
expected to significantly impact fourth quarter results. Newsprint price
increases could limit profitability improvement in 1995.
The PJC Publishing Business faces many industry changes, including growth of
electronic media. In addition, advertising revenue growth over the long term
may be limited by structural shifts in the retail marketplace both nationally
and locally, including retailer consolidations, changing consumer buying habits
and growth in discount stores which use little newspaper advertising.
On March 22, 1995, Providence Journal announced that the morning Providence
Journal and The Evening Bulletin will be consolidated as the Providence
Journal-Bulletin, a morning newspaper. The consolidated newspaper will first
appear on June 5, 1995. Initially, a substantial portion of the anticipated $6
million in savings from this consolidation will be reinvested to improve local
news coverage. Circulation is expected to drop temporarily but recover once
readers become aware of the expanded local news, although there can be no
assurances in this regard.
Broadcast Television Segment. The PJC Broadcasting Business operating results
are primarily dependent on advertising revenues. The Stations record revenues
primarily in two categories: local/regional revenues and national revenues,
less agency commissions. The Stations also earn barter, network compensation
and various other revenues.
101
<PAGE>
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) is
considered a good indicator in evaluating performance. It represents operating
income or loss plus depreciation and amortization. EBITDA should not be
considered by the reader as an alternative to operating or net income computed
in accordance with GAAP as an indicator of the PJC Broadcasting Business
performance or as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) as a measure of liquidity.
The following table sets forth certain operating and other data for the years
ended December 31, 1992, 1993 and 1994. The actual results for all periods
presented represent the operating data for the four wholly owned Stations. Pro
forma results for the year ended December 31, 1994 also include the operating
results of the five Stations jointly owned with the Kelso Partnerships as if
these Stations had been wholly owned and consolidated as of January 1, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994
1992 1993 1994 PRO FORMA
------- ------- ------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National Revenues...................... $20,181 $19,475 $24,487 $ 88,691
Local and Regional Revenues............ 23,827 27,180 32,909 96,268
Other Revenue.......................... 5,588 5,510 4,924 12,538
Agency Commissions..................... (6,315) (6,659) (8,296) (26,414)
------- ------- ------- --------
Net Revenues........................... 43,281 45,506 54,024 171,083
Operating and Administrative Expenses.. 38,395 39,037 40,592 118,320
Depreciation and Amortization.......... 10,162 8,682 7,856 21,602
------- ------- ------- --------
Total Operating Expenses............... 48,557 47,719 48,448 139,922
------- ------- ------- --------
Operating Income (Loss)................ $(5,276) $(2,213) $ 5,576 $ 31,161
======= ======= ======= ========
OTHER DATA:
Earnings before Interest, Taxes,
Depreciation and Amortization......... $ 4,886 $ 6,469 $13,432 $ 52,763
======= ======= ======= ========
</TABLE>
1994 Compared with 1993. General improvement in the local and national
economies and increased retail spending were the major factors in increasing
net revenues for 1994 compared with 1993. Actual net revenues were $54.0
million for 1994 as compared with actual net revenues of $45.5 million for
1993, an increase of $8.5 million or 18.7%. Also contributing to these
increases were changes in certain network affiliations, the impact for Fox
affiliates in gaining the rights to broadcast National Football League
coverage, advertising during the 1994 Winter Olympics coverage, increased
political advertising and a general strengthening of the commitment of the PJC
Broadcasting Business to purchase quality programming and follow an aggressive
marketing campaign.
Relatively flat actual operating and administrative expenses over these years
is attributed to the elimination of excess overhead, the effective
centralization of various functions and responsibilities and a general
reduction in the number of employees. These expenses were also affected by a
change in the approach to negotiating the purchase of programming rights. The
PJC Broadcasting Business is effectively using its position as a multiple
station broadcaster to control and/or reduce the costs of purchased
programming. Actual operating and administrative expenses were $40.6 million
for 1994, as compared to $39.0 million for 1993, an increase of 4.1%.
The decrease in depreciation and amortization reflects management's effort to
control capital spending.
The combined effect of these factors resulted in actual operating income of
$5.6 million for 1994, as compared to an operating loss of $2.2 million in
1993, an increase of $7.8 million.
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<PAGE>
1993 Compared with 1992. The increase in net revenue for this period was
5.1%. Local and regional revenues experienced an increase of 14.1%, while
national revenues decreased. These numbers were indicative of the entire
industry. A sagging national economy and decreased spending levels caused a
shift in advertising dollars from national campaigns, to local and regional
campaigns.
Management's commitment to control costs and rising overhead resulted in a
small increase in operating and administrative expenses. Depreciation and
amortization expense decreased 14.6% to $8.7 million from 1992 to 1993. This is
a direct reflection of management's effort to control capital expenditures.
Broadcast Television Outlook. Local network affiliated television stations
are expected to remain the dominant provider and distributor of local news and
entertainment programming. The launch during January 1995 of two new additional
national networks, Paramount and Warner Brothers, is evidence of the strength
and viability of broadcast television.
Competition for the attention of television is increasing. It is the strategy
of the PJC Broadcasting Business to protect and increase audience share and
revenue of each of its markets by maintaining a strong relationship with its
networks and producing local programs which create an identity to its viewers
and advertisers.
During 1995, the PJC Broadcasting Business will continue to take advantage of
news and local programming and other cost effective approaches available to
management. KHNL, the Station in Hawaii, will switch to NBC and launch local
news. This is expected to create new revenue sources for the Station and may
produce higher audience levels resulting in increased sales opportunities.
* * * *
INFLATION. Certain of Providence Journal's expenses, such as those for wages
and benefits increase with general inflation. However, Providence Journal does
not believe that its results of operations have been, or will be, adversely
affected by inflation, provided that it is able to increase its advertising
rates periodically.
RECENT ACCOUNTING PRONOUNCEMENTS. In May 1993, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairments of a Loan" ("SFAS 114"), which is
effective for fiscal years beginning after December 15, 1994. SFAS 114, as
amended, addresses the accounting for certain loans which may be deemed
impaired. The effect of implementing SFAS 114 will be immaterial to Providence
Journal's financial position and results of operations.
Effective January 1, 1994, Providence Journal was required to adopt Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS 115"). Under this standard, Providence
Journal's marketable equity securities are classified as "available for sale"
and unrealized gains, net of related tax effect, are recorded as a separate
component of stockholders' equity. At December 31, 1994, stockholders' equity
has been increased by $.1 million, net of taxes, resulting from the adoption of
this standard.
In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments" ("SFAS 119"), which is effective for fiscal years ending
after December 15, 1994 and requires disclosure about amounts, nature and terms
of derivative and other financial instruments held.
LIQUIDITY AND CAPITAL RESOURCES. Providence Journal's cash requirements are
funded primarily by its operating activities. If additional funds are needed,
Providence Journal draws upon a revolving credit facility, of which $93.8
million was available at December 31, 1994. Providence Journal also has a $240
million term loan facility amortizing in varying amounts through 2001.
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<PAGE>
Providence Journal has entered into an interest rate swap agreement to reduce
the impact of changes in interest rates on its revolving credit and term loan
facility. The interest rate under the swap agreement is equal to 6.71% plus an
applicable margin as defined in the revolving credit and term loan facility
which effectively sets the interest rate at 8.1% on the first $200 million of
outstanding debt.
Cash Flow. During 1994, Providence Journal generated $24.9 million in cash
from continuing operations, compared with $23.4 million in 1993.
Cash used in investing activities of continuing operations during 1994
totaled $(5.0) million, as compared to $(15.8) million in 1993. The decrease
reflects lower capital expenditures and a decrease in investment securities
held for sale.
Cash used for financing activities of continuing operations was $(40.1)
million in 1994, as compared to cash provided of $.3 million in 1993. The cash
provided in 1993 included $30 million in proceeds from the revolving credit
facility which was used in part for early extinguishment of debt held by
discontinued cable businesses. Providence Journal paid dividends to
stockholders of $9.7 million and $8.9 million in 1994 and 1993, respectively.
Future cash flow from operating activities of New Providence Journal is
expected to be sufficient to meet capital investment and debt repayment
requirements. However, future cash flow from operating activities is not
expected to be sufficient to pay dividends or repurchase outstanding stock at
historical levels without adversely affecting New Providence Journal's
operations and growth.
The Merger and Related Transactions. On November 18, 1994, Providence Journal
entered into an Agreement and Plan of Merger with Continental, whereby
Continental would acquire all of the PJC Cable Business in a tax-free merger.
This original Agreement and Plan of Merger has been superseded by the Merger
Agreement, which amended and restated the former agreement. In order to
facilitate the tax-free nature of the Merger, Providence Journal will
reorganize its corporate structure in a series of transactions, the end result
of which will be the PJC Spin-Off. Upon completion of the PJC Spin-Off,
stockholders of Providence Journal will also own the equivalent number and
class of New Providence Journal Common Stock. For a description of the internal
transactions that will occur before the Merger can be consummated, see "Pre-
Merger Transactions".
Prior to the Restructuring, Providence Journal or one or more of the PJC
Cable Subsidiaries will incur the New Cable Indebtedness in the principal
amount of $755 million. Providence Journal anticipates that the proceeds of the
New Cable Indebtedness will be used as follows: approximately $244 million will
be applied to discharge existing indebtedness of Providence Journal,
approximately $294 million will be applied to discharge existing indebtedness
of KBC, approximately $265 million (including $5 million in transaction fees)
will be used to consummate the Kelso Buyout, approximately $65 million will be
used to purchase the interest in certain PJC Cable Subsidiaries not presently
wholly owned by Providence Journal or KHC, and to pay expenses associated with
the Merger and certain deferred compensation totalling $70 million. In
addition, New Providence Journal will incur the NPJ Indebtedness in the
principal amount of approximately $183 million in order to meet the foregoing
obligations, among others. (See "The Merger--General Provisions--Share
Exchange".) New Providence Journal will have no obligations or liabilities with
respect to the New Cable Indebtedness.
Providence Journal will indemnify Continental from any and all liabilities
arising from the PJC Non-Cable Businesses (including, without limitation, the
NPJ Indebtedness), and will be responsible for all federal and state income tax
liabilities for periods ending on or before the Closing Date. Pursuant to such
indemnification, New Providence Journal has agreed that for a period of four
years subsequent to the closing, it will not sell or otherwise dispose of
assets, nor will it pay dividends or make other distributions such that the
fair market value of New Providence Journal falls below specified levels.
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<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET. The pro forma condensed
consolidated balance sheet of New Providence Journal has been derived from the
historical consolidated balance sheets of Providence Journal and KHC, after
giving effect to the Restructuring, the PJC Spin-Off, the Merger and the
transactions contemplated thereby. The pro forma condensed consolidated balance
sheet of New Providence Journal has been prepared assuming these transactions
occurred on December 31, 1994.
The pro forma condensed consolidated balance sheet should be read in
conjunction with each of the historical consolidated financial statements and
the notes thereto of Providence Journal and KHC for the year ended December 31,
1994 included herein. The pro forma condensed consolidated balance sheet is not
necessarily indicative of the financial position of New Providence Journal that
would have actually been obtained had these transactions been consummated on
December 31, 1994.
The pro forma condensed consolidated statements of operations of New
Providence Journal have been derived from the historical consolidated
statements of operations of Providence Journal and KHC adjusted for interest
expense, which is expected to increase as a result of these transactions, the
consolidation of the continuing operations of KHC (including eliminating
entries), and the increase in amortization expense as a result of the
acquisition by Providence Journal of the 50% minority ownership in KHC. The pro
forma condensed consolidated statements of operations of New Providence Journal
have been prepared assuming that the transactions occurred on January 1, 1994.
The pro forma condensed consolidated statements of operations should be read
in conjunction with each of the historical consolidated financial statements
and the notes thereto of Providence Journal and KHC for the year ended December
31, 1994 included herein. The pro forma condensed consolidated statements of
operations are not necessarily indicative of the financial results of New
Providence Journal that would have actually been obtained had the transactions
been consummated on January 1, 1994.
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<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-------------------------
KING NEW
PROVIDENCE HOLDING PRO FORMA ADJUSTMENTS PROVIDENCE
JOURNAL CORP. --------------------------- JOURNAL
HISTORICAL HISTORICAL DEBIT CREDIT PRO FORMA
----------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash
equivalents........... $ 1,319 $ 3,578 $ 937,704(1) 265,000(2) $ 4,897
537,704(3)
45,000(6)
65,000(5)
25,000(7)
Accounts receivable,
net................... 24,916 26,801 51,717
Television program
rights................ 4,699 7,995 12,694
Deferred income taxes.. 20,526 20,526
Prepaid expenses and
other current assets.. 6,254 1,604 7,858
----------- ----------- --------
Total Current Assets. 57,714 39,978 97,692
Investments in and
advances to affiliated
companies.............. 93,053 265,000(2) 342,000(4) 6,966
9,087(5)
Notes receivable........ 19,513 19,513
Television program
rights, net............ 2,670 787 3,457
Property, plant and
equipment, at cost less
accumulated
depreciation........... 130,287 58,131 188,418
Intangible assets and
goodwill, net.......... 35,222 124,070 132,000(4) 291,292
Other assets............ 31,331 13,596 16,000(6) 28,927
Net assets of
discontinued cable
operations............. 354,923 255,902 94,009(4) 788,921(9) 0
10,000(6)
9,087(5)
65,000(5)
----------- ----------- --------
$ 724,713 $ 492,464 $636,265
=========== =========== ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current Liabilities
Accounts payable and
accrued expenses...... 103,042 12,247 35,000(6) 49,289
31,000(7)
Current installments
of long-term debt..... 13,588 28,804 12,000(3) 1,588
28,804(3)
Current portion of
television program
rights payable........ 4,542 7,753 12,295
----------- ----------- --------
Total Current Liabil-
ities............... 121,172 59,604 63,172
Long-term debt.......... 247,173 265,245 265,245(3) 937,704(1) 198,222
231,655(3)
755,000(9)
Television program
rights payable......... 2,822 1,501 4,323
Deferred income taxes... 11,944 17,202 38,000(4) 67,146
Other liabilities and
deferrals.............. 55,715 5,721 61,436
----------- ----------- --------
Total Liabilities.... 438,826 338,473 394,299
----------- ----------- --------
Continental class A com-
mon stock and series B
preferred stock........ 645,000(9) 645,000(10) 0
Stockholders' Equity:
Class A common stock... 96 58(10) 38
Class B common stock... 118 21 21(4) 47
71(10)
Additional paid-in
capital............... 1,225 210,314 210,314(4) 129(10) 7,354
6,000(7)
Retained earnings
(deficit)............. 291,791 (56,344) 56,344(4) 234,422
645,000(10) 611,079(9)
7,448(8)
16,000(6)
Unrealized holding
gain on securities
available for resale.. 105 105
Treasury Stock......... (7,448) 7,448(8) 0
----------- ----------- --------
Total Stockholders'
equity.............. 285,887 153,991 241,966
----------- ----------- --------
Total Liabilities and
Stockholders' Equi-
ty.................. $ 724,713 $ 492,464 $636,265
=========== =========== ========
</TABLE>
See accompanying notes to pro forma financial statements
106
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------------
KING NEW
PROVIDENCE HOLDING PRO FORMA ADJUSTMENTS PROVIDENCE
JOURNAL CORP. --------------------- JOURNAL
HISTORICAL HISTORICAL DEBIT CREDIT PRO FORMA
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $192,291 $117,059 -- -- $309,350
Operating, selling,
general, and
administrative......... 182,279 78,537 -- 3,525(11) 257,291
Depreciation and
amortization........... 20,708 13,746 8,800(12) -- 43,254
-------- -------- --------
Operating income (loss). (10,696) 24,776 -- -- 8,805
Interest expense........ (2,426) (8,694) 6,280(13) -- (17,400)
Other income, net....... 5,223 24 3,525(11) -- 1,722
Equity in loss of
affiliates............. (10,962) -- -- 7,134(11) (3,828)
-------- -------- --------
Income (loss) from
continuing operations,
before income taxes.... (18,861) 16,106 -- -- (10,701)
Income taxes............ 2,367 8,843 -- 3,520(12) 5,555
-- 2,135(13)
-------- -------- --------
Income (loss) from
continuing operations.. $(21,228) $ 7,263 $(16,256)
======== ======== ========
Loss per share from
continuing operations.. $(250.09) -- -- $(191.52)
======== ========
Weighted Average shares
outstanding............ 84,882 84,882
======== ========
</TABLE>
See accompanying notes to pro forma financial statements
107
<PAGE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEET AND STATEMENT OF OPERATIONS
(1) To record the incurrence by Providence Journal prior to the Merger of the
New Cable Indebtedness and the NPJ Indebtedness in the amounts of $755
million and $183 million, respectively.
(2) To record the purchase by Providence Journal of the minority 50% ownership
in KHC for $265 million (including $5 million in transaction fees), $132.5
million was allocated to KBC and $132.5 million was allocated to KHC's
cable systems.
(3) To record the repayment of outstanding borrowings of $243.6 million and
$294 million under the Providence Journal and KHC revolving credit and
term loan facilities, respectively.
(4) To record eliminating entries for the consolidation of KHC into Providence
Journal. Also, to record the allocation of the purchase price for KHC
based upon the fair market value of KHC's cable systems as agreed upon by
Providence Journal and Continental. The resulting excess of the purchase
price over book value of $188 million for KBC and KHC's cable systems was
allocated $94 million to increase the intangible assets of PJC
Broadcasting Business; and $94 million has been allocated to the
discontinued cable operations; respectively. Also, to adjust goodwill and
deferred taxes by $38 million for the tax effect of the difference between
the assigned values and the tax bases of the assets and liabilities
associated with the purchase of KBC as required by FAS 109.
(5) To record the purchase by Providence Journal of the minority interests
in--Copley/Colony, the Dynamic Partnership, Vision Cable Company, and
California CATV Partners--for an aggregate of $65 million and record the
reclassification of investments in affiliates to net assets of
discontinued cable operations.
(6) To record payment of expenses incurred in connection with the
transactions, which are estimated at approximately $45 million consisting
of the working capital adjustment of $10 million; and legal, accounting,
investment banking and severance of $35 million. Also to record the write-
off of unamortized deferred financing costs amounting to $16 million
associated with debt of Providence Journal and KHC to be repaid with the
proceeds of the New Cable Indebtedness and the NPJ Indebtedess.
(7) To record the payment of deferred compensation of $31 million, which is an
estimate of $25 million to be paid in cash and $6 million to be paid in
stock in 1995.
(8) To retire treasury stock outstanding as of the Effective Time.
(9) To record the disposition of Providence Journal Cable. Proceeds of $1.4
billion are comprised of approximately $645 million of Continental Class A
Common Stock and Continental Series B Preferred Stock to be received by
Providence Journal stockholders, and the assumption of $755 million of the
New Cable Indebtedness by Continental. The excess of the purchase price
over the net assets of discontinued cable operations is estimated to be
$611 million.
(10) To reflect the deemed distribution of approximately $645 million of the
proceeds from the sale of Providence Journal Cable and the PJC Spin-Off.
Proceeds of $645 million are in the form of Continental Class A Common
Stock and Continental Series B Preferred Stock to be distributed by
Continental directly to Providence Journal stockholders in the Merger.
38,689 shares of New Providence Journal Class A Common Stock and 46,961
shares of New Providence Journal Class B Common Stock both at par values
of $1.00 per share, will be distributed to the stockholders of Providence
Journal in the PJC Spin-Off.
(11) To record the elimination of equity in loss of cable television
affiliates and the consolidation of KHC into Providence Journal,
including the elimination of affiliated company management fees.
(12) To record additional amortization for the increase in goodwill resulting
from the purchase of KBC. Goodwill is being amortized over 15 years.
(13) To increase interest expense as a result of additional indebtedness
incurred upon the purchase of the KHC 50% minority interest and other
costs and expenses of the Merger and deferred compensation payment.
Interest expense was determined by assuming outstanding debt on New
Providence Journal would have been $200 million at the beginning of the
period, carrying an effective interest rate of 8.7%, which is the
weighted average effective interest rate of all outstanding debt of
Providence Journal for the year ended December 31, 1994.
MARKET PRICE OF NEW PROVIDENCE JOURNAL COMMON STOCK AND DIVIDEND POLICY OF NEW
PROVIDENCE JOURNAL
No established public trading market exists for the Providence Journal
Common Stock, and accordingly no high and low bid information or quotations
are available with respect to the Providence Journal Common Stock. As of March
15, 1995, there were approximately 424 holders of record of Providence Journal
Class A Common Stock and 256 holders of record of Providence Journal Class B
Common Stock. Since a number of holders own shares of both Providence Journal
Class A Common Stock and Providence Journal Class B Common Stock, the number
of Providence Journal stockholders is approximately 470.
Following completion of the Reorganization and the Merger, New Providence
Journal expects to pay quarterly dividends on the New Providence Journal
Common Stock at a rate below the rate currently paid with respect to
Providence Journal Common Stock. Although the initial dividend for New
Providence Journal has not yet been established, management's review of
factors being considered in recommending a new
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<PAGE>
dividend level would suggest that following the Merger it would be appropriate
to reduce the dividend level significantly. The dividend reduction is intended
to provide additional funds for operations and investment in new business
opportunities. New Providence Journal's dividend policy will be subject to the
exercise by the New Providence Journal Board of Directors of its fiduciary
obligations and the exercise of the Board's business judgment in connection
with, among other things, any and all requirements of Delaware Law or other
applicable law, and all covenants, restrictions or limitations in connection
with any financing for New Providence Journal, New Providence Journal's future
earnings, capital requirements, financial condition and other factors.
EXECUTIVE OFFICERS AND DIRECTORS OF PROVIDENCE JOURNAL AND NEW PROVIDENCE
JOURNAL
The executive officers and Directors of New Providence Journal immediately
following the Restructuring and the PJC Spin-Off are expected to be identical
to the executive officers and Directors of Providence Journal prior to the
Restructuring and the PJC Spin-Off. It is expected that, immediately prior to
the Restructuring and the PJC Spin-Off, each of the present executive officers
of Providence Journal will be appointed as executive officers of New Providence
Journal. It is also expected that, immediately prior to the Restructuring and
the PJC Spin-Off, Providence Journal, as sole stockholder of New Providence
Journal, will elect each of the Providence Journal Directors to serve as
Directors of New Providence Journal. The names of and positions held by each
Director and executive officer are listed below. There are no family
relationships among the following persons.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR EXECUTIVE POSITION WITH PROVIDENCE JOURNAL COMPANY AND
OFFICER NEW PROVIDENCE JOURNAL COMPANY
----------------------------- --------------------------------------------
<S> <C>
Stephen Hamblett(1).............. Chairman of the Board, Chief Executive
Officer, Publisher and Director
Trygve E. Myhren................. President, Chief Operating Officer and
Director
F. Remington Ballou.............. Director
Henry P. Becton, Jr.(2).......... Director
Fanchon M. Burnham(2)............ Director
Peter B. Freeman(2).............. Director
Benjamin P. Harris, III.......... Director
John W. Rosenblum(2)............. Director
Henry D. Sharpe, Jr.(1).......... Director
W. Nicholas Thorndike(1)......... Director
John W. Wall(1).................. Director
Patrick R. Wilmerding(1)......... Director
James F. Stack................... Vice President--Finance and Chief
Financial Officer
John A. Bowers................... Vice President--Human Resources
Jack C. Clifford................. Vice President--Broadcasting and Cable
Television
John L. Hammond.................. Vice President--Legal
Joanne L. Yestramski............. Vice President--Comptroller
Howard G. Sutton................. Vice President--General Manager
Joel N. Stark.................... Vice President--Publishing Development
and Marketing
James V. Wyman................... Vice President and Executive Editor
Harry Dyson...................... Treasurer and Secretary
</TABLE>
- --------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
As in the case of Providence Journal, New Providence Journal will have three
classes of Directors, Class I, Class II and Class III, the terms of office of
which will expire, respectively, at the annual meetings of
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<PAGE>
stockholders in 1998, 1997 and 1996. The term of the current Class I Directors,
Messrs. Hamblett, Wilmerding and Rosenblum and Ms. Burnham, will expire at the
1998 Annual Meeting of New Providence Journal. The term of current Class II
Directors, Messrs. Wall, Thorndike, Becton and Myhren, will expire at the 1997
Annual Meeting of New Providence Journal. The term of current Class III
Directors, Messrs. Sharpe, Freeman, Ballou and Harris, will expire at the 1996
Annual Meeting of New Providence Journal. Successors to any Directors whose
terms are expiring are elected to three-year terms and hold office until their
successors are elected and qualified. Executive officers of New Providence
Journal will be elected to serve until they resign or are removed or are
otherwise disqualified to serve.
The following is a description of the business experience during the past
five years of each Director and executive officer of Providence Journal and New
Providence Journal and includes, as to Directors, other directorships held in
companies required to file periodic reports with the Commission and registered
investment companies.
Stephen Hamblett, 60, is Chairman of the Board and Chief Executive Officer of
Providence Journal and Publisher of the Journal-Bulletin newspapers and has
been since 1987. Mr. Hamblett was first employed by Providence Journal in 1957
in its advertising department and has been continuously employed by Providence
Journal since that time, serving as Assistant Vice President for
Administration, Vice President Marketing, Vice President Marketing and
Corporate Development, Executive Vice President and President and Chief
Operating Officer before assuming his current positions. He has been a Director
of Providence Journal since 1985. Mr. Hamblett also serves on the Board of
Directors of the Associated Press and the Inter American Press Association.
Trygve E. Myhren, 58, has been President and Chief Operating Officer of
Providence Journal since 1990. From 1981 to 1988, Mr. Myhren was Chairman and
Chief Executive Officer of American Television and Communications Corporation.
Mr. Myhren was a member of the Board of Directors of the National Cable
Television Association from 1980 to 1991 and served as its Chairman in 1986 and
1987. Prior to joining Providence Journal, Mr. Myhren served as President and
Chief Executive Officer of Myhren Media and General Partner of Arizona &
Southwest Cable from 1989 to 1990. Mr. Myhren is currently a Director of
Advanced Marketing Services, Inc. Mr. Myhren has been a Director of Providence
Journal since 1994.
F. Remington Ballou, 65, is the President and Chief Executive Officer of B.
A. Ballou & Co., Inc. a jewelry manufacturing company and has been since 1965.
Mr. Ballou has served as a Director of Providence Journal since 1985. He is
also a Director of Keyport Life Insurance Co.
Henry P. Becton, Jr., 51, has been President and General Manager of WGBH
Education Foundation, the operator of public television and radio stations in
Massachusetts and producer of educational broadcast and non-broadcast
programming and software, since 1984. Mr. Becton has been a Director of
Providence Journal since 1992. He is also a Director of Becton Dickinson and
Company and is a trustee or Director of the following investment companies
managed by Scudder, Stevens & Clark: Scudder Fund, Inc.; Scudder Institutional
Fund, Inc.; Scudder Cash Investment Trust; Scudder California Tax Free Trust;
Scudder Municipal Trust; Scudder State Tax Free Trust; Scudder Tax Free Money
Fund; Scudder Tax Free Trust; Scudder Funds Trust; and Scudder Variable Life
Investment Fund.
Fanchon M. Burnham, 50, has been a partner in the accounting firm of F.M.
Burnham and Associates (formerly Brooks/Burnham) in Washington, D.C., since
1985. Ms. Burnham has been a Director of Providence Journal since 1992.
Peter B. Freeman, 62, has been a Director of Providence Journal since 1981.
During the past five years Mr. Freeman has been self-employed as a corporate
director and trustee, including serving as a Director of Blackstone Valley
Electric Company, AMICA Mutual Insurance Company and AMICA Life Insurance
Company, a trustee of Eastern Utilities Associates, as well as a trustee or
director of the following investment companies managed by Scudder, Stevens &
Clark: Scudder Fund, Inc.; Scudder Institutional Fund, Inc.; Scudder Cash
Investment Trust; Scudder California Tax Free Trust; Scudder Municipal Trust;
Scudder State Tax Free Trust; Scudder Tax Free Money Fund; Scudder Tax Free
Trust; Scudder Funds Trust; and Scudder Variable Life Investment Fund.
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<PAGE>
Benjamin P. Harris, III, 58, has been a partner in the law firm of Edwards &
Angell, Providence, Rhode Island, since 1969 and has practiced law with the
firm since 1961. Mr. Harris has been a Director of Providence Journal since
1985. Mr. Harris is also a director of the Providence Mutual Fire Insurance
Company.
John W. Rosenblum, 51, became the Taylor Murphy Professor of Business
Administration at the Darden School of Business, University of Virginia, in
1993. From 1982 to 1993, Mr. Rosenblum was the Dean of the Darden School of
Business. Mr. Rosenblum serves on the Board of Directors of Cadmus
Communications Corp., Chesapeake Corporation, Comdial Corporation, Cone Mills
Corporation and T. Rowe Price Associates. He has been a Director of Providence
Journal since 1992.
Henry D. Sharpe, Jr., 71, has been a Director of Providence Journal since
1964. Mr. Sharpe is currently Chairman of Brown & Sharpe Manufacturing Company,
a position he has held since 1954. From 1951 to 1980 Mr. Sharpe was the Chief
Executive Officer of Brown & Sharpe Manufacturing Company.
W. Nicholas Thorndike, 61, has been a Director of Providence Journal since
1984. Mr. Thorndike serves as a corporate Director or trustee of a number of
organizations, including Bradley Real Estate, Inc., Courier Corporation, Data
General, Eastern Utilities Associates and The Putnam Funds. He also serves as a
trustee of Massachusetts General Hospital, having served as Chairman of the
Board from 1987 to 1992 and President from 1992 to 1994. In February 1994 he
accepted appointment as a successor trustee of private trusts in which he has
no beneficial interest, and concurrently became, serving until October 1994,
Chairman of the Board of two privately owned corporations controlled by such
trusts that filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in August 1994.
John W. Wall, 70, retired as Vice-Chairman of Hospital Trust, Providence,
Rhode Island in 1986. Mr. Wall had been with Hospital Trust since 1946. He
returned to Hospital Trust at management's request to serve as Chairman and
Chief Executive Officer from 1991 to 1992. Since 1992 Mr. Wall has served as
Vice-Chairman of Hospital Trust. Mr. Wall has served as a Director of
Providence Journal since 1975.
Patrick R. Wilmerding, 51, has been a Director of Providence Journal since
1979. Mr. Wilmerding has been chairman of Private Signals, Inc., an
import/export company since 1994. Prior to that, he served as a Division
Executive with The First National Bank of Boston. Mr. Wilmerding is a Director
of the India Opportunities Fund.
James F. Stack, 55, has been Vice President--Finance and Chief Financial
Officer since July, 1991. From 1988 to 1991 Mr. Stack served as Vice President
of Finance and Chief Financial Officer of Meredith Corp. Prior to that, Mr.
Stack held a number of positions with General Electric Company over a 25 year
period including Vice President and General Manager of GE Capital Housing
Finance Department and Chief Financial Officer of GE Lighting Business Group.
John A. Bowers, 42, has been Vice President--Human Resources since November,
1990. Prior to that time, Mr. Bowers served in various Human Resources
positions with Providence Journal and its subsidiaries since 1980.
Jack C. Clifford, 61, has been Vice President--Broadcasting and Cable
Television since 1982.
John L. Hammond, 48, has been Vice President--Legal since October, 1992. Mr.
Hammond was Vice President, General Counsel and Secretary of Landstar System,
Inc. from 1989 to 1992. Prior to that, Mr. Hammond was employed by The Singer
Company for ten years and was Deputy General Counsel at the time of his
departure.
Joanne L. Yestramski, 41, has been Vice President--Comptroller since April,
1994. From 1991 to 1994, Ms. Yestramski served as Vice President--Treasurer of
the Museum of Science, Boston, Massachusetts. From 1985 to 1991, Ms. Yestramski
served as Vice President, Treasurer of Biotechnica International, Inc.
Howard G. Sutton, 44, is currently Vice President--General Manager, a
position he has held since 1987.
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Joel N. Stark, 50, is currently Vice President--Publishing Development and
Marketing, a position he has held since 1988.
James V. Wyman, 71, is currently Vice President and Executive Editor, a
position he has held since 1989.
Harry Dyson, 58, is currently Treasurer and Secretary, a position he has held
since 1986.
Committees of the Board of Directors of New Providence Journal. The standing
committees of the Board of Directors of New Providence Journal will be an
Executive Committee, an Audit Committee, an Executive Compensation Committee
and a Nominating Committee. The functions of each of these four committees are
described and the members of each are listed below.
The Executive Committee may exercise substantially all authority of the Board
of Directors with specific exceptions provided by law and the New Providence
Journal By-Laws. The members of the Executive Committee will be Henry D.
Sharpe, Jr., Chairman, Patrick R. Wilmerding, W. Nicholas Thorndike, John W.
Wall and Stephen Hamblett.
Each year the Audit Committee will review New Providence Journal's audit
plan, the scope of activities of the independent auditors and of internal
auditors, the results of the audit after completion, and the fees for services
performed during the year, and recommend to the Board of Directors the firm to
be appointed as independent auditors. During portions of some meetings this
Committee will meet with representatives of the independent auditors without
any officers or employees of New Providence Journal present. The members of the
Audit Committee will be Peter B. Freeman, Chairman, Fanchon M. Burnham, John W.
Rosenblum and Henry P. Becton, Jr.
The Executive Compensation Committee will administer New Providence Journal's
Incentive Compensation Plan, its Stock Option Plans and all its retirement and
benefit plans, will determine the compensation of key officers of New
Providence Journal, will authorize and approve bonus-incentive compensation
programs for executive personnel, and will oversee management succession and
promotions. The members of the Executive Compensation Committee will be
.
The Nominating Committee will consider and recommend to the Board nominees
for possible election to the Board of Directors and will consider other matters
pertaining to the size and composition of the Board of Directors and its
Committees. The members of the Nominating Committee will be F. Remington
Ballou, Chairman, Henry P. Becton, Jr. and Fanchon M. Burnham. The Nominating
Committee will give appropriate consideration to qualified persons recommended
by stockholders if such recommendations are accompanied by information
sufficient to enable the Nominating Committee to evaluate the qualifications of
the persons recommended.
COMPENSATION OF NEW PROVIDENCE JOURNAL DIRECTORS
The Board of Directors of New Providence Journal will be comprised of twelve
Directors, two of whom will be salaried employees of New Providence Journal.
The members of the New Providence Journal Board of Directors who are not
officers of New Providence Journal will receive an annual retainer of $10,000
and a fee of $950 for each meeting attended. New Providence Journal will also
pay each Director who is not an officer of New Providence Journal a fee of $750
for each New Providence Journal Board committee meeting attended. In addition,
the Chairmen of the Executive Committee, Audit Committee, the Executive
Compensation Committee and Nominating Committee of the New Providence Journal
Board of Directors will receive an annual retainer of $3,000, $2,500, $2,500
and $1,000, respectively. Directors who reside outside the Providence area will
be reimbursed for their travel expenses incurred in connection with attendance
at meetings of the New Providence Journal Board of Directors.
The Directors of Providence Journal are participants in the Providence
Journal Incentive Stock Unit Plan (the "IUP"). (See "Executive Compensation--
Providence Journal Incentive Stock Unit Plan"). At December 31, 1994, such
Directors held 658 units in the IUP. Upon the termination and liquidation of
the
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IUP, which is expected to occur in mid-1995, such Directors will be paid 2/3 of
their payout in cash and 1/3 in stock, net of taxes. Based upon a stock unit
value of $11,489 per unit, the amount of the total payout to Providence Journal
Directors is estimated to be $3.8 million. The IUP will be terminated prior to
the completion of the Plan of Reorganization and the Merger and will not be
assumed by New Providence Journal.
New Providence Journal will be assuming the 1994 Non-Employee Director Stock
Option Plan. Each Director received a stock option to purchase five shares of
Providence Journal Class A Common Stock on October 1, 1994, and will receive a
stock option to purchase five additional shares of New Providence Journal Class
A Common Stock on each subsequent October 1st. (See "Stock Incentive Plans of
Providence Journal Assumed by New Providence Journal".)
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended December 31, 1994,
1993 and 1992 information regarding compensation paid by Providence Journal to
the Chief Executive Officer and Providence Journal's other four most highly
compensated executive officers (the "Providence Journal Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ---------------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION (1) STOCK AWARDS(2) COMPENSATION (3)
------------------ ---- -------- -------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Hamblett........ 1994 $600,000 $360,000 -- $ -- $ 702
Chairman, Chief 1993 600,000 360,000 -- 1,013,800 30,702
Executive Officer 1992 600,000 300,000 -- -- 702
and Publisher
Trygve E. Myhren........ 1994 500,000 300,000 -- -- $ 702
President and 1993 500,000 300,000 51,949 762,200 25,702
Chief Operating Officer 1992 500,000 200,000 55,180 -- 1,301
James F. Stack.......... 1994 275,000 165,000 -- -- $ 702
Vice President--Finance 1993 275,000 165,000 49,478 503,200 20,771
and Chief Financial 1992 270,000 132,500 -- -- --
Officer
Jack C. Clifford........ 1994 260,000 171,000 47,481 -- $544,702
Vice President-- 1993 260,000 156,000 -- 407,000 702
Broadcast and Cable 1992 240,000 120,000 -- -- 702
Television
John A. Bowers.......... 1994 180,000 108,000 52,544 -- $ 702
Vice President-- 1993 180,000 108,000 -- 273,800 9,702
Human Resources 1992 173,000 110,201 -- -- 702
</TABLE>
- --------
(1) This column includes the aggregate incremental cost to Providence Journal
of providing various perquisites and personal benefits. Includes automobile
purchase allowances in 1994 for Mr. Clifford and Mr. Bowers of $21,702 and
$31,540, respectively. During 1993 Mr. Myhren and Mr. Stack were granted
allowances to purchase vehicles including tax reimbursement for $23,148 and
$25,119, respectively. Includes relocation expenses totaling $21,273 for
Mr. Myhren in 1992.
(2) This column shows the market value of restricted stock unit awards made
pursuant to the Providence Journal Restricted Stock Unit Plan on the date
of grant, which was October 1, 1993, to senior officers of Providence
Journal including the executives listed on the table above. Restricted
stock shares will be completely vested at the end of a three year period.
The number of restricted stock holdings at the end of 1994 were for Mr.
Hamblett, 137 shares; Mr. Myhren, 103 shares; Mr. Stack, 68 shares; Mr.
Clifford,
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55 shares; and Mr. Bowers, 37 shares. Dividends are added to the awards as
and when declared, but have not been accrued in the listed valuation. For
further information concerning the Restricted Stock Unit Plan, see "Stock
Incentive Plans of Providence Journal Assumed by New Providence Journal-
Restricted Stock Unit Plan".
(3) The amount shown for Mr. Clifford in 1994 includes a payout of $544,000
pursuant to a previous deferred bonus arrangement. The amounts shown for
1993 include Providence Journal Class A Common Stock granted in lieu of
salary increases in 1993 to Mr. Hamblett, Mr. Myhren, Mr. Stack and Mr.
Bowers in the amounts of $30,000, $25,000, $19,250 and $9,000,
respectively. The remaining amounts shown in the table are amounts
contributed under the Journal 401(k) Plan as described below under the
caption "Retirement Benefits".
OPTION/SAR GRANTS IN FISCAL YEAR 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------------------
NAME GRANTED FISCAL YEAR PRICE($/SH)(1) DATE 5%($) 10%($)
---- ---------- ------------- -------------- ---------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Hamblett........ 150 21.1% $7,700 9/30/04 $ 726,300 $ 1,840,800
Trygve E. Myhren........ 115 16.2% 7,700 9/30/04 556,830 1,411,280
James F. Stack.......... 65 9.1% 7,700 9/30/04 314,730 797,680
Jack C. Clifford........ 55 7.7% 7,700 9/30/04 266,310 674,960
John A. Bowers.......... 35 4.9% 7,700 9/30/04 169,470 429,520
</TABLE>
- --------
(1) The per share option exercise price represents the fair market value of
Providence Journal Class A Common Stock at the date of grant. A May 1994
valuation by an independent appraisal firm was used as the principal basis
to determine the fair market value inasmuch as Providence Journal shares
are not traded on a public market. The options granted become exercisable
in four equal annual installments beginning one year after the grant date.
For further information concerning the 1994 Employee Stock Option Plan, see
"Stock Incentive Plans of Providence Journal Assumed by New Providence
Journal--1994 Stock Option Plans".
(2) The dollar amounts under these columns result from calculations at the 5%
and 10% assumed appreciation rate set by the Commission and, therefore, are
not intended to forecast possible future appreciation, if any, of the
Providence Journal Class A Common Stock price. At the 5% and 10% assumed
appreciation rate the price per share of Providence Journal Class A Common
Stock would be $12,542 and $19,972, respectively.
PROVIDENCE JOURNAL INCENTIVE STOCK UNIT PLAN. The following table relates to
the Providence Journal IUP, created in 1971. The IUP provides incentive
compensation to key officers and to all Directors of Providence Journal. The
purpose of the IUP is to attract and retain persons of outstanding competence
and to promote stockholder interests. The IUP is administered by the Executive
Committee of the Board which is authorized, under the IUP, to (a) select those
employees and Directors to be granted Stock Units; (b) determine the number of
Stock Units to be granted; (c) determine the time or times when Stock Units may
be granted; (d) determine the time or times when amounts may become payable
with respect to the Stock Units; (e) determine the fair market value of the
stock of Providence Journal for purposes of the IUP; (f) determine the
appropriate interest rate for installment payments under the IUP; and (g)
approve purchases of Stock Units through the voluntary deferral of
compensation.
The Executive Committee is to maintain an account for each grantee of Stock
Units under the IUP with the number of Stock Units granted and their fair
market value on the date granted. Any dividends declared and paid by Providence
Journal on its outstanding common stock shall be credited to the account of
each grantee of the IUP with respect to the Stock Units in such grantee's
account, with dividend equivalents converted into additional Stock Units at the
end of each calendar year.
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For purposes of the IUP, the fair market value of the Stock Units is 100% of
the fair market value of the common stock of Providence Journal determined by
reference to the most recent price offered by Providence Journal to purchase
shares under its Quarterly Stock Repurchase Program, or, if no such Program is
in effect, by reference to an appropriate measure of current value as
determined by the Executive Committee, historically, the appraised fair market
value as determined by an independent appraisal firm selected by the Board.
Employee grants under the IUP are subject to a five year vesting schedule at
the rate of 20% per calendar year of employment after the calendar year in
which the grant was made. Director grants vest immediately.
The measure of benefit payable to any grantee upon termination of grantee's
participation in the IUP is the vested portion of the excess, if any, of the
total fair market value of the Stock Units in such grantee's account on the
date of such termination over the fair market value on the date of grant.
Termination of participation in, and valuation under, the IUP occur upon
termination of grantee's employment or service as a director, total disability
or retirement. Amounts payable under the IUP may be made in installments over a
period not to exceed ten years or in one sum, as determined in the discretion
of the Executive Committee. Interest on the unpaid balance of installment
payouts shall be earned at a rate determined by the Executive Committee.
Any grantee who has attained the age of 55 may request liquidation of up to
20% of his or her vested Stock Units in any calendar year. Such special request
may be granted in the sole discretion of the Executive Committee. During 1994,
Mr. Hamblett was granted liquidations of vested stock units in the amount of
$3,957,894. In addition, any grantee may elect to convert his or her vested
Stock Units to fixed dollar deferred compensation beginning at age 55 of up to
10% per year or such other rate as the Executive Committee may approve.
The Executive Committee has determined that the IUP will be terminated and
liquidated upon the next independent appraisal of Providence Journal Class A
Common Stock, which is anticipated to be in mid-1995, but in any event, prior
to the Closing of the Merger. Such liquidation will be paid 2/3 in cash and 1/3
in stock net of taxes. Based upon a stock unit value of $11,489 per unit
(determined as described in the footnote to the table immediately below), the
estimated payout upon termination of the IUP would be approximately $25.6
million. (See the Providence Journal Pro Forma Condensed Balance Sheet,
footnote (7), included herein.)
AGGREGATED SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END SAR VALUES
<TABLE>
<CAPTION>
APPRECIATED VALUE OF
IUP
ACCUMULATED UNITS AT DECEMBER 31, 1994
NAME VESTED/NON-VESTED VESTED/NON-VESTED(1)
---- ----------------- --------------------
<S> <C> <C>
Stephen Hamblett........................ 1,417/55 $12,882,671/$753,348
Trygve E. Myhren........................ 776/22 4,681,043/ 308,751
Jack C. Clifford........................ 512/15 4,218,154/ 216,761
James F. Stack.......................... 240/65 1,240,007/ 404,708
John A. Bowers.......................... 110/76 428,376/ 333,531
</TABLE>
- --------
(1) IUP values are based upon an estimated stock unit value of $11,489 per unit
as of December 31, 1994. Given the absence of a current independent
appraisal and the lack of an established trading market, the Executive
Committee established this estimated value by reference to the nominal
value attributed by Bear Stearns to the Continental Merger Stock and the
Providence Journal's estimate of the pro forma equity value of New
Providence Journal, both as determined in November 1994.
RETIREMENT BENEFITS. The following table illustrates the maximum annual
benefits payable as a single life annuity under the basic benefit formula in
the Providence Journal Pension Plan (see below) to an officer retiring at age
65 with the specified combination of final average salary and years of credited
service.
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PENSION PLAN TABLE
<TABLE>
<CAPTION>
EARNINGS CREDITED
FOR RETIREMENT
BENEFITS YEARS OF SERVICE AT RETIREMENT
----------------- ------------------------------
10 15 20 25
------- --------------- --------------- -------
<S> <C> <C> <C> <C>
150,000....................... 28,177 42,265 53,353 70,442
200,000....................... 38,177 57,265 76,353 95,442
300,000....................... 58,177 87,265 116,353 145,442
400,000....................... 78,177 117,265 156,353 195,442
500,000....................... 98,177 147,265 196,353 245,442
600,000....................... 118,177 177,265 236,353 295,442
700,000....................... 138,177 207,265 276,353 345,442
800,000....................... 158,177 237,265 316,353 395,442
900,000....................... 178,177 267,265 356,353 445,442
1,000,000....................... 198,177 297,265 396,353 495,442
1,100,000....................... 218,177 327,265 436,353 545,442
1,200,000....................... 238,177 357,265 476,353 595,442
</TABLE>
Providence Journal maintains a retirement income plan (the "Providence
Journal Pension Plan") which is a funded, qualified, non-contributory, defined
benefit plan that covers all employees, including executive officers, of
Providence Journal and its subsidiaries. The Providence Journal Pension Plan
provides benefits based on the participant's highest average salary for the 60
consecutive months within the ten years last served with Providence Journal
prior to retirement and the participant's length of service. The amounts
payable under the Providence Journal Pension Plan are in addition to any Social
Security benefit to be received by a Participant. The Providence Journal
Pension Plan benefit vests upon completion of five years of service with
Providence Journal.
As of December 31, 1994, the Providence Journal Named Executive Officers have
the following years of credited service with Providence Journal: Mr. Hamblett,
37 years; Mr. Myhren, 4 years; Mr. Stack, 3 years; Mr. Clifford, 16 years; and
Mr. Bowers, 15 years. However, for purposes of calculating their retirement
benefit in the above table, Mr. Myhren, Mr. Stack and Mr. Clifford are deemed
to have been employed with Providence Journal since age 35. The resulting
benefit for each of these three executive officers would be reduced by an
amount which represents the estimate of benefits under the provisions of the
Providence Journal Retirement Plan based upon the executive officer's years of
service with prior employers. See discussion of Supplemental Retirement Plan,
below.
The amounts shown in the table above have been calculated without reference
to the maximum limitations imposed by the Code on benefits which may be paid,
or on compensation that may be recognized, under a qualified defined benefit
plan. The amounts include the estimated total annual retirement benefits that
would be paid from the Providence Journal Pension Plan and, if applicable, the
Excess Benefit Plan and the Supplemental Retirement Plan.
Providence Journal has established an Excess Benefit Plan to provide pension
benefits for certain employees, including the five Providence Journal Named
Executive Officers. The Excess Benefit Plan provides that each participant will
receive benefits thereunder equal to the difference between the amount such
participant is entitled to receive under the Providence Journal Pension Plan
and the amount he or she would have been entitled to receive without regard to
the maximum limitations imposed by the Code. Participants will be vested under
the Excess Benefit Plan under the same vesting provisions as the Providence
Journal Pension Plan. The Excess Benefit Plan is unfunded.
Providence Journal has also established a Supplemental Retirement Plan to
provide full retirement benefits (less an imputed benefit for service with
previous employers) for any of the five top executive officers of Providence
Journal who retire as employees of Providence Journal and who would not
otherwise receive
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full pension benefits because of a shortened length of service with Providence
Journal. The Supplemental Retirement Plan is unfunded. "Covered Compensation"
for the Providence Journal Named Executive Officers under the Supplemental
Retirement Plan is the total of their salary and bonus payments shown in the
Summary Compensation Table, above.
Providence Journal has established the Journal Qualified Compensation
Deferral Plan (the "Journal 401(k) Plan") to provide a savings incentive for
employees. The Journal 401(k) Plan involves a contribution of up to $10.50/week
by Providence Journal for each participating employee and a matching
contribution of $3 per week for each participant who deducts from 2% to 15% of
pre-tax income. Employees who have completed six months of service with
Providence Journal, including the Providence Journal Named Executive Officers,
are eligible to participate in the Journal 401(k) Plan.
CHANGE OF CONTROL AGREEMENTS. On October 11, 1993, Providence Journal entered
into an agreement with each of Messrs. Hamblett, Myhren, Stack, Clifford and
Bowers, which agreements become effective upon a change in control of
Providence Journal.
In the event of a change in control, each of the agreements with the five
Providence Journal Named Executive Officers provides a three-year term of
employment with responsibilities, compensation and benefits at least
commensurate with those experienced by such officer during the prior six (6)
months. If terminated involuntarily, the individual is entitled to 299% of the
highest annual base salary and average bonus received during the prior three
years (the "Maximum Severance") as a lump sum severance payment. In the event
of a voluntary resignation, the agreement provides a severance benefit equal to
six months of base salary. Dismissal of the officer for cause results in no
severance payment to the individual.
Also on October 11, 1993, Providence Journal agreed to pay the Maximum
Severance in the event any of the above officers was involuntarily terminated
as a result of a corporate restructuring, such as the Plan of Reorganization
and the Merger, even if prior to a change of control. However, the Maximum
Severance will not apply in the case of any termination for cause, for
unsatisfactory performance or as a result of a reduction in staff for economic
reasons. The agreement specifies that if Providence Journal seeks to retain the
officer subsequent to the restructuring, even with diminished responsibilities,
and such executive declines, a severance payment from Providence Journal to the
officer would be discretionary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Providence
Journal has no compensation committee of its Board of Directors but its
Executive Committee performs the functions thereof. The members of the
Executive Committee during 1994 were Messrs. Hamblett, Sharpe, Thorndike, Wall
and Wilmerding. Mr. Hamblett is the Chairman of the Board and Chief Executive
Officer of Providence Journal.
STOCK INCENTIVE PLANS OF PROVIDENCE JOURNAL ASSUMED BY NEW PROVIDENCE JOURNAL
Providence Journal maintains the following Stock Incentive Plans, which, upon
approval of the Providence Journal Proposals by the stockholders of Providence
Journal, will be assumed by New Providence Journal: (i) the 1994 Employee Stock
Option Plan; (ii) the 1994 Non-Employee Director Stock Option Plan; and (iii)
the Restricted Stock Unit Plan. In connection with the Plan of Reorganization
and the Merger, New Providence Journal will assume the 1994 Employee Stock
Option Plan, the 1994 Non-Employee Director Stock Option Plan and the
Restricted Stock Unit Plan and the options and awards outstanding under such
plans. All references therein to Providence Journal and Providence Journal
Class A Common Stock will be deemed to refer to New Providence Journal and New
Providence Journal Class A Common Stock.
1994 EMPLOYEE STOCK OPTION PLAN. The 1994 Employee Stock Option Plan was
adopted by the Board of Directors of Providence Journal effective as of October
1, 1994 and is being submitted for approval by the stockholders of Providence
Journal at its Annual Meeting in April, 1995. If such approval has not occurred
by August 31, 1995, the 1994 Employee Stock Option Plan shall be terminated,
and any option grants previously made shall be void. Assuming that such
stockholder approval is obtained prior to August 31, 1995, and assuming
stockholder approval of the Plan of Reorganization and the Merger at the
Providence Journal
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Special Meeting, the 1994 Employee Stock Option Plan shall remain in effect
until the earlier of five years from October 1, 1994 or termination of the 1994
Employee Stock Option Plan by the Board of Directors of New Providence Journal.
The 1994 Employee Stock Option Plan is intended to provide long-term
incentive compensation and share ownership opportunities to selected key
employees, thereby allowing Providence Journal to attract and retain high
quality key employees. These incentives will contribute to the success of
Providence Journal by further aligning the participants' and stockholders'
interests.
Under the terms of the 1994 Employee Stock Option Plan, key employees
recommended by the Executive Committee of the Board (or by any other committee
appointed by the Board consisting of two or more non-employee Directors), are
eligible to receive grants of stock options. According to the provisions of the
1994 Employee Stock Option Plan, such committee has a wide degree of
flexibility in selecting the participants in the 1994 Employee Stock Option
Plan, determining the size of grants of options, establishing the terms and
conditions of such option grants, amending the terms and conditions of any
outstanding option brought about by any adjustments and reorganizations, as
discussed below (See "Adjustments and Reorganizations"), and otherwise making
such determinations and/or interpretations and establishing such procedures as
may be necessary or advisable for the administration of the 1994 Employee Stock
Option Plan.
Shares Subject to the 1994 Employee Stock Option Plan. The maximum number of
shares of Providence Journal Class A Common Stock that can be used for purposes
of the 1994 Employee Stock Option Plan is 3,750 shares. Of these, no more than
750 such shares may be issued to any one individual. Shares may be awarded from
authorized and unissued shares or from treasury shares, as determined by the
Executive Committee.
Stock Options. Stock options granted under the 1994 Employee Stock Option
Plan are Non-Qualified Stock Options that do not satisfy the criteria of
Section 422 of the Code. The exercise price of any stock option granted under
the 1994 Employee Stock Option Plan shall be the fair market value on the date
of the grant. Subject to the maximum number of shares issuable under the 1994
Employee Stock Option Plan, the Committee shall have discretion in determining
the number of options and shares subject to such options.
The options shall vest and be exercisable at such times and according to such
terms and conditions as determined by the Executive Committee, and the
Executive Committee shall have the authority to accelerate the vesting of any
stock options as it deems appropriate for the 1994 Employee Stock Option Plan
or Providence Journal. The Executive Committee shall also set forth at the time
of grant the terms and conditions of the treatment of any outstanding stock
options in the event of a termination of employment.
All options granted become exercisable in four equal annual installments
beginning one year after the grant date. The option term is ten years.
Change of Control Benefits. Upon a "Change of Control" of Providence Journal
(defined in the 1994 Employee Stock Option Plan to include (i) a change of
control of Providence Journal of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A (or similar
schedule) of the Exchange Act; (ii) Providence Journal becoming a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which the then-current Directors constitute less
than a majority of the Board thereafter; (iii) a series of events over a period
of 24 consecutive months in which Directors at the beginning of that time do
not constitute at least a majority of the Board; or (iv) any person becomes
beneficial owner of securities of Providence Journal representing 20% or more
of the combined voting power of Providence Journal's then outstanding
securities, unless the Board has approved such acquisition, but not in excess
of 50% of the combined voting power) stock options granted under the 1994
Employee Stock Option Plan will become immediately vested and exercisable,
irrespective of the original vesting schedule or any attempt by the Executive
Committee to alter this right of immediate vesting. The Plan of Reorganization
does not constitute a Change of Control for purposes of the 1994 Employee Stock
Option Plan. Upon consummation of the Merger, the 1994 Employee Stock Option
Plan will be assumed by New Providence Journal.
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Adjustments and Reorganization. In the event of a merger, reorganization,
consolidation, recapitalization, share combination, stock dividend, stock
split, spin-off or other distribution (other than normal cash dividends) of
Providence Journal's assets to its stockholders, or other change in the
structure of Providence Journal affecting its shares, such appropriate
adjustments shall be made (i) in the aggregate number and class of shares which
may be issued under the 1994 Employee Stock Option Plan, and (ii) the number
and class of and/or price of shares subject to outstanding options granted
under the 1994 Employee Stock Option Plan, as deemed appropriate by the
Executive Committee in its discretion, to prevent the dilution or enlargement
of rights to any participant.
Tax Aspects. The following is a brief description of the federal tax
treatment that will generally apply to awards made under the 1994 Employee
Stock Option Plan, based on federal income tax laws in effect on the date
hereof. The exact federal income tax treatment of awards will depend on the
specific nature of any such award.
The 1994 Employee Stock Option Plan allows for grants of Non-Qualified Stock
Options that do not satisfy the criteria of Section 422 of the Code. The grant
of such option to acquire stock is generally not a taxable event for the
optionee. Upon exercise of the option, the optionee will generally recognize
ordinary income in an amount equal to the excess of the fair market value of
the stock acquired upon exercise (determined as of the date of exercise) over
the exercise price of such option, and Providence Journal will be entitled to a
deduction equal to such amount.
Special rules will apply, however, if, upon registration of New Providence
Journal's stock, the optionee is subject to Section 16 of the Exchange Act and
the option is exercised during the period within six months after the time the
option is granted (the "Section 16(b) Period"), when a sale of stock acquired
upon exercise of the option could subject such optionee to suit under Section
16. In such case, the optionee would not recognize ordinary income, and New
Providence Journal would not be entitled to a deduction until the expiration of
the Section 16(b) Period. Upon such expiration, the optionee would recognize
ordinary income, New Providence Journal would be entitled to a deduction, equal
to the excess of the fair market value of the stock (determined as of the
expiration of the Section 16(b) Period) over the option exercise price. Such an
optionee may elect under Section 83(b) of the Code to recognize ordinary income
on the date of exercise, in which case New Providence Journal would be entitled
to a deduction at that time equal to the amount of the ordinary income
recognized.
Upon registration of New Providence Journal stock under Section 12 of the
Exchange Act, Section 162(m) of the Code limits to $1 million the deductibility
of compensation received in a year by New Providence Journal's chief executive
officer or by any one of the other four most highly compensated officers,
unless such compensation qualifies as "performance-based" or falls within other
exemptions under Section 162(m). Awards under the 1994 Employee Stock Option
Plan will be deemed to qualify as "performance-based compensation," in which
case New Providence Journal would be entitled to a deduction for compensation
paid in the same amount as income is realized by the employee without any
reduction under Section 162(m) of the Code.
Rule 16b-3. Upon registration of New Providence Journal stock under Section
12 of the Exchange Act, pursuant to Section 16(b) of the Exchange Act,
Directors, certain officers and 10% stockholders of New Providence Journal
would be generally liable to New Providence Journal for repayment of any
"short-swing" profits realized from any non-exempt purchase and sale of New
Providence Journal stock occurring within a six-month period. Rule 16b-3,
promulgated under the Exchange Act, provides an exemption from Section 16(b)
liability for certain transactions by an officer or director pursuant to an
employee benefit plan that complies with such Rule. Specifically, the grant of
an option under an employee benefit plan that complies with Rule 16b-3 will not
be deemed a purchase of a security and the actual or deemed sale of shares in
connection with certain option exercises will not be deemed a sale for Section
16(b) purposes. The 1994 Employee Stock Option Plan is designed to comply with
Rule 16b-3.
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THE 1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. The 1994 Non-Employee
Director Stock Option Plan was adopted by the Board of Directors of Providence
Journal effective on October 1, 1994 and is being submitted for approval by the
stockholders of Providence Journal at its Annual Meeting in April, 1995. If
such approval has not occurred by August 31, 1995, the 1994 Non-Employee
Director Stock Option Plan shall be terminated, and any option grants
previously made shall be void. Assuming that such stockholder approval is
obtained prior to August 31, 1995, and assuming stockholder approval of the
Plan of Reorganization and the Merger at the Providence Journal Special
Meeting, the 1994 Non-Employee Director Stock Option Plan shall remain in
effect until the earlier of five years from October 1, 1994 or termination of
the 1994 Non-Employee Director Stock Option Plan by the Board of Directors of
New Providence Journal.
The 1994 Non-Employee Director Stock Option Plan is intended to provide long-
term incentive compensation and share ownership opportunities to non-employee
Directors, thereby helping Providence Journal to attract and retain high
quality directors. These incentives will contribute to the success of
Providence Journal by providing a greater identity of interest between the
Directors and stockholders.
Under the terms of the 1994 Non-Employee Director Stock Option Plan, the non-
employee Directors are eligible to receive grants of stock options. All ten
non-employee Directors participate in the plan automatically and will continue
to participate in the 1994 Non-Employee Director Stock Option Plan immediately
after October 1, 1994.
Shares Subject to the 1994 Non-Employee Director Stock Option Plan. The
maximum number of shares of Providence Journal Class A Common Stock that can be
used for purposes of the 1994 Non-Employee Director Stock Option Plan is 250
shares. Shares may be awarded from authorized and unissued shares or from
treasury shares, as determined by the Executive Committee.
Stock Options. Stock options granted under the 1994 Non-Employee Director
Stock Option Plan are non-qualified stock options that do not satisfy the
criteria of Section 422 of the Code. Each non-employee Director received a
stock option to purchase five shares of Providence Journal Class A Common Stock
on October 1, 1994 and will receive a stock option to purchase five additional
shares of New Providence Journal Class A Common Stock on each subsequent
October 1st each year the plan is in effect. The exercise price of any stock
option granted under the 1994 Non-Employee Director Stock Option Plan will be
100% of the fair market value on the date of grant. Each stock option shall
have a term of ten years and shall become initially exercisable on the first
anniversary of the grant date.
When a Director ceases to be a member of the Board, each option held by such
Director shall continue to be exercisable for a period of three years or the
end of the original term, whichever is first to occur.
Change of Control Benefits. Upon a "Change of Control" of Providence Journal
(defined in the 1994 Non-Employee Director Stock Option Plan to include (i) a
change of control of Providence Journal of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or
similar schedule) of the Exchange Act; (ii) Providence Journal becoming a party
to a merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which the then-current Directors constitute less
than a majority of the Board thereafter; (iii) a series of events over a period
of 24 consecutive months in which Directors at the beginning of that time do
not constitute at least a majority of the Board; or (iv) any person becomes
beneficial owner of securities of Providence Journal representing 20% or more
of the combined voting power of Providence Journal's then outstanding
securities, unless the Board has approved such acquisition, but not in excess
of 50% of the combined voting power) stock options granted under the 1994 Non-
Employee Director Stock Option Plan will become immediately exercisable. The
Plan of Reorganization does not constitute a Change of Control for purposes of
the 1994 Non-Employee Director Stock Option Plan. Upon consummation of the
Merger, the 1994 Non-Employee Director Stock Option Plan will be assumed by New
Providence Journal.
Adjustments and Reorganization. In the event of a merger, reorganization,
consolidation, recapitalization, share combination, stock dividend, stock
split, spin-off or other distribution (other than
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normal cash dividends) of Providence Journal's assets to its stockholders, or
other change in the structure of Providence Journal affecting its shares, such
appropriate adjustments shall be made (i) in the aggregate number and class of
shares which may be issued under the 1994 Non-Employee Director Stock Option
Plan, and (ii) the number and class of and/or price of shares subject to
outstanding options granted under the 1994 Non-Employee Director Stock Option
Plan, as deemed appropriate by the Executive Committee in its discretion, to
prevent the dilution or enlargement of rights to any participant.
Tax Aspects. The tax consequences of options granted under the 1994 Non-
Employee Director Stock Option Plan are the same as that of options granted
under the 1994 Employee Stock Option Plan, as discussed above under the heading
"1994 Employee Stock Option Plan--Tax Aspects".
Rule 16b-3.The 1994 Non-Employee Director Stock Option Plan is designed to
comply with Rule 16b-3. (See "1994 Employee Stock Option Plan--Rule 16b-3".)
RESTRICTED STOCK UNIT PLAN. The Board of Directors of Providence Journal
approved awards under the Restricted Stock Unit Plan on October 1, 1993. The
purpose of the Restricted Stock Unit Plan is to provide a significant incentive
opportunity based on stockholder value to retain key management during the
reorganization of Providence Journal.
Administration. The Restricted Stock Unit Plan is administered by the
Executive Committee of the Board of Directors.
Shares. A maximum of 680 shares of Providence Journal Class A Common Stock
may be awarded under the Restricted Stock Unit Plan. Shares awarded under the
Restricted Stock Unit Plan may be either shares reacquired by Providence
Journal, including shares purchased in the open market, or authorized but
previously unissued shares. Shares forfeited by participants under the
Restricted Stock Unit Plan may be awarded to other participants under such
plan.
Participation. Shares under the Restricted Stock Unit Plan may be awarded to
key employees, including officers of Providence Journal and its subsidiaries.
Restricted Stock Unit Awards. Grants under the Restricted Stock Unit Plan are
structured so that each award is equivalent to one share of Providence Journal
Class A Common Stock. Dividend equivalents accrue on the awards prior to payout
and are deemed to be reinvested in additional shares.
Vesting. Grants under the Restricted Stock Unit Plan, including additional
awards accrued as a result of dividends and the reinvestment of dividends will
be 100% vested at the end of three years, except in the case of certain
acceleration provisions. Upon vesting, the awards will be paid out, net of
withholding, in actual shares of New Providence Journal Class A Common Stock.
Acceleration of Vesting. Vesting of the awards under the Restricted Stock
Unit Plan will be accelerated in the event of death, total disability, or
retirement (with pro rata distribution) and upon termination of employment of
the participant when initiated by Providence Journal other than for cause.
Termination for any other reason will result in forfeiture of the unvested
grants.
Deferral of Payment. Participants will be offered the opportunity to defer
receipt of the payout of vested awards. Participants may elect this voluntary
deferral prior to the commencement of the third year of the vesting period.
Deferred amounts will be paid out in actual shares at the time of retirement,
termination of employment, or after a specific period of time, at the election
of the participant. During the deferral period, the grants under the Restricted
Stock Unit Plan free of restrictions will continue to accrue and reinvest
dividends.
Federal Income Tax Features. Under current law, no taxable income for federal
income tax purposes will be realized by participants who receive awards of
shares during the year in which they are awarded. At the time the shares are
vested and received by the participant free of restrictions, the participant is
subject to federal income tax for the fair market value of the stock at the
time of the vesting. The participant will receive a reduced number of shares to
account for the payment of his or her income tax obligation. Participants who
defer receipt of the awards under the Restricted Stock Unit Plan free of
restrictions will delay the recognition of the shares' value as ordinary income
until such time as the shares are received.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Providence Journal's compensation of senior executives is administered by the
five member Executive Committee of the Board of Directors. Four members of the
Executive Committee are non-employee Directors. The sole employee member, Mr.
Hamblett, makes recommendations to the Executive Committee but does not vote on
compensation matters. The Executive Committee, with the assistance of an
external compensation consultant, develops and adopts executive compensation
policy, as well as annual compensation for senior management, subject, in some
cases, to ratification by Providence Journal's Board of Directors.
Compensation policy is structured to attract, motivate and retain high
quality management talent. Principal components of executive compensation
include: base salary, annual performance-based bonus, and long-term incentive
compensation, which historically has been in the form of incentive stock units.
Compensation for the Chief Executive Officer, as well as other corporate
executive officers, is established annually by recommendation of the Executive
Committee to the Board of Directors. Base salary is established based upon
similar positions at other media companies of a comparable size. A
comprehensive media industry salary survey is utilized in addition to weighing
such factors as an individual's qualifications, experience, responsibilities,
and performance.
Incentive compensation focuses on both short and long-term performance:
a. The annual bonus plan is based upon Providence Journal's earnings
before interest, depreciation, and taxes (EBIT). In addition, the Executive
Committee has discretion to increase or decrease the bonus earned for EBIT
performance based upon accomplishment of individual non-financial
objectives.
b. Long-term incentive opportunity has been provided by the Incentive
Stock Unit Plan. An explanation of the plan is provided as part of the
Incentive Stock Unit Plan table. This long-term plan is intended to
encourage ownership and have executives share stockholder interests in
Providence Journal's performance. The plan also promotes long-term
retention of participating executives.
In the past three years, several actions (described below) were taken by the
Executive Committee to increase the performance-based component of total
compensation for the CEO and top four corporate executives. Frederic W. Cook &
Company, Inc., an independent compensation consulting firm, was retained by the
Executive Committee to evaluate all aspects of executive compensation.
a. base salaries were not increased in 1993, 1994, and 1995.
b. shares of Providence Journal stock were awarded in lieu of base salary
increases in 1993 only.
c. since 1993, the annual bonus opportunity was increased from 50 percent to
60 percent of salary, to be earned based upon Providence Journal's actual EBIT
as compared to EBIT objectives.
d. in 1993, a restricted stock unit plan was implemented to further
stockholder interests and in a particular effort to retain management during
the reorganization of Providence Journal. At the end of three years,
compensation is paid in company stock, net of taxes.
e. in 1994, Providence Journal implemented non-qualified stock option plans
as a more relevant and competitive long-term incentive. The plans will replace
the IUP. These plans, the "Providence Journal 1994 Stock Option Plan" and the
"Providence Journal 1994 Non-Employee Director Stock Option Plan" will be
presented for stockholder approval at the 1995 Annual Meeting.
This report has been submitted by the members of the Executive Committee:
Henry D. Sharpe, Jr. (Chairman)
Stephen Hamblett
W. Nicholas Thorndike
John W. Wall
Patrick R. Wilmerding
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STOCKHOLDER RETURN PERFORMANCE GRAPH
The following line graph is a comparison based on an initial $100 investment
of the yearly percentage change in Providence Journal's cumulative total
stockholder return with the cumulative total return of the Standard & Poor's
500 Stock Index and the cumulative total return of a group of peer issuers.
Providence Journal Common Stock is not traded on a public exchange. Valuations
for this graph for the years 1989 through 1993 have been based upon an annual
fair market appraisal of an independent appraisal firm. The value for 1994 is
based upon an estimated stock price of $11,489 per share as of December 31,
1994. Given the absence of a current independent appraisal and the lack of an
established trading market, the Executive Committee established this estimated
value by reference to the nominal value attributed by Bear Stearns to the
Continental Merger Stock and Providence Journal's estimate of the pro forma
equity values of New Providence Journal both as determined in November 1994.
The peer group includes Meredith Corporation, Multimedia Corporation, The New
York Times Company, Times Mirror Company, Tribune Company and The Washington
Post Company.
[GRAPH APPEARS HERE]
$100 invested 12/31/89
<TABLE>
<CAPTION>
Industry
Year-end PJC Index S&P*
-------- --- ----- ----
<S> <C> <C> <C>
1988 NA NA $ NA
1989 $100.00 $100.00 $100.00
1990 $102.57 $ 75.68 $ 96.83
1991 $131.34 $ 85.72 $126.41
1992 $127.12 $ 98.43 $136.11
1993 $156.42 $112.87 $149.70
1994 $207.55 $106.12 $151.68
</TABLE>
For purposes of the graph, it was assumed that $100 was invested in Providence
Journal Common Stock, the S & P 500 Stock Index and the Peer Group which is
also weighted by market capitalization. Dividends are assumed to be reinvested.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of Edwards & Angell, of which Mr. Harris is a partner,
regularly performs legal services for Providence Journal. Edwards & Angell has
acted as Providence Journal's principal counsel for over 60 years.
OWNERSHIP OF PROVIDENCE JOURNAL CAPITAL STOCK AND NEW PROVIDENCE JOURNAL
CAPITAL STOCK
Information relating to the ownership of Providence Journal Common Stock is
set forth in "The Special Meetings--Ownership of Providence Journal
Securities". Following the Reorganization and the Merger, holders of shares of
Providence Journal Common Stock immediately prior to the Reorganization who
have not exercised and perfected dissenters' rights under the RIBCA will own
shares of New Providence Journal Common Stock constituting 100% of the equity
and voting power of New Providence Journal, in the same proportion (and of the
same class and amount) as shares of Providence Journal Common Stock which had
been held as of such date.
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DESCRIPTION OF NEW PROVIDENCE JOURNAL COMMON STOCK
Immediately prior to the PJC Spin-Off, New Providence Journal will be
authorized to issue 900,000 shares of capital stock consisting of: (i) 600,000
shares of New Providence Journal Class A Common Stock, 38,689 of which will be
issued pursuant to the PJC Spin-Off and the Merger and 450,000 shares of which
may be issued upon the exercise of rights issued pursuant to a Rights Agreement
dated as of February 1, 1995. (See "NPJ Rights Agreement".) and (ii) 300,000
shares of New Providence Journal Class B Common Stock, 46,961 of which will be
issued pursuant to the PJC Spin-Off and the Merger and 225,000 of which may be
issued upon the exercise of rights issued pursuant to the NPJ Rights Agreement.
NEW PROVIDENCE JOURNAL COMMON STOCK
GENERAL. The New Providence Journal Certificate is set forth as Exhibit I to
the Plan of Reorganization, which is Annex II hereto and is identical in all
material respects to the Providence Journal Charter. The rights, privileges and
preferences of New Providence Journal Class A Common Stock and New Providence
Journal Class B Common Stock are identical in all respects to the rights,
privileges and preferences of Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock, respectively.
VOTING. Each share of New Providence Journal Class A Common Stock entitles
the holder thereof to one vote on all matters submitted to the stockholders and
each share of New Providence Journal Class B Common Stock entitles the holder
thereof to four votes on all such matters. Except as set forth below and except
as may otherwise be required by law, all actions submitted to a vote of New
Providence Journal's stockholders will be voted on by holders of New Providence
Journal Class A Common Stock and New Providence Journal Class B Common Stock
together as a single class. The affirmative vote of the holders of a majority
of the outstanding shares of New Providence Journal Class A Common Stock and
New Providence Journal Class B Common Stock, voting separately as a class, is
required (i) to approve any amendment to the New Providence Journal Certificate
that would alter or change the powers, preferences or special rights of such
series so as to affect it adversely and (ii) to approve such other matters as
may require class votes under the DGCL.
DIVIDENDS AND OTHER DISTRIBUTIONS (INCLUDING DISTRIBUTIONS UPON LIQUIDATION
OR SALE). Each share of New Providence Journal Class A Common Stock and New
Providence Journal Class B Common Stock will be equal in respect of dividends
and other distributions in cash, stock or property (including distributions
upon liquidation of New Providence Journal and consideration to be received
upon a merger or consolidation of New Providence Journal or a sale of all or
substantially all of New Providence Journal's assets), except a dividend
payable in shares of New Providence Journal Class B Common Stock to holders of
New Providence Journal Class B Common Stock and in shares of New Providence
Journal Class A Common Stock to the holders of New Providence Journal Class A
Common Stock shall be deemed to be shared equally among both classes. No
dividend shall be declared or paid in shares of New Providence Journal Class B
Common Stock except to holders of New Providence Journal Class B Common Stock,
but dividends may be declared and paid, as determined by the Board of
Directors, in shares of New Providence Journal Class A Common Stock to all
holders of New Providence Journal Common Stock.
TRANSFERABILITY OF SHARES. New Providence Journal Class A Common Stock is
freely transferable, subject to New Providence Journal's right of first
refusal. (See "Right of First Refusal".) New Providence Journal Class B Common
Stock is not transferable by a stockholder except to or among, principally,
such holder's spouse, parents or a lineal descendant of a parent, certain
trusts established for their benefit and certain corporations. Further, any
securities convertible into shares of New Providence Journal Class B Common
Stock or which carry a right to subscribe to or acquire shares of New
Providence Journal Class B Common Stock are subject to the same restrictions on
transfer applicable to New Providence Journal Class B Common Stock described
above. The New Providence Journal Class B Common Stock is, however,
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convertible at the holder's option at all times, without cost to the
stockholder, into New Providence Journal Class A Common Stock on a share-for-
share basis.
PREEMPTIVE RIGHTS. Stockholders of New Providence Journal will have
preemptive rights to acquire authorized but unissued shares or securities
convertible into shares or carrying a right to subscribe to or acquire shares
to the extent provided in, and as limited by, the DGCL and the New Providence
Journal Certificate, as in effect from time to time, but in no event shall
stockholders (i) have preemptive rights to acquire treasury shares of New
Providence Journal upon their reissuance, (ii) have any rights to acquire New
Providence Journal Class A Common Stock issued upon conversion of New
Providence Journal Class B Common Stock as discussed above, or (iii) have
rights to acquire shares which are contrary to the provisions of the NPJ Rights
Agreement, or another agreement which New Providence Journal's Board of
Directors determines to be substantially similar to the NPJ Rights Agreement.
RIGHT OF FIRST REFUSAL. The sale of any New Providence Journal Common Stock,
or the sale of securities convertible into, or which carry a right to subscribe
to or acquire, shares of New Providence Journal Common Stock, is subject to New
Providence Journal's right of first refusal to purchase the shares or
securities at the lowest price at which the stockholder is willing to sell such
stock.
CERTAIN PROVISIONS IN THE NEW PROVIDENCE JOURNAL CERTIFICATE
The New Providence Journal Certificate and the New Providence Journal By-Laws
are substantially identical to the Providence Journal Charter and the
Providence Journal By-Laws, except for requirements under Delaware Law.
Accordingly, the New Providence Journal Certificate and the New Providence
Journal By-Laws provide for indemnification of Directors and officers to the
fullest extent permitted by applicable law, and contain various antitakeover
provisions intended to (i) promote stability of New Providence Journal's
stockholder base and (ii) render more difficult certain unsolicited or hostile
attempts to take over New Providence Journal, which could disrupt New
Providence Journal, divert the attention of New Providence Journal's Directors,
officers and employees and adversely affect the independence and integrity of
New Providence Journal's media operations. A summary of the principal
antitakeover provisions is set forth below.
CLASSIFIED BOARD OF DIRECTORS, REMOVAL OF DIRECTORS AND RELATED
MATTERS. Pursuant to the New Providence Journal Certificate, the Board shall
consist of twelve members and will be divided into three classes, each class to
be equal in number. The terms of office of Directors will expire, respectively,
at the annual meetings of stockholders in 1996, 1997 and 1998. Successors to
any Directors whose terms are expiring are elected to three-year terms and hold
office until their successors are elected and qualified. The New Providence
Journal Certificate also provides that Directors of New Providence Journal may
be removed at any time, without cause, and only by an affirmative vote of the
holders of at least 80% of the combined voting power of the then outstanding
shares of stock of all classes entitled to vote generally in the election of
Directors cast at a meeting of stockholders called for the purpose of such
removal; provided, however, such 80% vote shall not be required for any such
removal recommended to the stockholders by the vote of not less than two-thirds
of the whole Board of Directors.
INCREASED STOCKHOLDER VOTE REQUIRED IN CERTAIN BUSINESS COMBINATIONS AND
OTHER TRANSACTIONS. The New Providence Journal Certificate provides that in
addition to any vote ordinarily required under Delaware Law, the affirmative
vote of (i) not less than two-thirds of the whole Board of Directors or (ii) if
subsection (i) above is not fully complied with, the holders of at least 80% of
the combined voting power of the then outstanding shares of stock of all
classes entitled to vote generally in the election of Directors would be
required to approve certain business combinations.
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RELEVANT FACTORS TO BE CONSIDERED BY THE BOARD. The New Providence Journal
Certificate provides that prior to voting with regard to any business
combination, the Board shall consider all relevant factors, including, but not
limited to, (i) freedom of the press, (ii) the independence and integrity of
New Providence Journal's ability to publish an independent, high quality,
comprehensive newspaper and to freely conduct its other operations to the
advantage of the customers and markets served, (iii) the social and economic
effects of the transactions on stockholders, employees, customers, suppliers
and other constituents of New Providence Journal and its subsidiaries, (iv) the
economic strength, business reputation, managerial ability and recognized
integrity of the party proposing the business combination and (v) the effects
on the communities served by New Providence Journal's newspapers and by its
other operations.
AMENDMENT OF CERTAIN CHARTER AND BY-LAW PROVISIONS. The New Providence
Journal Certificate provides that any alteration, amendment, repeal or
rescission of certain sections of the New Providence Journal Certificate must
be approved by the affirmative vote of the holders of at least 80% of the
combined voting power of the then outstanding shares of stock of all classes
entitled to vote generally in the election of Directors, cast at a meeting of
the stockholders called for the purpose of amending, altering, changing,
repealing or adopting any provisions inconsistent with the existing section;
provided, however, such requirement shall not apply if the amendment,
alteration, change, repeal or adoption shall be recommended to the stockholders
by the vote of not less than two-thirds of the entire Board of Directors and
shall instead require only the vote, if any, required by the applicable
provisions of Delaware Law.
NPJ RIGHTS AGREEMENT
New Providence Journal is a party to the NPJ Rights Agreement with The First
National Bank of Boston, as Rights Agent, dated as of February 1, 1995 pursuant
to which the Board of Directors of New Providence Journal authorized the
issuance of one Class A right (a "Class A Right") with respect to each share of
New Providence Journal Class A Common Stock and one Class B right (a "Class B
Right") with respect to each share of New Providence Journal Class B Common
Stock to the holders of record at the close of business on the date of the PJC
Spin-Off. In addition a Right shall be issued with respect to any share of New
Providence Journal Common Stock that shall become outstanding between the PJC
Spin-Off and the earlier of the Distribution Date or the Expiration Date (both
as hereinafter defined). The Class A Rights and the Class B Rights
(collectively, the "Rights") can be transferred only in connection with the
transfer of the New Providence Journal Common Stock.
As soon as practicable after the Distribution Date, the Rights Agent shall
send to the record holders of New Providence Journal Common Stock at the close
of business on the Distribution Date a Rights certificate. "Distribution Date"
means the earlier of (i) the tenth business day after the commencement of a
tender or exchange offer under the Exchange Act for a number of shares of the
New Providence Journal Common Stock having 15% or more of the voting power,
unless during such ten business day period the Board of Directors of New
Providence Journal declares that the tenth business day following such tender
or exchange offer shall not be a Distribution Date or (ii) the tenth business
day after a Stock Acquisition Date. A "Stock Acquisition Date" means the first
date of public announcement (or determination by New Providence Journal,
whether or not announced publicly) by an acquiror (unless approved by the New
Providence Journal Board of Directors or having certain prior relationships
with New Providence Journal) that it has become the beneficial owner of 10% or
more of the voting power of New Providence Journal.
Subject to certain conditions, the holder of any Rights certificate may
exercise the Rights evidenced thereby at any time after the date on which New
Providence Journal's right to redeem has expired upon surrender of the Rights
certificate to the Rights Agent, together with payment of the purchase price,
on or prior to January 31, 2005 (the "Expiration Date"). The initial purchase
price to a holder for a share of New Providence Journal Class A Common Stock or
New Providence Journal Class B Common Stock pursuant to the exercise of either
a Class A Right or Class B Right will be fixed at a number which is
approximately one half of the market value of the New Providence Journal Common
Stock, subject to adjustment from time to time as provided in Sections 11 and
13 of the NPJ Rights Agreement. The purchase price may be adjusted as
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a result of, among other things, the declaration of a dividend, the combination
of outstanding New Providence Journal Class A Common Stock and New Providence
Journal Class B Common Stock into a smaller number of shares or the issuance of
shares in connection with a reclassification. The Board of Directors of New
Providence Journal may elect to redeem all but not less than all of the then
outstanding Rights at a redemption price of $.01 per Right, as such amount may
be adjusted to reflect any combination or subdivision of the outstanding New
Providence Journal Common Stock or any similar transaction, at any time up to
and including the tenth business day after a Stock Acquisition Date.
In the event that on or after a Stock Acquisition Date:
(i) any company shall merge into New Providence Journal or any of its
subsidiaries or otherwise combine with New Providence Journal or any of its
subsidiaries and New Providence Journal or such subsidiary shall be the
continuing and surviving corporation of such merger or combination; or
(ii) any person shall sell or otherwise transfer assets to New Providence
Journal in exchange for 50% or more of the shares of any class of capital
stock of New Providence Journal or any of its subsidiaries, and any class
of New Providence Journal Common Stock shall remain outstanding and
unchanged; or
(iii) any person shall become the beneficial owner of a number of shares
of the outstanding New Providence Journal Common Stock having 15% or more
of the voting power of New Providence Journal;
and in certain other circumstances, the Board of Directors of New Providence
Journal shall order an exchange of New Providence Journal Common Stock for all
or part of the then outstanding and exercisable Rights at an exchange ratio of
three shares of New Providence Journal Class A Common Stock per Class A Right
and three shares of New Providence Journal Class B Common Stock per Class B
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction. Pursuant to the New Providence Journal Certificate,
approximately 75% of the shares of each of New Providence Journal Class A
Common Stock and New Providence Journal Class B Common Stock are set aside for
issuance under the NPJ Rights Agreement.
If at any time on or after a Stock Acquisition Date, New Providence Journal
merges into another company or another company merges into New Providence
Journal or if New Providence Journal shall sell or transfer assets or earning
power aggregating more than 50% of the assets or earning power of New
Providence Journal, each holder of a Right shall have the right to receive such
number of shares of common stock of the acquiring company as shall have a value
equal to twice the value of New Providence Journal Common Stock held by such
holder.
The acquiring company shall be liable for, and shall assume by virtue of the
merger, all obligations and duties of New Providence Journal pursuant to the
NPJ Rights Agreement. Under the NPJ Rights Agreement, the acquiring company
shall take the necessary steps to reserve sufficient authorized but unissued
capital stock to permit the exercise by New Providence Journal stockholders of
their rights under the NPJ Rights Agreement.
The Rights certificates can be transferred, split up, combined or exchanged;
however, no person holding Class B Rights may transfer except to a Permitted
Transferee (as defined in the NPJ Rights Agreement). Any purported transfer of
Class B Rights other than to a Permitted Transferee shall be null and void and
of no effect and the purported transfer by the holder of the Class B Rights
will result in immediate and automatic conversion of the Class B Rights of such
holder to Class A Rights.
New Providence Journal shall have the right of first refusal to purchase any
Rights at the lowest price said holder is willing to sell before the same shall
be sold by such party to another party.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF
PROVIDENCE JOURNAL AND NEW PROVIDENCE JOURNAL
If the PJC Spin-Off contemplated by the Plan of Reorganization is completed,
holders of Providence Journal Class A Common Stock and Providence Journal Class
B Common Stock will become holders of the same number of shares of New
Providence Journal Class A Common Stock and New Providence Journal Class B
Common Stock and the rights of the former Providence Journal stockholders will
be governed by Delaware Law, the New Providence Journal Certificate and the New
Providence Journal By-Laws. In addition, the holders of rights under the Rights
Agreement will hold the same rights under the NPJ Rights Agreement. The New
Providence Journal Certificate will be identical in all material respects to
the Providence Journal Charter. The rights, privileges and preferences of New
Providence Journal Class A Common Stock and New Providence Journal Class B
Common Stock specified in the New Providence Journal Certificate will be
identical in all respects to the rights, privileges and preferences of
Providence Journal Class A Common Stock and Providence Journal Class B Common
Stock specified in the Providence Journal Charter, respectively. For a
discussion of a comparison of rights of stockholders under Rhode Island Law and
stockholders under Delaware Law, see "Comparison of Rights of Stockholders of
Providence Journal and Continental".
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DESCRIPTION OF PROVIDENCE JOURNAL CABLE TELEVISION BUSINESS
BUSINESS
As measured by basic cable subscribers, Providence Journal Cable is currently
the 16th largest multiple cable system operator in the United States. As of
December 31, 1994, Providence Journal Cable owned and managed cable television
systems passing approximately 1,253,000 Homes and serving approximately 771,000
basic subscribers/1/ in nine states.
Providence Journal Cable's goal is to acquire and retain customers that will
subscribe to a broad range of video services. This is achieved through the
formation of regional system clusters, development of technologically advanced
systems and a strong commitment to customer service and community relations.
CABLE TELEVISION BUSINESS
Cable television delivers a wide variety of channels of television
programming, primarily video entertainment and informational programming, to
subscribers who pay a monthly fee for the service they receive. Television and
radio signals are received off-air or via satellite delivery by antennas,
microwave relay stations and satellite earth stations and are modulated,
amplified and distributed over a network of coaxial and fiber-optic cable to
the subscribers' television sets. Cable television systems typically are
constructed and operated pursuant to non-exclusive franchises awarded by local
governmental authorities for specified periods of time.
Providence Journal Cable's systems offer subscribers choices of services, any
of which may include television signals available off-air in any locality,
television signals from distant cities (so-called "super stations"), non-
broadcast channels (such as Entertainment and Sports Programming Network
("ESPN"), Cable News Network ("CNN"), Cable Satellite Public Affairs Network
("C-SPAN"), The USA Network ("USA") and MTV: Music Television ("MTV")),
displays of information such as time, news, weather and stock market reports
and public, educational and governmental access channels. Providence Journal
Cable's systems also provide premium television services to their subscribers
for an extra monthly charge. These services (including Home Box Office ("HBO"),
Cinemax, Showtime, The Movie Channel, The Disney Channel and regional sports
channels) feature full-length motion pictures without commercial interruption,
sporting events, concerts and other entertainment programming. In addition,
many of Providence Journal Cable's systems offer digital audio services as a
separate premium service.
Providence Journal Cable, like other cable television operators, offers to
its subscribers multiple channels of television programming, consisting
primarily of video entertainment, sports and news, as well as informational
services, locally originated programming and digital audio programming.
Although services vary from system to system because of differences in channel
capacity and viewer interest, each of Providence Journal Cable's systems
typically offers a basic package, a second tier of cable programming services,
four a la carte services which are also offered in a grouping which Providence
Journal Cable considers a "new product tier" under recent FCC rulings, four to
six optional premium services, 30 channels of digital audio programming and two
to four pay-per-view channels. Subscribers are required by federal law to
purchase the basic service package in order to be able to purchase any other
services. (See "Legislation and Regulation--Federal Regulation".)
- --------
/1/A "basic subscriber" means a person who subscribes, at a minimum, to
Providence Journal Cable's basic tier, which consists of broadcast
television signals available locally off-air, local origination and public,
educational and governmental access channels. Bulk subscribers are accounted
for on an "equivalent billing unit" basis, by dividing aggregate bulk-billed
service revenues by the stated basic service rate. Bulk service revenues
include charges for bulk basic programming and bulk non-premium cable
programming services. The number of residential subscribers minus the number
of courtesy accounts is added to the bulk equivalent to determine the total
subscriber number. The number shown includes 100% of subscribers from
certain systems that are currently partially owned, but which are
anticipated to be wholly owned at the Effective Time.
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Providence Journal Cable offers basic services generally consisting of
television signals available locally off-air, some superstations and local
origination and public, educational and governmental access channels.
Advertiser-supported cable programming services are available typically on an
additional tier. In furtherance of Providence Journal Cable's strategy of
providing maximum choice to its subscribers, Providence Journal Cable offers a
variety of tiers and premium services. See "Legislation and Regulation" for a
description of recent legislation and pending regulation that limit Providence
Journal Cable's ability to price and tier its programming services.
Providence Journal Cable's revenues are derived principally from monthly
subscription fees. Rates charged to subscribers vary from market to market. At
December 31, 1994, Providence Journal Cable's monthly rates for basic cable
service averaged $10.52 company-wide with a low of $6.92 and a high of $19.46,
second tier cable programming service rates averaged $7.59 with a range of
$3.04 to $14.86, a la carte rates averaged $0.86 per channel with a low of
$0.30 and a high of $1.58, and premium service rates ranged from $6.95 to
$12.55 per service. Providence Journal Cable also offers combinations of
selected services at discounted prices. Providence Journal Cable generally
charges monthly fees for converters, program guides, and descrambling and
remote control tuning devices. Subscribers are free to terminate service at any
time without additional charge, but are charged a reconnection fee to resume
service.
In addition to subscriber fees, Providence Journal Cable derives revenues
from the sale of advertising time on advertising-supported, satellite-delivered
networks such as ESPN, MTV and CNN, as well as on locally originated
programming. Providence Journal Cable's advertising revenues increased from
$8.6 million in 1989 to $17.4 million in 1994, representing a compound growth
rate of 15%. Another source of revenues is the sale of pay-per-view movies and
events to Providence Journal Cable's basic subscribers in systems where such
service is offered. Revenues from pay-per-view movies and events increased 5.3%
to $5.1 million during 1994. Providence Journal Cable also receives a
percentage of the proceeds from subscribers' purchases of merchandise offered
on "home shopping" programs. Although Providence Journal Cable believes that
these and other services could become more substantial sources of income over
time, there can be no assurance in this regard.
Providence Journal Cable's cable operations are conducted through Colony and
Colony Cablevision as well as its Copley/Colony and King Videocable joint
ventures.
DEVELOPMENT OF PROVIDENCE JOURNAL CABLE
From Providence Journal Cable's inception through the early 1990's, the
majority of Providence Journal Cable's growth was attributable to constructing,
operating and marketing new cable television systems. Providence Journal
Cable's growth since then is largely attributable to intensive marketing of its
basic and premium services, to line extensions within its existing franchise
areas and to the purchase and development of existing cable television systems,
which are usually in close proximity to Providence Journal Cable's existing
systems. In particular, Providence Journal Cable's acquisition of King
Videocable and the former Palmer Systems (now Colony Cablevision) in 1992 more
than doubled the number of Providence Journal Cable's basic subscribers. More
recently, Providence Journal Cable's growth has been supplemented by ancillary
revenue sources, including advertising, pay-per-view movies and events and home
shopping revenues.
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The following table summarizes the growth of Providence Journal Cable since
December 31, 1992.
<TABLE>
<CAPTION>
AS OF DECEMBER 31
----------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Homes Passed by Cable(1)................... 1,202,000 1,224,000 1,253,000
Number of Basic Subscribers(2)............. 722,000 738,000 771,000
Basic penetration(3)....................... 60.0% 60.3% 61.5%
Number of Premium Subscriptions(4)......... 440,000 467,000 510,000
Premium Penetration(5)..................... 61.0% 63.3% 66.2%
Monthly Revenue per Average Basic
Subscriber(6)............................. $30.78 $30.63 $29.44
</TABLE>
- --------
(1) Estimated dwelling units located sufficiently close to Providence Journal
Cable's cable plant to be practicably connected without any further
extension of principal transmission lines.
(2) A "basic subscriber" means a person who subscribes, at a minimum, to
Providence Journal Cable's basic tier, which consists of broadcast
television signals available locally off-air, local origination and public,
educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis by dividing aggregate
bulk-billed service revenues by the stated basic service rate. Bulk service
revenues include charges for bulk basic programming and bulk non-premium
cable programming services. The number of residential subscribers minus the
number of courtesy accounts is added to the bulk equivalent to determine
the total subscriber number. The number shown includes 100% of subscribers
from certain systems that are currently partially owned, but which are
anticipated to be wholly owned at the Effective Time.
(3) Basic subscribers as a percentage of Homes passed by cable.
(4) Equals the number of premium services subscribed to by subscribers. Premium
services include only single channel services offered for a monthly fee per
channel and do not include packages of channels offered for a single
monthly fee.
(5) Premium subscriptions as a percentage of basic subscribers. A subscriber
may purchase more than one premium service, each of which is counted as a
separate premium subscriber. This ratio may be greater than 100% if the
average customer subscribes to more than one premium service.
(6) Subscriber revenue divided by the average number of basic subscribers for
Providence Journal Cable's combined systems during the twelve month period
ended December 31 for each year presented.
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PROVIDENCE JOURNAL CABLE'S SYSTEMS
The following table sets forth information relating to Providence Journal
Cable's systems as of December 31, 1994.
<TABLE>
<CAPTION>
COMBINED SUMMARY SUBSCRIBER DATA
NUMBER OF NUMBER OF
HOMES PASSED BASIC BASIC PREMIUM PREMIUM
BY CABLE SUBSCRIBERS PENETRATION SUBSCRIPTIONS PENETRATION
------------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
COLONY:
Southeastern, MA........ 99,889 63,190 63.3% 41,632 65.9%
Lowell, MA.............. 66,716 44,028 66.0% 36,111 82.0%
Pawtucket, RI........... 33,109 17,972 54.3% 14,820 82.5%
Westerly, RI............ 21,764 14,072 64.7% 9,006 64.0%
New York................ 70,471 57,692 81.9% 43,343 75.1%
Florida................. 143,773 77,377 53.8% 50,946 65.8%
Lakewood, CA............ 27,606 14,120 51.1% 12,492 88.5%
--------- ------- ----- ------- ------
TOTAL COLONY............ 463,328 288,451 62.3% 208,350 72.2%
--------- ------- ----- ------- ------
COLONY CABLEVISION:
Naples, FL.............. 173,213 118,320 68.3% 58,646 49.6%
Palm Desert, CA......... 106,066 66,311 62.5% 45,185 68.1%
--------- ------- ----- ------- ------
TOTAL COLONY CABLEVI-
SION................... 279,279 184,631 66.1% 103,831 56.2%
--------- ------- ----- ------- ------
COPLEY/COLONY(1):
Costa Mesa, CA.......... 40,333 21,676 53.7% 21,029 97.0%
Harbor, CA.............. 53,797 21,378 39.7% 24,635 115.2%
Cypress, CA............. 19,736 10,822 54.8% 10,741 99.3%
--------- ------- ----- ------- ------
TOTAL COPLEY/COLONY..... 113,866 53,876 47.3% 56,405 104.7%
--------- ------- ----- ------- ------
KING VIDEOCABLE(2):
Tujunga, CA............. 44,350 31,380 70.8% 16,212 51.7%
Santa Clarita, CA....... 32,770 27,753 84.7% 15,856 57.1%
Riverside, CA........... 36,078 23,636 65.5% 16,392 69.4%
Placerville, CA......... 26,583 18,039 67.9% 11,410 63.3%
Lodi, CA................ 26,560 14,112 53.1% 9,107 64.5%
San Andreas, CA......... 17,109 11,281 65.9% 4,249 37.7%
Mammoth Lakes, CA....... 8,526 7,441 87.3% 2,724 36.6%
Mt. Shasta, CA.......... 8,260 5,460 66.1% 2,637 48.3%
Menifee, CA............. 1,976 1,742 88.2% 1,004 57.6%
Ellensburg, WA.......... 9,174 5,831 63.6% 2,012 34.5%
Twin Falls, ID.......... 25,654 16,067 62.6% 8,516 53.0%
Brooklyn Park, MN....... 108,411 53,504 49.4% 32,914 61.5%
St. Croix, MN........... 51,371 27,508 53.5% 18,599 67.6%
--------- ------- ----- ------- ------
TOTAL KING.............. 396,822 243,754 61.4% 141,632 58.1%
--------- ------- ----- ------- ------
TOTAL PROVIDENCE JOURNAL
CABLE.................. 1,253,295 770,712 61.5% 510,218 66.2%
========= ======= ===== ======= ======
</TABLE>
- --------
(1) Copley/Colony is presently owned 50% by Colony and 50% by Copley Press
Electronics Company. The information provided includes all of
Copley/Colony, which Providence Journal anticipates will be wholly owned at
the Effective Time.
(2) King Videocable is presently an indirect wholly owned subsidiary of KHC,
which is owned 50% by Providence Journal and 50% by the Kelso Partnerships.
The information provided includes all of King Videocable, which Providence
Journal anticipates will be wholly owned at the Effective Time.
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COLONY. Colony consists of seven systems, representing forty-one franchise
areas serving subscribers in Rhode Island, Massachusetts, New York, Florida,
and California. Approximately 88% of Colony's basic subscribers are served by
systems with at least 54-channel capacity. All of the Colony subscribers have
addressable capability.
COLONY CABLEVISION. Colony Cablevision consists of two systems, representing
sixteen franchise areas serving subscribers in California and Florida.
Approximately 69% of Colony Cablevision's basic subscribers are served by
systems with at least 54-channel capacity. All of the Colony Cablevision
subscribers have addressable capability.
COPLEY/COLONY. Copley/Colony consists of three systems, representing eight
franchise areas serving subscribers in California. All of Copley/Colony's basic
subscribers are served by systems with at least 54-channel capacity. All of the
Copley/Colony subscribers have addressable capability.
KING VIDEOCABLE COMPANY. King Videocable consists of fourteen systems,
representing seventy-three franchise areas serving subscribers in Minnesota,
Wisconsin, California, Washington and Idaho. Approximately 81% of King
Videocable's basic subscribers are served by systems with at least 54-channel
capacity. Approximately 68% of the King Videocable subscribers have addressable
capability.
TECHNOLOGICAL DEVELOPMENTS
Providence Journal Cable continues to upgrade the technical quality of its
cable plant and to increase channel capacity for the delivery of additional
programming and new services. Providence Journal Cable anticipates that system
upgrades will enable it to provide customers with greater programming
diversity, better picture quality and alternative communications delivery
systems made possible by the introduction of fiber-optic technology and by the
future application of digital compression.
The use of fiber-optic cable as a supplement to coaxial cable is playing a
major role in expanding channel capacity and improving the performance of cable
television systems. Fiber-optic cable is capable of carrying hundreds of video,
data and voice channels and, accordingly, its use is essential to the
enhancement of a cable television system's technical capabilities. Providence
Journal Cable's current policy to use fiber-optic technology in substantially
all rebuild projects is based upon the benefits that fiber-optic technology
provides over traditional coaxial cable distribution plant, the elimination of
headends, lower ongoing maintenance and utility costs and improved picture
quality and reliability.
As of December 31, 1994, approximately 51% of Providence Journal Cable's
subscribers were served by addressable converters. Addressable technology
enables the cable operator to activate from a central control point cable
television services to be delivered to each customer. As a result, Providence
Journal Cable can upgrade or downgrade services to a customer immediately,
without the delay or expense associated with dispatching a technician to the
home. Addressable technology also reduces premium service theft, is an
effective enforcement tool in collecting delinquent payments and allows
Providence Journal Cable to offer pay-per-view services. Approximately 74% of
Providence Journal Cable's subscribers are served by systems having at least
54-channel capacity.
FRANCHISES
Cable television systems are generally constructed and operated under non-
exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and the provision of free service to
schools and certain other public institutions; and the maintenance of insurance
and indemnity bonds. The provisions of local franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984 (the "1984 Cable
Act"), as amended. (See "Legislation and Regulation--Cable Communications
Policy Act of 1984" and "Federal Regulation".)
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As of December 31, 1994, Providence Journal Cable held 140 franchises. These
franchises, all of which are non-exclusive, generally provide for the payment
of fees to the franchising authority. Annual franchise fees imposed on
Providence Journal Cable's systems range from 0% to 5.0% of gross revenues. For
the past three years, total franchise fee payments made by Providence Journal
Cable have averaged approximately 4.4% of total revenues. The 1984 Cable Act
prohibits franchising authorities from imposing annual franchise fees in excess
of 5.0% of gross revenues and also permits the cable system operator to seek
renegotiation and modification of franchise requirements if warranted by
changed circumstances. Most of Providence Journal Cable's franchises can be
terminated by the applicable franchising authority prior to their stated
expiration for breach of material provisions. Providence Journal Cable has
never had a franchise revoked and, to date, all of Providence Journal Cable's
franchises have been renewed or extended at or prior to their stated
expirations, frequently on modified but satisfactory terms.
The 1984 Cable Act provides, among other things, for an orderly franchise
renewal process in which franchise renewal will not be unreasonably withheld
or, if renewal is withheld and the system is acquired by the franchise
authority or a third party, the franchise authority must pay the operator the
"fair market value" for the system covered by such franchise. In addition, the
1984 Cable Act establishes comprehensive renewal procedures which require that
an incumbent franchisee's renewal application be assessed on its own merit and
not as part of a comparative process with competing applications. (See
"Legislation and Regulation--Federal Regulation" and "Renewal of Franchises".)
Franchises representing approximately 151,499 basic subscribers (approximately
19.7% of basic subscribers of Providence Journal Cable as of December 31, 1994)
are scheduled to expire through 1998.
PROGRAMMING
Providence Journal Cable provides programming to its subscribers pursuant to
contracts with programming suppliers. Providence Journal Cable generally pays a
monthly fee per subscriber for the right to distribute programming through all
activated outlets in a subscriber's premises for Providence Journal Cable's
second tier of cable programming services and for its premium services.
Providence Journal Cable's programming contracts are generally for fixed
periods of time and are subject to negotiated renewal. The costs to Providence
Journal Cable to provide cable programming have increased in recent years and
are expected to continue to increase due to additional programming being
provided to subscribers, increased costs to produce or purchase cable
programming, inflationary increases, regulation and other factors. Under the
1992 Cable Act, local broadcasting stations may require cable television
operators to pay a fee for the right to continue to carry their local
television signals. Alternatively, a local broadcaster may demand carriage
under the 1992 Cable Act's "must-carry" provisions. Providence Journal Cable
did not pay any fees to local broadcasting stations for local carriage but did
enter into various in-kind compensation arrangements. (See "Legislation and
Regulations--Federal Regulation" and "Carriage of Broadcast Television
Signals".)
COMPETITION
Providence Journal Cable competes with other communications and entertainment
media, including conventional off-air television broadcast services,
newspapers, movie theaters, live sporting events and home video products. Cable
television service was first offered as a means of improving television
reception in markets where terrain factors or remoteness from major cities
limited the availability of off-air television. In some of the areas served by
Providence Journal Cable, a substantial variety of television programming can
be received off-air. For the last several years, the FCC has been authorizing
the creation of additional low-power (UHF) television stations, which will
increase the number of television signals in the country and provide off-air
television programs to limited local areas. The extent to which cable
television service is competitive depends upon a cable television system's
ability to provide, on a cost effective basis, an even greater variety of
programming than that available off-air or through other alternative delivery
sources.
Since Providence Journal Cable's systems operate under non-exclusive
franchises, other companies may obtain permission to build cable television
systems in areas where Providence Journal Cable presently
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<PAGE>
operates. While Providence Journal Cable believes that the current level of
overbuilding is not material, Providence Journal Cable is currently unable to
predict the extent to which overbuilds may occur in Providence Journal Cable's
franchise areas and the impact, if any, such overbuilds may have on Providence
Journal Cable in the future.
Additional competition may come from satellite master antenna television
("SMATV") systems servicing condominiums, apartment complexes and certain other
private residential developments. The operators of these private systems often
enter into exclusive agreements with apartment building owners or homeowners'
associations that preclude operators of franchised cable television systems
from serving residents of such private complexes. The widespread availability
of reasonably priced earth stations enables private cable television systems to
offer both improved reception of local television stations and many of the same
satellite-delivered program services that are offered by franchised cable
television systems. FCC regulations permit SMATV operators to use point-to-
point microwave service to distribute video entertainment programming to their
SMATV systems. A private cable television system normally is free of the
regulatory burdens imposed on franchised cable television systems. Although a
number of states have enacted laws to afford operators of franchised systems
access to private complexes, the U.S. Supreme Court has held that cable
companies cannot have such access without compensating the property owner. The
access statutes of several states have been challenged successfully in the
courts, and others are currently being challenged, including statutes in states
in which Providence Journal Cable operates.
In recent years, the FCC has initiated new policies and authorized new
technologies to provide a more favorable operating environment for certain
existing technologies and to create substantial additional competition to cable
television systems. These technologies include, among others, DBS services
which transmit signals by satellite to receiving facilities located on
customers' premises. Although satellite-delivered programming is currently
available to backyard earth stations, new, high-powered direct-to-home
satellites make possible the wide-scale delivery of programming to individuals
throughout the United States using roof-top or wall-mounted antennas. Companies
offering DBS services plan to use video compression technology to increase
satellite channel capacity and to provide a package of movies, broadcast
stations and other program services competitive with those of cable television
systems. Several companies are preparing to have DBS systems in place during
this decade, and two companies began offering high-powered DBS service in 1994
in competition with cable television operators. Several companies intend to
offer more than 100 channels of service over high-powered satellites using
video compression technology. DBS service providers may be able to offer new
and highly specialized services using a national base of subscribers. The
ability of DBS service providers to compete with the cable television industry
will depend on, among other factors, the availability of reception equipment at
reasonable prices. Although it is not possible at this time to predict the
likelihood of success of any DBS service ventures, DBS may offer substantial
competition to cable television operators.
Cable television systems also may compete with wireless program distribution
services such as MMDS, commonly called wireless cable systems, which are
licensed to serve specific areas. MMDS uses low power microwave frequencies to
transmit pay television programming over-the-air to subscribers. MMDS systems'
ability to compete with cable television systems has previously been limited by
a lack of channel capacity, the inability to obtain programming and regulatory
delays. A series of actions taken by the FCC, including reallocating certain
frequencies to the wireless services, are intended to facilitate the
development of wireless cable television systems as an alternative means of
distributing video programming. The FCC also initiated a new rule-making
proceeding to allocate frequencies in the 28 GHz band for a new multi-channel
wireless video service. Providence Journal Cable is unable to predict the
extent to which additional competition from these services will materialize in
the future or the impact such competition would have on Providence Journal
Cable's operations.
Other new technologies may become competitive with non-entertainment services
that cable television systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and to businesses. The FCC also permits commercial and non-
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commercial FM stations to use their subcarrier frequencies to provide non-
broadcast services, including data transmissions. The FCC established an over-
the-air Interactive Video and Data Service that will permit two-way interaction
with commercial and educational programming along with informational and data
services. Telephone companies and other common carriers also provide facilities
for the transmission and distribution of data and other non-video services.
In the past, federal cross-ownership restrictions have limited entry into the
cable television business by potentially strong competitors such as telephone
companies. Proposals recently adopted by the FCC and pending litigation and
future legislation, could make it possible for companies with considerable
resources, and consequently a potentially greater willingness or ability to
overbuild, to enter the business. The FCC recently amended its rules to permit
local telephone companies to offer "video dialtone" service for video
programmers, including channel capacity for the carriage of video programming
and certain non-common carrier activities such as video processing, billing and
collection and joint marketing agreements. Furthermore, several federal
district courts have struck down as unconstitutional a provision in the 1984
Cable Act which prevents local telephone companies from offering video
programming on a non-common carrier basis directly to subscribers in their
local telephone service areas. Two such district court decisions have been
upheld by the United States Courts of Appeals for the Fourth Circuit and the
Ninth Circuit. Other decisions have been appealed or will be appealed. Similar
lawsuits have been filed by telephone companies in other states. Legislation to
repeal the telco/cable cross-ownership ban, subject to certain regulatory
requirements, has been introduced in the U.S. Senate and approved by the Senate
Commerce, Science and Transportation Committee. Under the terms of this bill, a
telephone company could build and operate a cable system within its region or
acquire an in-region cable operator, under certain circumstances. The bill
would also, inter alia, preempt state and locally-imposed barriers to the
provision of intrastate and interstate telecommunications services by cable
system operators in competition with local telephone companies. Even in the
absence of further changes in the cross-ownership restrictions, the expansion
of telephone companies' fiber-optic systems may facilitate entry by other video
service providers in competition with cable systems. (See "Legislation and
Regulation--Federal Regulation".)
PROPERTIES
A cable television system consists of four principal operating components.
The first component, known as the headend, receives television, radio and
information signals by means of special antennas and satellite earth stations.
The second component, the distribution network, which originates at the headend
and extends throughout the system's service area, consists of microwave relays,
coaxial or fiber-optic cables placed on utility poles or buried underground and
associated electronic equipment. The third component of the system is a "drop
cable," which extends from the distribution network into each customer's home
and connects the distribution system to the customer's television set. The
fourth component, a converter, is the home terminal device that expands channel
capacity to permit reception of more than 12 channels of programming. In recent
years, Providence Journal Cable has begun to install in its systems converters
than can be "addressed" by sending coded signals from the headend over the
cable network. Addressable converters enable the system operator automatically
to change the customer's level of service without visiting the customer's home.
Addressable converters improve system programming flexibility, enable the
operator to simplify its billing procedures, allow customers the option of
changing levels of service on short notice and enable customers to select and
pay for pay-per-view programming events.
Providence Journal Cable's fiber-optic and coaxial cables generally are
attached to utility poles under pole rental agreements with local public
utilities, although in some areas the distribution cable is buried in
underground ducts or trenches in the public right-of-way. The physical
components of Providence Journal Cable's systems require maintenance and
periodic upgrading to keep pace with technological advances.
Providence Journal Cable leases office space for its corporate headquarters
located in Providence, Rhode Island. Providence Journal Cable owns or leases
parcels of real property for signal reception sites (antenna towers and
headends), microwave facilities and business offices, and leases almost all of
its service vehicles.
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Providence Journal Cable believes that its properties, both owned and leased,
are in good condition and are suitable and adequate for Providence Journal
Cable's business operations.
EMPLOYEES
At December 31, 1994, Providence Journal Cable had 1,271 full-time and 209
part-time employees. Providence Journal Cable considers its relations with its
employees to be good. There is one collective bargaining agreement relating to
twelve employees in Twin Falls, Idaho.
LEGAL PROCEEDINGS
On January 17, 1995, Cable LP I, Inc. ("Cable LP") brought a declaratory
judgment action against Providence Journal, Colony and Dynamic Cablevision of
Florida, Inc. ("Dynamic") in the Circuit Court of the Eleventh Judicial Circuit
in and for Dade County, Florida. This case relates to the Dynamic Partnership,
in which Dynamic is the general partner with an 89.8% interest, and Cable LP is
the limited partner with a 10.2% interest. In this action, Cable LP claims that
Dynamic was obligated to offer to sell to Cable LP Dynamic's general
partnership interest before Providence Journal entered into the Merger
Agreement with Continental. Cable LP further claims that Dynamic's offer to
purchase Cable LP's limited partnership interest for $13.1 million triggered a
right of first refusal entitling Cable LP to purchase the general partnership
interest for $115 million. Cable LP seeks a declaration by the court that the
right of first refusal it is asserting applies and supplemental relief in the
form of an injunction barring consummation of the sale of the general partner's
interest in the Dynamic Partnership to Continental.
Providence Journal, Colony and Dynamic made a motion to strike allegations
against them of bad faith and breach of fiduciary duty, which motion was
granted by the court, and they filed an Answer to the Complaint and
Counterclaim on March 16, 1995. In their counterclaim and an accompanying third
party complaint, Providence Journal, Colony and Dynamic seek a declaratory
judgment that Cable LP unreasonably refused consent to the transfer of the
general partner's interest to Continental and that a purported transfer of
Cable LP's interest in the Dynamic Partnership to a partnership to be managed
by Adelphia Communications, Inc. violates Dynamic's right of first refusal
under the Dynamic Partnership Agreement. Discovery has commenced and Providence
Journal, Colony and Dynamic are moving to ready this case for trial on an
expedited basis.
Providence Journal's management believes that the claims asserted by Cable LP
are without merit and intends to vigorously defend this matter.
Providence Journal Cable is a party to various other legal proceedings that
are ordinary and incidental to its business. Management does not believe that
any legal proceedings currently pending will have a material adverse effect on
the combined financial condition or results of operation of Providence Journal
Cable.
SELECTED COMBINED FINANCIAL DATA OF PROVIDENCE JOURNAL CABLE
The following selected combined financial information for Providence
Journal's owned and partially owned cable businesses has been derived from the
combined financial statements of Providence Journal Cable which consists of
Colony (a wholly owned subsidiary of Providence Journal), Colony Cablevision (a
wholly owned division of Providence Journal since December 1992), Copley/Colony
(a 50% owned joint venture of Colony), and King Videocable (a 50% owned joint
venture of Providence Journal since February 1992). The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Providence Journal Cable" and the combined
financial statements and notes thereto included elsewhere herein for Providence
Journal Cable. The combined statement of operations data for the years ended
December 31, 1992, 1993 and 1994 and the combined balance sheet data as of
December 31, 1992, 1993 and 1994 have been derived from the audited combined
financial statements of Providence Journal Cable. The combined statement of
operations data for the two years ended December 31, 1990 and 1991 and the
combined balance sheet data as of December 31, 1990 and 1991 have been derived
from the separate audited financial statements of Colony and Copley/Colony.
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<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total Revenue........... $114,937 $118,791 $199,684 $281,593 $284,993
Operating expenses...... 50,049 48,554 76,523 103,637 114,868
Selling, general and
administrative
expenses............... 27,396 28,951 45,180 62,446 58,152
Depreciation and
amortization........... 23,179 24,640 58,750 92,710 85,783
Allocation of corporate
overhead (1)........... 5,947 7,751 6,513 9,651 11,034
-------- -------- -------- -------- --------
Operating income........ 8,366 8,895 12,718 13,149 15,156
Allocated interest
expense from parent
companies (2).......... -- -- (16,516) (39,938) (41,318)
Loss on abandonment of
assets................. -- -- -- (8,244) --
Other, net.............. (1,139) 3,466 591 (1,841) 555
-------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. 7,227 12,361 (3,207) (36,874) (25,607)
Provision for income
taxes.................. 3,648 6,166 694 (11,219) (8,182)
-------- -------- -------- -------- --------
Income (loss) before
change in accounting
principle.............. 3,579 6,195 (3,901) (25,655) (17,425)
Cumulative effect of
change in accounting
principle.............. -- -- 4,831 -- --
-------- -------- -------- -------- --------
Income (loss) before
minority interests..... $ 3,579 $ 6,195 $ 930 $(25,655) $(17,425)
======== ======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $140,747 $133,921 $867,150 $813,306 $777,102
Long term debt.......... 22,500 17,500 15,000 -- --
Amounts due to parent
companies.............. 5,915 1,235 596,885 593,073 574,821
Group equity............ 45,662 51,929 89,334 70,403 57,142
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA (3).............. $ 37,492 $ 41,286 $ 77,981 $115,510 $111,973
EBITDA as a Percentage
of Revenue............. 32.6% 34.8% 39.1% 41.0% 39.3%
Net Cash Provided by
Operating Activities... 20,741 28,932 53,753 69,940 68,288
Capital Expenditures.... 22,605 18,722 27,391 49,094 47,766
</TABLE>
- --------
(1) Parent companies provided certain services to Providence Journal Cable,
including cash management, human resources, accounting, legal, tax and
other corporate services. Corporate overhead relating to these services has
been allocated to Providence Journal Cable. In the opinion of management
these charges have been made on a reasonable basis (individual business
revenue to total revenue), however, these charges are not necessarily
indicative of the level of expenses that might have been incurred by
Providence Journal Cable on a stand-alone basis.
(2) Represents allocation of interest expense on amounts due to parent
companies.
(3) Operating income plus depreciation, amortization and allocation of parent
company corporate overhead. Based on its experience in the cable television
industry, Providence Journal believes that EBITDA and related measures of
cash flow serve as important financial analysis tools for measuring and
comparing cable television companies in several areas, such as liquidity,
operating performance and leverage. EBITDA should not be considered by the
reader as an alternative to operating or net income (computed in accordance
with GAAP) as an indicator of Providence Journal Cable's performance, or as
an alternative to cash flows from operating activities (computed in
accordance with GAAP) as a measure of liquidity.
139
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PROVIDENCE JOURNAL CABLE
Four cable entities comprise all of the cable television systems of
Providence Journal Cable owned or partially owned by Providence Journal. These
entities are Colony (a wholly owned subsidiary of Providence Journal), Colony
Cablevision (a division of Providence Journal), Copley/Colony (a 50% owned
joint venture of Colony), and King Videocable (a 50% owned joint venture of
Providence Journal). The selected financial data contained in the text and
tables herein was prepared on a combined basis for Providence Journal Cable
with appropriate elimination of intercompany transactions, allocation of
corporate overhead and interest expense.
Although Providence Journal accounted for the operations of investments in
the 50% joint ventures under the equity method, the operations of such
ventures have been fully combined on the basis that they are managed, together
with all wholly owned and majority owned cable television businesses, by
Providence Journal and its subsidiaries. In connection with the aforementioned
Merger, Providence Journal will purchase the 50% interest of the Kelso
Partnerships and, therefore, at the Effective Time, all acquired cable
television businesses will be wholly owned.
Providence Journal Cable's revenue growth has been primarily achieved by
internal subscriber growth, acquisitions and increases in rates for services
provided. Recent significant acquisitions include the purchase of a 50%
ownership interest in King Videocable (as a part of Providence Journal's
investment in KHC on February 25, 1992) and the purchase of cable systems of
Colony Cablevision (formerly owned by Palmer) in November and December 1992.
These two acquisitions more than doubled the number of basic subscribers
serviced by Providence Journal Cable.
Federal laws reregulating the cable television industry were implemented by
the FCC effective September 1, 1993 and have limited Providence Journal
Cable's ability to increase rates for certain subscriber services and to
restructure its rates for certain services. The reregulation activities, which
are further discussed under "Recent Legislation" herein, were designed to
reduce subscriber rates and limit rate increases for certain cable services.
Substantially all of Providence Journal Cable's revenues are earned from
subscriber fees for basic cable programming and premium television services,
the rental of converters and remote control devices, and installation fees.
Additional revenues are generated by pay-per-view programming fees, the sale
of advertising, and payments received as a result of revenue sharing
agreements for products sold through home shopping networks.
RESULTS OF OPERATIONS. This discussion should be read in conjunction with
the accompanying audited financial statements and notes thereto. The results
of operations for Providence Journal Cable represent the combined operations
of all of the cable television systems owned or partially owned by Providence
Journal. These historical financial results do not necessarily reflect the
results of operations that would have existed had Providence Journal Cable
been an independent company.
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<PAGE>
The following table summarizes Providence Journal Cable's financial results:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Basic cable service.............................. $141,262 $205,846 $202,654
Premium cable service............................ 38,193 44,643 45,395
Advertising sales................................ 9,946 14,042 17,410
Pay-per-view..................................... 3,727 4,887 5,145
Other............................................ 6,556 12,175 14,389
-------- -------- --------
Total Revenues................................. 199,684 281,593 284,993
Operating expenses............................... 76,523 103,637 114,868
Selling, general and administrative expenses..... 45,180 62,446 58,152
Depreciation and amortization.................... 58,750 92,710 85,783
Allocation of corporate overhead................. 6,513 9,651 11,034
-------- -------- --------
Operating income............................... 12,718 13,149 15,156
Allocated interest expense from parent companies. (16,516) (39,938) (41,318)
Loss on abandonment of assets.................... -- (8,244) --
Other, net....................................... 591 (1,841) 555
-------- -------- --------
Loss before income taxes and cumulative effect of
change in accounting principle.................. (3,207) (36,874) (25,607)
Provision for income taxes....................... 694 (11,219) (8,182)
-------- -------- --------
Loss before change in accounting principle....... (3,901) (25,655) (17,425)
Cumulative effect of change in accounting
principle....................................... 4,831 -- --
-------- -------- --------
Income (loss) before minority interests.......... $ 930 $(25,655) $(17,425)
======== ======== ========
<CAPTION>
AS OF DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
SUBSCRIBER INFORMATION:
Basic Subscribers................................ 722,000 738,000 771,000
Premium Subscriptions............................ 440,000 467,000 510,000
Premium Penetration.............................. 61.0% 63.3% 66.2%
Monthly Revenue per Average Basic Subscriber..... $ 30.78 $ 30.63 $ 29.44
Average Monthly Premium Revenue per Subscription. $ 8.80 $ 8.22 $ 7.70
</TABLE>
1994 Compared with 1993. Revenues rose 1.2% compared with 1993, reflecting
higher basic subscriber levels. The highest growth in basic subscribers was in
Hialeah, Florida, Los Angeles, California and Minneapolis, Minnesota. Monthly
revenue per average basic subscriber was $29.44 in 1994 compared with $30.63 in
1993. Revenue per subscriber decreased because of the FCC mandated rate
reductions implemented on September 1, 1993, and again on July 14, 1994. (See
"Recent Legislation".)
Premium cable service revenue increased 1.7%. Premium subscriptions increased
from 467,000 at December 31, 1993 to 510,000 as of December 31, 1994. The 9.2%
increase is the result of new promotional programs. The premium penetration
percentage increased from 63.3% to 66.2% during the year ended December 31,
1994. Average monthly premium revenue per subscription was $8.22 in 1993
compared with $7.70 in 1994. This decline is due to promotional programs used
to attract new premium subscribers at discounted rates.
Operating, selling, general and administrative expenses in 1994, excluding
depreciation and amortization and allocated corporate overhead, rose 4.2%. The
overall increase in expenses was primarily due to the
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<PAGE>
following: (1) higher programming costs; (2) technical costs related to
increased basic subscriber levels; and (3) a change in the method of accounting
to expense rather than capitalize the installation of wiring and additional
outlets located in cable customers' homes. Depreciation and amortization
expense decreased versus the prior year reflecting this change in
capitalization policy as well as full amortization of certain intangible assets
associated with the King Videocable and Colony Cablevision acquisitions.
The increase in allocation of corporate overhead from $9.7 million to $11
million is primarily due to increased compensation costs associated with
executive compensation programs. Corporate overhead has been allocated on the
basis of revenue of Providence Journal Cable to total Providence Journal owned
and managed revenue; however, these charges are not necessarily indicative of
the level of expenses that might have been incurred by Providence Journal Cable
on a stand-alone basis.
Loss before minority interests declined from ($25.6) million to $(17.4)
million due to the $8.2 million loss on abandonment of assets recorded in 1993.
1993 Compared with 1992. Revenues rose 41.0% over the prior year as a result
of full year impact of the acquisitions of Colony Cablevision and King
Videocable. Colony Cablevision added approximately 168,000 basic subscribers to
Providence Journal Cable and Providence Journal's purchase of the Palmer
Systems in December 1992 amounted to an approximate $56 million increase in
revenue from 1992 to 1993. Providence Journal's investment in King Videocable
added approximately 222,000 basic subscribers to Providence Journal Cable as of
February 25, 1992 amounting to an approximate $18 million increase in revenue
from 1992 to 1993. These acquisitions were accounted for as purchases and their
results of operations have been included in the combined financial statements
from the date of acquisition. As a result of these acquisitions, the number of
basic subscribers serviced by Providence Journal Cable more than doubled to
722,000 by the end of 1992. Through further internal growth, basic subscribers
grew by 2.2%, to 738,000 at the end of 1993.
Monthly revenue per average basic subscriber declined from $30.78 in 1992 to
$30.63 in 1993, reflecting the impact of FCC mandated rate reductions and lower
subscriber rates in acquired companies. Effective September 1, 1993, all of
Providence Journal Cable's systems had their rates set using a benchmark
approach which compares its rates to those which are in effect for cable
systems deemed by the FCC to be facing effective competition. The impact of
adjusting rates to the FCC benchmark was a $4.9 million reduction in Providence
Journal Cable's revenues for the four months ended December 31, 1993.
Premium subscriptions increased from 440,000 in 1992 to 467,000 in 1993, and
the premium penetration percentage increased from 61.0% to 63.3% over the same
period. Average monthly premium revenue per subscription decreased from $8.80
to $8.22 reflecting price discounting in promotional programs targeted to
increase premium subscriptions.
Operating and selling, general and administrative expenses in 1993 increased
by 36.5%, consistent with the 41.0% increase in revenue and reflecting the
full-year impact of Providence Journal's cable system acquisitions. The
increase in operating and selling, general and administrative expenses
associated with the King Videocable and Colony Cablevision acquisitions was
approximately $42 million from 1992 to 1993. Significantly higher depreciation
and amortization expense, which rose 57.8% in 1993, to $92.7 million, reflected
increased capital spending levels in 1992 and 1993 and a full year of
depreciation and amortization from the acquisitions.
The increase in allocation of corporate overhead from $6.5 million to $9.7
million in 1993 is primarily due to increased corporate costs associated with
executive compensation programs.
Operating income increased by 3.4% in 1993. Providence Journal Cable's
revenue growth and operating income are expected to continue to be adversely
affected in 1994 by the full year effect of the FCC's ongoing reregulation
activities.
The loss in 1993 before minority interest of ($25.7) million included
allocated intercompany interest expense of $40 million for the year. The
interest is primarily associated with the intercompany financing of the cable
system acquisitions in 1992. Advances due to parent companies was $593.1
million at December
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<PAGE>
31, 1993 with an average effective interest rate of 7.6% for 1993. Also,
negatively impacting the fourth quarter of 1993 was an $8.2 million loss on
abandonment of assets. Due to the provisions of the 1992 Cable Act, which
effectively transferred to cable customers ownership of wiring and additional
outlets located in cable customer's homes, Providence Journal Cable expensed
the remaining undepreciated costs of these assets.
1992 income before minority interest of $.9 million reflected a partial year
of intercompany financing charges associated with the King Videocable
acquisition as well as a $4.8 million cumulative benefit from the adoption of
the new accounting standard for income taxes.
LIQUIDITY AND CAPITAL RESOURCES. Providence Journal Cable's cash requirements
are funded primarily by its operating activities. Cash in excess of day-to-day
operating requirements is used to repay intercompany debt as part of shared
cash management systems with its parent companies. If funds are required,
Providence Journal Cable obtains them through advances from its parent
companies. Providence Journal Cable had advances due to parent companies of
$593.1 million and $574.8 million at December 31, 1993 and December 31, 1994,
respectively.
Net cash from operations in 1994 decreased $1.7 million from the prior year
resulting primarily from the impact of rate regulations.
Providence Journal Cable invests heavily in its cable plant, continually
replacing and modernizing its technology by rebuilding and upgrading its
systems, some with fiber-optic cable. Capital expenditures increased 69.6% in
1993, continuing a substantial upward trend that began in 1992 and reflecting
the expansion of the PJC Cable Business. Providence Journal Cable spent $49.1
million and $47.8 million on capital expenditures in 1993 and 1994,
respectively. Under the terms of the Merger Agreement, Providence Journal Cable
is obligated to spend $55.0 million in capital expenditures on an annualized
basis between December 1994 and the Closing of the Merger.
During 1992, Providence Journal Cable acquired cable television systems for
an aggregate purchase price of $678 million, all of which were financed through
advances from parent companies and other joint-venture financing.
The following table highlights certain items from the combined Statements of
Cash Flows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Net cash provided by operating activities...... $ 53,753 $ 69,940 $ 68,288
Capital expenditures........................... (27,391) (49,094) (47,766)
Principal payments on long term debt........... (5,000) (15,000) --
</TABLE>
EBITDA. This presentation of EBITDA is part of the presentation of liquidity
and capital resources. EBITDA is defined herein as operating income plus
depreciation, amortization and allocation of corporate overhead. Based on its
experience in the cable television industry, Providence Journal Cable believes
that EBITDA and related measures of cash flow serve as important financial
analysis tools for measuring and comparing cable television companies in
several areas, such as liquidity, operating performance and leverage. EBITDA
should not be considered by the reader as an alternative to net income as an
indicator of Providence Journal Cable's performance or as an alternative to
cash flows as a measure of liquidity. EBITDA and the EBITDA Margin (EBITDA to
Revenues) for the last three years were as follows:
<TABLE>
<CAPTION>
%
EBITDA INCREASE EBITDA
(MILLIONS) (DECREASE) MARGIN
---------- ---------- ------
<S> <C> <C> <C>
1992.......................................... $ 78.0 88.9% 39.1%
1993.......................................... $115.5 48.1% 41.0%
1994.......................................... $112.0 (3.1%) 39.3%
</TABLE>
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<PAGE>
The substantial increases in EBITDA in 1992 and 1993 were due in part to
acquisitions of Colony Cablevision and King Videocable in 1992. The decrease in
EBITDA for 1994 reflects the impact of recent FCC regulations.
Effects of Inflation. The net effect of inflation on operations has not been
material in the last few years because of the relatively low rate of inflation
during this period and because of efforts of Providence Journal Cable to lessen
the effect of rising costs through a strategy of improving productivity,
particularly through the implementation of incentive bonus plans, controlling
costs and, where regulatory and competitive conditions permit, increasing
rates.
Recent Legislation. In October 1992, Congress enacted the 1992 Cable Act.
This legislation made significant changes to the legislative and regulatory
environment in which the cable industry operates, particularly in the areas of
rate regulation and the retransmission of broadcast television signals.
The FCC was directed to establish regulations to implement various provisions
of the 1992 Cable Act, including rate regulation. An FCC mandated basic and
cable programming service rate freeze became effective in April 1993 and
concluded May 15, 1994. The April 1993 rate regulations also adopted a
benchmark price cap system for measuring the reasonableness of existing basic
and cable programming service tier rates (other than per-event or per-channel
service rates), and a formula for evaluating future rate increases.
Alternatively, cost-of-service measurements to justify rates above the
applicable benchmarks are also permitted. In general, under the April 1993
rules, the reduction for existing basic and cable programming service tier
rates was the greater of the applicable benchmark level or the rates in force
as of September 30, 1992, minus 10 percent adjusted forward for inflation.
Future rate increases may not exceed an inflation-indexed amount, plus
increases in certain costs such as taxes, franchise fees and programming costs
that exceed the inflation index. Cost recovery and pricing allowances are also
provided for new programming services added to the regulated tiers. The April
1993 rate regulations became effective September 1, 1993. Basic and cable
programming service tier rates, related equipment and installation charges, and
additional outlet charges were adjusted so as to bring these rates and charges
into compliance with the applicable benchmark.
The FCC's September 1993 guidelines were significantly modified in February
1994. Among other things, the FCC ordered a further reduction of 7% in basic
and cable programming service tier rates in effect on September 30, 1992, if
those rates exceeded a new per-channel benchmark recomputed by the FCC. This
would result in an overall reduction of 17% in basic and cable programming
service tier rates in effect on September 30, 1992. The guidelines to implement
this most recent modification were released on March 30, 1994 and the
regulations became effective May 1994 with allowable extension to July 1994.
On December 22, 1994, the FCC issued an Order concerning one cable television
system of Providence Journal Cable. The Order ruled that certain "a la carte"
channels offered by the system were subject to rate regulation and directed the
system to recalculate its maximum permitted rates as determined under rules and
regulations of the FCC. Providence Journal Cable has filed a petition for
reconsideration of this decision with the FCC. If such petition does not result
in adequate relief, Providence Journal Cable can, and presently intends to,
pursue its remedy of an appeal to the FCC and/or the courts. It is too early
for management to determine whether any rate refunds and prospective rate
reductions to subscribers may result from this action. Accordingly, no amounts
have been accrued for rate refund liabilities.
It is possible that pursuant to further review by the franchising authorities
and the FCC, certain additional rate reductions may be required. Various cable
operators have pending litigation challenging certain aspects of the 1992 Cable
Act. The outcome of this litigation cannot be predicted.
144
<PAGE>
DESCRIPTION OF CONTINENTAL
BUSINESS
Continental is currently the fifth largest cable television system operator
in the United States. Continental's five management regions operate cable
television systems/1/ in 16 states, principally in suburban areas and mid-
sized cities. As of December 31, 1994, Continental's systems and those of its
domestic affiliates passed approximately 5,383,000 Homes and provided cable
service to approximately 3,081,000 basic subscribers./2/ Giving effect to the
Merger and other pending acquisitions described herein, Continental
anticipates that it will become the third largest cable television system
operator in the United States, passing approximately 7,049,000 Homes and
serving approximately 4,063,000 basic subscribers in 20 states. Continental
also participates in cable television ventures outside of the United States.
Continental owns an approximate 50% interest in the largest cable television
operator in Argentina, which currently serves over 600,000 subscribers; has a
25% equity interest in a joint venture that is constructing a cable television
system (which Continental will manage for a period of time) to serve
Singapore's approximately 820,000 households; and is pursuing other
international cable television and telecommunications investments, including a
joint venture in Australia, which will construct a network to provide cable
television, local telephony and a variety of advanced broadband interactive
services to business and residential customers. In addition, Continental has
made investments in (i) the telecommunications and technology industries,
including companies offering competitive access telephony and DBS service, and
(ii) various programming ventures.
Continental's objective is to further build its subscriber base by acquiring
and retaining customers that will subscribe to a broad range of video and
telecommunications services. This objective is achieved through the pursuit of
the following key operating principles: (i) the continued expansion of its
nationwide operating scale (as measured by Homes passed); (ii) the formation
of large regional system clusters in demographically attractive markets; (iii)
the continued development of locally responsive management; (iv) the
development of technologically advanced networks capable of providing both
expanded video and telecommunications services; (v) a focus on targeted
marketing; and (vi) a commitment to superior customer service and community
relations.
Continental intends to apply these operating principles, as appropriate, in
its international operations as they develop. (See "International
Operations".)
DOMESTIC CABLE TELEVISION BUSINESS
Cable television is a service that delivers a wide variety of channels of
television programming, consisting primarily of video entertainment, sports
and news, as well as informational services, locally originated programming
and digital radio programming, to the homes of subscribers who pay a monthly
fee for the service. Television and radio signals are received by off-air
antennas, microwave relay systems and satellite earth stations and then are
modulated, amplified and distributed to subscribers' homes over networks of
coaxial and fiber-optic cables.
- --------
/1/Each of Continental's systems includes all areas served from a single
"headend"; thus, a system may include one or more communities or franchise
areas.
/2/A "basic subscriber" means a person who subscribes, at a minimum, to
Continental's Basic Broadcast Tier ("BBT"), which generally consists of
broadcast television signals available locally off-air, local origination and
public, educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis, by dividing aggregate BBT
bulk-billed revenues by the stated BBT rate. In reporting subscriber and other
data for systems not controlled or managed by Continental, only that portion
of data corresponding to Continental's percentage ownership is included. (See
"Description of Continental--Domestic Cable Television Business".)
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<PAGE>
Cable television systems typically are constructed and operated under
nonexclusive franchises awarded by local governmental authorities for a
specified multi-year term. Franchises typically contain many conditions, such
as deadlines for the commencement or completion of construction; fees to
government authorities; conditions of service to schools and other public
institutions; and the maintenance of insurance and indemnity bonds. The
provisions of franchises are subject to both the 1984 Cable Act and the 1992
Cable Act. Continental has never had a franchise revoked, and to date, all of
Continental's franchises have been renewed or extended at their expirations,
frequently on modified but satisfactory terms.
Continental's systems offer subscribers various levels (or "tiers") of cable
services consisting of television signals available off-air in any locality,
television signals from so-called "superstations" originating in distant cities
(such as WTBS, WGN and WWOR), various satellite-delivered, non-broadcast
channels (such as ESPN, CNN, USA, and MTV), displays of information featuring
news, weather and stock market reports and programming originated locally by
the systems (such as public, educational and governmental access channels).
Continental's systems also provide premium services to basic subscribers for an
extra monthly charge. These premium services include HBO, Cinemax, Showtime,
The Movie Channel, The Disney Channel and certain regional sports networks,
which are satellite-delivered channels that consist principally of feature
films, live sporting events and other special entertainment features, usually
presented without commercial interruption. Certain of Continental's systems
also carry "multiplexed" premium services, which are available from certain
premium-service providers such as HBO. Multiplexing allows a premium-service
provider to offer its programming on two or more channels simultaneously, but
scheduled differently, so as to provide the subscriber with an expanded choice
of programs at any given time.
Although services vary from system to system because of differences in
channel capacity and viewer interest, each of Continental's systems offers a
BBT as the lowest-priced tier (consisting generally of broadcast television
signals locally available off-air, local origination and public, educational
and governmental access channels), one or more Cable Programming Service
("CPS") tiers (which include satellite-delivered cable programming services)
and several premium and pay-per-view channels. Subscribers may choose various
combinations of such services. In a limited number of Continental's systems,
certain satellite-delivered, non-broadcast services are currently offered as a
New Product Tier ("NPT"), which the FCC has indicated it will forebear from
regulating. (See "Legislation and Regulation" for a description of recent
legislation and regulation which limits Continental's ability to price and tier
certain programming services.) Continental may offer such NPTs to subscribers
in additional systems as it expands channel capacity in such systems.
A customer generally pays an initial installation charge and fixed monthly
fees for BBT, CPS, NPT and premium programming services. Such monthly service
fees constitute Continental's primary source of revenues. In addition to these
monthly revenues, Continental's systems generate revenues from additional fees
paid by customers for pay-per-view programming of movies and special events and
from the sale of available advertising spots on advertiser-supported
programming. Continental's systems also offer home shopping services, from
which Continental receives a share of revenues from sales of merchandise in its
service areas.
DOMESTIC OPERATING STRATEGY
Continental's objective is to further build its subscriber base by acquiring
and retaining customers that will subscribe to a broad range of video and
telecommunications services. Continental's key operating principles are:
OPERATING SCALE. Continental is committed to preserving and further expanding
its operating scale, as measured by the number of Homes passed by its systems,
through internal growth and strategic acquisitions. Continental believes that
operating scale is critical to its ability to meet the growing capital and
technical requirements that are vital to its long-term competitiveness and will
enable it to realize lower programming costs, enhance its ability to develop
and deploy new technologies, provide new services and improve operating
margins.
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As of December 31 , 1994, Continental's systems and those of its domestic
affiliates served approximately 3,081,000 basic subscribers and passed
approximately 5,383,000 Homes, making it the fifth largest cable television
company in the United States. Giving effect to the Merger and the other
pending acquisitions described herein, Continental anticipates that it will
become the third largest cable television operator in the United States,
passing approximately 7,049,000 Homes and serving approximately 4,063,000
basic subscribers in 20 states.
LARGE REGIONAL SYSTEM CLUSTERS. Since its inception, Continental has
concentrated its operations in large regional system clusters located
primarily in suburban communities and mid-sized cities. Continental has built
and acquired cable television systems in communities that are contiguous or in
close proximity to its existing systems in order to achieve greater operating
efficiencies. Continental believes that clustering creates operating
efficiencies through reduced marketing and personnel costs and lower capital
expenditures, particularly in systems where cable service can be delivered to
several communities within a single region through a central headend reception
facility. In addition, regional system clusters are attractive to advertisers
in that they maximize the scope and effectiveness of advertising expenditures.
Continental is also exploring opportunities to enlarge and enhance key
regional system clusters by exchanging certain systems with other cable
television operators. Such transactions would enable Continental to further
realize the benefits of clustering without further commitment of capital.
Continental's systems have attractive demographics and are geographically
diverse. Areas served by Continental's systems have a median household income
of approximately $41,400, versus the national median of approximately
$34,600/1/. Continental's systems are currently located in 16 states and are
divided into five management regions, with no single region accounting for
more than 26% of total basic subscribers. This geographic diversity reduces
Continental's exposure to an economic downturn in any one particular region.
LOCALLY RESPONSIVE MANAGEMENT. Continental has developed a decentralized and
locally responsive management structure that brings significant management
experience and stability to every region and allows Continental to respond
effectively to the specific needs of the communities it serves. Broad
operating authority has been delegated to the Senior Vice President managing
each region, who has, on average, 12 years of experience with Continental and
18 years within the cable industry. Certain employees, including the regional
Senior Vice Presidents, are awarded equity compensation in the form of
restricted stock grants, which vest over time as an additional incentive to
maximize stockholder value. Continental believes that the experience,
stability and commitment of its regional management is integral to its ability
to provide superior customer service, maintain strong community relations and
maximize growth potential.
TECHNOLOGICALLY ADVANCED SYSTEMS. Continental strives to maintain the
highest technological standards in the industry and is continually upgrading
its systems. By deploying high-capacity fiber-optic cable and addressable
technology in its network, Continental continues to develop the foundation
from which to provide a broad range of video and telecommunications services.
Fiber-optic cable generates the capacity necessary to provide such services,
while addressable technology is essential to realize the full growth potential
of pay-per-view, tiered programming offerings, and other interactive services.
Continental's continuing investment in its systems enhances picture quality
and signal reliability, reduces operating costs, and improves overall customer
satisfaction.
As of December 31, 1994, Continental provided at least 54-channel capacity
in systems serving approximately 78% of its basic subscribers. In addition,
Continental has addressable technology in systems serving approximately 86% of
its basic subscribers.
- --------
/1/Median household income data in this Joint Proxy Statement-Prospectus are
derived from demographic information provided by Equifax Marketing Decision
Systems, Inc. The demographic information was provided by zip code area and
was averaged by Continental (weighted by the number of households in each zip
code area) (i) for all of the zip code areas Continental serves and (ii) for
the zip code areas in each of Continental's five domestic cable television
management regions. Equifax Marketing Decision Systems, Inc. developed the
1994 demographic information by adjusting 1990 census data to take into
account estimated growth rates which were developed by the WEFA Group
(formerly Wharton Econometric Forecasting Associates and Chase Econometrics).
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Continental believes that it is among the leaders in the cable industry in
the deployment of fiber-optic cable. Continental is deploying a fiber-to-the-
serving-area architecture (which represents a hybrid network of fiber-optic and
coaxial cable) in all of its system rebuilds and upgrades, and has replaced
approximately 20% of the total existing trunk cable for its systems with fiber-
optic cable. Such a fiber-to-the-serving-area architecture will position
Continental to effectively provide a broad range of services in the future,
while preserving the flexibility to adapt to changing technologies. In
addition, Continental uses fiber-optic cable for point-to-point applications,
such as connecting or eliminating headends or microwave relay sites.
Continental plans to continue to upgrade its systems with addressable
technology and fiber-optic cable and anticipates that 80% of its basic
subscribers will be served by systems with at least 78-channel capacity by the
end of 1997. Continental will also begin to deploy digital converter boxes, as
they become commercially available, to certain basic subscribers. Digital
compression significantly increases the number of video channels that can be
carried on a cable television system and greatly enhances Continental's ability
to provide advanced video and telecommunication services. In addition to
upgrading its systems, Continental anticipates deploying an information
technology system in order to take advantage of the growing success of on-line
services, home sales of personal computers and widespread Internet access.
Continental has recently installed digital advertising insertion systems in
seven markets including Boston, Richmond, Jacksonville, Pompano, Dayton, Fresno
and Detroit. These digital advertising insertion systems allow Continental to
download advertisements electronically to certain headends, thereby
significantly enhancing the flexibility and reliability of Continental's
advertising sales. Continental's New England region employs high-speed
Asynchronous Transfer Mode switches, which, in addition to facilitating its
advertising insertion efforts, have other potential uses, including improving
Continental's ability to provide expanded video, voice and data offerings.
TARGETED MARKETING. As part of its operating strategy, Continental seeks to
maximize revenues by increasing subscriptions to BBT, CPS, NPT, premium and
pay-per-view programming services through targeted marketing, combined with a
local focus on customer service and community relations. Continental markets
cable television services through telemarketing, direct mail and door-to-door
solicitation, reinforced by radio, cable television, off-air television and
newspaper advertising. Continental seeks to attract and retain long-term
subscribers and increase the percentage of Homes in its service areas that
subscribe to expanded service offerings. Continental believes that its
marketing efforts, coupled with its technologically advanced systems and the
demographic profile of its subscriber base, are essential to its ability to
sustain pay-to-basic penetration rates which have consistently exceeded the
industry average. As of December 31, 1994, Continental's 84.7% ratio of premium
service subscriptions to basic subscribers was one of the highest in the
industry, according to Cable TV Investor, a leading industry newsletter
published by Paul Kagan & Associates. As a result, Continental's total monthly
revenue per average basic subscriber of $35.29 as of December 31, 1994, is
among the highest in the cable industry.
Continental has been recognized repeatedly by the cable industry for its
marketing efforts. Each year the Cable Television Administration and Marketing
Society, Inc. ("CTAM"), the industry's marketing professional society, presents
"MARK" Awards to companies with the best marketing efforts in the industry.
Continental has won significantly more MARK awards over the last five years
than any other cable company.
CUSTOMER SERVICE AND COMMUNITY RELATIONS. Continental believes that it is an
industry leader in addressing the needs of its local customers. Continental
received the "Operator of the Year" Award, which rated it the "most admired
company in the cable industry," from Cablevision Magazine for the three years
in which the award was based upon a poll of its readers (1988-1990). Through
the use of surveys, focus groups, and other research tools, and by continually
investing in operating systems and training programs, Continental believes it
has created one of the most extensive customer-service programs in the
industry, supported by training centers in each of its regions. To improve its
customer-service efforts, Continental is in the process of incorporating wide-
area computer networks into its customer-service functions, which will enable
it to review customer accounts more easily. In addition, these desktop
technologies will bring Continental into closer contact with customers and
enable it to provide customer service more efficiently.
Continental's emphasis on customer service has helped it to foster and
sustain good relationships with the communities it serves. With 19 Beacon
Awards in the past two years, Continental has received more
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public service awards from the Cable Television Public Affairs Association
("CTPAA") than any other cable company during that period. In addition, CTPAA
awarded to Amos B. Hostetter, Jr., Continental's Chairman and CEO, its 1992
Crystal Beacon Award for his and Continental's commitment to public affairs. In
1993 and 1994, Continental received the Partnership in Education award for its
outstanding record in partnering with local schools. In 1991 and 1992,
Continental also won Community Action Network Awards for applying the resources
of cable television to help solve social problems in various communities. In
1990, Continental received a Broadcasting Award from the National Education
Association ("NEA"), for its work in supporting education, the first time the
NEA had so recognized a cable operator. Continental is a founder of Cable in
the Classroom, an industry-wide initiative providing 525 hours of commercial-
free educational programming each month to more than 3,000 public and private
schools in the communities it serves. Amos B. Hostetter, Jr. served as the
first Chairman of Cable in the Classroom.
Continental believes that its focus on customer service and community
relations will provide a competitive advantage as it plans to market a broader
range of video and telecommunications services to Homes in its operating
regions, frequently in competition with other providers of these services. (See
"Competition".)
EXPANDED SERVICE OFFERINGS. Continental believes that the operating strategy
described above has generated and will continue to enable it to generate
additional revenues from numerous sources, as customer demand and regulations
permit. Continental believes that the delivery of superior and diverse services
to its subscribers is a key component in its continued success and growth.
Increased channel capacity and addressability will enable Continental to
offer expanded programming services such as "tiered" and "multiplexed"
services. Continental believes that the "tiering" of programming services,
which includes providing NPTs, leads to increased customer acceptance by
offering subscribers a wider variety of programming and pricing packages from
which to choose. In addition, Continental currently uses "multiplexing" in many
systems to enhance the value of certain of its premium service offerings.
In recent years, Continental has begun to generate revenues from additional
sources, including advertising, pay-per-view and home shopping services.
Continental derives revenues from the sale of advertising time on advertising-
supported, satellite-delivered networks such as ESPN, MTV and CNN, as well as
on locally originated programming. Continental's advertising revenues increased
from $18 million for the year ended December 31, 1989 to $58 million for the
year ended December 31, 1994 (representing a 26% compound annual growth rate in
advertising revenues) and accounted for 2.3% and 4.8% of total Company revenues
for the years ended December 31, 1989 and 1994, respectively. Continental has
increased its advertising sales through its participation in several regional
cable advertising interconnects (associations of cable companies designed to
effectively deliver a large market to advertisers), as well as through the
deployment of advanced technologies, including digital advertising insertion
systems. Continental also participates in the national development of cable
advertising through its ownership interest in National Cable Communications,
L.P. ("NCC"), the largest cable advertising representation firm in the country.
Pay-per-view programming is offered to subscribers on an individual event
basis and consists of recently released movies and special events (including
boxing matches, other sporting events and concerts). Continental realized 14%
compound annual growth in pay-per-view revenues from December 31, 1989 to
December 31, 1994; for the year ended December 31, 1994, pay-per-view revenues
accounted for approximately 2% of total revenues of Continental. Continental
experienced a 5% decline in pay-per-view revenues for the year ended December
31, 1994 as compared to 1993, due primarily to an industry-wide lack of
availability of special events. Continental believes that increased channel
capacity and the further deployment of addressable technology in its systems
will enable it to expand the number of channels dedicated to pay-per-view
services and increase the number of subscribers with access to pay-per-view
programming.
Continental also receives a percentage of the proceeds from subscribers'
purchases of merchandise offered on home shopping programming services such as
QVC, Inc. ("QVC"), Home Shopping Network ("HSN") and Valuevision. Combined
advertising, pay-per-view and home shopping revenues have increased at a
compound annual rate of 22% over the past five years. Continental believes that
these and other services
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could become more substantial sources of revenue over time, however, there can
be no assurance in this regard.
REGULATORY RESPONSE
In October 1992, Congress enacted the 1992 Cable Act, which, among other
things, authorizes the FCC to set standards for governmental authorities to
regulate the rates for certain cable television services and equipment and
gives local broadcast stations the option to elect mandatory carriage or
require retransmission consent.
Pursuant to authority granted under the 1992 Cable Act, the FCC in April 1993
promulgated rate regulations that established maximum allowable rates for cable
television services, except for services offered on a per-channel or per-
program basis. On February 22, 1994, the FCC adopted a revised regulatory
scheme which included, among other things, interim cost-of-service standards
and a new benchmark formula. In creating the new benchmark formula, the FCC
authorized a further reduction in rates for certain regulated services. As a
result, rates for certain regulated services currently in effect may now be
reduced by as much as 17% below their September 30, 1992 levels if they exceed
the new per-channel benchmark. The old benchmark formula called for a reduction
of up to 10%. As part of the implementation of the regulations, the FCC froze
rates for regulated services from April 1, 1993 through May 15, 1994.
Under current law both the FCC and local franchise authorities have the
ability to regulate cable rates. Local franchise authorities may certify to the
FCC in order to regulate the rates charged for BBT services and equipment and
installation. Currently, local franchise authorities in systems representing
approximately 38% of Continental's BBT subscribers have certified to regulate
rates. The rates charged for CPS are regulated by the FCC if a subscriber or
other interested party filed a valid complaint with the FCC on or before
February 28, 1994, or files a valid complaint within 45 days of a future CPS
rate increase. Currently, complaints are pending before the FCC concerning CPS
rates covering approximately 52% of Continental's CPS subscribers. Premium
services such as HBO and Showtime, NPTs and pay-per-view channels, remain
unregulated. In addition, systems serving approximately 2% of Continental's
subscribers are subject to effective competition as defined by the 1992 Cable
Act and are thereby exempt from regulation. By law, local franchise authorities
must observe the rate regulation rules established by the FCC. The primary
means established by the FCC for regulating both BBT and CPS rates uses certain
formulas or "benchmarks" to establish the applicable tier rate. Equipment rates
are set based on actual cost plus a reasonable return and allowance for taxes.
The FCC also allows cable operators to use cost-of-service showings to justify
rates higher than the otherwise applicable benchmark, if the benchmark formulas
do not yield a rate sufficient to cover costs and yield an appropriate return
on a cable operator's investment. Companies electing to justify rates using
cost-of-service instead of the benchmark methodology initially were required by
the FCC to rely on general rate-making principles. After the first round of
cost-of-service justifications were filed, the FCC issued interim cost-of-
service regulations, but it has not yet adopted final rules.
After extensive evaluation of cost-of-service principles and economic and
legal analyses by experts in the rate regulation area, Continental decided to
defend certain of its service rates using the FCC's benchmark methodology in
regulated systems serving approximately 20% of its BBT subscribers and 24% of
its CPS subscribers, and certain of its service rates using the cost-of-service
methodology in regulated systems serving approximately 18% of its BBT
subscribers and 28% of its CPS subscribers. The decision to rely on cost-of-
service showings was based in part on the fact that Continental's systems
generally have substantially higher channel capacities and addressability than
the industry as a whole, reflecting greater capital investment on a per
subscriber basis. Having decided to pursue the cost-of-service process in some
of its systems, Continental has added the resources and availed itself of the
expertise needed to support the filings both at the FCC and locally.
Certain positions taken by Continental in its cost-of-service filings are
based on provisions of the FCC's interim cost-of-service rules that allow
certain "presumptions" in the rules to be overcome on a case-by-case basis.
While Continental believes that its showings in this regard are sufficient, the
results of these cases are unknown. As a result, Continental has recorded a
revenue reserve in its financial statements for the year ended December 31,
1994. (See "Management's Discussion and Analysis of Financial Condition and
Results of
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Operations of Continental--Results of Operations".) If Continental is
unsuccessful before the FCC or before local franchise authorities in its cost-
of-service filings, it will consider seeking judicial relief.
Once the rate for service has been established either by the benchmark or
cost-of-service methodology, Continental will be able to pass through to its
subscribers inflationary cost increases and increases in certain external
costs, such as programming.
On April 3, 1995, a Social Contract between Continental and the FCC (the
"Social Contract") was released for public comment. The Social Contract would
be a six-year agreement covering all of Continental's franchises, including
those that are currently unregulated, and would settle all Continental's
pending cost-of-service rate cases and all of its benchmark cable programming
service tier rate cases. Benchmark BBT cases would be resolved by Continental
and local franchising authorities. As part of the resolution of these cases,
Continental would agree to (i) invest at least $1.35 billion in domestic system
rebuilds and upgrades in the next six years to expand channel capacity and
improve system reliability and picture quality, (ii) make in-kind refunds to
affected subscribers totalling approximately $9.5 million and (iii) reduce all
of its BBT regulated and unregulated rates, as described below. The resolution
of pending rate cases is without any finding by the FCC of any wrongdoing by
Continental.
Pursuant to the Social Contract, Continental would agree to convert, by no
later than January 1, 1996, all its existing BBT services to a "lifeline basic"
tier and reduce BBT rates (i) in regulated franchise areas to 15% below the
benchmark rate (including rates that are currently calculated using the cost-
of-service methodology) and (ii) in unregulated franchise areas to 15% below
the current rates. The programming for the "lifeline basic" tier (consisting
generally of broadcast television signals locally available off-air, local
origination and public, educational and governmental access channels) would be
maintained for the life of the Social Contract. In the future, rates for the
"lifeline basic" tier could be increased for external cost increases and
inflation. Local franchise authorities would be able to opt out of the Social
Contract with respect to the cost-of-service BBT cases over which they have
jurisdiction and independently resolve with Continental any refund amounts.
The Social Contract would allow Continental to offset BBT revenue reductions
resulting in the creation of "lifeline basic" tiers with adjustments to rates
on its CPS tiers. By January 1, 1996, (i) all regulated CPS rates that are
determined according to the benchmark formula would be set at the benchmark and
(ii) all regulated CPS rates that are currently calculated using the cost-of-
service methodology, as well unregulated CPS rates, would be maintained at
current levels. In each case, Continental would be permitted to adjust its CPS
rates to offset the 15% reductions in its BBT and to allow for external cost
increases, inflation and channel additions permitted by the FCC's "going
forward" rules. Under the going forward rules, Continental, along with other
cable operators, during the three-year period beginning January 1, 1995, is
permitted, subject to limits prescribed in those rules, to add new services and
to reflect the cost of those new services by an amount not to exceed $.20 per
added channel, plus the actual license fees for the added channels.
Pursuant to the Social Contract, Continental would be permitted to conduct a
second round of channel additions during the three-year period commencing
January 1, 1998 on the same terms as the first round. Continental is the first
cable operator that would be afforded a second round of going forward channel
additions.
Pursuant to the Social Contract, Continental would be permitted to average
broad categories of equipment and various installation costs for all its
systems on a state-wide or region-wide basis, rather than on a system by system
basis.
Finally, Continental would be permitted on each system to move up to four
existing services on CPS tier(s) to a single Migrated Product Tier, provided
the Migrated Product Tier is offered without requiring customers to purchase
any tier other than the BBT. The rates of the Migrated Product Tier would be
regulated in accordance with price limits contained in the Social Contract
until January 1, 1997, at which point Continental systems may elect to convert
their Migrated Product Tiers into NPTs, as defined by the going forward rules,
provided the tier continues to be offered without requiring customers to
purchase any
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tier other than the BBT. The rates for the NPTs are regulated by market forces.
(See "Legislation and Regulation--Federal Regulation--Rate Regulation".)
The Social Contract is designed to (1) assure fair and reasonable rates for
Continental's cable service customers; (2) improve Continental's cable service
by substantially upgrading the channel capacity and technical reliability of
its domestic cable systems; and (3) reduce the administrative burden and costs
of regulation for local governments, the FCC and Continental.
DEVELOPMENT OF CONTINENTAL AND ITS BUSINESS
From Continental's inception through the early 1980's, the majority of its
growth was attributable to constructing, operating and marketing new cable
television systems in the United States. Continental's growth since then is
largely attributable to targeted marketing of its basic and premium services,
to line extensions within its existing franchise areas and to the purchase and
development of existing cable television systems, which have typically been
contiguous or in close proximity to Continental's existing systems. More
recently, Continental's growth has been supplemented by ancillary revenue
sources, including advertising, pay-per-view movies and events and home
shopping revenues. In addition, Continental has made investments in
(i) the telecommunications and technology industry, including companies
offering competitive access telephony and DBS service; (ii) cable television
businesses in certain international markets where growth prospects are
attractive; and (iii) programming, including, among others, investments in
Turner Broadcasting System, Inc. ("Turner"), E! Entertainment Television, Inc.
("E!") and New England Cable News. (See "International Operations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Continental--Liquidity and Capital Resources".)
The following table summarizes the growth of Continental and its affiliates
within the United States since December 31, 1991.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1991 1992 1993 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Homes Passed by Cable(1)........... 4,880,000 4,981,000 5,192,000 5,383,000
Number of Basic Subscribers(2)..... 2,784,000 2,856,000 2,895,000 3,081,000
Basic Penetration(3)............... 57.0% 57.3% 55.8% 57.2%
Number of Premium Subscriptions(4). 2,603,000 2,545,000 2,454,000 2,611,000
Premium Penetration(5)............. 93.5% 89.1% 84.8% 84.7%
Monthly Revenue per Average Basic
Subscriber(6)..................... $32.98 $34.46 $35.76 $35.29
</TABLE>
- --------
(1) Estimated dwelling units located sufficiently close to Continental's cable
plant to be practicably connected without any further extension of
principal transmission lines. In reporting Homes passed and subscriber and
other data for systems not controlled or managed by Continental, only that
portion of data corresponding to Continental's percentage ownership is
included.
(2) A "basic subscriber" means a person who subscribes, at a minimum, to
Continental's BBT, which generally consists of broadcast television
stations available locally off-air, local origination and public,
educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis, by dividing aggregate
BBT bulk-billed revenues by the stated BBT rate. In reporting subscriber
and other data for systems not controlled or managed by Continental, only
that portion of data corresponding to Continental's percentage ownership is
included.
(3) Basic subscribers as a percentage of Homes passed by cable. Continental's
basic penetration for the years ended December 31, 1993 and 1994, reflects
the FCC's rate regulation rules adopted on April 1, 1993, which for the
first time provided a standardized definition of "households".
(4) Equals the number of premium services subscribed to by subscribers. Premium
services include single channel services offered for a monthly fee per
channel.
(5) Premium subscriptions as a percentage of basic subscribers. A subscriber
may purchase more than one premium service, each of which is counted as a
separate premium subscription. This ratio may be greater than 100% if the
average customer subscribes to more than one premium service.
(6) Revenue divided by the weighted average number of basic subscribers for
Continental's consolidated subsidiaries during the twelve month period
ended December 31 for each year presented.
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DOMESTIC CONTINENTAL SYSTEMS
The following table sets forth certain information related to Continental's
domestic systems and the systems of certain domestic affiliates as of December
31, 1994.
<TABLE>
<CAPTION>
BASIC SERVICE
---------------------------------
HOMES NUMBER OF NUMBER OF
PASSED BASIC BASIC PREMIUM PREMIUM
MANAGEMENT REGIONS BY CABLE SUBSCRIBERS PENETRATION SUBSCRIPTIONS PENETRATION
------------------ --------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
NEW ENGLAND REGION
Eastern New England (MA).. 358,186 239,486 66.9% 193,205 80.7%
Southern New England (MA). 270,534 194,791 72.0% 165,010 84.7%
Northern New England (NH,
ME)...................... 225,566 170,124 75.4% 84,676 49.8%
Western New England (MA,
CT)...................... 220,347 150,299 68.2% 121,328 80.7%
New York
(Havistraw/Ossining)..... 77,151 59,047 76.5% 55,302 93.7%
--------- --------- ---- --------- -----
Total................... 1,151,784 813,747 70.7% 619,521 76.1%
========= ========= ==== ========= =====
CALIFORNIA REGION
Southern California....... 1,040,282 326,373 31.4% 430,106 131.8%
Greater Metropolitan
Fresno................... 274,343 145,401 53.0% 134,239 92.3%
Greater Metropolitan
Stockton................. 121,081 67,284 55.6% 57,013 84.7%
Yuba City, California..... 43,725 32,440 74.2% 15,191 46.8%
Reno, Nevada.............. 13,232 9,643 72.9% 6,354 65.9%
--------- --------- ---- --------- -----
Total................... 1,492,663 581,141 38.9% 642,903 110.6%
========= ========= ==== ========= =====
SOUTHEAST REGION
Jacksonville, Florida..... 405,731 238,965 58.9% 206,301 86.3%
Pompano, Florida.......... 233,465 147,193 63.0% 97,476 66.2%
Richmond, Virginia........ 241,397 157,404 65.2% 113,977 72.4%
--------- --------- ---- --------- -----
Total................... 880,593 543,562 61.7% 417,754 76.9%
========= ========= ==== ========= =====
MICHIGAN/OHIO REGION
Greater Metropolitan
Detroit.................. 174,007 120,337 69.2% 121,335 100.8%
Lansing and Greater
Metropolitan Lansing..... 124,742 86,560 69.4% 47,863 55.3%
Greater Dayton............ 246,674 166,237 67.4% 96,327 57.9%
Greater Metropolitan
Cleveland................ 120,550 82,548 68.5% 57,772 70.0%
North Central Ohio........ 119,083 80,994 68.0% 49,526 61.1%
--------- --------- ---- --------- -----
Total................... 785,056 536,676 68.4% 372,823 69.5%
========= ========= ==== ========= =====
MIDWEST REGION
Greater Metropolitan
Chicago (West)........... 410,150 244,874 59.7% 253,976 103.7%
St. Louis, Missouri....... 171,825 95,915 55.8% 110,070 114.8%
St. Paul, Minnesota....... 146,840 63,108 43.0% 61,440 97.4%
Southern Illinois......... 84,528 59,527 70.4% 33,382 56.1%
--------- --------- ---- --------- -----
Total................... 813,343 463,424 57.0% 458,868 99.0%
========= ========= ==== ========= =====
Affiliated Companies(1)..... 259,293 142,335 54.9% 98,931 69.5%
--------- --------- ---- --------- -----
Total................... 5,382,732 3,080,885 57.2% 2,610,800 84.7%
========= ========= ==== ========= =====
SYSTEMS DESIGNATION:
Consolidated Systems...... 5,123,439 2,938,550 57.4% 2,511,869 85.5%
Affiliated Companies(1)... 259,293 142,335 54.9% 98,931 69.5%
--------- --------- ---- --------- -----
Total................... 5,382,732 3,080,885 57.2% 2,610,800 84.7%
========= ========= ==== ========= =====
</TABLE>
- --------
(1) Affiliated Companies are those companies not majority-owned or controlled
by Continental. The systems held by Affiliated Companies consist of
systems held by five limited partnerships. (See "Domestic Acquisitions and
Investments--Domestic Minority Cable Investments".) Continental owns less
than 50% of the outstanding limited partnership interests of each such
partnership. None of the systems owned by Affiliated Companies are managed
by Continental. In reporting subscriber and other data for systems not
controlled or managed by Continental, only that portion of data
corresponding to Continental's percentage ownership is included. N-COM
Limited Partnership II ("N-COM") is currently an Affiliated Company.
Continental anticipates that in 1995 it will acquire the remaining
partnership interests in N-COM and assume certain liabilities from the
other partners. No assurances can be made at this time that such
transaction will be consummated. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Continental".)
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MANAGEMENT REGIONS: A description of Continental's five domestic cable
television management regions and their significant operating clusters is set
forth below:
New England. The New England region is Continental's largest management
region, representing approximately 21% of Continental's total Homes passed and
26% of its total basic subscribers as of December 31, 1994. This region
includes systems in the New England states of Maine, New Hampshire,
Massachusetts and Connecticut, as well as in Westchester County, New York.
Significant operating clusters in Massachusetts, which include the Boston
suburban communities of Needham, Cambridge, Newton, Wellesley, Watertown and
Winchester in the eastern part of the state, and Northfield, Springfield,
Longmeadow, and Westfield in the western part of the state, represent
approximately 68% of the region's total basic subscribers. The New England
region commenced a five year rebuild program in 1994, which upon completion
will result in a combination of 550 MHz and 750 MHz capacity for most of the
region. The median household income for the communities served by Continental
in the New England region is approximately $49,000, versus the national median
household income of $34,600.
Upon the consummation of the Merger, the New England region's basic
subscriber base will increase by 25%, to more than 1,000,000 basic subscribers.
California. The California region represented approximately 28% of
Continental's total Homes passed and 19% of its total basic subscribers as of
December 31, 1994. This region includes its systems in Los Angeles, where
Continental is the largest cable operator, with approximately 80% of its basic
subscribers clustered in geographically contiguous franchises served by two
headends. This region also includes Continental's Northern California systems,
which include the cities of Fresno, Visalia, Stockton, and Yuba City, as well
as Reno, Nevada. An upgrade of the Los Angeles systems, that will bring
capacity to 750 MHz, is currently under way. The median household income for
the communities served by Continental in the California region is approximately
$34,500.
Upon the consummation of the Merger and another pending acquisition, the
California region's basic subscriber base will increase by approximately 50%,
to more than 875,000 basic subscribers.
Southeast. The Southeast region represented approximately 16% of
Continental's total Homes passed and 18% of its total basic subscribers as of
December 31, 1994. This region includes significant operating clusters serving
the communities surrounding Jacksonville and Pompano, Florida and Richmond,
Virginia. The Jacksonville cluster is one of Continental's largest, serving
over 200,000 basic subscribers. In 1994, the Jacksonville and Pompano systems
commenced rebuild projects which will provide 750 MHz capacity to fiber nodes
serving approximately 2,000 or fewer homes by 1997. The median household income
for the communities served by Continental in the Southeast region is
approximately $36,900.
Upon the consummation of the Merger, the Southeast region's basic subscriber
base will increase by approximately 40%, to more than 740,000 basic
subscribers.
Michigan/Ohio. The Michigan/Ohio region represented approximately 15% of
Continental's total Homes passed and 17% of its total basic subscribers as of
December 31, 1994. This region includes Continental's systems in greater
metropolitan Detroit and Lansing, which includes the communities of Southfield,
Dearborn Heights, Westland, and Jackson. In Ohio, Continental's systems serve
the greater Dayton and Cleveland communities, as well as several communities
throughout North Central Ohio. By mid-1995, the Dayton systems will be entirely
rebuilt to provide 550 MHz capacity to fiber nodes serving approximately 2,000
or fewer homes. The median household income for the communities served by
Continental in the Michigan/Ohio region is approximately $39,000.
Continental has reached agreement to purchase several cable systems in 1995,
which will increase the Michigan/Ohio region's basic subscriber base by
approximately 20%, to more than 645,000 total basic subscribers.
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Midwest. The Midwest region represented approximately 15% of Continental's
total Homes passed and 15% of its total basic subscribers as of December 31,
1994. This region includes Continental's systems in metropolitan Chicago and
Southern Illinois, St. Paul, Minnesota, and St. Louis, Missouri. Continental's
metropolitan Chicago cluster, which includes the Chicago suburban communities
of Elmhurst, Forest Park, Oak Brook, Rosemont, Northfield, Westchester, and
Willmette, is one of Continental's largest, with 241,000 basic subscribers
served by four headends. All of the Midwest region's systems are scheduled to
be rebuilt or upgraded by 1997, at which time all major markets will have
between 600 MHz and 750 MHz capacity. The median household income for the
communities served by Continental in the Midwest region is approximately
$47,100.
In January 1995, Continental reached agreement to purchase an existing cable
television system in Chicago, which will increase the Midwest region's basic
subscriber base by approximately 88,000 basic subscribers. These basic
subscribers combined with those resulting from the Merger will increase this
region's basic subscribers by 36% to more than 630,000 basic subscribers.
FRANCHISES. Continental believes it has maintained good relations with its
local franchise authorities. Continental has never had a franchise revoked, and
to date all of its franchises have been renewed or extended at their
expirations, frequently on modified but satisfactory terms. Continental's
franchises establish the terms and conditions under which its systems are
operated. Typically, they establish certain performance and safety standards
related to Continental's construction and maintenance of facilities in, under
and over public streets and rights of way in the franchise areas. Some, but not
all, of these franchises specify the services to be offered. Nearly all of
Continental's franchises provide for the payment of fees to the local
franchising authorities, which currently average approximately 3% of gross
revenues. The 1984 Cable Act prohibits local franchising authorities from
imposing annual franchise fees in excess of 5% of gross revenues and also
permits the cable system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances. Continental's
franchises are usually issued for fixed terms ranging from 10 to 15 years and
must periodically be renewed. Most of such franchises can be terminated prior
to their stated expirations for breach of material provisions.
Franchises representing approximately 1,570,000 basic subscribers
(approximately 47% of the basic subscribers of Continental and its domestic
affiliates as of December 31, 1994) are scheduled to expire through 1999. The
1984 Cable Act provides, among other things, for an orderly franchise renewal
process in which a franchise renewal will not be unreasonably withheld or, if
renewal is withheld and the system is acquired by the franchise authority or a
third party, the franchise authority must pay the operator the "fair market
value" of the system covered by such franchise. In addition, the 1984 Cable Act
establishes comprehensive renewal procedures which require that an incumbent
franchisee's renewal application be assessed on its own merit and not as part
of a comparative process with competing applications. (See "Legislation and
Regulation--Cable Communications Policy Act of 1984".)
PROGRAMMING. Continental provides programming to its subscribers pursuant to
contracts with programming suppliers. Continental generally pays a flat monthly
fee per subscriber for programming on its basic and premium services. Some
programming suppliers provide volume discount pricing structures and/or offer
marketing support to Continental. Continental's programming contracts are
generally for fixed periods of time ranging from 3 to 10 years and are subject
to negotiated renewal. The costs to Continental to provide cable programming
have increased in recent years and are expected to continue to increase due to
additional programming being provided to basic subscribers, increased costs to
produce or purchase cable programming, inflationary increases and other
factors. Increases in the cost of programming services have been offset in part
by additional volume discounts as a result of the growth of Continental and its
success in selling such services to its customers. Effective in May 1994, the
FCC's rate regulations under the 1992 Cable Act permit operators to pass
through to customers increases in programming costs in excess of the inflation
rate. Management believes that Continental will continue to have access to
programming services at reasonable price levels. (See "Legislation and
Regulation".)
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MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains new broadcast
signal carriage requirements, and the FCC has adopted regulations which are
currently in force implementing such statutory carriage requirements. These new
rules allow local commercial television broadcast stations, commencing on June
17, 1993 and every three years thereafter, either to elect required carriage
("must-carry" status), or to require a cable television system to negotiate for
"retransmission consent" rights. A cable television system generally is
required to devote up to one-third of its activated channel capacity for the
mandatory carriage of local commercial television stations. Local non-
commercial television stations are also given mandatory carriage rights on
cable television systems under the 1992 Cable Act and the FCC's rules; however,
such stations are not given the option to negotiate for retransmission consent
rights. Additionally, as of October 6, 1993, cable television systems were
required to obtain retransmission consent for all "distant" commercial
television stations (except for commercial satellite-delivered independent
"superstations" such as WTBS), commercial radio stations and certain low power
television stations carried by cable television systems. With its 1993
agreement with Capital Cities/ABC Inc. ("Capital Cities") and The Hearst
Corporation ("Hearst"), Continental was the first major cable television
company to reach a retransmission consent agreement with a broadcaster not
requiring cash compensation in exchange for the right to carry the
broadcaster's local television signals. In exchange for permission to carry the
local television signals of broadcast stations owned by Capital Cities and
Hearst, Continental agreed to carry ESPN2, a national sports programming
network owned by Capital Cities and Hearst. Since then, Continental has been
successful at reaching retransmission consent agreements, for terms generally
ranging from 3 to 7 years, with virtually all of the local broadcast stations
that elected retransmission consent (all without payment of cash compensation),
and only in a very few instances has Continental been forced to drop a local
broadcast signal from its programming. Some of Continental's systems have been
required to carry television broadcast stations that they otherwise would not
have elected to carry due to must-carry elections. At this time, Continental
cannot predict the outcome of any future must-carry elections by and
retransmission consent negotiations with local broadcasters.
DOMESTIC ACQUISITIONS AND INVESTMENTS
Management believes that the telecommunications industry, including the cable
television and telephony industries, is in a period of consolidation
characterized by mergers, joint ventures, acquisitions, cable-system exchanges,
and similar transactions. Management also believes that Continental is well
positioned to participate in this consolidation trend due to its well-clustered
systems, the technical quality of its cable plant, its management strengths and
its relationships within the cable industry. Continental, like other cable
television companies, has participated from time to time and will continue to
participate in discussions with third parties regarding a variety of potential
transactions.
DOMESTIC ACQUISITIONS. Continental seeks to selectively acquire cable
television systems that are contiguous or in close proximity to its existing
system clusters to expand its nationwide scale and enlarge and enhance its
regional system clusters. Continental generates growth in operating income in
such acquired systems through a combination of efficiencies resulting from
system consolidation and expansion of the service offerings of the acquired
systems. Continental may also make acquisitions of cable television systems
that would form the basis for the creation of additional system clusters. In
addition, Continental periodically reviews opportunities to exchange its
systems for those of other cable television system operators in order to
enlarge and enhance its regional system clusters. The following is a summary of
recent and pending acquisitions of domestic cable systems, excluding the
Merger:
In June 1994, Continental acquired a cable television system serving
approximately 44,000 basic subscribers in Manchester, New Hampshire and its
surrounding communities for a purchase price of approximately $48,000,000. The
Manchester system is adjacent to several of Continental's existing systems in
the New England region.
In November 1994, Continental acquired three cable television systems serving
approximately 34,000 basic subscribers in Florida for a purchase price of
approximately $67,000,000. These systems are in close proximity to
Continental's existing systems in the Southeast region.
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In January 1995, Continental entered into a purchase and sale agreement to
acquire several cable television systems serving approximately 88,000 basic
subscribers in the Chicago, Illinois area for a purchase price of approximately
$168,500,000. This transaction is expected to close in 1995. These systems are
in close proximity to Continental's existing systems in its Midwest region.
Continental has entered into a purchase and sale agreement with Columbia
Associates L.P., a Delaware limited partnership, to purchase several cable
television systems serving approximately 74,000 basic subscribers in Michigan
for approximately $155,000,000. Continental has also entered into an agreement
to acquire the remaining partnership interests of N-COM, a limited partnership
that operates cable television systems serving approximately 53,000 basic
subscribers in the Detroit suburbs. Continental currently owns a 33.77% limited
partnership interest in such partnership. The purchase price for the remaining
interests is approximately $90,000,000. The Columbia and N-COM systems are in
close proximity to Continental's existing systems in its Michigan/Ohio region.
The Columbia and N-COM acquisitions are expected to close in 1995.
In addition, in March 1995, Continental entered into a purchase and sale
agreement with Consolidated Cablevision of California to purchase cable
television systems serving approximately 12,000 basic subscribers in Northern
California for approximately $17,000,000. This acquisition is expected to close
in 1995. These systems are in close proximity to Continental's existing systems
in California.
There can be no assurances that any of the foregoing pending transactions
will be consummated. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Continental--Liquidity and Capital
Resources--Capital Expenditures and Domestic Acquisitions".)
The following table summarizes certain pro forma operating data of
Continental's domestic systems and its domestic affiliates and gives effect to
the Merger and the other acquisitions described above.
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Homes Passed by Cable(1)
Continental...................................................... 5,383,000
Providence Journal............................................... 1,253,000
Other(2)......................................................... 413,000
---------
Total............................................................ 7,049,000
=========
Number of Basic Subscribers(3)
Continental...................................................... 3,081,000
Providence Journal............................................... 771,000
Other(2)......................................................... 211,000
---------
Total............................................................ 4,063,000
=========
Basic Penetration(4)
Continental...................................................... 57.2%
Providence Journal............................................... 61.5%
Other(2)......................................................... 51.1%
---------
Total............................................................ 57.6%
=========
Number of Premium Subscriptions(5)
Continental...................................................... 2,611,000
Providence Journal............................................... 510,000
Other(2)......................................................... 206,000
---------
Total............................................................ 3,327,000
=========
Premium Penetration(6)
Continental...................................................... 84.7%
Providence Journal............................................... 66.2%
Other(2)......................................................... 97.6%
---------
Total............................................................ 81.9%
=========
</TABLE>
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- --------
(1) Estimated dwelling units located sufficiently close to Continental's cable
plant to be practicably connected without any further extension of
principal transmission lines.
(2) "Other" includes the pending acquisitions in Michigan, Illinois and
Northern California, which are expected to close in 1995. Approximately
66.3% of N-COM's total Homes passed and subscriber data is included under
"Other" with the remaining 33.7% included under "Continental", reflecting
Continental's current minority stake in N-COM.
(3) A "basic subscriber" means a person who subscribes, at a minimum, to
Continental's BBT, which generally consists of broadcast television signals
available locally off-air, local origination and public, educational and
governmental access channels. Bulk subscribers are accounted for on an
"equivalent billing unit" basis, by dividing aggregate BBT bulk-billed
revenues by the stated BBT rate. In reporting subscriber and other data for
systems not controlled or managed by Continental, only that portion of data
corresponding to Continental's percentage ownership is included.
(4) Basic subscribers as a percentage of Homes passed by cable.
(5) Equals the number of premium services subscribed to by subscribers. Premium
services include single channel services offered for a monthly fee per
channel.
(6) Premium subscriptions as a percentage of basic subscribers. A subscriber
may purchase more than one premium service, each of which is counted as a
separate premium subscription. This ratio may be greater than 100% if the
average customer subscribes to more than one premium service.
DOMESTIC MINORITY CABLE INVESTMENTS. The acquisition of minority ownership
interests in various domestic cable television companies has contributed to
Continental's operating scale. As of December 31, 1994, through wholly owned
subsidiaries, Continental held minority ownership positions in the following
domestic cable companies.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------
HOMES TOTAL BASIC PERCENTAGE
INVESTMENT PASSED SUBSCRIBERS OWNERSHIP
---------- ------- ----------- ----------
<S> <C> <C> <C>
Insight Communications Company, L.P.............. 293,746 150,846 34.42%
Meredith/New Heritage Strategic Partners, L.P.... 267,067 141,437 37.90%
N-COM Limited Partnership II(1).................. 90,285 54,085 33.77%
Prime Cable of Hickory, L.P...................... 50,706 35,212 33.30%
Inland Bay Cable TV Associates................... 19,579 13,915 49.00%
------- -------
Total.......................................... 721,383 395,495
======= =======
</TABLE>
- --------
(1) Continental anticipates that in 1995 it will acquire the remaining
ownership interests in N-COM from the other partners and assume certain
liabilities for total consideration of approximately $90,000,000. No
assurances can be made at this time that such transaction will be
consummated. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Continental--Liquidity and Capital
Resources--Capital Expenditures and Domestic Acquisitions".)
INTERNATIONAL OPERATIONS
Continental has made and continues to pursue investments in international
video networks and also seeks to make investments in international telephony
networks. Such investments represent opportunities for Continental to apply its
managerial, technical and marketing expertise in attractive international
markets. In considering such investments, Continental seeks the following
characteristics: (i) favorable demographics and attractive growth prospects,
(ii) well-capitalized investment partner(s) with extensive knowledge of the
local market(s) and (iii) favorable regulatory environments. To date,
Continental has made investments in cable television systems in Argentina and
Singapore, has signed a letter of intent for a joint venture in Australia, and
has signed a memorandum of understanding relating to a potential joint venture
in Japan. Continental is pursuing other international opportunities principally
in Latin America, Asia and the Pacific Rim. (See "Certain Considerations
Relating to the Transactions--Certain Considerations Relating to the
Continental Merger Stock--International Investments".) Continental's
international investments include the following:
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ARGENTINA. In 1994, Continental acquired an approximate 50% interest in
Fintelco, S.A. ("Fintelco"), an Argentine cable television operator, subject to
the receipt of certain governmental approvals permitting Continental to hold an
equity interest in an Argentine cable television company (such approvals are
pending). Fintelco is the largest cable television operator in Argentina, with
over 600,000 subscribers in regional system clusters in the Argentine provinces
of Buenos Aires, Cordoba and Santa Fe.
Fintelco's operating strategy focuses on creating regional system clusters in
key markets. As of December 31, 1994, Fintelco had over 311,000 subscribers in
the province of Buenos Aires, 195,000 subscribers in the province of Cordoba
and 104,000 subscribers in the province of Santa Fe. Average rates for
Fintelco's cable television services are the equivalent of approximately US$30
per month. Most systems in Argentina provide a single package of services,
which typically includes premium movie channels such as HBO Ole.
Fintelco was one of Argentina's first cable television operators through its
primary operating subsidiary in Buenos Aires, Video Cable Comunicacion, S.A.
("VCC"). In the late 1980's VCC grew through the construction of cable
television systems in Buenos Aires as well as through strategic acquisitions of
smaller systems in the region. More recently, Fintelco's growth has come
through strategic acquisitions in the provinces of Cordoba and Santa Fe. Sixty-
six percent of the country's population is located in the provinces of Buenos
Aires, Cordoba and Santa Fe. Fintelco will continue to seek opportunities over
time to grow through acquisitions in these regions.
As of December 31, 1994, Continental had invested approximately
US$114,000,000 in Fintelco and its subsidiaries and had committed to invest an
additional US$32,216,000. These systems are currently managed by Continental's
Argentine partner, with technical assistance provided by Continental.
Continental and Fintelco are currently seeking approvals for the acquisition
of Continental's equity interest in Fintelco from the applicable Argentine
regulatory authority which must approve transfers of ownership in any Argentine
cable property. While Continental expects to obtain all required governmental
approvals, there can be no assurances in this regard.
Argentina has a population of 33 million, with over 9.1 million television
households, and VCR and pay television (which includes wireline cable and MMDS)
penetration rates of approximately 32% and 45%, respectively. Argentina has one
of the most developed cable television industries in Latin America, with an
estimated four million total subscribers nationwide as of December 31, 1994.
Total Argentine cable revenues for 1994 are estimated to be over US$1 billion.
The television audience in Buenos Aires has access to five major national
broadcast "networks" and over 90 satellite-delivered cable channels, including
both Argentine and international programming.
SINGAPORE. In 1994, Continental acquired 25% of the outstanding capital stock
of Singapore CableVision Private Limited ("SCV"), which is constructing a cable
television system in Singapore, a country with approximately 2.8 million
residents. Cable television service is not currently available in Singapore.
Continental's partners in this venture are Singapore Technologies Venture Pte.
Ltd., Singapore International Media Pte. Ltd. and Singapore Press Holdings
Limited, each of which is affiliated with the government of Singapore. SCV is
constructing a high capacity system that will serve substantially all of
Singapore's approximately 820,000 households. The system expects to activate
its first subscribers in the middle of 1995, and by 1999, when construction is
expected to be completed, it is anticipated that there will be nearly 1 million
households in Singapore. SCV will include both Mandarin and English language
programming. Continental is managing the system's construction and ongoing
operations under a five year renewable agreement, for which it will receive a
management fee based upon the gross revenues generated by the system.
Continental has currently made capital contributions of US$8.7 million and
has committed to make additional capital contributions to SCV of approximately
US$34.8 million (based upon exchange rates as of December 31, 1994) to be paid
through 1996. In addition, Continental has made commitments to SCV to lend up
to approximately US$43 million (based upon exchange rates as of December 31,
1994) if third party
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debt financing cannot be obtained by SCV. Continental anticipates that it may
explore additional investments in Asia and the Pacific Rim, including
investments with certain of its SCV partners. Randall Coleman, the former Vice
President and General Manager of Continental's St. Paul system, serves as
President of SCV.
AUSTRALIA. Continental has entered into a letter of intent with Optus
Communications Pty Ltd. ("Optus"), a provider of long-distance and cellular
telephone services in Australia, and Publishing and Broadcasting Limited (a
Kerry Packer-affiliated company) to create a broadband communications network
in Australia. The venture, to be called Optus Vision, is expected to be
initially owned 47.5% by Continental, 47.5% by Optus and 5% by Publishing and
Broadcasting Limited. Publishing and Broadcasting Limited has an option to
increase its shareholding to 20%. The option is exercisable at any time prior
to July 1, 1997, at an exercise price approximating the market value of the
venture at the time. Optus Vision will provide cable television, local
telephone and a variety of advanced broadband interactive services to business
and residential customers in Australia's major markets.
Australia has a population of 17 million, with over 5.6 million television
households and VCR penetration of approximately 71%. Construction of the Optus
Vision network will commence in 1995, and the venture's construction plan
anticipates passing approximately three million households throughout Australia
in the venture's first four years, beginning with the major metropolitan
centers of Sydney, Melbourne and Brisbane. The planned network will be bi-
directional, and is anticipated to be the first of its kind in the world to
deliver telephone calls to the home exclusively over a single fiber-coaxial
network.
Optus Vision plans to provide an initial video programming package of over 20
channels, including two movie channels, two sports channels and a variety of
local and international programming. Optus Vision anticipates increasing the
number of channels of video programming to 50 by mid-1997. The movie channels
will be supported by a supply of movies from Warner Brothers, Disney, MGM,
Village Roadshow and New Regency. The sports channels will include major
Australian sporting events as well as significant international sports sourced
through ESPN International. Nine Network, an Australian broadcast network
affiliated with Kerry Packer, will provide programming expertise to the sports
channels.
The joint venture will employ approximately 3,000 people, including several
Continental employees. Frank Anthony, the former Senior Vice President and
General Manager of Continental's New England region, will be the Chief
Operating Officer of Optus Vision.
Optus Vision anticipates that the required funding needs of the project will
total approximately US$1.5 billion (based upon exchange rates as of December
31, 1994) through 1999, which will be provided by a combination of equity from
the joint venture partners and third-party debt. No assurances can be given at
this time as to the parties reaching a definitive agreement regarding this
transaction, or, if an agreement is reached, as to the consummation of this
transaction.
JAPAN. In March of 1995, Continental and Tomen Corporation, a leading
Japanese trading company, signed a memorandum of understanding relating to the
provision of cable television, telephony, multimedia and interactive services
in Japan. In addition to agreeing to conduct feasibility studies, Continental
and Tomen Corporation have agreed to form a new company, CT Telecom, which may,
either individually or in conjunction with other Japanese companies, seek to
obtain licenses to provide these services to markets with a total of at least
one million homes in Japan. At this time, the terms of the joint venture have
not been finalized.
Currently, approximately 1.6 million of Japan's 44 million households receive
broadcast and cable networks over cable television systems. However, recent
reforms of its cable television and telecommunications laws have encouraged
foreign investment in cable television companies and the creation of multiple
system operators in Japan, where cable television licenses are awarded on a
non-exclusive basis.
Tomen Corporation has ownership interests in four cable television systems in
Japan, one of which is conducting a 300-home technology and market test
involving telephony, fax, personal computer and near
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video on demand services. Tomen Corporation is also the contractor for
telecommunications networks in Thailand, Philippines, Malaysia, Indonesia and
Romania.
Continental's capital commitment to CT Telecom will be dependent upon the
licenses received, the associated construction schedule and the other equity
partners involved. Additionally, no assurances can be given at this time as to
the degree of success that CT Telecom will have in obtaining licenses to
provide cable television and telecommunications services in Japan.
STRATEGIC INVESTMENTS
Continental's investments and potential investments include certain emerging
businesses, such as telecommunications and technology, and programming. All of
Continental's strategic investments are currently held by wholly owned
subsidiaries and include the following:
TELECOMMUNICATIONS AND TECHNOLOGY INVESTMENTS. Continental is rebuilding and
upgrading its plant to create advanced fiber-optic and coaxial cable networks,
which will serve as the infrastructure for the provision of expanded video
services and both wireline and wireless telephony services. Continental
believes that its fiber-optic plant will position it to provide these new
services as they become available. As markets develop for these services,
Continental will make the additional capital investments required to provide
such services. Although Continental believes that demand exists to support the
entry of cable television companies into the wireline and wireless telephony
businesses, the offering of these services will require the removal of existing
regulatory and legislative barriers to local telephone competition. (See
"Competition" and "Legislation and Regulation".)
Teleport Communications Group Inc. Continental has a 20% equity interest in
Teleport Communications Group Inc. ("TCG"), a local telecommunications services
provider and a leading fiber-optic-based competitor to local telephone
companies nationwide. Continental believes that its involvement in TCG is an
effective means of utilizing its existing fiber-optic and coaxial cable network
to participate in the growth of the local competitive access telephony
business.
TCG provides local telecommunications services over high-capacity fiber-optic
networks (which it owns or leases from cable operators such as Continental) to
meet the voice, data and video transmission needs of high-volume business
customers in major metropolitan areas throughout the United States. TCG's
customers include long-distance carriers and resellers, international telephone
carriers, financial services firms, banking and brokerage institutions, media
companies and other telecommunications-intensive businesses. In competition
with the Regional Bell Operating Companies (the "RBOCs") and other local
exchange carriers ("LECs"), TCG offers its customers vendor diversity for local
service, superior quality, competitive pricing and state-of-the-art technology.
Since 1985, TCG has owned and operated the nation's largest non-LEC local
telecommunications network in the New York City metropolitan area, the
country's leading telecommunications market. Beginning in 1988 with the
construction of a Boston network, TCG has actively expanded its network
operations to 24 telecommunications markets in the United States, including Los
Angeles, Chicago, San Francisco, Dallas, Detroit, Miami, Houston, Seattle, San
Diego and Milwaukee. In several of these markets, Continental is a partner and
a primary network provider for TCG. As of December 31, 1994, TCG provided
service to approximately 2,938 buildings and had networks which spanned over
3,720 route miles.
TCG has emphasized the expansion of the telecommunications services and
products it offers to its customers. TCG was the first competitive access
telephony provider to offer local switched services using sophisticated digital
switching devices capable of routing a call over different available circuits
to reach the intended termination point of the call anywhere on the public
switched telephone network. Local dedicated line and special access services
represent an available market of approximately $5.9 billion nationally, and
switched access services for business represent approximately $20 billion of
the $98.7 billion local telecommunications services market in the United
States.
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Through December 31, 1994, Continental had invested $105.2 million in TCG and
related joint ventures. In addition to these investments, Continental has made
commitments to TCG to loan up to $69.9 million through 2003, of which $39
million was outstanding as of December 31, 1994. (See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Continental--
Liquidity and Capital Resources".)
In addition to Continental, the other partners in TCG currently include Cox,
TCI and Comcast, which have interests of approximately 30%, 30% and 20%,
respectively.
The recently announced business arrangement between TCI, Cox and Comcast (the
"Cable Partners") and Sprint may contemplate the contribution to the Sprint
venture of the Cable Partners' interest in TCG, in the local joint ventures
between the Cable Partners and TCG, and in other competitive access assets
owned by them. The contribution of the Cable Partners' interest in TCG to the
Sprint venture would require the prior consent of Continental. Should it be in
its best interest, Continental would negotiate with the Cable Partners
regarding the acquisition of Continental's interests in TCG and TCG's local
joint ventures. William T. Schleyer, the President and Chief Operating Officer
of Continental, and Nancy Hawthorne, a Senior Vice President and Chief
Financial Officer of Continental, serve on the Board of Directors of TCG.
Other Telecommunications Activities. Continental is currently exploring
various business arrangements through which to provide wireline and wireless
telephony services, although there can be no assurances that any such
arrangement will be consummated. Continental's options include: (i) affiliating
with other cable television companies; (ii) affiliating with an RBOC or an
Interexchange Carrier ("IXC"); (iii) entering the business on its own in
certain markets or (iv) market-by-market affiliations. Given its national
scale, large system clusters in demographically attractive markets and
technologically advanced systems, Continental believes that it is well
positioned to provide both wireline and wireless telephony services in the
future (either alone or in conjunction with one or more partners).
Continental is one of six cable television operators participating in Cable
Television Laboratories' ("CableLabs") telecommunications Request for Proposal
("RFP"), which is an initiative to achieve a uniform network architecture for
delivery of expanded video and telephony services. CableLabs has received
quotes on this RFP from approximately 45 equipment manufacturers.
The FCC is currently auctioning broadband licenses for wireless personal
communications services ("PCS"). The first phase of these auctions, for
licenses in the 51 Major Trading Areas ("MTAs") of the United States, was
completed recently. A partnership between Continental and Cablevision Systems
Corporation bid for PCS licenses in the Boston, Massachusetts and Cleveland,
Ohio MTAs, and Continental bid independently for broadband PCS licenses in
other MTAs, representing no more than 6.1 million people in the aggregate. Both
the partnership and Continental were unsuccessful in their bids. However,
Continental, either independently or in partnership, may: (i) continue to
pursue direct ownership of licenses in the subsequent phases of the PCS
auctions in the 493 Basic Trading Areas of the United States; (ii) acquire PCS
licenses from successful bidders after the auctions have been completed; or
(iii) invest in or affiliate with successful bidders. Continental's strategy in
pursuing any one or a combination of these options is to enhance its ability to
bundle services such as wireless communications with wireline telephony and
existing cable services in markets where it has large system clusters.
PrimeStar Partners L.P. Continental currently owns a 10.4% interest in
PrimeStar Partners L.P. ("PrimeStar"), a nationwide provider of DBS service.
The remaining interests in PrimeStar are held by GE Americom Services, Inc. (an
affiliate of General Electric) with 16.6% and five other cable television
operators (TCI and Time Warner Cable own 20.9% each; Comcast, Cox and Newhouse
Broadcasting Corp. own 10.4% each). PrimeStar is the primary vehicle for
Continental's plan to use DBS to extend beyond the reach of Continental's
existing video network and expand the total potential market, and Continental's
share of such market. Continental views PrimeStar as an effective response to
competition from other DBS service providers in Continental's service areas.
Moreover, PrimeStar provides additional programming to cable subscribers
162
<PAGE>
with limited programming options. Continental understands that PrimeStar has
estimated the potential market for DBS service to be 12 to 15 million
households, including 10 to 11 million households that are not currently passed
by cable.
PrimeStar provided medium-powered DBS service to approximately 231,000
subscribers nationwide as of December 31, 1994. PrimeStar acts as a wholesaler
of DBS services, securing programming services for eventual resale to consumers
and arranging for the transmission of the programming via satellite. PrimeStar
does not sell directly to end users, but rather sells the rights to resell
programming to local distributors, including Continental and its other cable
partners, who in turn sell to, service, and collect monthly fees from
consumers. PrimeStar currently offers a wide range of programming, including 70
channels of cable and network television, sports and movies as well as several
music channels. In order to expand its service, PrimeStar's partners have
committed to support the construction of two high-powered replacement
satellites, the first of which is expected to be operational by the third
quarter of 1996. This new satellite will enable PrimeStar to offer
approximately 150 channels of service.
Continental's investment in PrimeStar was $12.5 million as of December 31,
1994. In addition, a subsidiary of Continental has issued a $38.8 million
standby letter of credit on behalf of PrimeStar to guarantee a portion of the
financing that PrimeStar is incurring to construct a successor satellite
system. Subsequent to December 31, 1994, the amount of the standby letter of
credit was increased to $56.3 million. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations of Continental--
Liquidity and Capital Resources".) Jeffrey T. DeLorme, an Executive Vice
President of Continental, serves on the Partner Committee of PrimeStar.
The following is a summary of financial and operating statistics for
PrimeStar, which commenced operations in 1991 (information is in thousands
except for percentage figures):
<TABLE>
<CAPTION>
1992 1993 1994
------ ------- -------
<S> <C> <C> <C>
Revenues........................................... $5,200 $10,900 $27,800
Growth Rate........................................ 643% 110% 155%
Subscribers........................................ 44.2 66.8 230.8
Growth Rate........................................ 235% 51% 246%
</TABLE>
CERTAIN PROGRAMMING AND OTHER INVESTMENTS. Continental has made and continues
to make minority investments in programming services, based upon Continental's
belief that unique programming is a means of generating additional interest in
cable television. To date, Continental has made $44 million in programming
investments (excluding Turner, QVC and HSN). The following summarizes certain
of Continental's programming investments:
Turner Broadcasting System, QVC, Inc. and Home Shopping Network,
Inc. Continental holds marketable equity securities of Turner, QVC and HSN. As
of December 31, 1994, the approximate market values of Continental's
investments in Turner, QVC and HSN were $92.5 million, $25.1 million and $4.9
million, respectively. In February 1995, Comcast and TCI consummated a tender
offer for all outstanding QVC shares at $46 per share, which resulted in
Continental selling all of its QVC shares for $27.4 million and realizing a
gain of $23 million. Timothy P. Neher, Director and Vice Chairman of the Board
of Continental, serves on the Board of Directors of Turner.
E! Entertainment Television, Inc. Continental owns a 10.5% interest in E!,
whose programming includes entertainment related news, information and
features. E! has agreements with every major domestic cable television operator
and, as of December 31, 1994, was distributed to over 27 million customers,
representing 48% of U.S. cable television subscribers. Continental's partners
in E! are Comcast, Cox, Newhouse Broadcasting Corp. and TCI, each with an
approximate 10.5% interest, and Time Warner Cable, with a 47.6% interest.
Robert A. Stengel, a Senior Vice President of Continental, serves on the Board
of Directors of E!.
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<PAGE>
The following is a summary of financial and operating statistics for E!
(information is in thousands except for percentage figures):
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Revenues........................................ $22,100 $31,700 $49,100
Growth Rate..................................... 53.5% 43.4% 54.9%
Subscribers..................................... 19,700 25,800 27,800
Growth Rate..................................... 8.1% 30.1% 7.8%
</TABLE>
National Cable Communications, L.P. Continental has a 12.5% limited
partnership interest in NCC, a partnership that represents cable television
companies to advertisers. NCC is the largest representation firm in spot cable
advertising sales. It enhances affiliated cable television systems' ability to
generate advertising sales by enabling advertisers to place spots in selected
systems on a regional or national basis. The other limited partners in NCC are
Cox, Time Warner Cable and Comcast, each with a 12.5% interest. NCC's managing
partner is Katz Cable Corporation, with a 50% interest.
New England Cable News. Continental and the Hearst Corporation each own 50%
of New England Cable News, a regional cable news network featuring news, sports
and weather programming on an exclusive basis to cable television systems in
the New England area. New England Cable News had revenues of $4.0 million for
the year ended December 31, 1994. William T. Schleyer, the President and Chief
Operating Officer of Continental, and Nancy Jackson, a Vice President of
Marketing in Continental's New England region, serve on the Board of Directors
of New England Cable News.
Viewer's Choice. PPVN Holding Co. ("PPVN"), which operates under the brand-
name Viewer's Choice, is a cable operator-controlled buying cooperative and
distributor for pay-per-view programming. Continental holds a 10% interest in
PPVN.
The Golf Channel. Continental owns an approximate 20% interest in The Golf
Channel, a newly formed cable programming service which, beginning in 1995,
will provide golf-related programming 24 hours a day. Timothy P. Neher,
Director and Vice Chairman of the Board of Continental, serves on the Board of
Directors of The Golf Channel.
The Food Channel. Continental owns an approximate 15% interest in The Food
Channel, a cable operator-owned programming service which offers programs on
cooking, food preparation and other related topics. Robert A. Stengel, a Senior
Vice President of Continental, serves on the Management Committee of The Food
Channel.
The Sunshine Network Joint Venture ("The Sunshine Network"). Continental owns
an approximate 8% interest in The Sunshine Network, a joint venture which
provides programming consisting of Florida sporting events, sports news and
related programs, as well as local public affairs programs. Jeffrey T. DeLorme,
an Executive Vice President of Continental, serves on the Board of Directors of
the Sunshine Network.
Prime Sports Network Upper Midwest. Continental owns an approximate 17%
interest in Prime Sports Network Upper Midwest, a joint venture which provides
sports, public affairs, and general entertainment programming in Minnesota.
Emmett White, the Senior Vice President and General Manager of Continental's
Midwest region, serves on the Board of Directors of Prime Sports Network Upper
Midwest.
Digital Cable Radio Associates ("Digital Cable Radio"). Digital Cable Radio,
which operates under the brand-name Music Choice, distributes audio programming
in digital format via coaxial cable. The service allows cable television
customers to receive compact disc quality sound in several music formats.
Continental owns an approximate 10% interest in Digital Cable Radio.
Zing Systems, L.P. ("Zing"). Continental owns an approximate 13% interest in
Zing, which develops interactive software and hardware for use in cable
television systems. The Zing system package allows cable subscribers to
interact with licensed programmers and advertisers. Zing is expected to have a
limited introductory consumer launch in 1995.
164
<PAGE>
COMPETITION
Continental's operating strategy, especially its focus on marketing, customer
service and community relations, improves its ability to compete with new
providers of video services. Management believes that investing in advanced
technologies will further strengthen Continental's competitive position.
Continental's systems compete with other communications and entertainment
media, including conventional off-air television broadcasting services,
newspapers, movie theaters, live sporting events and home-video products. Cable
television service was first offered as a means of improving television
reception in markets where terrain factors or remoteness from major cities
limited the availability of off-air television. In some of the areas served by
the systems, a substantial variety of television programming can be received
off-air. For the last several years, the FCC has been authorizing the creation
of additional low-power (UHF) television stations, which will increase the
number of television signals in the country and provide off-air television
programs to limited local areas. The extent to which cable television service
is competitive depends upon a cable television system's ability to provide, on
a cost-effective basis, an even greater variety of programming than that
available off-air or through other alternative delivery sources.
Since Continental's domestic cable television systems operate under non-
exclusive franchises, other companies may obtain permission to build cable
television systems in areas where Continental presently operates. While
Continental believes that the current level of overbuilding is not material, it
is currently unable to predict the extent to which overbuilds may occur in its
franchise areas and the impact, if any, such overbuilds may have on Continental
in the future.
Additional competition may come from SMATV cable television systems serving
condominiums, apartment complexes and other private residential developments.
The operators of these private systems often enter into exclusive agreements
with apartment building owners or homeowners' associations that preclude
operators of franchised cable television systems from serving residents of such
private complexes. The widespread availability of reasonably priced earth
stations enables private cable television systems to offer both improved
reception of local television stations and many of the same satellite-delivered
program services that are offered by franchised cable television systems. FCC
regulations permit SMATV operators to use point-to-point microwave service to
distribute video entertainment programming to their SMATV systems. A private
cable television system normally is free of the regulatory burdens imposed on
franchised cable television systems. Although a number of states have enacted
laws to afford operators of franchised systems access to private complexes, the
U.S. Supreme Court has held that cable companies cannot have such access
without compensating the property owner. The access statutes of several states
have been challenged successfully in the courts, and others are currently being
challenged, including statutes in states in which Continental operates.
In recent years, the FCC has initiated new policies and authorized new
technologies to provide a more favorable operating environment for certain
existing technologies and to create substantial additional competition to cable
television systems. These technologies include, among others, DBS services
which transmit signals by satellite to receiving facilities located on
customers' premises. Although satellite-delivered programming is currently
available to backyard earth stations, new, high-powered direct-to-home
satellites make possible the wide-scale delivery of programming to individuals
throughout the United States using roof-top or wall-mounted antennas. Companies
offering DBS services plan to use video compression technology to increase
satellite channel capacity and to provide a package of movies, broadcast
stations and other program services competitive with those of cable television
systems. Several companies are preparing to have DBS systems in place during
this decade, and two companies began offering high-powered DBS service in 1994
in competition with cable television operators and PrimeStar. Continental has
invested in PrimeStar, a medium-powered DBS service provider, which currently
offers up to 77 channels of video and audio service. Several companies,
including PrimeStar, intend to offer more than 100 channels of service over
high-powered satellites using video compression technology. DBS service
providers may be able to offer new and highly specialized services using a
national base of subscribers. The ability of DBS service providers to compete
with
165
<PAGE>
the cable television industry will depend on, among other factors, the
availability of reception equipment at reasonable prices. Although it is not
possible at this time to predict the likelihood of success of any DBS services
venture, DBS may offer substantial competition to cable television operators.
(See "Strategic Investments--Telecommunications and Technology Investments".)
Cable television systems also may compete with wireless program distribution
services such as MMDS, commonly called wireless cable systems, which are
licensed to serve specific areas. MMDS uses low power microwave frequencies to
transmit pay television programming over-the-air to subscribers. MMDS systems'
ability to compete with cable television systems has previously been limited by
a lack of channel capacity, the inability to obtain programming and regulatory
delays. A series of actions taken by the FCC, including reallocating certain
frequencies to the wireless services, are intended to facilitate the
development of wireless cable television systems as an alternative means of
distributing video programming. The FCC also initiated a new rule-making
proceeding to allocate frequencies in the 28 GHz band for a new multi-channel
wireless video service. Continental is unable to predict the extent to which
additional competition from these services will materialize in the future or
the impact such competition would have on Continental's operations.
Continental believes that as a result of its investment in technologically
advanced systems, it is well positioned to offer new services such as video
game channels, on-line services, data communications and telephony. Continental
believes that the ability to offer interactive services over a high-capacity,
two-way network provides a distinct competitive advantage over DBS and MMDS,
which are currently one-way services.
Other new technologies may become competitive with non-entertainment services
that cable television systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and to businesses. The FCC also permits commercial and non-commercial
FM stations to use their subcarrier frequencies to provide non-broadcast
services, including data transmissions. The FCC established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. Telephone companies and other common carriers also provide facilities
for the transmission and distribution of data and other non-video services.
In the past, federal cross-ownership restrictions have limited entry into the
cable television business by potentially strong competitors such as telephone
companies. Proposals recently adopted by the FCC, pending litigation and
potential legislation, could make it possible for companies with considerable
resources, and consequently a potentially greater willingness or ability to
overbuild, to enter the business. The FCC recently amended its rules to permit
local telephone companies to offer "video-dialtone" service for video
programmers, including channel capacity for the carriage of video programming
and certain non-common carrier activities such as video processing, billing and
collection and joint marketing agreements. Furthermore, several federal
district courts have struck down as unconstitutional a provision in the 1984
Cable Act, which prevents local telephone companies from offering video
programming on a non-common carrier basis directly to subscribers in their
local telephone service areas. Two such district court decisions have been
upheld by the United States Courts of Appeals for the Fourth Circuit and the
Ninth Circuit. Other decisions have been appealed or will be appealed. Similar
lawsuits have been filed by telephone companies in other states. Legislation to
repeal the telco/cable cross-ownership ban, subject to certain regulatory
requirements, has been introduced in the U.S. Senate and approved by the Senate
Commerce, Science and Transportation Committee. Under the terms of this bill, a
telephone company could build and operate a cable system within its region or
acquire an in-region cable operator, under certain circumstances. The bill
would also, inter alia, preempt state and locally-imposed barriers to the
provision of intrastate and interstate telecommunications services by cable
system operators in competition with local telephone companies. Even in the
absence of further changes in the cross-ownership restrictions, the expansion
of telephone companies' fiber-optic systems may facilitate entry by other video
service providers in competition with cable systems. (See "Legislation and
Regulation--Federal Regulation".)
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<PAGE>
PROPERTIES
Continental's principal physical assets consist of cable television systems,
including signal receiving, encoding and decoding apparatus, headends,
distribution systems, and subscriber house drop equipment for each of its
systems. The signal receiving apparatus typically includes a tower, antenna,
ancillary electronic equipment, and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving devices. Continental's distribution systems consist of coaxial and
fiber-optic cables and related electronic equipment. Subscriber equipment
consists of taps, house drops, converters and analog addressable converters.
Continental owns its distribution system, various office and studio fixtures,
test equipment and service vehicles. The physical components of Continental's
systems require maintenance and periodic upgrading to keep pace with
technological advances.
Continental's coaxial and fiber-optic cables are generally attached to
utility poles under pole rental agreements with local public utilities,
although in some areas the distribution cable is buried in underground ducts or
trenches. The FCC regulates pole attachment rates under the Federal Pole
Attachments Act. (See "Legislation and Regulation--Federal Regulation--Pole
Attachments".)
Continental owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices.
Continental owns the building which houses its headquarters in Boston,
Massachusetts.
Continental believes that its properties, both owned and leased, are in good
operating condition and are suitable and adequate for its business operations.
EMPLOYEES
Continental currently has approximately 7,000 full-time employees, including
approximately 100 employees located at Continental's Boston headquarters, who
provide staff support in the areas of corporate planning, finance, marketing,
program acquisition, employee training and benefits administration, government
relations, internal auditing, financial and tax reporting and regulatory
compliance. Continental believes that its relations with its employees are
good.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against Continental.
Continental is subject to legal proceedings and claims which arise in the
ordinary course of business, none of which is material to its consolidated
financial condition or results of operations in the opinion of management.
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<PAGE>
CAPITALIZATION
The following table sets forth Continental's actual and pro forma
consolidated capitalization at December 31, 1994, after giving effect to (i)
the Continental Recapitalization Amendment (Pro Forma A) and (ii) the Merger,
the Continental Recapitalization Amendment, and other pro forma transactions
(Pro Forma B) described in the Notes to Continental's Pro Forma Condensed
Consolidated Balance Sheet and Statement of Income included elsewhere in this
Joint Proxy Statement-Prospectus. This table should be read in conjunction with
the Notes referred to above and the historical consolidated financial
statements and related notes included in this Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-------------------------------------
ACTUAL PRO FORMA A PRO FORMA B
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior Debt:
8 1/2% Senior Notes......................... $ 200,000 $ 200,000 $ 200,000
8 5/8% Senior Notes......................... 100,000 100,000 100,000
8 7/8% Senior Debentures.................... 275,000 275,000 275,000
9% Senior Debentures........................ 300,000 300,000 300,000
9 1/2% Senior Debentures.................... 525,000 525,000 525,000
1994 Credit Facility........................ 1,373,790 1,373,790 1,551,790
1995 Credit Facility(1)..................... -- -- 990,642
Prudential Notes............................ 150,000 150,000 150,000
----------- ----------- -----------
Total Senior Debt......................... 2,923,790 2,923,790 4,092,432
Subordinated Debt:
10 5/8% Senior Subordinated Notes........... 100,000 100,000 100,000
11% Senior Subordinated Debentures.......... 300,000 300,000 300,000
Senior Subordinated Floating Rate
Debentures................................. 100,000 100,000 100,000
----------- ----------- -----------
Total Subordinated Debt................... 500,000 500,000 500,000
----------- ----------- -----------
Other Debt.................................... 26,117 26,117 26,117
----------- ----------- -----------
Total Debt................................ 3,449,907 3,449,907 4,618,549
----------- ----------- -----------
Redeemable Common Stock, $.01 par value;
16,684,150 shares outstanding................ 232,399 232,399 232,399
----------- ----------- -----------
Stockholders' Equity (Deficiency):
Preferred Stock............................. -- -- --
Series A Convertible Preferred Stock........ 11 11 11
Series B Preferred Stock.................... -- -- 50
Class A Common Stock........................ 3 86 368
Class B Common Stock........................ 36 903 903
Additional Paid-In Capital.................. 583,368 582,418 1,227,086
Unearned Compensation....................... (12,097) (12,097) (12,097)
Net Unrealized Holding Gain on Marketable
Equity Securities.......................... 47,996 47,996 47,996
Deficit..................................... (2,307,651) (2,307,651) (2,307,651)
----------- ----------- -----------
Stockholders' Equity (Deficiency)......... (1,688,334) (1,688,334) (1,043,334)
----------- ----------- -----------
Total Capitalization.................... $ 1,993,972 $ 1,993,972 $ 3,807,614
=========== =========== ===========
Shares Authorized and Outstanding:
Preferred Stock, $.01 par value:
Authorized................................. 1,557,142 193,870,029 193,870,029
Issued..................................... -- -- --
Series A Convertible Preferred Stock, $.01
par value,
liquidation preference of $487,776,000,
Authorized and Outstanding................. 1,142,858 1,142,858 1,142,858
Series B Preferred Stock, $.01 par value:
Authorized................................. -- 4,987,113 4,987,113
Outstanding................................ -- -- 4,987,113
Class A Common Stock; $.01 par value:
Authorized................................. 7,500,000 425,000,000 425,000,000
Outstanding................................ 343,420 8,585,500 36,845,809
Class B Common Stock; $.01 par value:
Authorized................................. 7,500,000 200,000,000 200,000,000
Outstanding................................ 3,611,655 90,291,375 90,291,375
</TABLE>
- --------
(1) Includes the New Cable Indebtedness and $245,000,000 of borrowings for
cable system acquisitions in Michigan, adjusted for the Working Capital
deficit. (See "The Merger--General Provisions--Working Capital Adjustment"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operation of Continental--Liquidity and Capital Resources".)
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF CONTINENTAL
The selected historical financial information provided below is derived from,
and should be read in conjunction with, the Consolidated Financial Statements
of Continental for the years ended December 31, 1990 through December 31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1990 1991 1992 1993 1994
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 938,032 $1,039,163 $1,113,475 $1,177,163 $1,197,977
Costs and Expenses:
Operating............. 316,199 347,469 365,513 382,195 405,535
Selling, General and
Administrative....... 231,338 246,986 259,632 267,376 267,349
Depreciation and
Amortization......... 262,703 267,510 272,851 279,009 283,183
Non-Cash Stock
Compensation(1)...... 6,903 10,067 9,683 11,004 11,316
--------- ---------- ---------- ---------- ----------
Total............... 817,143 872,032 907,679 939,584 967,383
--------- ---------- ---------- ---------- ----------
Operating Income........ 120,889 167,131 205,796 237,579 230,594
--------- ---------- ---------- ---------- ----------
Interest (Net).......... 313,858 324,976 296,031 282,252 315,541
Other (Income)
Expenses(2)............ 1,000 1,936 11,071 (10,978) 24,048
--------- ---------- ---------- ---------- ----------
Total............... 314,858 326,912 307,102 271,274 339,589
--------- ---------- ---------- ---------- ----------
Loss before Income
Taxes, Extraordinary
Item and Cumulative
Effect of Accounting
Change................. (193,969) (159,781) (101,306) (33,695) (108,995)
(Benefit) Provision for
Income Taxes........... 1,482 1,861 1,654 (7,921) (40,419)
--------- ---------- ---------- ---------- ----------
Loss before
Extraordinary Item and
Cumulative Effect of
Accounting Change...... (195,451) (161,642) (102,960) (25,774) (68,576)
Extraordinary Item, Net
of Income Taxes........ -- -- -- -- (18,265)
--------- ---------- ---------- ---------- ----------
Loss before Cumulative
Effect of Accounting
Change................. (195,451) (161,642) (102,960) (25,774) (86,841)
Cumulative Effect of
Accounting Change...... -- -- -- (184,996) --
--------- ---------- ---------- ---------- ----------
Net Loss................ (195,451) (161,642) (102,960) (210,770) (86,841)
Preferred Stock
Preferences............ (61,102) (5,771) (16,861) (34,115) (36,800)
--------- ---------- ---------- ---------- ----------
Loss Available for
Common Stockholders.... $(256,553) $ (167,413) $ (119,821) $ (244,885) $ (123,641)
========= ========== ========== ========== ==========
Loss Per Common Share:
Before Extraordinary
Item and Cumulative
Effect of Accounting
Change................. $ (54.80) $ (35.61) $ (25.06) $ (13.13) $ (23.04)
Extraordinary Item...... -- -- -- -- (3.99)
Cumulative Effect of
Accounting Change...... -- -- -- (40.55) --
--------- ---------- ---------- ---------- ----------
Net Loss................ $ (54.80) $ (35.61) $ (25.06) $ (53.68) $ (27.03)
========= ========== ========== ========== ==========
</TABLE>
169
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------
1990 1991 1992 1993 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets............ $ 2,175,120 $ 2,082,182 $ 2,003,196 $ 2,091,853 $ 2,483,639
Total Debt.............. 3,127,347 3,338,281 3,011,669 3,177,178 3,449,907
Redeemable Preferred
Stock.................. 157,835 -- -- -- --
Redeemable Common Stock. 436,700 445,463 223,716 213,548 232,399
Stockholder's Equity
(Deficiency)........... (1,759,535) (1,919,525) (1,486,231) (1,667,088) (1,688,334)
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1990 1991 1992 1993 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(3)............... $390,495 $444,708 $488,330 $527,592 $525,093
EBITDA to Revenues...... 41.6% 42.8% 43.9% 44.8% 43.8%
Total Debt to EBITDA.... 8.01 7.51 6.17 6.02 6.57
EBITDA to Total Interest
Expense................ 1.24 1.37 1.65 1.87 1.66
Net Cash Provided From
Operating Activities... 82,196 123,543 215,045 250,504 236,304
Capital Expenditures.... 166,938 145,846 145,189 185,691 300,511
</TABLE>
- --------
(1) This is the difference between the consideration paid by employees for
purchases of shares of Continental Common Stock under Continental's
Restricted Stock Purchase Program and the fair market value of such shares
at the date of issuance (as determined by Continental's Board of
Directors), amortized over the vesting schedule of such shares. (See Note
11 to Continental's Consolidated Financial Statements.)
(2) Includes equity in net income (loss) of affiliates, minority interest in
net loss of subsidiaries, other non-operating income and expenses, and
gains of $10,253,000 and $17,067,000 from Continental's sales of its
investment in affiliates in 1992 and 1993, respectively. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Continental".)
(3) Operating income before depreciation and amortization and non-cash stock
compensation. Based on its experience in the cable television industry,
Continental believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA should not be considered by the reader as
an alternative to operating or net income (as determined in accordance with
GAAP) as an indicator of Continental's performance or as an alternative to
cash flows from operating activities (as determined in accordance with
GAAP) as a measure of liquidity. Substantially all of Continental's
financing agreements contain certain covenants in which EBITDA is used as a
measure of financial performance. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Continental".)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CONTINENTAL
The following table sets forth for the periods indicated certain items in the
Selected Consolidated Financial Information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1992 1993 1994
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Basic Cable Service............... $ 791,351 $ 846,538 $ 855,119
Premium Cable Service............. 249,038 242,981 246,018
Advertising....................... 43,392 52,618 57,896
Pay-Per-View...................... 22,375 26,151 24,909
Other............................. 7,319 8,875 14,035
---------- ---------- ----------
Total............................ 1,113,475 1,177,163 1,197,977
Operating, Selling, General and
Administrative Expenses........... 625,145 649,571 672,884
Depreciation and Amortization...... 272,851 279,009 283,183
Non-Cash Stock Compensation(1)..... 9,683 11,004 11,316
---------- ---------- ----------
Operating Income................... 205,796 237,579 230,594
Interest........................... 296,031 282,252 315,541
Other (Income) Expenses(2)......... 11,071 (10,978) 24,048
---------- ---------- ----------
Loss before Income Taxes,
Extraordinary Item and Cumulative
Effect of Accounting Change....... (101,306) (33,695) (108,995)
(Benefit) Provision for Income
Taxes............................. 1,654 (7,921) (40,419)
---------- ---------- ----------
Loss before Extraordinary Item and
Cumulative Effect of Accounting
Change............................ (102,960) (25,774) (68,576)
Extraordinary Item................. -- -- (18,265)
---------- ---------- ----------
Loss before Cumulative Effect of
Accounting Change................. (102,960) (25,774) (86,841)
Cumulative Effect of Change in
Accounting Principle.............. -- (184,996) --
---------- ---------- ----------
Net Loss........................... $ (102,960) $ (210,770) $ (86,841)
========== ========== ==========
OTHER DATA:
EBITDA(3).......................... $ 488,330 $ 527,592 $ 525,093
EBITDA as a % of Revenues.......... 43.9% 44.8% 43.8%
</TABLE>
- --------
(1) This is the difference between the consideration paid by employees for
purchases of shares of Continental Common Stock under Continental's
Restricted Stock Purchase Program and the fair market value of such shares
at the date of issuance (as determined by Continental's Board of
Directors), amortized over the vesting schedule of such shares. (See Note
11 to Continental's Consolidated Financial Statements.)
(2) Includes equity in net income (loss) of affiliates, minority interest in
net loss of subsidiaries, other non-operating income and expenses, and
gains of $10,253,000 and $17,067,000 from Continental's sales of its
investment in affiliates in 1992 and 1993, respectively. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Continental".)
(3) Operating income before depreciation and amortization and non-cash stock
compensation. Based on its experience in the cable television industry,
Continental believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA should not be considered by the reader as
an alternative to operating or net income (as determined in accordance with
GAAP) as an indicator of Continental's performance or as an alternative to
cash flows from operating activities (as determined in accordance with
GAAP) as a measure of liquidity. Substantially all of Continental's
financing agreements contain certain covenants in which EBITDA is used as a
measure of financial performance. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Continental".)
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<PAGE>
RESULTS OF OPERATIONS. Continental's operations mainly consist of domestic
cable television systems with complementary operations and investments in three
other areas: (i) international cable television systems, (ii)
telecommunications and technology and (iii) programming.
Substantially all of Continental's revenues are earned from customer fees for
basic cable programming and premium television services, the rental of
converters and remote control devices, and installation fees. Additional
revenues are generated by pay-per-view programming fees, the sale of
advertising and payments received as a result of revenue sharing agreements for
products sold through home shopping networks. Continental expects that
advertising and home shopping revenues (which currently represent approximately
6% of Continental's total revenues) may become a larger percentage of total
revenues. These sources of revenues tend to be cyclical and seasonal in nature
and could introduce cyclicality and seasonality to Continental's total
revenues.
During the period from January 1, 1991 through December 31, 1993,
Continental's revenues increased at a compound annual growth rate of 8%
primarily through basic subscriber growth and increases in monthly revenue per
average basic subscriber. Revenues for the year ended December 31, 1994
increased only 1.8% compared to 1993 primarily as a result of basic rate
reductions and non-cash revenue reserves recorded in connection with the FCC
rate regulations. Continental's business is subject to significant regulatory
developments, including recent federal laws and regulations, which regulate
rates charged by Continental for certain cable services. (See "Legislation and
Regulation".) Such laws and regulations will limit Continental's ability to
increase or restructure its rates for certain services.
The high level of depreciation and amortization associated with Continental's
acquisitions and capital expenditures and the interest costs related to
financing activities, have caused Continental to report net losses. Continental
believes that such net losses are common for cable television companies.
1994 Compared to 1993. Revenues increased by 1.8% (or $20,814,000) to
$1,197,977,000. The acquisitions of cable television systems serving
approximately 78,000 basic subscribers accounted for $8,025,000 of such
increase. (See "Domestic Acquisitions and Investments--Domestic Acquisitions".)
Excluding the effects of these acquisitions, revenue increased 1.1% (or
$12,789,000) as a result of a 3.7% increase in ending basic subscribers and an
increase in premium and certain other revenue. Monthly revenue per average
basic subscriber decreased from $35.76 to $35.41. The $.35 decrease was
primarily due to rate reductions and non-cash revenue reserves recorded during
1994 in connection with the FCC's rate regulations; net of a $.12 increase in
premium, advertising and other revenue. (See "Liquidity and Capital Resources--
Recent Legislation" and "Legislation and Regulation".) Revenues from premium
cable services increased by $1,731,000 (excluding the acquisition of cable
television systems) due to an increase in premium subscriptions from 2,454,000
to 2,594,000. The increase in revenues (excluding the acquisition of cable
television systems) was also due to a $5,050,000 increase in advertising
revenue and a $5,101,000 increase in other revenue due to continued growth in
home shopping revenue, less a $1,273,000 decrease in pay-per-view revenue. Pay-
per-view revenue decreased due to the lack of availability of special events
offered as compared to 1993, reflecting industry-wide trends.
Operating, selling, general and administrative expenses increased 3.6% to
$672,884,000, primarily due to the acquisitions and to increases in programming
costs and wages. Depreciation and amortization expenses increased 1.5% to
$283,183,000 due to an increase in capital expenditures. Non-cash stock
compensation increased 2.8% to $11,316,000 due to the vesting of a greater
percentage of shares issued under Continental's Restricted Stock Purchase
Program as compared to 1993. Operating income decreased 2.9% to $230,594,000.
Interest expense increased approximately 11.8% to $315,541,000 due to a 5%
increase in average debt outstanding and an increase in the effective interest
rate from 9.1% to 9.7%. Other (Income) Expenses decreased as a result of equity
in net loss of affiliates which increased from $12,827,000 to $25,002,000,
primarily due to Continental recording its proportionate share of losses from
PrimeStar and TCG and its affiliates. Continental also recorded an
extraordinary item of $18,265,000 due to the extinguishment of debt.
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<PAGE>
As a result of such factors, loss before the cumulative effect of the
accounting change for the year ended December 31, 1994, compared to December
31, 1993, increased by $61,067,000 to $86,841,000, and net loss for the year
ended December 31, 1994, compared to December 31, 1993, decreased from
$210,770,000 to $86,841,000. Continental implemented SFAS 109 as of January 1,
1993. The cumulative effect of this change was a non-recurring increase in net
loss of $184,996,000 in 1993.
1993 Compared to 1992--Revenues increased 6% to $1,177,163,000, as a result
of a 1.4% increase in basic subscribers to 2,895,000 and an increase in
monthly revenue per average basic subscriber from $34.46 to $35.76. The $1.30
increase reflected primarily (i) an increase of $1.34 due to basic rate
increases prior to the imposition of the FCC's rate regulation and revenue
growth from other basic services, (ii) an increase of $.29 in advertising and
pay-per-view revenue, and (iii) a decrease of $.33 in premium subscription
revenue, which was due to the decrease in the pay-to-basic percentage from
88.5% to 84.2%, reflecting industry-wide trends. The total number of premium
subscriptions decreased from 2,545,000 to 2,454,000 in 1993.
Operating, selling, general and administrative expenses increased 4% to
$649,571,000, a rate of growth less than that of revenues, reflecting
continued operating efficiencies. Depreciation and amortization expenses
increased 2.3% to $279,009,000. Non-cash stock compensation increased 14% to
$11,004,000 due to the vesting of a greater percentage of shares issued under
Continental's Restricted Stock Purchase Program as compared to 1992. Operating
income increased 15.4% to $237,579,000. Interest expense decreased 4.7% to
$282,252,000 due to a reduction in the average debt outstanding and lower
effective interest rates during 1993.
Other (income) expenses included a gain of $4,322,000 on the sale of
marketable equity securities and a gain of $17,067,000 on the sale of
investments, which consisted of a gain of $15,919,000 due to the exchange of
Continental's equity interest in Insight Communications Company U.K., L.P. for
stock representing a minority interest in International CableTel, Incorporated
and a gain of $1,148,000 due to a post-closing adjustment in connection with
the sale of Continental's interest in North Central Cable Communications
Corporation ("North Central Cable"). Other (income) expenses also included a
gain of $2,325,000 relating to the reversal of previously accrued liabilities
recorded in connection with litigation relating to the American Partnerships,
which was settled in 1993. Equity in net loss of affiliates increased to
$12,827,000 primarily due to Continental recording its proportionate share of
losses from TCG and its affiliates. (See "Strategic Investments--
Telecommunications and Technology Investments--Teleport Communications Group,
Inc.")
SFAS 109 required a change from the deferred to the liability method for
computing deferred income taxes. Continental implemented SFAS 109 as of
January 1, 1993, and the cumulative effect of this change was a non-recurring
increase in net loss of $184,996,000. The cumulative change resulted from net
deferred tax liabilities recognized for the difference between the financial
reporting and tax bases of assets and liabilities. Income tax expense
(benefit) changed from an expense of $1,654,000 in 1992 to a benefit of
$7,921,000 in 1993 due to deferred tax benefits recognized under SFAS 109. The
income tax benefit for 1993 was decreased by $4,182,000 as a result of
applying the newly enacted federal tax rates to deferred tax balances as of
January 1, 1993.
As a result of such factors, net loss before the cumulative effect of this
accounting change for the year ended December 31, 1993 decreased by
$77,186,000 to $25,774,000, and net loss for the year ended December 31, 1993
increased from $102,960,000 to $210,770,000.
EBITDA. Based on its experience in the cable television industry,
Continental believes that EBITDA and related measures of cash flow serve as
financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. EBITDA should not be considered as an alternative to operating or
net income (measured in accordance with GAAP) as an indicator of Continental's
performance or as an alternative to cash flows from operating activities
(measured in accordance with GAAP) as a measure of Continental's liquidity.
EBITDA decreased 0.5% to $525,093,000 for the year ended December 31, 1994,
primarily due to rate reductions and non-cash revenue reserves
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<PAGE>
recorded in connection with the FCC's rate regulations. EBITDA increased 8% to
$527,592,000 during the year ended December 31,1993, primarily due to increases
in revenue.
* * * *
Inflation. Certain of Continental's expenses, such as those for wages and
benefits, for equipment repair and replacement and for billing and marketing,
increase with general inflation. However, Continental does not believe that its
results of operations have been, or will be, adversely affected by inflation,
provided that it is able to increase its service rates periodically. (See
"Legislation and Regulation" for a description of recent laws and regulation
that may limit Continental's ability to raise its rates for certain services.)
Recent Accounting Pronouncements. In May 1993, the FASB issued SFAS 115,
which is effective for fiscal years beginning after December 15, 1993. SFAS 115
establishes standards for the accounting and reporting of investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. Effective January 1, 1994, Continental implemented SFAS
115, which resulted in a net unrealized holding gain of $84,650,000 on
marketable equity securities after recording deferred income taxes of
$56,434,000 and is reported as a reduction of stockholders' deficiency.
In May 1993, the FASB issued SFAS 114, which is effective for fiscal years
beginning after December 15, 1994. SFAS 114 addresses the accounting for
certain loans which may be deemed impaired made by Continental to affiliates
and certain employees. The effect of implementing SFAS 114 will be immaterial
to Continental's financial position and results of operation.
In October 1994, the FASB issued SFAS 119, which is effective for fiscal
years ending after December 15, 1994 and requires disclosure about amounts,
nature and terms of derivative and other financial instruments held.
LIQUIDITY AND CAPITAL RESOURCES. The cable television business requires
substantial financing for construction, expansion and maintenance of plant and
for acquisitions and investments. Continental has historically financed its
capital expenditures, acquisitions and investments through long-term debt and,
to a lesser extent, through private issuances of equity and cash provided from
operating activities. Continental's ability to generate cash adequate to meet
its needs depends generally on the results of its operations and the
availability of external financing. Continental believes that cash generated
from operating activities, together with borrowings from existing and future
credit facilities and proceeds from future equity issuances will be sufficient
to meet its future debt service requirements and stock repurchase obligations
and to make anticipated acquisitions, investments and capital expenditures.
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<PAGE>
The following table sets forth for the period indicated certain items from
Continental's Statements of Consolidated Cash Flows.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
NET CASH PROVIDED FROM OPERATING ACTIVITIES............ $ 236,304
=========
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES:
Net Borrowings (Repayments)(1)....................... $ 253,919
Premium Paid on Extinguishment of Debt............... (20,924)
Stock Repurchased and Dividends Paid................. (4,755)
Issuance of Stock.................................... 30,500
Other................................................ 779
---------
Total.............................................. $ 259,519
=========
NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES:
Acquisitions, Net of Liabilities Assumed and Cash
Acquired............................................ $(114,990)
Property, Plant and Equipment........................ (300,511)
Investments.......................................... (192,119)
Other Assets......................................... (16,832)
Proceeds from Sale of Marketable Equity Securities... 17,553
---------
Total.............................................. $(606,899)
=========
</TABLE>
- --------
(1) Borrowings are shown net of financing fees paid.
Recent Financing Activities. On October 17, 1994 Continental closed the 1994
Credit Facility, which represents an amendment and restatement of the 1990
Credit Agreement with a group of financial institutions. The 1994 Credit
Facility is a reducing revolving credit facility with maximum credit
availability of $2,200,000,000, a portion of which Continental borrowed at
closing to refinance the 1992 Credit Facility (see "Description of
Continental--Capitalization"). In connection with the closing of the 1994
Credit Facility, Continental paid approximately $18,810,000 in financing fees.
On November 16, 1994, Continental borrowed $345,924,000 under the 1994 Credit
Facility in order to redeem the outstanding $325,000,000 of 12 7/8% Senior
Subordinated Debentures plus accrued interest thereon. In connection with its
redemption of the 12 7/8% Senior Subordinated Debentures, Continental recorded
an extraordinary loss of $28,100,000, less income tax benefit of $9,835,000,
representing the premium of $20,924,000 paid on the redemption of such
debentures and the $7,176,000 non-cash write-off of unamortized deferred
financing costs relating to the issuance of such debentures. As of March 31,
1995, Continental had credit availability of $662,560,000 under the 1994 Credit
Facility.
Continental is currently in the process of arranging a new revolving credit
facility with a group of financial institutions (the "1995 Credit Facility").
Continental anticipates that the maximum credit availability of the 1995 Credit
Facility will be approximately $1,200,000,000 and that such facility will have
terms and conditions which are similar in certain respects to those contained
in the 1994 Credit Facility. Continental plans to use the proceeds from the
1995 Credit Facility to fund: (i) the $755,000,000 of New Cable Indebtedness,
(ii) approximately $245,000,000 of cable system acquisitions in Michigan (see
"Capital Expenditures and Domestic Acquisitions") and (iii) general corporate
purposes, which would include capital expenditures of the PJC Cable Business
after the Effective Time and of the Michigan cable systems after they have been
acquired. Continental anticipates closing the 1995 Credit Facility prior to the
Effective Time. There can be no assurances of the final terms and conditions of
the 1995 Credit Facility.
Credit Arrangements of Continental. As of December 31, 1994, Continental had
the following credit arrangements: (i) the 1994 Credit Facility; (ii)
$150,000,000 of 10.12% Senior Notes due 1999 to The
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Prudential Life Insurance Company (the "Prudential Notes"); (iii) $200,000,000
of 8 1/2% Senior Notes due 2001; (iv) $100,000,000 of 8 5/8% Senior Notes due
2003; (v) $275,000,000 of 8 7/8% Senior Debentures due 2005; (vi) $300,000,000
of 9% Senior Debentures due 2008; (vii) $525,000,000 of 9 1/2% Senior
Debentures due 2013; (viii) $100,000,000 of 10 5/8% Senior Subordinated Notes
due 2002; (ix) $100,000,000 of Senior Subordinated Floating Rate Debentures due
2004; and (x) $300,000,000 of 11% Senior Subordinated Debentures due 2007.
Other miscellaneous debt was $26,117,000 on December 31, 1994.
In addition, Continental has provided a standby letter of credit of
$56,250,000 on behalf of PrimeStar, which guarantees a portion of the financing
PrimeStar incurred to construct a successor satellite system. (See "Strategic
Investments--Telecommunications and Technology Investments".) Continental
anticipates that the obligations under such letter of credit will increase in
1996 up to a maximum of $70,625,000. The letter of credit is secured by certain
marketable equity securities held by Continental.
The annual maturities of Continental's indebtedness as of December 31, 1994
for the years ending December 31, 1995, 1996, 1997, 1998 and 1999 will be
$24,265,000, $27,250,000, $30,550,000, $33,250,000 and $35,000,000
respectively.
Interest Rate Protection Products. Continental's policy is to use interest
rate protection products (including interest rate exchange agreements and
interest rate cap agreements) to hedge its interest rate risk. In accordance
with the 1994 Credit Facility, Continental is required to maintain a minimum of
50% of its debt at fixed interest rates, when the ratio of total debt to EBITDA
exceeds certain levels.
. Interest Rate Exchange Agreements ("Swaps") are matched with either fixed
or variable rate debt. Continental accounts for outstanding Swaps on a
settlement basis as an adjustment to interest expense. Gains or losses
resulting from the termination of Swaps are amortized over the remaining
life of the underlying debt or the Swap, whichever is less. As of
December 31, 1994 Continental had Swaps pursuant to which it pays fixed
interest rates averaging 9.1% on notional amounts of $800,000,000
(expiring in 1995 through 2000) and variable interest rates on notional
amounts of $1,575,000,000 (expiring in 1998 through 2003). The variable
interest rates are based on 6-month LIBOR, which currently is
approximately 6.4%.
. As of December 31, 1994, Continental had $800,000,000 of Interest Rate
Cap Agreements ("Caps"), which limit 6-month LIBOR to approximately 8%.
Continental amortizes the cost of its Caps over the life of the Cap
agreement as an adjustment to interest expense.
As of December 31, 1994, Continental's ratio of fixed interest rate debt
(which factors in Swaps, Caps and debt fixed by its terms) to total debt was
approximately 58%. Continental's exposure, if the other parties fail to perform
under both Swaps and Caps, would be limited to the impact of variable interest
rate fluctuations and the periodic settlement of amounts due under these
agreements.
CAPITAL EXPENDITURES AND DOMESTIC ACQUISITIONS. During the period presented
in the table above, Continental committed capital resources for: (i)
construction and expansion of its existing systems, (ii) routine replacement of
cable television plant, (iii) an increase in the channel capacity of certain
systems, (iv) an increase in the percentage of systems which are equipped with
addressable technology and (v) acquisitions of domestic cable television
systems. During the year ended December 31, 1994, capital expenditures,
excluding acquisitions, totalled $300,511,000. Continental anticipates that it
will spend up to approximately $350,000,000 for capital expenditures for its
systems during 1995. In addition, Continental anticipates spending
approximately $55,000,000 for DBS home-premises equipment in connection with
its role as a distributor for PrimeStar. However, Continental is continually
re-evaluating its capital expenditure plans due to, among other things,
technological changes, the availability of capital and competitive pressures.
As a result, no assurance can be given as to the future level of capital
expenditures. The anticipated increase in capital expenditures during 1995 as
compared to 1994 is due principally to Continental's intention to further
expand channel capacity and to deploy addressable technology more extensively
in its systems. Continental anticipates funding its capital expenditures in
1995 with proceeds from the 1994 Credit Facility and cash
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<PAGE>
provided from operating activities. (See "Domestic Operating Strategy--
Technologically Advanced Systems".) If the Social Contract becomes effective,
Continental would agree to invest a certain amount in domestic system rebuilds
and upgrades over time to expand channel capacity and improve system
reliability and picture quality. (See "Description of Continental--Regulatory
Response".)
In 1994, Continental purchased several cable television systems serving
approximately 78,000 basic subscribers in New Hampshire and Florida for
approximately $114,990,000. Continental funded such acquisitions with
borrowings under existing bank facilities.
Continental has entered into a purchase and sale agreement to purchase
several cable television systems serving approximately 74,000 basic subscribers
in Michigan for approximately $155,000,000, of which $7,500,000 was funded in
escrow in 1994 and is included in Other Assets. In January 1995, Continental
entered into a purchase and sale agreement to purchase several cable television
systems serving approximately 88,000 basic subscribers near Chicago, Illinois,
for approximately $168,500,000. Continental entered a purchase and sale
agreement in March 1995 to acquire the remaining ownership interests and assume
certain liabilities of N-COM for total consideration of approximately
$90,000,000. N-COM, through wholly owned subsidiaries, owns cable television
systems serving approximately 53,000 basic subscribers in Michigan. Continental
currently owns a 33.77% limited partnership interest in N-COM. In addition, in
March 1995 Continental entered into a purchase and sale agreement to acquire a
cable system serving approximately 12,000 basic subscribers in Northern
California for approximately $17,000,000. For the most part, all of these cable
television systems serve communities that are contiguous or in close proximity
to existing Continental systems. These acquisitions are expected to close in
1995. Continental anticipates funding the cable system acquisitions in Michigan
with proceeds from the 1995 Credit Facility, which it is in the process of
arranging. Continental anticipates funding the cable system acquisitions in
Chicago, Illinois and Northern California with proceeds from its 1994 Credit
Facility. (See "Pro Forma Condensed Financial Statements".) There can be no
assurances that all or any of these acquisitions will be consummated. (See
"Domestic Acquisitions and Investments--Domestic Acquisitions".)
INVESTMENTS. For purposes of the Statements of Consolidated Cash Flows,
investments include investments in telecommunications and technology,
international investments and other investments.
Investments in Telecommunications and Technology. Continental has made
numerous investments which are related to its ownership interests in TCG and
PrimeStar.
In 1993, Continental purchased 20% of TCG for a purchase price of
$66,020,000. In addition, Continental has committed to lend up to $69,920,000
to TCG through 2003, of which $39,500,000 was advanced as of December 31, 1994.
Continental has also invested $39,768,000 in joint ventures involving TCG and
other cable operators and may in the future make additional investments in TCG
and joint ventures involving TCG. Such future possible investments cannot be
quantified at this time and will be evaluated by Continental on a project-by-
project basis. TCG is in the process of arranging a revolving credit facility
with a group of financial institutions. Such facility could reduce the amount
of existing and future advances from Continental. There can be no assurance
that such facility will close.
Continental also owns an approximate 10% partnership interest in PrimeStar
and has an investment of $12,500,000 as of December 31, 1994. (See "Strategic
Investments--Telecommunications and Technology Investments".) Continental has
made cash investments to fund PrimeStar's ongoing operations and may in the
future make additional investments in PrimeStar. Continental anticipates
funding any additional investments in PrimeStar with cash provided from
operating activities and proceeds from the 1994 Credit Facility.
International Investments. During the year ended December 31, 1994,
Continental advanced US$114,000,000 to Fintelco, a company which owns and
operates cable television systems serving over 600,000 subscribers in
Argentina. Continental currently holds an approximate 50% interest in Fintelco
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<PAGE>
subject to certain regulatory approvals. (See "International Operations".) In
addition, Continental has recorded commitments to contribute an additional
US$32,216,000 to Fintelco in order to finance a portion of certain acquisitions
of Argentine cable television systems. Continental anticipates funding such
commitments with proceeds from its 1994 Credit Facility and cash provided from
operating activities.
In September 1994, Continental acquired a 25% equity interest in SCV which
will construct, own and operate an exclusive cable television system in
Singapore. Continental has currently made US$8,700,000 in capital contributions
and has committed to contribute up to approximately US$34,800,000 (based on
exchange rates as of December 31, 1994) in additional capital through 1996. In
addition, Continental has committed to lend up to approximately US$43,000,000
(based on exchange rates as of December 31, 1994) if third-party debt financing
is unavailable to SCV. (See "International Operations".) Continental
anticipates funding such commitments with proceeds from its 1994 Credit
Facility and cash provided from operating activities.
Continental has entered into a letter of intent with Optus, a provider of
long-distance and cellular telephone services in Australia, to enter into a
joint venture to create a broadband communications network in Australia. The
venture, to be called Optus Vision, is expected to be initially owned 47.5% by
Continental, 47.5% by Optus and 5% by Publishing and Broadcasting Limited (a
Kerry Packer-affiliated company), which has an option to increase its equity
interest to 20%. The option is exercisable at any time prior to July 1, 1997,
at an exercise price approximating the market value of the venture at that
time. Optus Vision will provide cable television, local telephony and a variety
of advanced broadband interactive services to businesses and residential
customers in Australia's major markets.
Optus Vision anticipates that the required funding needs of the project will
total approximately US$1.5 billion (based upon exchange rates at December 31,
1994) through 1999, which will be provided by a combination of equity from the
joint venture partners and third-party debt. No assurances can be given at this
time as to the parties reaching a definitive agreement regarding this
transaction, or, if an agreement is reached, as to the consummation of this
transaction. If this transaction closes, Continental anticipates funding its
share of the equity contributions to Optus Vision with proceeds from its 1994
Credit Facility, cash provided from operating activities, and other capital
transactions which could include the issuance of new indebtedness and/or
equity. Continental's funding requirements would be reduced if Publishing and
Broadcasting Limited exercises its option to increase its equity interest in
Optus Vision to 20%. There can be no assurances that Publishing and
Broadcasting Limited will exercise its option.
Other Financing and Investment Activities. In 1994, Continental sold all of
its shares of common stock of International CableTel, Incorporated for
approximately $17,553,000. In addition, Continental issued shares of
Continental Class A Common Stock for proceeds of $30,500,000 in November 1994.
The proceeds of such stock issuance were used to repay amounts outstanding
under the 1994 Credit Facility. Subsequent to December 31, 1994, Continental
sold its shares of QVC common stock in a tender offer for approximately
$27,357,000. The proceeds of the QVC stock sale were used to repay amounts
outstanding under the 1994 Credit Facility.
RECENT STOCK REPURCHASES AND 1998-1999 SHARE REPURCHASE PROGRAM. Continental
is a party to a liquidity agreement (the "Stock Liquidation Agreement") with
certain stockholders, including H. Irving Grousbeck (a co-founder of
Continental), and the partners of certain general investment limited
partnerships managed by Burr, Egan, Deleage & Co. (the "BED Partnerships")
(collectively, the "Subject Stockholders"), which provides for various
liquidity arrangements for its stockholders. Continental extended to its other
stockholders the opportunity to participate in such program (all such shares
held by stockholders electing to participate in the Stock Liquidation
Agreement, including the Subject Stockholders, are referred to as "Continental
Redeemable Common Stock"). The Stock Liquidation Agreement required, among
other things, that Continental make a tender offer (the "Mandatory Tender
Offer") to all of its stockholders, including the Subject Stockholders, to
repurchase at least 300,000 shares of Continental Common Stock during 1993 (not
giving effect to the Continental Stock Split). On October 1, 1992, Continental
purchased
178
<PAGE>
715,761 shares (not giving effect to the Continental Stock Split) of
Continental Common Stock pursuant to a tender offer for an aggregate purchase
price of approximately $239,852,000, fully satisfying Continental's obligation
to make the Mandatory Tender Offer.
The only remaining obligation of Continental under the Stock Liquidation
Agreement is to repurchase the remaining shares of Continental Redeemable Common
Stock held by the Subject Stockholders, as well as by the other stockholders who
elected to participate in this aspect of the liquidity program (collectively,
the "Selling Stockholders"), on December 15, 1998 (or January 15, 1999, at each
Selling Stockholder's election). The purchase price for such redemption is equal
to the greater of (i) the dollar amount that a holder of Continental Common
Stock would receive per share of Continental Common Stock upon a sale of
Continental as a whole pursuant to a merger or a sale of stock or, if greater,
the dollar amount a holder of Continental Common Stock would then receive per
share of Continental Common Stock derived from the sale of Continental's assets
and subsequent distribution of the proceeds therefrom (net of corporate taxes,
including sales and capital gains taxes in connection with such sale of assets),
in either case less a discount of 22.5% or (ii) the dollar amount equal to the
net proceeds which would be expected to be received by a stockholder of
Continental from the sale of a share of Continental Common Stock in an
underwritten public offering after, under certain circumstances, being reduced
by pro forma expenses and underwriting discounts.
In a series of transactions in late 1993 and 1994, Continental repurchased
67,492 shares (not giving effect to the Continental Stock Split) of Continental
Common Stock from certain BED Partnerships for $485 per share, which was the
same per share price at which shares were sold in private placements of
Continental Class A Common Stock which occurred in November 1993 and November
1994. A condition to some of the repurchases by Continental was the release by
certain parties of all rights under the Stock Liquidation Agreement as to any
shares not sold to Continental.
As a result of the tender offer in 1992 and subsequent repurchases of
Continental Redeemable Common Stock, Continental has reduced its obligations to
repurchase shares of Continental Redeemable Common Stock pursuant to the 1998-
1999 Share Repurchase Program to 667,366 shares (16,684,150 shares,
respectively, giving effect to the Continental Recapitalization Amendment and
the Continental Stock Split) (representing approximately 9.5% of its
outstanding shares of Continental Common Stock on a fully diluted basis,
assuming conversion of the outstanding shares of Continental Series A Preferred
Stock after giving effect to the Merger and the Continental Recapitalization
Amendment and the Continental Stock Split) from the Selling Stockholders
pursuant to the 1998-1999 Share Repurchase Program. None of the officers or
Directors of Continental elected to participate in the 1998-1999 Share
Repurchase Program. The Selling Stockholders have agreed not to acquire any
additional shares of Continental Common Stock (or securities convertible into
or granting the right to purchase shares of Common Stock).
The obligation of Continental to repurchase shares of Continental Redeemable
Common Stock pursuant to the 1998-1999 Share Repurchase Program is subject to
applicable requirements of law, including the relevant Delaware corporate
statutes relating to impairment of capital. Section 160 of the DGCL provides
that, for the purpose of redeeming or otherwise acquiring outstanding shares of
its capital stock, a corporation may use only those surplus funds which
represent the amount by which the value of its net assets exceeds the aggregate
amount represented by all the shares of its capital stock; to the extent funds
used for redemption purposes exceed this amount, a corporation is deemed to
have impaired its capital in violation of Section 160. If Continental's
financial position is such that it is unable to fulfill its obligations under
the Stock Liquidation Agreement while continuing to comply with this statutory
requirement, Continental will be prohibited from consummating such
transactions. Continental's obligations under the 1998-1999 Share Repurchase
Program are also subject to existing and future agreements of Continental,
including all existing and future financing agreements. Provisions in such
agreements restricting Continental's ability to incur indebtedness or to make
distributions to, or redeem or repurchase shares of capital stock from, its
stockholders may prevent Continental from consummating the 1998-1999 Share
Repurchase Program. (See Note 7 to Continental's Consolidated Financial
Statements.) To the extent such program is thus prohibited, the Stock
Liquidation
179
<PAGE>
Agreement provides that Continental's obligation to consummate the relevant
repurchase or portion thereof will be deferred until such time as the
consummation of such repurchase or portion thereof would be in compliance with
such requirements of law and agreements.
In the event Continental is unable to perform its obligation to complete the
1998-1999 Share Repurchase Program within six months of the payment date
therefor, Continental is obligated, at the request made within such six month
period of any one or more Subject Stockholders or transferees holding an
aggregate of at least 100,000 shares (which is equivalent to 2,500,000 shares
after giving effect to the Continental Recapitalization Amendment and the
Continental Stock Split) of such transferred shares of Continental Redeemable
Common Stock, to use its best efforts (subject to compliance with applicable
laws and regulations) to cause the sale of all or substantially all of the
assets of Continental and, following the consummation of such sale, to
liquidate Continental. All shares of Continental Common Stock, including the
Continental Redeemable Common Stock, would share equally in the proceeds of any
liquidation, after all payments are made or set aside for holders of
indebtedness or Continental Preferred Stock.
CAPITAL RESOURCES. Historically, cash generated from Continental's operating
activities in conjunction with borrowings and proceeds from private equity
issuances has been sufficient to meet its debt service, stock repurchase
obligations and acquisition, investment and capital expenditure requirements.
Continental believes that cash generated from operating activities, together
with borrowings from existing and future credit facilities (including the 1995
Credit Facility) and proceeds from future equity issuances, will be sufficient
to meet its future debt service requirements and stock repurchase obligations
and to make anticipated acquisitions, investments and capital expenditures.
However, there can be no assurance in this regard. Continental anticipates that
it will offer shares of its capital stock in a private or public offering in
the future. (See "The Merger--Undertakings Regarding Public Offering".) There
can be no assurance in this regard or that any such future equity issuance
would be at a price per share equal to or greater than the price per share
ascribed to the Continental Class A Common Stock or the Continental Series B
Preferred Stock under the terms of the Merger Agreement. Furthermore, there can
be no assurance that the terms available for any future debt financing would be
favorable to Continental.
RECENT LEGISLATION. In October 1992, Congress enacted the 1992 Cable Act,
which, among other things, authorizes the FCC to set standards for governmental
authorities to regulate the rates for certain cable television services and
equipment and gives local broadcast stations the option to elect mandatory
carriage or require retransmission consent.
Pursuant to authority granted under the 1992 Cable Act, the FCC in April 1993
promulgated rate regulations that established maximum allowable rates for cable
television services, except for services offered on a per-channel or per-
program basis. On February 22, 1994, the FCC adopted a revised regulatory
scheme which included, among other things, interim cost-of-service standards
and a new benchmark formula to determine certain service rates. In creating the
new benchmark formula, the FCC authorized a further reduction in rates for
certain regulated services. As a result, rates for certain regulated services
currently in effect may now be reduced by as much as 17% below their September
30, 1992 levels if they exceed the new per-channel benchmark rates. The old
benchmark formula called for a reduction of up to 10%. As part of the
implementation of the regulations, the FCC froze rates for regulated services
from April 1, 1993 through May 15, 1994.
The regulations require rates for equipment to be cost-based and require
reasonable rates for regulated cable television services to be established
based on, at the election of the cable television operator, either application
of the FCC's benchmarks or a cost-of-service showing pursuant to standards
adopted by the FCC.
To the extent that a cable television system's rates are found to exceed the
reasonable rate determined by the methodology selected by the cable television
operator, the rates will be subject to "rollbacks" and, in some cases, refunds.
In addition, if a cable television system's rates for regulated services do not
need to be reduced by 17% in order to reach the new benchmark adopted on
February 22, 1994, such rates may
180
<PAGE>
nonetheless be subject to further reduction, up to a maximum reduction of 17%
from the rates in effect on September 30, 1992, based upon the results of a
pending FCC study of the operating costs of such cable television systems. (See
"Legislation and Regulation".) The timing and amount of such rollbacks, refunds
and further reductions, if any, for any system will depend on a number of
factors, including the method of rate determination selected by the cable
television operator, further clarification of the benchmark and cost-of-service
methodologies adopted on February 22, 1994, the ability of the FCC to
efficiently process cost-of-service showings submitted by cable television
operators, the success on the merits of such cost-of-service showings and the
outcome of pending litigation challenging various aspects of the 1992 Cable
Act.
Under current FCC regulations, a rate complaint or certification of a local
franchising authority is required to regulate a system. After extensive
evaluation of cost-of-service principles and economic and legal analyses by
experts in the rate regulation area, Continental has decided to defend certain
of its service rates using the FCC's benchmark methodology in regulated systems
serving approximately 20% of its BBT subscribers and 24% of its CPS
subscribers, and has decided to defend certain of its service rates using the
cost-of-service methodology in regulated systems serving approximately 18% of
its BBT subscribers and 28% of its CPS subscribers. Certain positions taken by
Continental in its cost-of-service filings are based on provisions of the FCC's
interim cost-of-service rules that allow certain "presumptions" in the rules to
be overcome on a case-by-case basis. While Continental believes that its
showings in this regard are sufficient, the results of these cases are unknown.
As a result Continental has recorded a revenue reserve. Systems serving
approximately 2% of Continental's subscribers are currently subject to
effective competition as defined by the 1992 Cable Act and are thereby exempt
from rate regulation. In addition, approximately 60% of Continental's BBT
subscribers are currently not subject to rate regulation because a local
franchising authority has not sought certification; however, systems serving
such subscribers would become subject to rate regulation upon the occurrence of
either such event.
In the opinion of management, the ultimate resolution of these existing
filings will not have a material adverse effect on Continental's consolidated
financial position.
If the Social Contract becomes effective, Continental will settle all of its
pending cost-of-service rate cases and all of its benchmark CPS tier rate
cases. Benchmark BBT cases would be resolved by Continental and local
franchising authorities. (For a description of the Social Contract, see
"Description of Continental--Regulatory Response".)
181
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Balance Sheet has been prepared
based upon the historical consolidated balance sheets of Continental and
Providence Journal Cable as of December 31, 1994, and gives effect to (i) the
Merger and certain related transactions, including the assumption of
$755,000,000 of New Cable Indebtedness (which represents a portion of the 1995
Credit Facility); (ii) various other acquisitions of domestic cable television
systems (Columbia Cable of Michigan, Cablevision of Chicago, N-COM and
Consolidated Cablevision of California); and (iii) the Continental Stock Split,
in each instance as though each of such events had occurred as of December 31,
1994. The following unaudited Pro Forma Condensed Statement of Operations for
the year ended December 31, 1994 gives effect to: (i) each of the above
transactions, (ii) the Manchester, New Hampshire and Clay Cablevision
acquisitions, (iii) the closing of the 1994 Credit Facility and (iv) the
redemption of the 12 7/8% Senior Subordinated Debentures ("12 7/8% Debt") as
though each of such events had occurred as of January 1, 1994. Pro forma
adjustments are described in the accompanying notes.
These pro forma financial statements should be read in conjunction with the
Consolidated Financial Statements and related notes of Continental and
Providence Journal Cable included elsewhere in this Joint Proxy Statement-
Prospectus. The Pro Forma Condensed Statement of Operations is not necessarily
indicative of the actual results of operations that would have been reported if
the acquisitions and the other transactions described above had occurred as of
January 1, 1994, nor do they purport to indicate the results of future
operations of Continental. In the opinion of management, all adjustments
necessary to present fairly such pro forma financial statements have been made.
182
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA PROVIDENCE PROVIDENCE
ADJUSTMENTS PRO FORMA JOURNAL JOURNAL PRO FORMA
CONTINENTAL OTHER CONTINENTAL CABLE CABLE TOTAL
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 11,564 $ 2,693(1) $ 14,257 $ 237 $ -- $ 14,494
Accounts Receivable--
net.................... 58,212 1,531(1) 59,743 26,894 -- 86,637
Prepaid Expenses and
Other.................. 14,321 197(1) 14,518 5,124 -- 19,642
Supplies................ 62,517 -- 62,517 6,131 -- 68,648
Marketable Equity
Securities............. 122,510 -- 122,510 -- -- 122,510
Investments............. 335,479 -- 335,479 -- -- 335,479
Property, Plant and
Equipment--net......... 1,353,789 142,856(1) 1,496,645 254,728 165,272(3) 1,916,645
Other Assets--net....... 525,247 302,743(1) 827,990 483,988 852,166(3) 2,164,144
----------- -------- ----------- -------- ---------- -----------
TOTAL................. $ 2,483,639 $450,020 $ 2,933,659 $777,102 $1,017,438 $ 4,728,199
=========== ======== =========== ======== ========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Accounts Payable........ $ 82,083 $ 584(1) $ 82,667 $ 11,993 $ -- $ 94,660
Accrued Interest........ 82,040 -- 82,040 -- -- 82,040
Accrued and Other
Liabilities............ 206,271 3,837(1) 210,108 35,751 -- 245,859
Debt.................... 3,449,907 423,000(1) 3,872,907 -- 755,000(3) 4,618,549
(9,358)(3)
Due to Affiliate--
Providence Journal..... -- -- -- 574,821 (574,821)(3) --
Deferred Income Taxes... 116,482 22,599(1) 139,081 70,686 285,468(3) 495,235
Minority Interest in
Subsidiaries........... 2,791 -- 2,791 26,709 (26,709)(3) 2,791
Redeemable Common Stock. 232,399 -- 232,399 -- -- 232,399
Stockholders' Equity
(Deficiency):
Series A Convertible
Preferred Stock....... 11 -- 11 -- -- 11
Series B Convertible
Preferred Stock....... -- -- -- -- 50(3) 50
Common Stock........... 39 950(2) 989 -- 282(3) 1,271
Additional Paid-In
Capital............... 583,368 (950)(2) 582,418 -- 644,668(3) 1,227,086
Unearned Compensation.. (12,097) -- (12,097) -- -- (12,097)
Net Unrealized Holding
Gain on Marketable
Equity Securities..... 47,996 -- 47,996 -- -- 47,996
Retained Earnings
(Deficit)............. (2,307,651) -- (2,307,651) 57,142 (57,142)(3) (2,307,651)
----------- -------- ----------- -------- ---------- -----------
TOTAL................. $ 2,483,639 $450,020 $ 2,933,659 $777,102 $1,017,438 $ 4,728,199
=========== ======== =========== ======== ========== ===========
</TABLE>
See Notes to Pro Forma Condensed Balance Sheets.
183
<PAGE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
The following adjustments are presented to reflect the effects of recording
the acquisitions and applying purchase accounting to the accounts of the
following cable television systems: (i) Columbia Cable of Michigan, purchase
price of approximately $155,000,000; (ii) Consolidated Cablevision of
California, purchase price of approximately $17,000,000 (iii) Cablevision of
Chicago, purchase price of approximately $168,500,000; and (iv) for the
remaining non-owned interest in N-COM, purchase price of approximately
$90,000,000 (which includes assumed liabilities). (See "Description of
Continental--Domestic Acquisitions and Investments".) A summary of the combined
purchase adjustment is as follows (in thousands):
<TABLE>
<S> <C>
Purchase Price:
Purchase Price of Cable Television Systems......................... $358,509
Net Working Capital Deficit and Liabilities of Cable Television
Systems assumed................................................... 71,991
--------
Total $430,500
========
Allocation of Purchase Price:
Estimated Fair Value of Property, Plant and Equipment.............. $142,856
Estimated Fair Value of Acquired Franchises........................ 287,644
Deferred Taxes Related to Property, Plant and Equipment
and Acquired Franchise Write-up ($430,500-$372,554) X 39%......... (22,599)
--------
407,901
--------
Excess of Purchase Price Over Property, Plant and Equipment and
Acquired Franchises............................................... $ 22,599
========
</TABLE>
(1) To record the fair value of property, plant and equipment, franchise costs
and certain current assets and current liabilities of the above cable
television systems. The adjustment for goodwill and deferred taxes
represents the preliminary estimate of the excess of the purchase price
plus net liabilities assumed over the fair value of property, plant and
equipment and acquired franchises, reduced by the property, plant and
equipment and acquired franchises previously recorded by the above cable
television systems. Continental will borrow a total of $423,000,000 in debt
under the 1994 Credit Facility and 1995 Credit Facility (see "Management
Discussion and Analysis of Financial Condition and Results of Operations of
Continental--Liquidity and Capital Resources--Capital Expenditures and
Domestic Acquisitions".) to finance the acquisitions and refinance
liabilities assumed. As of December 31, 1994, Continental has funded an
escrow deposit of $7,500,000 relating to the acquisition of Columbia Cable
of Michigan which was included in Other Assets. The preliminary estimates
of the fair value of property, plant and equipment and acquired franchises
may change upon final appraisal.
The following table sets forth the fair value of the property, plant and
equipment, franchise costs and certain assets and current liabilities of the
above cable television systems and the debt incurred to finance these
acquisitions or refinance the liabilities assumed (in thousands):
<TABLE>
<CAPTION>
CONSOLIDATED
COLUMBIA CABLE CABLEVISION CABLEVISION
N-COM OF MICHIGAN OF CHICAGO OF CALIFORNIA TOTAL
-------- -------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 2,693 $ -- $ -- $ -- $ 2,693
Accounts Receivable--
net.................... 1,531 -- -- -- 1,531
Prepaid Expenses and
Other.................. 197 -- -- -- 197
Property, Plant and
Equipment--net......... 40,706 46,500 50,550 5,100 142,856
Other Assets--net....... 71,893 101,000 117,950 11,900 302,743
-------- -------- -------- ------- --------
Total................. $117,020 $147,500 $168,500 $17,000 $450,020
======== ======== ======== ======= ========
LIABILITIES
Accounts Payable........ $ 584 $ -- $ -- $ -- $ 584
Accrued and Other
Liabilities............ 3,837 -- -- -- 3,837
Debt.................... 90,000 147,500 168,500 17,000 423,000
Deferred Income Taxes... 22,599 -- -- -- 22,599
-------- -------- -------- ------- --------
Total................. $117,020 $147,500 $168,500 $17,000 $450,020
======== ======== ======== ======= ========
</TABLE>
184
<PAGE>
(2) To record the increase in Continental Common Stock due to the Continental
Stock Split.
(3) To record $755,000,000 of New Cable Indebtedness, which will be borrowed by
Providence Journal Cable under the 1995 Credit Facility prior to the
Effective Time and will be assumed by Continental. To record the estimated
fair value of $645,000,000 for the 28,260,309 shares of Continental Class A
Common Stock and 4,987,113 shares of the Continental Series B Preferred
Stock to be issued to shareholders of Providence Journal in exchange for
all the shares of Restructured PJC Common Stock. To record the estimated
working capital deficit of $9,358,000 to be paid in cash. The cash will be
utilized to repay amounts outstanding under the 1995 Credit Facility. To
adjust property, plant and equipment and acquired franchises of Providence
Journal Cable to fair value based on preliminary estimates and to eliminate
historical equity accounts. The adjustment for goodwill and deferred taxes
represents the preliminary estimate of the excess of the purchase price
plus net liabilities assumed over the fair value of the property, plant and
equipment and acquired franchises, reduced by the property, plant and
equipment and acquired franchises previously recorded by Providence Journal
Cable. Such amount may change upon final appraisal.
The following adjustments are presented to reflect the effects of recording
the Merger and applying purchase accounting to the accounts of Providence
Journal Cable. A summary of the basis for these adjustments is as follows
(in thousands):
<TABLE>
<S> <C>
Purchase Price:
Estimated Fair Value of Shares to be Issued....................... $ 645,000
New Cable Indebtedness of Providence Journal Cable Assumed........ 755,000
----------
1,400,000
Liabilities of Providence Journal Cable Assumed by Continental.... 70,686
----------
Total............................................................. $1,470,686
==========
Allocation of Purchase Price:
Estimated Fair Value of Property, Plant and Equipment............. $ 420,000
Estimated Fair Value of Acquired Franchises....................... 1,050,686
Deferred Taxes Related to Property, Plant and Equipment
and Acquired Franchise Write-up ([$1,470,686--$738,716] X 39%)... (285,468)
----------
1,185,218
----------
Excess of Purchase Price Over Property, Plant and Equipment
and Acquired Franchises.......................................... $ 285,468
==========
</TABLE>
185
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA PROVIDENCE PROVIDENCE
ADJUSTMENTS PRO FORMA JOURNAL JOURNAL PRO FORMA
CONTINENTAL OTHER CONTINENTAL CABLE CABLE TOTAL
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $1,197,977 $103,859 (1) $1,301,836 $284,993 $ -- $1,586,829
Costs and Expenses:
Operating.............. 405,535 42,697 (1) 448,232 114,868 -- 563,100
Selling, General and
Administrative........ 267,349 22,320 (1) 289,669 58,152 -- 347,821
Allocated Corporate
Overhead from Parent
Companies............. -- -- -- 11,034 (11,034)(4) --
Restricted Stock
Purchase Program...... 11,316 -- 11,316 -- -- 11,316
Depreciation and
Amortization.......... 283,183 26,513 (1) 309,696 85,783 (10,379)(5) 385,100
---------- -------- ---------- -------- ------- ----------
Total................ 967,383 91,530 1,058,913 269,837 (21,413) 1,307,337
---------- -------- ---------- -------- ------- ----------
Operating Income........ 230,594 12,329 242,923 15,156 21,413 279,492
Interest Expense--net... 315,541 35,606 (1) 336,156 41,318 11,532(6) 389,006
(16,133)(2)
1,142 (3)
Other Expenses--net..... 24,253 (2,341)(1) 21,912 (555) -- 21,357
Minority Interest....... (205) -- (205) -- -- (205)
---------- -------- ---------- -------- ------- ----------
Loss from Operations.... (108,995) (5,945) (114,940) (25,607) 9,881 (130,666)
---------- -------- ---------- -------- ------- ----------
Income Tax (Benefit)
Expense................ (40,419) (2,319)(7) (42,738) (8,182) 3,854 (7) (47,066)
---------- -------- ---------- -------- ------- ----------
Net Loss Before
Extraordinary Item..... $ (68,576) $ (3,626) $ (72,202) $(17,425) $ 6,027 $ (83,600)
========== ======== ========== ======== ======= ==========
Per Share Data:
Earnings Per Share
Before Extraordinary
Item.................. $ (.92) $ (.92)
========== ==========
Average Common Shares
Outstanding........... 114,334 (8) 142,594 (9)
========== ==========
</TABLE>
See Notes to Pro Forma Condensed Statement of Operations.
186
<PAGE>
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(1) To record the results of operations for the cable television systems
acquired in 1994 and to be acquired in 1995. The results of operations for
certain cable television systems have been adjusted, where necessary, from
a September 30 fiscal year end to a December 31 fiscal year end. The
results of operations have been adjusted to reverse historical interest
expense of $24,432,000 and record interest expense of $35,606,000 as a
result of approximately $538,000,000 of additional debt incurred to finance
the cable television systems acquired in 1994 and to be acquired in 1995.
The incremental interest rate used to calculate pro forma interest expense
for the year ended December 31, 1994 was 7%; however, the pro forma
interest expense is net of amounts recorded by Continental during 1994 as a
result of cable television systems already acquired. Continental's equity
in net loss includes a loss of $2,400,000 relating to its 33.77% interest
in N-COM. This amount has been eliminated to reflect the results of
operations of N-COM as if it was wholly owned by Continental during 1994.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $33,280,000 and record
depreciation and amortization expense of $26,513,000 based on the fair
value of the assets acquired and the current expected lives of these
assets. Depreciation and amortization expense for property, plant and
equipment has been determined based on an estimated weighted average life
of ten years. Costs of acquired franchises and goodwill arising from the
acquisitions are amortized over 40 years. Such depreciation and
amortization may change upon final appraisal.
The following table sets forth the historical results of operations of (i)
the cable television systems acquired in 1994, for the period in which they
were not owned by Continental (Manchester acquired on June 30, 1994; Clay
Cablevision acquired in November, 1994) and; (ii) the cable television
systems to be acquired in 1995 for the year ended December 31, 1994.
<TABLE>
<CAPTION>
CABLE TELEVISION CABLE TELEVISION SYSTEMS
SYSTEMS ACQUIRED IN 1994 TO BE ACQUIRED IN 1995
-------------------------- -------------------------------------------
CONSOLIDATED
COLUMBIA CABLEVISION
CLAY CABLEVISION CABLE OF OF PRO FORMA
MANCHESTER CABLEVISION N-COM OF CHICAGO MICHIGAN CALIFORNIA ADJUSTMENTS TOTAL
----------- ------------ ------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $6,391 $10,404 $21,320 $34,395 $26,428 $4,921 $ -- $103,859
Costs and Expenses:
Operating.............. 3,950 4,032 7,955 14,402 10,144 2,214 -- 42,697
Selling, General and
Administrative........ 753 1,782 3,828 9,092 5,941 924 -- 22,320
Depreciation and
Amortization.......... 831 2,430 13,001 5,288 7,620 4,110 (6,767) 26,513
----------- ------------ ------- ------- ------- ------ ------ --------
Total................ 5,534 8,244 24,784 28,782 23,705 7,248 (6,767) 91,530
----------- ------------ ------- ------- ------- ------ ------ --------
Operating Income (Loss). 857 2,160 (3,464) 5,613 2,723 (2,327) 6,767 12,329
Interest Expense--net... -- 2,012 10,548 10,281 -- 1,591 11,174 35,606
Other (Income)
Expense--net........... -- 17 -- 53 (9) (2) (2,400) (2,341)
----------- ------------ ------- ------- ------- ------ ------ --------
Income/(Loss) From
Operations Before
Income Taxes........... 857 131 (14,012) (4,721) 2,732 (3,916) (2,007) (20,936)
=========== ============ ======= ======= ======= ====== ====== ========
</TABLE>
(2) To record the net decrease in interest expense as a result of the
redemption by Continental of the $325,000,000 of 12 7/8% Debt in November,
1994. The adjusted interest rate was 6 1/2% for the ten months ended
October 31, 1994.
(3) To record the net increase in interest expense associated with the
amortization of deferred financing costs of the 1994 Credit Facility and
the 12 7/8% Debt.
(4) To reverse Allocated Corporate Overhead from Parent Companies recorded by
Providence Journal Cable. These costs relate to allocated corporate
overhead such as executive salaries and other corporate departments such as
Treasury, Tax and Human Resources. These costs also include a portion of
the management fees assessed to KHC by the joint venture partners. As a
result of Continental's existing corporate infrastructure, no incremental
costs such as these are expected to be incurred upon the acquisition of
Providence Journal Cable.
187
<PAGE>
(5) To reverse the historical depreciation and amortization expense of
$85,783,000 recorded by Providence Journal Cable and record depreciation
and amortization expense of $75,404,000 based on the fair value of the
assets acquired based on the current expected lives of these assets.
Depreciation and amortization expense for property, plant and equipment has
been determined based on an estimated weighted average life of ten years.
Cost of acquired franchises and goodwill arising from the Merger are
amortized over 40 years. Such depreciation and amortization expense may
change upon final appraisal.
(6) To reverse historical interest expense of $41,318,000 as a result of the
Providence Journal Cable intercompany debt and record interest expense of
$52,850,000 due to the $755,000,000 of New Cable Indebtedness. The
incremental interest rate used to calculate interest expense on the New
Cable Indebtedness was 7% for the year ended December 31, 1994.
(7) To record the tax effect at an effective rate of 39%.
(8) Represents 4,573,000 weighted average shares outstanding during the year
ended December 31, 1994, adjusted for the Continental Stock Split.
(9) Represents the weighted average shares outstanding during the year ended
December 31, 1994 of 4,573,000 shares, adjusted for the Continental Stock
Split and the issuance of 28,260,000 shares of Continental Class A Common
Stock to be issued upon the consummation of the Merger.
188
<PAGE>
MARKET PRICE OF CONTINENTAL COMMON STOCK AND DIVIDEND POLICY OF CONTINENTAL
No established public trading market exists for the Continental Preferred
Stock or the Continental Common Stock, and accordingly no high and low bid
information or quotations are available with respect to the Continental
Preferred Stock or the Continental Common Stock.
As of March 15, 1995 there were 107 holders of record of the Continental
Class A Common Stock and 303 holders of record of the Continental Class B
Common Stock. Continental has not paid cash dividends on the Continental Common
Stock and has no present intention of so doing. The payment of future
dividends, if any, will be determined by the Board of Directors in light of
conditions then existing, including Continental's earnings, financial condition
and requirements, restrictions in financing agreements, business conditions and
other factors. Certain agreements, pursuant to which Continental has borrowed
funds, contain provisions that limit the amount of cash dividends and stock
repurchases that Continental may make. (See "Description of Continental
Indebtedness".)
DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF CONTINENTAL
The positions held by each Director, executive officer and other officer of
Continental are shown below. There are no family relationships among the
following persons. Each Director, executive officer and other officer of
Continental will continue to serve in his or her position after the Merger. Two
new Directors, nominated by Providence Journal, will be added to the
Continental Board, as described below.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR EXECUTIVE OFFICER POSITION WITH CONTINENTAL
------------------------------------- -------------------------
<C> <S>
Amos B. Hostetter, Jr.(1)........ Chairman of the Board, Chief Executive
Officer and Director
Timothy P. Neher................. Vice Chairman of the Board and Director
William T. Schleyer.............. President and Chief Operating Officer
Michael J. Ritter................ Director
Roy F. Coppedge III.............. Director
Jonathan H. Kagan(1)............. Director
Robert B. Luick.................. Director and Secretary
Henry F. McCance................. Director
Lester Pollack................... Director
Vincent J. Ryan(1)............... Director
Ronald H. Cooper................. Executive Vice President
Jeffrey T. DeLorme............... Executive Vice President
Nancy Hawthorne.................. Senior Vice President and Chief
Financial Officer
<CAPTION>
NAMES OF OTHER OFFICERS POSITION WITH CONTINENTAL
----------------------- -------------------------
<C> <S>
Andrew L. Dixon, Jr.............. Senior Vice President--Human Resources
David M. Fellows................. Senior Vice President--Engineering and
Technology
Richard A. Hoffstein............. Senior Vice President and Corporate
Controller
Frederick C. Livingston.......... Senior Vice President--Marketing
Robert J. Sachs.................. Senior Vice President--Corporate and
Legal Affairs
Robert A. Stengel................ Senior Vice President--Programming
Robert A. Strickland............. Senior Vice President--Information
Systems
P. Eric Krauss................... Vice President and Treasurer
Nancy B. Larkin.................. Vice President--Community Relations
R.B. Lerch....................... Vice President--Programming
Lawrence F. Christofori.......... Assistant Treasurer
Benjamin A. Gomez................ Assistant Treasurer
W. Lee H. Dunham................. Assistant Secretary
Patrick K. Miehe................. Assistant Secretary
</TABLE>
- --------
(1)Members of the Executive Committee
189
<PAGE>
Continental has a classified Board composed of three classes. Each class
serves for three years, with one class being elected each year. The current
Class C Directors, Messrs. Hostetter, McCance, Pollack and Coppedge, have been
nominated to serve as Directors for an additional three-year term, expiring at
the 1998 Annual Meeting of Continental. (See "Proposal to Approve and Adopt the
Continental Recapitalization Amendment, Election of Directors and Ratification
of Appointment of Accountants".) The term of the Class A Directors, Messrs.
Ritter and Luick, will expire at the 1996 Annual Meeting of Continental. The
term of the Class B Directors, Messrs. Neher, Ryan and Kagan, will expire at
the 1997 Annual Meeting of Continental. Under the terms of certain stock
purchase agreements with Continental, Corporate Advisors, on behalf of the
investors (the "Continental Preferred Stock Investors") who purchased
Continental Series A Preferred Stock, currently has the right to designate two
persons, and Boston Ventures Limited Partnership III, on behalf of itself and
Boston Ventures Limited Partnership IIIA, Boston Ventures Limited Partnership
IV and Boston Ventures Limited Partnership IVA (collectively, the "Boston
Ventures Investors"), currently has the right to designate one person, to be
nominated as members of the Board of Directors. Lester Pollack and Jonathan H.
Kagan are the designees of the Continental Preferred Stock Investors, and Roy
F. Coppedge III is the designee of the Boston Ventures Investors. Under the
terms of the Merger Agreement, Providence Journal has the right to designate
two persons to be appointed to Continental's Board of Directors as of the
Effective Time and, on the expiration of their initial term as nominees, New
Providence Journal has the right to designate two individuals to be nominated
as members of Continental's Board for another three year term. Providence
Journal has notified Continental that Stephen Hamblett and Trygve Myhren will
be its initial designees (although Providence Journal has the right to change
its designees at any time prior to the Effective Time if reasonably acceptable
to Continental.) (See "The Merger--Certain Covenants--Certain Rights with
Respect to Continental's Board of Directors".)
The executive officers and other officers were elected by the Continental
Board of Directors on May 19, 1994, with the exception of Messrs. Strickland
and Christofori, who were appointed to their present positions by the Board of
Directors on November 17, 1994, Messrs. Krauss, Cooper and Lerch, who were
appointed to their present positions effective January 1, 1995, and Mr.
Schleyer, who was appointed to his present position effective as of March 15,
1995 to replace Mr. Ritter, who retired. All executive officers and other
officers hold office until the first meeting of the Continental Board following
the next annual meeting of stockholders and until their successors are chosen
and qualified.
The following is a description of the business experience during the past
five years of each Director and officer and includes, as to Directors, other
directorships held in companies required to file periodic reports with the
Commission and registered investment companies.
DIRECTORS AND EXECUTIVE OFFICERS
Amos B. Hostetter, Jr. (58), a cofounder of Continental, is the Chairman of
the Board and Chief Executive Officer of Continental. He has been a Director
since 1963. Mr. Hostetter is a past Chairman of the National Cable Television
Association ("NCTA") and currently serves on NCTA's Board and Executive
Committee. He is past Chairman and serves on the Executive Committee of the
Board of Directors of both Cable in the Classroom and C-SPAN and serves as a
Director and Chairman of the Audit Committee of Commodities Corporation (USA).
Timothy P. Neher (47) is the Vice Chairman of the Board of Continental. He
has been a Director since 1982 and has been employed by Continental since 1974.
Prior to 1991 he was President and Chief Operating Officer of Continental,
prior to 1986 he was an Executive Vice President of Continental, and prior to
1982 he was Vice President and Treasurer of Continental. He currently is on the
Board of Directors of Turner Broadcasting System, Inc.
William T. Schleyer (43) is the President and Chief Operating Officer of
Continental. Prior to March 15, 1995 he was an Executive Vice President and
prior to 1989 he was the Senior Vice President and General Manager of
Continental's New England management region. He is a member of the Boards of
Directors of
190
<PAGE>
CableLabs, the research and development arm of the cable industry, and TCG. He
has been employed by Continental since 1978.
Michael J. Ritter (53) has been a Director since 1991 and was employed by
Continental from 1980 until March 15, 1995, at which time he retired as the
President and Chief Operating Officer of Continental. Prior to 1991 he was an
Executive Vice President, and prior to 1988 he was the Senior Vice President
and General Manager of Continental's Michigan management region.
Roy F. Coppedge III (46) has been a Director of Boston Ventures Management,
Inc. since 1983. He currently is on the Board of Directors of American Media
Inc. and Dial Page, Inc. He was elected to serve as a Director of Continental
in 1992.
Jonathan H. Kagan (38) is Managing Director of Corporate Advisors, L.P. and,
since 1987, has been a General Partner of Lazard Freres & Co. He has been
associated with Lazard Freres & Co. since 1980. He was elected to serve as a
Director of Continental in 1992. Mr. Kagan currently is on the Board of
Directors of Tyco Toys, Inc.
Robert B. Luick (83) is of counsel to the law firm of Sullivan & Worcester,
which firm has acted as counsel to Continental since its inception. Mr. Luick
has been with Sullivan & Worcester since 1943. He is a member of the Board of
Directors of Ionics, Incorporated, a diversified water treatment company. He
has been Secretary and a Director of Continental since 1963.
Henry F. McCance (52) has been general partner of the following venture
capital partnerships (either directly or indirectly as the general partner of
the general partner of such partnerships) since their formation: Greylock
Ventures Limited Partnership (1983), Greylock Investments Limited Partnership
(1985), Greylock Capital Limited Partnership (1987), Greylock Limited
Partnership (1990) and Greylock Equity Limited Partnership (1994). He is also
President and Treasurer of Greylock Management Corporation, an investment
services organization, and a Director of Brookstone, Inc., Manugistics, Inc.
and Shiva Corporation Prior to 1990, Mr. McCance was a Vice President and
Treasurer of Greylock Management Corporation. Mr. McCance has been a Director
of Continental since 1972.
Lester Pollack (61) is Senior Managing Director of Corporate Advisors, L.P.
and Chief Executive Officer of Centre Partners, L.P., investment partnerships
affiliated with Lazard Freres & Co., as well as a General Partner of Lazard
Freres & Co. He currently is on the Board of Directors of SunAmerica Inc.,
Kaufman & Broad Home Corporation, Tidewater, Inc., Loews Corporation, Parlex
Corporation, Polaroid Corporation and Sphere Drake Holdings Limited. He was
elected to serve as a Director of Continental in 1992.
Vincent J. Ryan (58) has been Chairman of the Board and a Director of
Schooner Capital Corporation, a venture capital organization, since 1971. Mr.
Ryan is also Chairman of the Board of Iron Mountain Information Management
Company, Inc., an information management company. He has been a Director of
Continental since 1980.
Jeffrey T. DeLorme (42) is an Executive Vice President of Continental. Prior
to March 1993, he was the Senior Vice President and General Manager of
Continental's Florida/Georgia management region. He was formerly the Director
of Corporate Services in Continental's Michigan management region. He has been
employed by Continental since 1980.
Ronald H. Cooper (38) is an Executive Vice President of Continental. Prior to
1995, he was the Senior Vice President of Continental's Southern California
management region. Prior to 1990 he was the Senior Vice President of
Continental's Northern California management region. He has been employed by
Continental since 1982.
Nancy Hawthorne (43) is the Chief Financial Officer and a Senior Vice
President of Continental. Prior to December, 1993, she was also the Treasurer
of Continental, in addition to being Chief Financial Officer and a Senior Vice
President. Prior to December 1992, she was a Senior Vice President and the
Treasurer of
191
<PAGE>
Continental. Prior to 1988, she was a Vice President and the Treasurer of
Continental. She is a member of the Boards of Directors of Perini Corporation,
a construction company, and TCG. She has been employed by Continental since
1982.
OTHER OFFICERS
Andrew L. Dixon Jr. (52) is Senior Vice President--Human Resources of
Continental. From 1985 to 1991, he was the Vice President of Human Resources
of Continental. He has been employed by Continental since 1982.
David M. Fellows (42) is Senior Vice President--Engineering and Technology
of Continental. Prior to December 1992, he was the Vice President of Strategic
Operations and the President of Scientific Atlanta's Transmissions Systems
Business Division, where he was responsible for that company's head end, fiber
and digital compression products. He is a member of the Board of Directors of
Anadigics, Inc.
Richard A. Hoffstein (47) is a Senior Vice President and the Corporate
Controller of Continental. Prior to 1986, he was the Corporate Controller,
Assistant Treasurer and Assistant Secretary of Continental. He has been
employed by Continental since 1976.
Frederick C. Livingston (49) is Senior Vice President--Marketing of
Continental. Prior to 1988, he was a Vice President of Continental, and prior
to 1984 he was the Director of Marketing for Continental. He has been employed
by Continental since 1979.
Robert J. Sachs (46) is Senior Vice President--Corporate and Legal Affairs
of Continental. Prior to 1988, he was a Vice President of Continental, and
prior to 1983 he was Continental's Director of Corporate Development. He has
been employed by Continental since 1979.
Robert A. Stengel (52) is Senior Vice President--Programming of Continental.
Prior to 1988, he was a Vice President of Programming of Continental. He has
been employed by Continental since 1980.
Robert A. Strickland (32) is Senior Vice President--Information Systems of
Continental. He has been employed by Continental since August 1994. He was
formerly employed by Harvard Business School since 1991.
P. Eric Krauss (31) is a Vice President and the Treasurer of Continental.
Prior to January 1995, he was the Treasurer, and prior to December 1993, he
was the Assistant Treasurer of Continental. He has been employed by
Continental since January 1990. He was formerly employed by The First National
Bank of Boston since 1986.
R. B. Lerch (34) is a Vice President--Programming of Continental. He has
been employed by Continental since October 17, 1988. Prior to January 1995, he
was the Director of Programming of Continental.
Nancy B. Larkin (43) is a Vice President--Community Relations of
Continental. She has been employed by Continental since February 1988. She was
formerly employed by American Cablesystems Corporation, most recently as Vice
President of Corporate Communications and Training.
Lawrence F. Christofori (33) is an Assistant Treasurer of Continental. He
has been employed by Continental since October 1994. He was formerly employed
by The First National Bank of Boston since 1989.
Benjamin A. Gomez (29) is an Assistant Treasurer of Continental. He has been
employed by Continental since April 1994. He was formerly employed by The Bank
of New York since 1990.
W. Lee. H. Dunham (53) is an Assistant Secretary of Continental. He has been
a partner of the law firm of Sullivan & Worcester since 1974.
192
<PAGE>
Patrick K. Miehe (47) is an Assistant Secretary of Continental. He has been a
partner of the law firm of Sullivan & Worcester since 1990.
Biographical information concerning the Directors, executive officers and
other officers is as of March 15, 1995.
EXECUTIVE COMPENSATION
The following table (the "Summary Compensation Table") discloses compensation
received by Continental's Chief Executive Officer and the four most highly
compensated other executive officers of Continental (the Chief Executive
Officer and the other executive officers are hereinafter referred to as the
"Continental Named Executive Officers") for the three fiscal years ended
December 31, 1992, 1993 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- -----------------------
OTHER ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK AWARDS COMPENSA-
NAMEAND PRINCIPAL POSITION YEAR # SALARY($) BONUS($)(1) SATION ($) ($)(2)(3) TION($)(4)
- --------------------------- ------ --------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Amos B. Hostetter, Jr. 1994 $649,876 $ 97,991 $ $ $4,273
Chairman and Chief 1993 624,961 238,653 -- -- 4,273
Executive Officer 1992 615,154 203,470 -- 4,499,850 4,404
Michael J. Ritter(5) 1994 469,769 99,860 3,868
President and Chief 1993 439,845 146,691 -- -- 3,868
Operating Officer 1992 400,250 123,235 -- 2,999,900 3,910
William T. Schleyer(5) 1994 315,815 30,639 3,403
Executive Vice 1993 291,923 61,418 -- -- 3,403
President 1992 272,084 52,131 -- 1,499,950 3,360
Jeffrey T. DeLorme 1994 294,846 49,166 3,403
Executive Vice 1993 268,484 56,871 111,608(6) -- 3,403
President 1992 197,890 21,846 -- 1,437,317 3,361
Nancy Hawthorne 1994 241,938 18,331 3,403
Chief Financial 1993 224,896 46,590 -- -- 3,403
Officer and Senior 1992 198,000 86,454 -- 979,823 3,361
Vice President
</TABLE>
- --------
(1) (See Note 11 to Consolidated Financial Statements.) Continental has made
loans to these and other persons in amounts equal to the income taxes
incurred by them as a result of their restricted stock purchases. Such
loans were financed through cash provided from operating activities and
long-term borrowings. Continental charges interest on these loans generally
at rates ranging from 5% to 8% per annum and declares bonuses to each of
these persons in the amount of the interest due each year. Continental
declared no other bonus to any Continental Named Executive Officer during
the years presented (other than a $50,000 bonus to Nancy Hawthorne in 1992
which is reflected in the Summary Compensation Table). As of April 4, 1995,
the amounts of the loans outstanding to certain of the Continental Named
Executive Officers and one other Executive Officer were as follows: William
T. Schleyer ($1,751,974), Jeffrey T. DeLorme ($1,311,077), Ronald H. Cooper
($261,500) and Nancy Hawthorne ($1,100,277). The outstanding principal
balance of each such loan is generally payable upon the earlier to occur of
(i) the fifth anniversary of such loan or (ii) the termination of such
person's employment with Continental. Each of Mr. DeLorme and Mr. Cooper
has an additional loan from an Unrestricted Subsidiary of Continental of
which; the current amounts outstanding are: Mr. DeLorme ($400,000) and Mr.
Cooper ($278,680). Since the beginning of the fiscal year ended December
31, 1992,
193
<PAGE>
the largest aggregate amounts of indebtedness of the following executive
officers were as follows: William T. Schleyer ($1,751,974), Jeffrey T.
DeLorme ($1,711,077), Ronald H. Cooper ($1,270,997) and Nancy Hawthorne
($1,100,277). (See "Compensation Committee Interlocks and Insider
Participation" for loan amounts to certain other Continental Named Executive
Officers.)
(2) Shares of restricted stock are entitled to dividends at the same rate as
all other shares of Continental Common Stock.
(3) Shown below are (i) the total number of unvested shares and current market
value of such shares as of December 31, 1994 and (ii) the vesting schedule
of such shares for each of the Continental Named Executive Officers (the
shares will be fully vested in two years):
<TABLE>
<CAPTION>
TOTAL RESTRICTED SHARES
HELD AS OF 12/31/94 VESTING OVER THREE YEARS FROM 12/31/94
------------------------ ---------------------------------------------
NAME SHARES VALUE SHARES VESTING IN 1995 SHARES VESTING IN 1996
---- ------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
Amos B. Hostetter, Jr... 123,750 $ 2,400,750 82,500 41,250
Michael J. Ritter....... 107,500 2,085,500 80,000 27,580
William T. Schleyer..... 41,250 800,250 27,500 13,750
Jeffrey T. DeLorme...... 46,475 901,615 26,400 20,075
Nancy Hawthorne......... 28,525 553,385 17,975 10,550
</TABLE>
(4) Includes payment by Continental in the fiscal years ended December 31,
1992, 1993 and 1994, respectively, of premiums for term life insurance on
behalf of the Continental Named Executive Officers: Amos B. Hostetter, Jr.
($1,350, $1,125 and $1,125), Michael J. Ritter ($856, $720 and $720),
William T. Schleyer ($306, $255 and $255), Jeffrey T. DeLorme ($307, $255
and $255) and Nancy Hawthorne ($307, $255 and $255). The remaining amounts
for the Continental Named Executive Officers represents the employer
matching contribution under Continental's matched savings plan.
(5) Mr. Ritter retired as the President and Chief Operating Officer, and was
replaced with Mr. Schleyer, effective March 15, 1995.
(6) Represents a one-time reimbursement of moving and related expenses incurred
by Mr. DeLorme in connection with his relocation to Continental's Boston,
Massachusetts office (grossed up for income taxes incurred by Mr. DeLorme).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Base annual
compensation for executive officers was determined during the last fiscal year
by the Chairman, the Vice Chairman and the President of Continental. Pursuant
to authority delegated by the Continental Board of Directors, the Chairman also
awarded grants of restricted stock in 1992 and 1995 to key employees designated
by the Continental Board in accordance with Continental's Restricted Stock
Purchase Program. Amos B. Hostetter, Jr., Timothy P. Neher and Michael J.
Ritter, the Chairman, Vice Chairman and President (until March 14, 1995) of
Continental, respectively, are Directors and participate in deliberations
concerning executive officer compensation.
Continental has made loans to these three executive officers and other
persons in amounts equal to the income taxes incurred by them as a result of
their restricted stock purchases. Such loans were financed through cash
provided from operating activities and long-term borrowings. Continental
charges interest on these loans generally at rates ranging from 5% to 8% per
annum and declares bonuses to each of these persons in the amount of the
interest due each year. As of April 4, 1995, the amounts of the loans
outstanding to the three executive officers named above were as follows: Amos
B. Hostetter, Jr. ($3,379,546), Timothy P. Neher ($2,669,856) and Michael J.
Ritter ($1,689,612). Since the beginning of the fiscal year ended December 31,
1992, the largest aggregate amounts of indebtedness of such executive officers
were as follows: Amos B. Hostetter, Jr. ($3,379,546), Timothy P. Neher
($4,057,356) and Michael J. Ritter ($2,020,797). The outstanding principal
balance of each such loan is generally payable upon the earlier to occur of (i)
the fifth anniversary of such loan or (ii) the termination of such person's
employment with Continental. For information regarding loans to other executive
officers, see footnote (1) to the Summary Compensation Table.
194
<PAGE>
On December 31, 1993, Continental accepted payment for loans incurred in
connection with restricted stock purchases pursuant to Continental's 1989
Restricted Stock Purchase Agreement ("RSPA III") which became due on such date
by (i) transfer to Continental and cancellation of vested shares of Continental
Common Stock with a value equal to the loan outstanding, valued at $485 per
share, which would have been equivalent to $19.40 per share after giving effect
to the Continental Recapitalization Amendment and the Continental Stock Split
(the "Stock-for-Loan Exchange"), (ii) payment in cash or (iii) a combination of
the two. Continental also made an offer (the "RSPA Offer") in January 1994 to
purchase shares of Continental Common Stock up to a maximum of 53,399 (not
giving effect to the Continental Recapitalization Amendment and Continental
Stock Split) shares at a purchase price of $485 per share. The persons who were
eligible to participate in the Stock-for-Loan Exchange and to accept the RSPA
Offer were persons who held shares of Continental Common Stock issued pursuant
to RSPA III (current or former employees and family members of employees and
former employees). The valuation of the shares at $485 was equal to the price
last paid in a private placement of shares of Continental Class A Common Stock,
which was consummated in November, 1993. (See "Management's Discussion and
Analysis of Financial Position and Results of Operations of Continental--
Liquidity and Capital Resources".) The three executive officers named above
repaid the following loan amounts in shares of Continental Common Stock in the
Stock-for-Loan Exchange: Amos B. Hostetter, Jr. ($1,471,936), Timothy P. Neher
($1,387,500) and Michael J. Ritter ($331,185), and sold the following number of
shares of Continental Common Stock (not giving effect to the Continental
Recapitalization Amendment and Continental Stock Split) to Continental pursuant
to the RSPA Offer: Amos B. Hostetter, Jr. (0), Timothy P. Neher (1,192) and
Michael J. Ritter (397). (For information regarding other executive officers,
see "Certain Transactions".) In addition, the Hostetter Foundation, an entity
controlled by Mr. Hostetter, sold 1,184 (not giving effect to the Continental
Recapitalization Amendment and the Continental Stock Split) shares of
Continental Class B Common Stock to Continental in January, 1994 for a purchase
price of $485 per share.
RETIREMENT PLANS. The following table sets forth, as computed in accordance
with the basic benefit formula employed for purposes of Continental's
Retirement Plan (the "Continental Retirement Plan") and its Supplemental
Executive Retirement Plan ("SERP"), the estimated annual benefits payable upon
retirement to employees of Continental in the following compensation and years-
of-service classifications. Such benefits are before offset in recognition of
the employer contribution toward social security benefits.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
COMPENSATION 10 15 20 25 30 OR MORE
- ------------ ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$150,000........................... $14,250 $21,375 $ 28,500 $ 35,625 $ 42,750
$200,000........................... 19,000 28,500 38,000 47,500 57,000
$300,000........................... 28,500 42,750 57,000 71,250 85,500
$400,000........................... 38,000 57,000 76,000 95,000 114,000
$500,000........................... 47,500 71,250 95,000 118,750 142,500
$600,000........................... 57,000 85,500 114,000 142,500 171,000
$700,000........................... 66,500 99,750 133,000 166,250 199,500
</TABLE>
Actual benefits are computed on the basis of (1) .95% of the employee's
average annual compensation less .37% of average annual compensation (limited
to social security covered compensation) multiplied by (2) the number of years
of service (not to exceed thirty years). Average annual compensation is the
average of a participant's compensation for the five consecutive years in which
compensation was the highest.
The SERP, effective in 1995, provides additional retirement benefits for any
employee of Continental whose accrued benefits under the Continental Retirement
Plan are limited by the Code's limit (currently $150,000) on compensation which
may be taken into account under that plan or by the Code's Section 415 limit on
the size of retirement benefits which may be funded under that plan. The SERP
is an unfunded, non tax-qualified plan which is intended to create for each
participant a benefit upon termination of employment generally equal in value
to the excess of what his accrued vested benefit in the Continental Retirement
Plan
195
<PAGE>
would have been without the $150,000 compensation limit and the Section 415
limit on benefits which may be funded, over the actual benefit under that plan.
The benefit under the SERP is payable upon termination of employment, at the
participant's election, in a lump sum or in equal annual installments (with
interest) over 2, 5 or 10 years. A participant may designate a beneficiary
under the SERP to receive his benefit should he die before its complete pay-
out.
The covered compensation for each Continental Named Executive Officer is
based upon the amounts shown in the "Salary" column of the Summary Compensation
Table. For each Continental Named Executive Officer, the current compensation
covered by the Continental Retirement Plan does not differ substantially (by
more than 10%) from the aggregate compensation set forth in the Summary
Compensation Table.
The Continental Named Executive Officers have been credited with the
following years of service: Mr. Hostetter, 32 years; Mr. Ritter, 14 years; Mr.
Schleyer, 17 years; Mr. DeLorme, 15 years; and Ms. Hawthorne, 13 years.
COMPENSATION OF DIRECTORS
The members of the Continental Board of Directors who are not officers of
Continental currently receive an annual retainer of $10,000 and a fee of $2,500
for each meeting attended. In addition, Directors who reside outside the
Greater Boston Area are reimbursed for their travel expenses incurred in
connection with attendance at meetings of the Continental Board of Directors.
CERTAIN TRANSACTIONS
On June 22, 1992, Continental sold 1,142,858 shares of Continental Series A
Preferred Stock to a group of investors, including 728,953 shares to Corporate
Partners for a purchase price of $255,133,550 and 52,107 shares to Corporate
Offshore Partners for a purchase price of $18,237,450, both of which are
investment partnerships affiliated with Lazard. Lester Pollack, a Director of
Continental, is Senior Managing Director of Corporate Advisors and a General
Partner of Lazard. Jonathan H. Kagan, a Director of Continental, is Managing
Director of Corporate Advisors and a General Partner of Lazard.
Corporate Advisors is the sole general partner of Corporate Partners and
Corporate Offshore Partners. A wholly owned subsidiary of Lazard is the sole
general partner of Corporate Advisors. Corporate Advisors is also an investment
manager for the SBA which purchased 76,084 shares of Continental Series A
Preferred Stock in a private placement subject to its investment management
agreement with Corporate Advisors. Certain entities controlled by Lazard also
own limited partnership interests in Corporate Partners and Corporate Advisors.
On June 22, 1992, Continental sold 42,857 shares of Continental Series A
Preferred Stock to ContCable for a purchase price of $14,999,950. ContCable is
an affiliate of Chemical Bank, a co-agent of the 1994 Credit Facility and
provides other banking services to Continental.
On July 15, 1992, Continental sold 121,381 shares of Continental Class B
Common Stock (not giving effect to the Continental Recapitalization Amendment
and the Continental Stock Split) to Boston Ventures Limited Partnership III for
a purchase price of $39,570,206 and 31,993 shares to Boston Ventures Limited
Partnership IIIA for $10,429,718. On November 17, 1992, Continental sold 76,934
shares of Continental Class B Common Stock (not giving effect to the
Continental Recapitalization Amendment and the Continental Stock Split) to
Boston Ventures Limited Partnership IV for $26,134,480 and 70,255 shares to
Boston Ventures Limited Partnership IVA for $23,865,623. Roy F. Coppedge III, a
Director of Continental, is a general partner of each of the general partners
of these four limited partnerships and a Director of Boston Ventures
Management, Inc., which manages their investments.
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Lazard received fees from Continental in an aggregate amount of approximately
$9,000,000 for its services as an underwriter of $400 million of senior
subordinated notes and debentures and as agent in connection with private
placements involving the Continental Preferred Stock Investors and the Boston
Venture Investors, and for certain other investment banking services during the
year ended December 31, 1992. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Continental--Liquidity and
Capital Resources".)
Lazard also received fees and underwriting discounts from Continental in an
aggregate amount of $7,748,400 for its services as an underwriter to
Continental of $1.4 billion of senior notes and debentures during the year
ended December 31, 1993.
Lazard has acted as a financial advisor to Continental in connection with the
negotiations and the consummation of the Merger and the related transactions,
and, for such services, will receive a fee which is still under negotiation.
Such fee will be payable upon the Closing.
For a discussion of loans made to executive officers of Continental in
connection with Continental's Restricted Stock Purchase Program, see footnote
(1) to the Summary Compensation Table and "Compensation Committee Interlocks
and Insider Participation". For a description of Continental's Stock-for-Loan
Exchange and the RSPA Offer to repurchase shares of Continental Common Stock,
and information regarding certain executive officers who are Directors
participating therein, see "Compensation Committee Interlocks and Insider
Participation". The following executive officers who are not Directors of
Continental participated in the Stock-for-Loan Exchange in the following
amounts: William T. Schleyer ($291,000), Jeffrey T. DeLorme ($155,000), Ronald
H. Cooper ($159,497) and Nancy Hawthorne ($274,464). In addition, William T.
Schleyer made a cash payment for the remaining $141,063 of his outstanding loan
incurred in connection with restricted stock purchases pursuant to RSPA III.
All of the share numbers listed above are before the Continental Stock Split.
BENEFICIAL OWNERSHIP OF CONTINENTAL CAPITAL STOCK AFTER THE MERGER
The following table provides information as of March 15, 1995 (giving effect
to the Merger, the Continental Recapitalization Amendment and the Continental
Stock Split), with respect to the shares of Continental Common Stock and
Continental Series A Preferred Stock beneficially owned by each person known by
Continental to own more than 5% of the outstanding Continental Common Stock or
Continental Series A Preferred Stock, each Director of Continental, each
Continental Named Executive Officer and by all Directors and executive officers
of Continental as a group. (For information relating to percentage beneficial
ownership prior to the Merger and certain defined terms used in the following
table, see "The Special Meetings--Ownership of Continental Securities".)
Ownership of Continental Series B Preferred Stock cannot be calculated at this
time since each Providence Journal stockholder is entitled, under certain
circumstances, to elect the percentage of Continental Series B Preferred Stock
and Continental Class A Common Stock that he, she or it wishes to receive
pursuant to the Merger. (See "The Merger--General Provisions".) For this same
reason, a determination of 5% beneficial owners of Continental Class A Common
Stock is not possible at this time. The number of shares beneficially owned by
each Director or executive officer is determined according to rules of the
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which the individual or entity has sole or shared
voting power or investment power and also any shares which the individual or
entity has the right to acquire within 60 days of March 15, 1995 through the
exercise of an option, conversion feature or similar right. Except as noted
below, each holder has sole voting and investment power with respect to all
shares of Continental Common Stock or Continental Series A Preferred Stock
listed as owned by such person or entity.
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<TABLE>
<CAPTION>
NUMBER OF
PERCENTAGE OF SHARES OF PERCENTAGE OF
NUMBER OF OUTSTANDING CONTINENTAL OUTSTANDING
SHARES OF SHARES OF SERIES A CONTINENTAL
CONTINENTAL CONTINENTAL PREFERRED SERIES A
COMMON STOCK(1) COMMON STOCK(2) SHARES OF PERCENTAGE
BENEFICIALLY STOCK AFTER BENEFICIALLY PREFERRED VOTING
NAME OWNED THE MERGER OWNED STOCK POWER
---- --------------- ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Amos B. Hostetter,
Jr.(3)................. 45,272,425 30.97% -- -- 31.87%
Timothy P. Neher(4)..... 1,671,725 1.14 -- -- 1.18%
Michael J. Ritter....... 589,900 * -- -- *
Roy F. Coppedge III(5).. 7,514,075 5.14 -- -- 5.00%
Jonathan H. Kagan(6).... 28,571,450 16.35 1,142,858 100.00 20.11%
Robert B. Luick(7)...... 229,575 * -- -- *
Henry F. McCance(8)..... 258,125 * -- -- *
Lester Pollack(6)....... 28,571,450 16.35 1,142,858 100.00 20.11%
Vincent J. Ryan(9)...... 5,719,825 3.91 -- -- 4.03%
William T. Schleyer..... 766,200 * -- -- *
Jeffrey T. Delorme...... 391,525 * -- -- *
Nancy Hawthorne......... 209,325 * -- -- *
Stephen Hamblett(6)..... 100,305 * -- -- *
Trygve E. Myhren(6)..... 990 * -- -- *
Directors and Executive
Officers as a Group (15
persons)(6)............ 91,474,720 52.34 1,142,858 100.00 64.04%
H. Irving Grousbeck(10). 10,033,000 6.86 -- -- 7.06%
Boston Ventures Company
Limited Partnership III
Boston Ventures
Limited
Partnership III(11).. 3,034,525 2.08 -- -- 2.14%
Boston Ventures
Limited
Partnership IIIA(11). 799,825 * -- -- *
Boston Ventures Company
Limited Partnership IV
Boston Ventures
Limited
Partnership IV(11)... 2,381,725 1.63 -- -- 1.36%
Boston Ventures
Limited
Partnership IVA(11).. 1,298,000 * -- -- *
---------- -----
Total as a group.... 7,514,075 5.14 -- -- 5.00%
LFCP Corp. and Corporate
Advisors, L.P.(12)
Corporate Partners,
L.P.(12)............. 18,223,825 11.08 728,953 63.78 12.83%
Mellon Bank, N.A. as
Trustee for First
Plaza Group
Trust(12)(13)........ 4,285,725 2.85 171,429 15.00 3.02%
The State Board of
Administration of
Florida(12).......... 1,902,100 1.28 76,084 6.66 1.34%
Vencap Holdings (1992)
Pte Ltd(12).......... 1,785,700 1.21 71,428 6.25 1.26%
Corporate Offshore
Partners, L.P.(12)... 1,302,675 * 52,107 4.56 *
ContCable Co-
Investors, L.P.(12).. 1,071,425 * 42,857 3.75 *
---------- ----- --------- ------ -----
Total as a group.... 28,571,450 16.35%(14) 1,142,858 100.00 20.11%
</TABLE>
- --------
*Less than 1% of class.
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(1) The number of shares of Continental Common Stock beneficially owned by
each listed holder reflects the number of such shares held after giving
effect to the Merger, the Continental Recapitalization Amendment and the
Continental Stock Split. The Continental Common Stock includes Continental
Class A Common Stock, which has one vote per share, and Continental Class
B Common Stock, which has ten votes per share. As the number of shares of
Continental Class A Common Stock represents 25.23% of the Continental
Common Stock and approximately 2.6% of the voting power of the Continental
Common Stock, the Continental Class A Common Stock has not been shown as a
separate class of stock, but rather Continental Common Stock has been
treated as one class. Every greater than 5% beneficial owner of
Continental Class B Common Stock would be a greater than 5% beneficial
owner of Continental Class A Common Stock.
(2) Under the rules for determining beneficial ownership promulgated by the
Commission, each holder of Continental Series A Preferred Stock is deemed
to own currently that number of shares of Continental Common Stock into
which the Continental Series A Preferred Stock is convertible. The
Continental Series A Preferred Stock will be presently convertible into
Continental Common Stock on a 25-for-one basis as a result of the
Continental Recapitalization Amendment and the Continental Stock Split.
The table therefore shows the number of shares of Continental Series A
Preferred Stock owned by each holder in the column for the Continental
Series A Preferred Stock and includes that number of shares in the column
for Continental Common Stock into which the Continental Series A Preferred
Stock would be convertible taking into effect the Continental
Recapitalization Amendment and the Continental Stock Split.
(3) Mr. Hostetter has shared voting and investment power as to 42,843,550
shares of Continental Common Stock held by the Trust of which Messrs.
Hostetter and Neher are the sole trustees. Mr. Hostetter has shared voting
and investment power as to a further 446,400 shares of Continental Common
Stock; as to 223,200 of such shares, he disclaims beneficial ownership.
Additionally, Mr. Hostetter disclaims beneficial ownership of 550,000
shares of Continental Common Stock with respect to which his wife acts as
a trustee with Mr. Neher and 38,950 shares of Continental Common Stock
held by him as custodian for four minor children. The shares listed in the
table as being beneficially owned by Mr. Hostetter include those as to
which Mr. Hostetter has shared voting and/or investment power and those as
to which Mr. Hostetter disclaims beneficial ownership. Mr. Hostetter's
address is The Pilot House, Lewis Wharf, Boston, Massachusetts 02110.
(4) Mr. Neher has shared voting and investment power as to 550,000 shares of
Continental Common Stock with respect to which he acts as a trustee with
Mrs. Hostetter, and as to 42,843,550 shares of Continental Common Stock
with respect to which he acts as a trustee with Mr. Hostetter. Mr. Neher
disclaims beneficial ownership as to such shares, and the table does not
indicate such shares as being beneficially owned by Mr. Neher. (See
footnote (3) above.) Additionally, Mr. Neher disclaims beneficial
ownership as to 165,000 shares with respect to which he acts as trustee
and 55,000 shares held by his wife as custodian for their minor children,
which are included in the table as being beneficially owned by Mr. Neher.
(5) All the shares listed in the table as beneficially owned by Mr. Coppedge
are held by the four limited partnerships described in Footnote (11)
below. Mr. Coppedge, a partner of each of the general partners of the
limited partnerships and a Director of Boston Ventures Management, Inc.,
which manages the investments of the four limited partnerships, has shared
voting and investment power as to these shares. Mr. Coppedge is entitled
to beneficial ownership of an indeterminate number of these shares and
disclaims beneficial ownership as to the balance. Mr. Coppedge's address
is c/o Boston Ventures Management, Inc., 21 Custom House Street, Boston,
Massachusetts 02110.
(6) All shares listed in the table as being beneficially owned by Mr. Pollack
and Mr. Kagan are beneficially owned by Corporate Advisors. (See footnote
(12) below.) Mr. Pollack may be deemed to have shared voting and
investment power over such shares as the Chairman and Treasurer and as a
Director of LFCP Corp. and Mr. Kagan may be deemed to have shared voting
and investment power over such shares as the President of LFCP Corp. LFCP
Corp. is the sole general partner of Corporate Advisors and a wholly owned
subsidiary of Lazard. Mr. Pollack and Mr. Kagan are both general partners
of Lazard. Mr. Pollack's and Mr. Kagan's address is c/o Corporate
Advisors, L.P., One Rockefeller Plaza, New York, New York 10020. Mr.
Pollack and Mr. Kagan disclaim beneficial ownership of all such shares.
The shares listed in the table as being owned by Mr. Hamblett and Mr.
Myhren are shares that will be issued to them in the Merger as
stockholders of Providence Journal and are not currently owned. For
purposes of beneficial ownership calculation, it was assumed that Messrs.
Hamblett and Myhren would receive only shares of Continental Class A
Common Stock in the Merger. Mr. Hamblett and Mr. Myhren are not presently
Directors of Continental but will be appointed upon the Closing.
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(7) The shares listed in the table as being beneficially owned by Mr. Luick
include 73,800 shares owned by Mr. Luick's daughter and 37,500 shares
with respect to which she acts as trustee for Mr. Luick's grandchildren.
Mr. Luick disclaims beneficial ownership of these shares.
(8) The shares listed in the table as being beneficially owned by Mr. McCance
include 225,000 shares held by Greylock Limited Partnership, of which Mr.
McCance is a general partner. Mr. McCance has shared voting and
investment power as to these shares, is entitled to beneficial ownership
of an indeterminate number of these shares and disclaims beneficial
ownership as to the balance. Of the remaining shares, Mr. McCance
disclaims beneficial ownership as to 12,500 shares with respect to which
his wife acts as trustee for his daughter and 12,500 shares held by his
daughter.
(9) Mr. Ryan holds 136,250 shares of Continental Common Stock. The remaining
shares of Continental Common Stock listed in the table as being
beneficially owned by Mr. Ryan are held by Schooner Capital Corporation
(and its subsidiaries), over which Mr. Ryan has shared voting and
investment power as the Chairman and principal stockholder.
(10) All of these shares are subject to the Stock Liquidation Agreement
pursuant to which Mr. Grousbeck must sell such shares to Continental in
either 1998 or 1999. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Continental--Liquidity
and Capital Resources--Recent Stock Repurchases and 1998-1999 Share
Repurchase Program".) Mr. Grousbeck's address is Room 382, Graduate
School of Business, Stanford University, Stanford, California 94305.
(11) These four limited partnerships may be deemed to be a "group" of persons
acting together for the purpose of acquiring, holding, voting or
disposing of shares of Continental Common Stock. BV Co. III, as the sole
general partner of each of Boston Ventures Limited Partnership III and
Boston Ventures Limited Partnership IIIA, is deemed to be the beneficial
owner of the shares held by such limited partnerships and to have shared
voting and investment power with respect to such shares. BV Co. IV, as
the sole general partner of each of Boston Ventures Limited Partnership
IV and Boston Ventures Limited Partnership IVA, is deemed to be the
beneficial owner of the shares held by such limited partnerships and to
have shared voting and investment power with respect to such shares. BV
Co. III disclaims beneficial ownership of the shares beneficially owned
by BV Co. IV; and BV Co. IV disclaims beneficial ownership of the shares
beneficially owned by BV Co. III. Mr. Coppedge may be deemed to
beneficially own all such shares. (See footnote (5).)
(12) These stockholders may be deemed to be a "group" of persons acting
together for the purpose of acquiring, holding, voting or disposing of
shares of Continental Series A Preferred Stock. Corporate Advisors, as
the general partner of Corporate Partners and Corporate Offshore
Partners, has sole voting and investment power as to the shares held by
them. Corporate Advisors serves as investment manager over a certain
investment management account for SBA and has sole voting and dispositive
power with respect to the shares of Continental Series A Preferred Stock
held by SBA. Pursuant to the Co-Investment Agreement, Corporate Advisors
has sole voting and dispositive power with respect to the shares held by
Vencap and ContCable. The address of Corporate Advisors, Corporate
Partners, Corporate Offshore Partners, FPGT, SBA, ContCable and Vencap
is: c/o Corporate Advisors, L.P., One Rockefeller Plaza, New York, New
York 10020. (See footnote (6) above.)
(13) Mellon Bank, N.A. acts as the trustee for FPGT, a trust under and for the
benefit of certain employee benefit plans of General Motors Corporation
and its subsidiaries. The shares listed in the table may be deemed to be
beneficially owned by GMIMC, a wholly owned subsidiary of General Motors
Corporation. GMIMC's principal business is providing investment advice
and investment management services with respect to the assets of certain
employee benefit plans of General Motors Corporation and its subsidiaries
and with respect to the assets of certain direct and indirect
subsidiaries of General Motors Corporation and associated entities. GMIMC
is serving as FPGT's investment manager with respect to these shares and,
in that capacity, it has the sole power to direct Mellon Bank, N.A. as to
the voting and disposition of these shares. Because of its limited role
as trustee, Mellon Bank, N.A. disclaims beneficial ownership of these
shares. Pursuant to the Co-Investment Agreement, FPGT is obligated,
subject to its fiduciary duties under the Employee Retirement Income
Security Act of 1974, as amended, (i) to transfer shares held by it only
in a transaction in which the other parties to the Co-Investment
Agreement participate on a pro rata basis and (ii) to exercise all voting
and other rights with respect to such shares in the same manner as is
done by Corporate Advisors on behalf of Corporate Partners and Corporate
Offshore Partners.
(14) The percentage ownership for the group assumes the conversion of shares
of Continental Series A Preferred Stock into Continental Common Stock by
all members of the group. The percentage ownership for each individual
member of the group assumes conversion by only that stockholder.
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<PAGE>
DESCRIPTION OF CONTINENTAL CAPITAL STOCK
The following description of the capital stock of Continental and certain
provisions of the Continental Restated Certificate and Continental By-Laws is a
summary and is qualified in its entirety by the Continental Restated
Certificate and the Continental By-Laws, which documents are incorporated
herein by reference.
After the effectiveness of the Continental Recapitalization Amendment and the
filing of a Certificate of Designation pertaining to the Continental Series B
Preferred Stock (the "Series B Certificate of Designation"), the authorized
capital stock of Continental will consist of 425,000,000 shares of Continental
Class A Common Stock, 200,000,000 shares of Continental Class B Common Stock
and 200,000,000 shares of Continental Preferred Stock, of which 1,142,858
shares have been designated Continental Series A Preferred Stock and 4,987,113
of which will have been designated Continental Series B Preferred Stock. As of
March 15, 1995, there were outstanding 8,634,900 shares of Continental Class A
Common Stock and 109,289,675 shares of Continental Class B Common Stock (giving
effect to the Continental Recapitalization Amendment and the Continental Stock
Split).
CONTINENTAL COMMON STOCK
DIVIDENDS. Holders of shares of Continental Common Stock are entitled to
receive such dividends as may be declared by Continental's Board of Directors
out of funds legally available for such purpose, but only after payment of
dividends required to be paid on outstanding shares of any other class or
series of stock having preference over Continental Common Stock as to
dividends, including the Continental Series A Preferred Stock and, if the
Merger is consummated, the Continental Series B Preferred Stock. No dividend
may be declared or paid in cash or property on either class of Continental
Common Stock unless simultaneously the same dividend is declared or paid on
each share of the other class of Continental Common Stock. In the case of a
stock dividend, holders of Continental Class A Common Stock are entitled to
receive the same dividends, payable in Continental Class A Common Stock, as the
holders of Continental Class B Common Stock receive, payable in Continental
Class B Common Stock. Continental's ability to pay cash dividends on its
capital stock is subject to certain restrictions set forth in its credit
agreements. (See "Description of Continental Indebtedness".)
VOTING RIGHTS. Subject to voting rights granted to holders of the Continental
Preferred Stock, including (i) the holders of the Continental Series A
Preferred Stock who currently vote as if they had converted each of their
shares into 25 shares of Continental Class B Common Stock (after giving effect
to the Continental Stock Split) and (ii) if the Merger is consummated, the
holders of the Continental Series B Preferred Stock who will have one vote per
share, holders of Continental Class A Common Stock and Continental Class B
Common Stock vote as a single class on all matters submitted to a vote of the
stockholders, with each share of Continental Class A Common Stock entitled to
one vote and each share of Continental Class B Common Stock entitled to ten
votes. For a detailed description of voting rights of the Continental Preferred
Stock, see "Continental Series A Preferred Stock" and "Continental Series B
Preferred Stock".
Under the Continental Restated Certificate, the vote of holders of at least
66 2/3% of the total votes of all Continental Voting Stock (including, after
the Merger, the Continental Series B Preferred Stock) is required for the
amendment or repeal of, or the adoption of any provision inconsistent with,
provisions in the Continental Restated Certificate establishing a classified
Board of Directors, or the provisions of the Continental Restated Certificate
authorizing the Continental Preferred Stock and Continental Common Stock or
specifying the terms of the Continental Class A Common Stock and the
Continental Class B Common Stock (including an amendment to increase any shares
of authorized capital stock, except that the Continental Series B Preferred
Stock will not be entitled to vote on such an increase or a decrease in the
number of authorized shares of any class or classes of stock). In addition to
voting together with all other shares of Continental Voting Stock and in
addition to any special rights that the Continental Series A Preferred Stock
has as a series, under Delaware Law, the Continental Series A Preferred Stock
has a separate majority class vote with respect to any amendment to the
Continental Restated Certificate to increase or decrease the
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authorized shares of Continental Preferred Stock, increase or decrease the par
value of the shares of such class or alter or change the powers, preferences or
special rights of such class so as to adversely affect it. Certain other
provisions also require a 66 2/3% vote. (See "DGCL and Certain Provisions of
the Continental Restated Certificate and the Continental By-Laws".) There are
no cumulative voting rights in the election of the Continental Board of
Directors.
LIQUIDATION RIGHTS. Upon liquidation, dissolution or winding up of
Continental, the holders of Continental Class A Common Stock are entitled to
share ratably with the holders of Continental Class B Common Stock in all
assets available for distribution after payment in full of amounts owing to
creditors and holders of the Continental Preferred Stock. Thereafter, any
remaining amount would be shared ratably by both classes of Continental Common
Stock. Continental Redeemable Common Stock shares ratably with other
Continental Common Stock. (See "Description of Continental--Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Continental--Liquidity and Capital Resources".)
RESTRICTIONS ON TRANSFER OF CONTINENTAL CLASS B COMMON STOCK AND
CONVERTIBILITY OF CONTINENTAL CLASS B COMMON STOCK. The Continental Class B
Common Stock is not transferable by a stockholder except to a "Permitted Class
B Transferee" (which term is defined generally below) of a "Class B Holder"
(which term is defined below). Accordingly, no trading market has or will
develop in the Continental Class B Common Stock, and the Continental Class B
Common Stock will not be listed or traded on any exchange or in any market. Any
purported transfer of the economic, record or beneficial ownership of shares of
Continental Class B Common Stock not permitted under the Continental Restated
Certificate will result in the automatic conversion of shares of Continental
Class B Common Stock in the hands of the purported transferee into shares of
Continental Class A Common Stock, effective on the date of such purported
transfer. Therefore, stockholders who desire to sell their shares of
Continental Class B Common Stock must first convert those shares into shares of
Continental Class A Common Stock. Each share of Continental Class B Common
Stock is convertible at any time at the option of the holder into one share of
Continental Class A Common Stock.
Other than pursuant to conversions of Continental Class B Common Stock into
Continental Class A Common Stock as described above, shares of Continental
Class B Common Stock may be transferred only to a Permitted Class B Transferee
of the economic owner of such shares of Continental Class B Common Stock (the
"Class B Holder"). An "economic owner" is defined as a person who has a direct
or indirect pecuniary interest in the shares. A "Permitted Class B Transferee"
of a Class B Holder is generally defined as certain affiliates of Class B
Holders, such as family members, family and other trusts controlled by the
Class B Holder and other entities controlled or owned by a Class B Holder or a
Permitted Class B Transferee of such Class B Holder.
CONVERSION OF CONTINENTAL CLASS B COMMON STOCK UPON CERTAIN OTHER EVENTS. If
at any time (i) the number of outstanding shares of Continental Class B Common
Stock falls below 7 1/2% of the aggregate number of issued and outstanding
shares of Continental Common Stock or (ii) the Continental Board of Directors
and the holders of a majority of the outstanding shares of Continental Class B
Common Stock approve the conversion of all of the Continental Class B Common
Stock into Continental Class A Common Stock, then each outstanding share of
Continental Class B Common Stock shall be converted into one share of
Continental Class A Common Stock without further action by Continental or its
stockholders.
OTHER PROVISIONS. The Continental Board of Directors has the power to issue
shares of authorized but unissued Continental Class A Common Stock, Continental
Class B Common Stock and Continental Preferred Stock without further
stockholder action. Neither the holders of Continental Common Stock nor the
holders of the Continental Series A Preferred Stock are entitled to preemptive
or similar rights. Holders of any Continental Series B Preferred Stock issued
pursuant to the Merger will similarly not be entitled to preemptive rights.
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UNISSUED CONTINENTAL PREFERRED STOCK
The 193,870,029 shares of authorized and unissued Continental Preferred Stock
(after giving effect to the Continental Recapitalization Amendment and the
issuance of the Continental Series B Preferred Stock) may be issued with such
designations, powers, preferences and other rights and qualifications,
limitations and restrictions thereon as the Continental Board of Directors may
authorize without further action by Continental's stockholders, including but
not limited to: (i) the designation of each series and the number of shares
that will constitute such series; (ii) the voting rights, if any, of shares of
such series; (iii) the dividend rate on the shares of such series;
restrictions, limitations or conditions upon the payment of such dividends; and
whether dividends shall be cumulative and the dates on which dividends are
payable; (iv) the prices at which, and the terms and conditions on which, the
shares of such series may be redeemed, if such shares are redeemable; (v) the
purchase or sinking fund provisions, if any, for the purchase or redemption of
shares of such series; (vi) any preferential amount payable upon shares of such
series in the event of the liquidation, dissolution or winding up of
Continental or the distribution of its assets; and (vii) the prices or rates of
conversion at which, and the terms and conditions on which, the shares of such
series may be converted into other securities, if such shares are convertible.
The rights of holders of shares of Continental Common Stock as described above
will be subject to, and may be adversely affected by, the rights of holders of
any Continental Preferred Stock that may be issued in the future. The issuance
of Continental Preferred Stock may also have the effect of delaying, deferring
or preventing a change of control of Continental or other corporate action.
CONTINENTAL SERIES A PREFERRED STOCK
The terms of the Continental Series A Preferred Stock are set forth in a
Certificate of Designation that constitutes part of the Continental Restated
Certificate (the "Series A Certificate of Designation"). All of the 1,142,858
shares of Continental Preferred Stock that have been designated Continental
Series A Preferred Stock were issued in a private placement that closed on June
22, 1992 for a purchase price per share of $350 pursuant to a Stock Purchase
Agreement by and between Continental and the Continental Preferred Stock
Investors (the "Preferred Stock Purchase Agreement") and are still held by the
Continental Preferred Stock Investors.
DIVIDENDS. The Continental Series A Preferred Stock participates in all
dividends (other than dividends payable in shares of Continental Common Stock)
declared by the Continental Board of Directors on the Continental Common Stock
as if such shares had been converted into shares of Continental Common Stock.
The Continental Series A Preferred Stock and the Continental Series B Preferred
Stock are entitled to receive payment of any dividend declared on a pari passu
basis, (other than dividends payable in shares of Continental Common Stock)
before any payment of such dividend is made to the holders of Continental
Common Stock.
VOTING RIGHTS. Each share of Continental Series A Preferred Stock is entitled
to vote together as a single class with the Continental Common Stock on all
matters voted on by holders of Continental Common Stock; each holder of
Continental Series A Preferred Stock is entitled to cast the number of votes
equal to the number of votes that could be cast by the shares of Continental
Common Stock into which such holder's shares of Continental Series A Preferred
Stock are then convertible. At the Effective Time and giving effect to the
Continental Recapitalization Amendment and the Continental Stock Split, and for
so long as each Preferred Stock Investor or its Allowed Transferees (as defined
in "Conversion" below) continues to hold its shares and to meet certain other
requirements, each share of Continental Series A Preferred Stock will be
entitled to 250 votes per share. (See "Conversion" below.) If shares of
Continental Series A Preferred Stock are transferred to persons other than
Allowed Transferees, or if, under certain circumstances, Corporate Advisors
ceases to have voting and dispositive power over such shares, such shares will
be entitled to only 25 votes per share and will be convertible at any time only
into Continental Class A Common Stock. (See "Conversion" below.)
The Continental Series A Preferred Stock has separate voting rights as a
series with respect to certain matters. The affirmative vote of 66 2/3% of the
Continental Series A Preferred Stock is necessary (A) to
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increase the authorized number of or issue any additional shares of Continental
Series A Preferred Stock, (B) to change by amendment to the Continental
Restated Certificate the aggregate authorized number or par value of the
Continental Series A Preferred Stock or the powers, preferences or special
rights of the Continental Series A Preferred Stock so as to affect the
Continental Series A Preferred Stock adversely, or (C) to purchase any
Continental Series A Preferred Stock when dividends on the Continental Series A
Preferred Stock are in arrears or there is a redemption default.
The Continental Series A Preferred Stock also has separate class voting
rights under Delaware Law as to (i) an increase or decrease in authorized
shares of Continental Preferred Stock, (ii) an increase or decrease in the par
value of shares of Continental Preferred Stock and (iii) an alteration or
change in the powers, preferences or special rights of Continental Preferred
Stock that would have an adverse effect on such class.
BOARD REPRESENTATION. Corporate Advisors, on behalf of the Continental
Preferred Stock Investors has the right to designate two persons to be
nominated to serve on Continental's Board of Directors. (See "Description of
Continental--Directors, Executive Officers and Other Officers of Continental".)
Mr. Hostetter has contractually agreed to vote all shares of Continental Common
Stock owned by him in favor of such nominees. The number of Directors Corporate
Advisors is entitled to designate for election is reduced to one if the
Continental Preferred Stock Investors do not beneficially own at least a 10
percent economic ownership interest in Continental's then outstanding voting
stock and to zero if the Continental Preferred Stock Investors' economic
ownership interest is less than 5 percent of Continental's then outstanding
voting securities (unless such reduction is caused by Continental's issuance of
additional voting stock).
In addition, holders of Continental Series A Preferred Stock have the right
(voting separately as a class or as a class with the holders of Continental
Series B Preferred Stock and the holders of shares of any other capital stock
of Continental ranking on parity, either as to dividends or upon liquidation,
dissolution or winding up with the Continental Series A Preferred Stock if such
holders are then entitled to elect additional Directors pursuant to any similar
provision of the Certificate of Designation for such stock) to elect two
additional Directors to the Continental Board of Directors ("Directors Upon
Default") in the event of (a) a breach by Continental of the Preferred Stock
Purchase Agreement or (b) a failure to declare or pay dividends or
distributions on the Continental Series A Preferred Stock in accordance with
"Dividends" above or to redeem shares of Continental Series A Preferred Stock
when required. Upon such election, if the Continental Preferred Stock Investors
have two designees already serving on the Continental Board of Directors one
such designee must resign. Such right to designate two Directors Upon Default
continues until such time as Continental has cured the default, at which time
such Directors Upon Default must resign. Upon such resignation, the Continental
Preferred Stock Investors are entitled to designate an additional Director to
the extent they are entitled otherwise then to nominate two representatives to
the Continental Board of Directors.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of
Continental, holders of shares of Continental Series A Preferred Stock are
entitled to receive an amount per share equal to the greater of (i) the
Accreted Value (as defined in "Redemption Rights" below) determined as of the
date of such liquidation, dissolution or winding up and (ii) the aggregate
amount that would be distributable to holders of Continental Common Stock in
respect of the number of shares of Continental Common Stock into which a share
of Continental Series A Preferred Stock is then convertible, plus, in either
case, unpaid dividends, if any, that have been declared and are payable on the
Continental Series A Preferred Stock.
REDEMPTION RIGHTS. On June 22, 2002, any holder of the Continental Series A
Preferred Stock has the right to cause Continental to redeem its Continental
Series A Preferred Stock at a price per share (the "Series A Redemption Price")
equal to $350 plus an amount calculated to provide such holder with a yield of
8% thereon from June 22, 1992, compounded semi-annually in arrears, as adjusted
to reflect any cash dividends paid on the Continental Series A Preferred Stock
(the "Accreted Value"). Continental has the right to redeem all (but not less
than all) of the Continental Series A Preferred Stock at the Series A
Redemption Price by
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notifying the holders of the Continental Series A Preferred Stock of such
election not more than 30 or less than 20 trading days prior to June 22, 2002.
Continental may elect to pay all or any portion of the Series A Redemption
Price (other than unpaid dividends) in cash or in shares of Continental Common
Stock based on the then current market value (determined in accordance with the
provisions set forth in the Continental Restated Certificate) of the
Continental Common Stock. If Continental does not exercise its redemption
rights prior to June 22, 2002, Continental will have the right on such date to
redeem all (but not less than all) of the Continental Series A Preferred Stock
not put to Continental by the holders thereof on June 22, 2002, at a price per
share equal to the Accreted Value up to and including the date of redemption,
which may be paid at Continental's election, in cash or in shares of
Continental Common Stock or any combination thereof.
At any time after June 22, 1997, provided that the current market value
(determined in accordance with the provisions set forth in the Continental
Restated Certificate) of the number of shares of Continental Common Stock into
which a share of Continental Series A Preferred Stock is then convertible
exceeds 137.5% of the then Accreted Value (as of the date notice of conversion
is given), Continental may cause all (but not less than all) of the outstanding
shares of Continental Series A Preferred Stock to be converted into Continental
Common Stock.
CONVERSION. Giving effect to the Continental Recapitalization Amendment and
the Continental Stock Split, each share of Continental Series A Preferred Stock
is currently convertible at the option of the holder at any time into 25 shares
of Continental Common Stock. If the holder is one of the Continental Preferred
Stock Investors (i.e. one of the original purchasers) or an Allowed Transferee
of a Preferred Stock Investor (which term has the same meaning as that ascribed
to a Permitted Class B Transferee, see "Restrictions on Transfer of Class B
Common Stock and Convertibility of Class B Common Stock"), such holder is
entitled to receive shares of Continental Class B Common Stock upon conversion;
otherwise the holder will receive shares of Continental Class A Common Stock.
The shares of Continental Series A Preferred Stock are not transferable except
among the Continental Preferred Stock Investors and their Allowed Transferees
and their limited partners until June 22, 1995, unless Continental consummates
an initial public offering prior to such date, in which case the restrictions
on transfer are terminated.
If a capital reorganization or certain reclassification of Continental Common
Stock or the consolidation or merger of Continental with any other entity or
the sale or conveyance of all or substantially all the assets of Continental
occurs, thereafter, each share of Continental Series A Preferred Stock is
convertible into the kind and amount of securities and property (including
cash) receivable upon such event by a holder of that number of shares of
Continental Common Stock into which such share of Continental Series A
Preferred Stock was convertible immediately prior to such event.
CHANGE OF CONTROL. If a Change of Control (as defined below) of Continental
occurs and at such time the current market value of the number of shares of
Continental Common Stock into which the Continental Series A Preferred Stock is
then convertible is less than the then Accreted Value of the Continental Series
A Preferred Stock, the holders of Continental Series A Preferred Stock have the
right to require Continental to redeem the Continental Series A Preferred Stock
at a per share price equal to the then Series A Redemption Price.
Continental may elect to redeem the Continental Series A Preferred Stock by
paying the Series A Redemption Price in cash or Continental Common Stock which,
for purposes of determining the number of shares to be issued, will be valued
at 90% of its then current market value (as determined in accordance with
provisions set forth in the Continental Restated Certificate).
"Change of Control" means: (a) the acquisition by any individual, entity or
group of 50% or more of the combined voting or economic power of the then
outstanding Continental voting securities, but excluding, for this purpose, any
such acquisition by (i) Continental or any of its subsidiaries or (ii) any
corporation with respect to which, following such acquisition, more than 50% of
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of Directors is then
beneficially owned, directly or indirectly, by individuals and entities who
were the beneficial owners of
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Continental voting securities in substantially the same proportion as their
ownership, immediately prior to such acquisition; or (b) approval by the
stockholders of Continental of a reorganization, merger or consolidation, in
each case, with respect to which all or substantially all the individuals and
entities who were the respective beneficial owners of the voting securities of
Continental immediately prior to such reorganization, merger or consolidation
do not, following such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 50% of the combined voting or economic
power of the then outstanding Continental voting securities of the combined
corporation; or (c) the sale or other disposition of all or substantially all
the assets of Continental in one transaction or series of related transactions.
RESTRICTIONS ON CONTINENTAL. If (a) Continental breaches its obligations
under the Preferred Stock Purchase Agreement, (b) any dividends or
distributions payable on the Continental Series A Preferred Stock have not been
declared or paid or (c) shares of Continental Series A Preferred Stock have not
been redeemed as required, neither Continental nor any of its affiliates,
subject to certain exceptions, can (i) declare or pay dividends or make any
distribution on any capital stock ranking junior to (including the Continental
Common Stock) or on a parity with the Continental Series A Preferred Stock and
Continental Series B Preferred Stock, (ii) redeem or otherwise acquire any
capital stock ranking junior to or on a parity with the Continental Series A
Preferred Stock or make any sinking fund or similar payment thereon or (iii)
make any loan or advance to any stockholder of Continental or any affiliates or
associates thereof.
RANKING WITH OTHER PREFERRED STOCK. Continental may not issue a series or
class of convertible Continental Preferred Stock that ranks prior to the
Continental Series A Preferred Stock with respect to dividends, liquidation
preference, or rights upon dissolution and winding up. The Continental Series A
Preferred Stock ranks pari passu with the Continental Series B Preferred Stock
with respect to dividends, liquidation preference or rights upon dissolution
and winding up.
CONTINENTAL SERIES B PREFERRED STOCK
The terms of the Continental Series B Preferred Stock will be set forth in
the Series B Certificate of Designation. The form of the Series B Certificate
of Designation is attached as an exhibit to the Merger Agreement, which is
attached hereto as Annex I, and the summary of the terms of the Series B
Certificate of Designation set forth below is qualified in its entirety by
reference thereto. All of the shares of Continental Preferred Stock that will
be designated by Continental's Board of Directors as Continental Series B
Preferred Stock are to be issued to the holders of Restructured PJC Common
Stock pursuant to the Merger Agreement.
DIVIDENDS. The holders of record of Continental Series B Preferred Stock will
be entitled to receive, when, as and if declared by the Board of Directors of
Continental, out of the assets of Continental legally available therefor, cash
dividends at an annual rate which will equal 100 basis points over the average
yield for the ten Trading Day (as defined below) period ending five Trading
Days prior to the Effective Time on Continental's 8 7/8% Senior Debentures due
2005; provided, however, that such rate shall equal 50 basis points over such
average yield if, between November 18, 1994 and the Effective Time, Continental
issues in excess of $1,000,000,000 of capital stock. The average yield on such
Senior Debentures for the ten Trading Day period ending on March 31, 1995 was
9.53%. As a result, assuming the Effective Time occurred on March 31, 1995 and
that Continental did not issue in excess of $1,000,000,000 in capital stock
between November 18, 1994 and the Effective Time, dividends would accrue on the
Continental Series B Preferred Stock at an annual rate equal to 10.53%.
However, there can be no assurances that the actual dividend rate on the
Continental Series B Preferred Stock will be greater or less than 10.53%. Such
dividends (i) shall be payable semi-annually on the first day of June and
December in each year commencing on the first such date to occur after shares
of the Continental Series B Preferred Stock are issued pursuant to the Merger
Agreement (the "Issue Date"), (ii) shall be cumulative and (iii) shall accrue
on each share of Continental Series B Preferred Stock from the Issue Date,
whether or not declared by Continental's Board of Directors. Dividends payable
on the Continental Series B Preferred Stock for any period of less than a full
six months shall be computed on the basis of the actual number of days elapsed
and a 365-day year.
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Dividends paid on the shares of Continental Series B Preferred Stock (and on
any other series of Continental Preferred Stock ranking on a parity as to
dividends with the Continental Series B Preferred Stock) in an amount less than
the total amount of such dividends at the time payable on such shares shall be
made pro rata in proportion to the total amount of unpaid dividends then due
and payable on the Continental Series B Preferred Stock and such other series
of Continental Preferred Stock. The Continental Board of Directors shall fix a
record date, which shall be no more than 60 days prior to the date fixed for
payment, for the determination of holders of shares of Continental Series B
Preferred Stock entitled to receive payment of a dividend declared thereon. The
holders of Continental Series B Preferred Stock will be entitled to receive
payment of any such dividend before any payment of dividends is made to the
holders of Continental Common Stock or any other class or series of the capital
stock of Continental ranking junior to the Continental Series B Preferred Stock
in payment of dividends. The holders of Continental Series B Preferred Stock
shall not be entitled to receive any dividends or other distributions except as
described herein.
VOTING RIGHTS. Each share of Continental Series B Preferred Stock will be
entitled to one vote per share and to vote together as a single class with the
Continental Class A Common Stock on all matters voted on by holders of
Continental Class A Common Stock and any other class of capital stock of
Continental which votes as a single class with the Continental Class A Common
Stock; provided, however, that holders of Continental Series B Preferred Stock
will not be entitled to vote on any decrease or increase in the number of any
authorized shares of any class of the capital stock of Continental. If
Continental shall at any time or from time to time after the Issue Date declare
or pay any dividend on Continental Class A Common Stock in shares of
Continental Class A Common Stock, or effect a subdivision or combination or
consolidation of the Continental Class A Common Stock (other than by payment of
a dividend in shares of Continental Class A Common Stock) into a greater or
lesser number of shares of Continental Class A Common Stock without making an
identical subdivision, combination or consolidation of the outstanding shares
of Continental Series B Preferred Stock, then in each such case the number of
votes to which each share of Continental Series B Preferred Stock will be
entitled immediately after such event shall be adjusted by multiplying the
number of votes to which each such share was entitled immediately prior to such
event by a fraction, the numerator of which is the number of shares of
Continental Class A Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Continental Class A Common
Stock that were outstanding immediately prior to such event. In each case of
such an adjustment, Continental at its expense will promptly compute the
adjustment to be made in accordance with the preceding sentence to the voting
rights of the Continental Series B Preferred Stock and will promptly mail to
each holder of record of Continental Series B Preferred Stock notice of such
adjustment, which notice shall set forth (i) the computation described above,
(ii) the number of vote(s) per share to which each share of Continental
Series B Preferred Stock was entitled before giving effect to such adjustment,
and (iii) the number of vote(s) per share to which each share of Continental
Series B Preferred Stock will be entitled after giving effect to such
adjustment.
Adverse Amendment. The affirmative vote of at least a majority of the
Continental Series B Preferred Stock (or, if any other series of Continental
Preferred Stock would be similarly affected, the affirmative vote of at least a
majority of the voting power represented by the outstanding shares of
Continental Series B Preferred Stock and such other series of Continental
Preferred Stock, voting together as single class) will be necessary to change
by amendment to the Continental Restated Certificate the powers, preferences or
special rights of the Continental Series B Preferred Stock (and, if applicable,
the powers, preferences or special rights of such other series of Continental
Preferred Stock) so as to affect the Continental Series B Preferred Stock (or
such other series of Continental Preferred Stock) adversely.
Board Representation. Holders of Continental Series B Preferred Stock will
have the right (voting separately as a single class or as a class with the
holders of Continental Series A Preferred Stock and the holders of shares of
any other class of capital stock ranking on a parity, either as to dividends or
upon liquidation, dissolution or winding up, with the Continental Series B
Preferred Stock ("Parity Stock") if such holders are then entitled to elect
additional Directors pursuant to any similar provision of the Certificate of
Designation for such stock) to elect two Directors to the Continental Board of
Directors in the event of a failure by Continental to pay dividends or
distributions on a series of Continental Preferred Stock (including,
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without limitation, the dividends payable with respect to the Continental
Series B Preferred Stock, as described under the caption "Dividends" above),
for three consecutive semi-annual periods (provided, however, that if such
Directors would represent more than 25% of the total number of Directors of
Continental, then such stockholders shall have the right to elect only one
Director Upon Default). Such right to elect Directors Upon Default will
continue until such time as Continental has cured the default, at which time
such Directors Upon Default will no longer be Directors of Continental;
provided, however, that the right of the holders of Continental Series B
Preferred Stock to elect Directors Upon Default shall revest in the event of
each and every subsequent failure of Continental to pay dividends or
distributions on the Continental Series B Preferred Stock and all other Series
of Continental Preferred Stock for three consecutive semi-annual periods.
In case any vacancy shall occur among the Directors Upon Default, such
vacancy may be filled for the unexpired portion of the term by vote of the
remaining Director Upon Default (if there is a remaining Director), or such
Director Upon Default's successor in office. If any such vacancy is not so
filled within 20 days after the creation thereof, or (if applicable) if both
Directors Upon Default shall cease to serve as Directors before their terms
shall expire, the holders of the Continental Series B Preferred Stock or the
holders of Continental Series B Preferred Stock and the holders of any other
series of Continental Preferred Stock which, together with the holders of the
Continental Series B Preferred Stock, elected such Directors Upon Default then
entitled to vote for such Directors may, by written consent or at a special
meeting of such holders called as provided in the Series B Certificate of
Designation, elect successors to hold office for the unexpired terms of the
Directors Upon Default whose places shall be vacant. Any Director Upon Default
may be removed from office with or without cause by the vote or written consent
of the holders of at least a majority of the voting power represented by the
outstanding shares of Continental Series B Preferred Stock and the Parity Stock
which, together with the holders of the Continental Series B Preferred Stock,
elected such Directors Upon Default.
MEETINGS, QUORUM, ETC. The special voting rights of holders of Series B
Preferred Stock described in "Adverse Amendments" and "Board Representation"
may be exercised at any annual or special meeting of the stockholders of
Continental or by written consent. So long as such right to vote continues
(unless action has been taken pursuant to written consent), the Chairman of the
Board of Directors may call, and upon the written request addressed to the
Secretary of Continental of holders of record of at least 20% of the voting
power represented by the Continental Series B Preferred Stock and such other
series of Continental Preferred Stock, if any, entitled to vote on such matter,
the Chairman of the Board shall call, a special meeting of such holders in
order to exercise such rights. The special meeting must be held within 30 days
after the delivery of such request to the Secretary. At any such annual or
special meeting at which the holders of the Continental Series B Preferred
Stock are to vote as a separate class or as a class with such other series of
Continental Preferred Stock, the presence in person or by proxy of the holders
of record of one-third of the voting power represented by the Continental
Series B Preferred Stock and such other series of Continental Preferred Stock
shall constitute a quorum for purposes of the actions to be taken by the
holders of Continental Series B Preferred Stock and such other series of
Continental Preferred Stock.
If the holders of Continental Series B Preferred Stock are to vote as a class
with the holders of any other series of Continental Preferred Stock as to any
matter described under "Adverse Amendments" and "Board Representation", (i)
each holder of Continental Series B Preferred Stock and such other series of
Continental Preferred Stock which is not convertible into Continental Common
Stock shall have one vote per share and (ii) each holder of a share of such
other series of Continental Preferred Stock which is convertible into
Continental Common Stock shall have the number of votes as may be cast by the
holder of the number of shares of Continental Common Stock into which such
share of Continental Preferred Stock is then convertible.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of
Continental, no distribution shall be made (i) to the holders of shares of any
capital stock of Continental ranking junior, either as to dividends or upon
liquidation, distribution or winding up, to the Continental Series B Preferred
Stock
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("Junior Stock") unless, prior thereto, the holders of shares of Continental
Series B Preferred Stock shall have received $19.40 with respect to each share
of Continental Series B Preferred Stock together with all unpaid dividends
thereon, whether or not declared, to the date of such liquidation, dissolution
or winding up, or (ii) to the holders of shares of Parity Stock, except
distributions made ratably on all such Parity Stock and the Continental Series
B Preferred Stock in proportion to the total amounts to which the holders of
all shares of such Parity Stock and the Continental Series B Preferred Stock
are entitled upon such liquidation, dissolution or winding up. Upon any such
liquidation, dissolution or winding up of Continental, after the holders of the
Continental Series B Preferred Stock shall have been paid in full the amounts
to which they shall be entitled, the remaining net assets of Continental shall
be distributed to the holders of Junior Stock, and the holders of Continental
Series B Preferred Stock shall not be entitled to participate in such
distribution. Neither the consolidation, merger or other business combination
of Continental with or into any other person or entity nor the sale of all or
substantially all of the assets of Continental shall be deemed to be such a
liquidation, dissolution or winding up.
REDEMPTION RIGHTS. At any time after the fifth anniversary of the Issue Date,
by written notice delivered to the record holders of the Continental Series B
Preferred Stock, Continental, at its sole option, may elect to redeem, in whole
or from time to time in part, the shares of Continental Series B Preferred
Stock held by such holders at a price per share equal to $19.40 (the "Stated
Amount") plus (i) an amount per share equal to all unpaid dividends thereon,
whether or not declared, to the date of redemption and (ii) if applicable, a
premium equal to (a) if redeemed prior to the sixth anniversary of the Issue
Date, 2% of the Stated Amount, and (b) if redeemed on or after the sixth
anniversary date and prior to the seventh anniversary date of the Issue Date,
1% of the Stated Amount, and (c) if redeemed on or after the seventh
anniversary date of the Issue Date, 0% of the Stated Amount (the "Series B
Redemption Price"). Notice of such redemption of shares of Continental Series B
Preferred Stock shall be mailed at least 30, but not more than 60, Trading Days
(as defined below) prior to the date fixed for redemption to each record holder
of shares of Continental Series B Preferred Stock to be redeemed, at such
holder's address as it appears on the transfer books of Continental. If at any
time less than all of the shares of Continental Series B Preferred Stock then
outstanding are to be redeemed, the shares so to be redeemed may be selected
(I) by lot, (II) on a pro rata basis among the holders of all such shares, or
(III) in such other manner as the Continental Board of Directors in its sole
discretion may determine to be fair and equitable. The term "Trading Day", as
defined in the Series B Certificate of Designation, means a day on which the
principal national securities exchange on which the Continental Class A Common
Stock is listed or admitted to trading is open for the transaction of business
or, if the Continental Class A Common Stock is not listed or admitted to
trading on any national securities exchange, a business day.
In addition, on the tenth anniversary of the Issue Date and on each such
anniversary date thereafter so long as any shares of Continental Series B
Preferred Stock are outstanding, any holder of the Continental Series B
Preferred Stock will have the right to cause Continental to redeem any or all
of its shares of Continental Series B Preferred Stock at a price per share
equal to the Series B Redemption Price. Pursuant thereto, not more than 60 nor
less than 30 Trading Days prior to any such anniversary date, Continental shall
give notice (the "Redemption Notice") to each record holder of shares of
Continental Series B Preferred Stock, at such holder's address as it appears on
the transfer books of Continental, that each holder has the right to require
Continental to redeem any or all shares of Continental Series B Preferred Stock
held by such holder at a price per share equal to the Series B Redemption
Price. The notice shall also specify the redemption date (which date shall be
not more than 60, nor less than 45, days from the date of such notice) and the
procedures to be followed by such holder in exercising such holder's right to
cause such redemption and to receive payment of the Series B Redemption Price
(if such holder elects to cause such redemption). Failure by Continental to
give the Redemption Notice, or the formal insufficiency of any such notice,
shall not prejudice the rights of any holder of shares of Continental Series B
Preferred Stock to cause Continental to redeem any such shares held by such
holder. If a record holder of shares of Continental Series B Preferred Stock
shall elect to require Continental to redeem any or all such shares of
Continental Series B Preferred Stock in the manner provided in this paragraph,
such holder shall deliver, within 30 days of the mailing to such holder of the
Redemption Notice, or, if no Redemption Notice is given, within 30 days
following the
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last day Continental was required to give a Redemption Notice in accordance
with the terms of the Series B Certificate of Designation (in which case the
date of redemption shall be the date which is 45 business days following the
last day Continental was required to give such notice), a written notice, in
the form specified by Continental (if Continental did in fact give the required
Redemption Notice), to Continental stating such election and specifying the
number of shares to be so redeemed. Continental shall redeem the number of
shares so specified on the date fixed for redemption in accordance with the
provisions of the Series B Certificate of Designation.
Continental, at its sole option, may satisfy its obligation to pay all or any
portion of the Series B Redemption Price for any redemption of the Continental
Series B Preferred Stock described above by making an election on or prior to
the date set for redemption to issue shares of Continental Class A Common Stock
in respect of all or any portion of the Series B Redemption Price. Such
election shall be set forth in a certificate signed on behalf of Continental by
the Chairman of the Board, the Vice Chairman of the Board, the President or any
Vice President of Continental and delivered to the Secretary of Continental and
shall be deemed to have been made on the date on which such certificate is
delivered to the Secretary. Notice of such election and of the portion of the
Series B Redemption Price as to which such election was made shall be given to
the holders of the Continental Series B Preferred Stock by Continental promptly
upon making such election. The number of shares of Continental Class A Common
Stock to be issued pursuant thereto shall be determined by dividing the Series
B Redemption Price per share of Continental Series B Preferred Stock (or
portion thereof to be paid in shares of Continental Class A Common Stock) by
the Current Market Price (as defined below) of a share of Continental Class A
Common Stock valued, if the Continental Class A Common Stock is not publicly
traded, on the date of redemption or, if the Continental Class A Common Stock
is publicly traded, for the period of 15 Trading Days ending two Trading Days
prior to the date of redemption (the "Base Price"). The term "Current Market
Price", as defined in the Series B Certificate of Designation in relation to
the Continental Class A Common Stock, means (i) if the Continental Class A
Common Stock is publicly held, the closing price per share of Continental Class
A Common Stock on any date in question and, when used with reference to shares
of Continental Class A Common Stock for any period, shall mean the average of
the daily closing prices per share of Continental Class A Common Stock for such
period (the calculation of the closing price for any day will vary depending
upon whether there has been a sale on such date and depending upon the national
securities exchange, if any, on which the Continental Class A Common Stock is
listed, all as is more fully set forth in the Series B Certificate of
Designation) or (ii) if the Continental Class A Common Stock is not publicly
held or so listed or publicly traded, the amount determined by investment
bankers mutually agreeable to Continental and the holders of a majority of the
outstanding shares of Continental Series B Preferred Stock to be equal to the
net proceeds that would be expected to be received by a holder of Continental
Class A Common Stock from the sale of a share of Continental Class A Common
Stock in an underwritten public offering after being reduced by pro forma
expenses and underwriting discounts.
In connection with any such redemption, unless, in the reasonable
determination of Continental, the exchange of shares of Continental Class A
Common Stock for Continental Series B Preferred Stock is exempt from the
registration requirements of the Securities Act, Continental shall register
such exchange under such Act, and such exchange shall not be completed until
such registration is effective.
No fractional shares of Continental Class A Common Stock shall be issued upon
any exchange of shares of Continental Series B Preferred Stock redeemed as
described above. In lieu thereof, Continental shall pay a cash adjustment equal
to such fractional interest multiplied by the Base Price. If more than one
share of Continental Series B Preferred Stock shall be surrendered for exchange
by the same holder, the number of full shares of Continental Class A Common
Stock issuable upon exchange thereof shall be computed on the basis of the
total number of shares of Continental Series B Preferred Stock so surrendered.
In case Continental shall at any time or from time to time after the Issue
Date effect a capital reorganization, reclassification, subdivision,
combination or consolidation of outstanding shares of Continental Common Stock
(other than by payment of a dividend in shares of Continental Common Stock)
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so that, after giving effect to such capital reorganization, reclassification,
subdivision, combination or consolidation, Continental shall no longer have
authorized shares of Continental Class A Common Stock, Continental shall be
entitled, at its sole option and in lieu of shares of Continental Class A
Common Stock, to issue shares of voting Continental Common Stock which, at such
time, have the fewest votes per share as compared to other classes of voting
Continental Common Stock in payment of all or any portion of the Series B
Redemption Price.
On the date of any redemption of the Continental Series B Preferred Stock,
Continental shall, and at any time before the date of redemption, may: (i)
deposit for the benefit of the holders of shares of Continental Series B
Preferred Stock to be redeemed the funds and/or shares of Continental Class A
Common Stock, as applicable, necessary for such redemption with a bank or trust
company in the Borough of Manhattan, the City of New York, or in the City of
Boston, in either case having a capital and surplus of at least $50,000,000; or
(ii) if Continental so elects, segregate and hold in trust for the benefit of
the holders of shares of Continental Series B Preferred Stock to be redeemed
the funds and/or shares of Continental Class A Common Stock, as applicable,
necessary for such redemption. Any moneys and/or shares so deposited or
segregated and held in trust by Continental and unclaimed at the end of two
years from the date designated for such redemption shall be released from any
such deposit or trust and revert to the general funds of Continental. After
such reversion, any such bank or trust company shall, upon demand, pay over to
Continental such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof and any holder of
shares of Continental Series B Preferred Stock to be redeemed shall look only
to Continental for the payment of the Series B Redemption Price. Any interest
and/or shares accrued on such funds and/or such shares deposited shall be paid
from time to time to Continental for its own account. Upon the deposit or
segregation in trust of such funds and/or such shares, notwithstanding that any
certificates for such shares shall not have been surrendered for cancellation,
from and after the date of redemption designated in the notice of redemption
(or, if no such notice is given by Continental, the date of redemption), (i)
the shares represented thereby shall no longer be deemed outstanding, (ii) the
rights to receive dividends thereon shall cease to accrue and (iii) all rights
of the holders of shares of Continental Series B Preferred Stock to be redeemed
shall cease and terminate, excepting only the right to receive the Series B
Redemption Price therefor.
CONVERSION. The Continental Series B Preferred Stock will not be convertible
into any other securities of Continental, provided, however, that Continental
may elect to satisfy its redemption obligations with respect to the Continental
Series B Preferred Stock with shares of Continental Class A Common Stock. (See
"Redemption Rights" above.)
RESTRICTIONS ON CONTINENTAL. If any dividends or distributions payable on the
Continental Series B Preferred Stock have not been paid in full then, until
such time as all such unpaid dividends or distributions shall have been paid in
full or declared and set aside for payment, without the consent of either (i)
not less than a majority of the shares of Continental Series B Preferred Stock
then outstanding, or (ii) if dividends or distributions on any other class or
series of Continental Preferred Stock are not then paid in full and the consent
of the holders of such class or series is required for Continental to take any
of the actions set forth below, not less than a majority of the voting power
represented by shares of Continental Series B Preferred Stock and such other
series of Continental Preferred Stock, voting together as a single class,
Continental may not (i) declare or pay dividends or make any other
distributions on the Continental Common Stock or on any Junior Stock or Parity
Stock (other than (x) dividends or distributions payable in Continental Common
Stock or in any other capital stock of Continental ranking junior (both as to
dividends and upon liquidation, dissolution or winding up) to the Continental
Series B Preferred Stock or (y) dividends paid pro rata on Continental Series B
Preferred Stock and Parity Stock in accordance with the second paragraph of
"Dividends" above), or (ii) redeem, purchase or otherwise acquire for
consideration any shares of Junior Stock or Parity Stock pursuant to any
mandatory redemption, put, sinking fund or other similar obligation; provided,
however, that Continental may at any time (a) redeem, purchase or otherwise
acquire shares of Junior Stock or Parity Stock in exchange for shares of
Continental Common Stock or for other capital stock of Continental ranking
junior (both as to dividends and upon liquidation, dissolution or winding up)
to the
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Continental Series B Preferred Stock, and (b) accept shares of Junior Stock or
Parity Stock for conversion. As a result, Continental's obligations under the
1998-1999 Share Repurchase Program would be junior to any arrearage on
dividends to be paid on the Continental Series B Preferred Stock existing at
the time Continental repurchases shares of Continental Common Stock pursuant to
the 1998-1999 Share Repurchase Program. Continental will not permit any of its
subsidiaries to purchase or otherwise acquire for consideration any shares of
capital stock of Continental unless Continental could purchase such shares
without violation of the restrictions described in this paragraph.
RANKING WITH OTHER PREFERRED STOCK; LISTING. The Continental Series B
Preferred Stock shall, with respect to dividend rights and rights on
liquidation, dissolution or winding up, rank pari passu with the Continental
Series A Preferred Stock and prior to all classes of Continental Common Stock.
Continental has agreed to use its reasonable best efforts to cause the shares
of Continental Series B Preferred Stock to be approved for listing on NASDAQ or
on a national securities exchange upon issuance thereof.
MERGER OR SALE OF CONTINENTAL. If at any time there shall be a merger or
consolidation of Continental with or into another person or entity such that
Continental is not the surviving corporation of such merger or consolidation,
or a sale of all or substantially all of the assets of Continental to any other
person or entity (either, a "Preferred Extraordinary Transaction"), then, as
part of such Preferred Extraordinary Transaction and at the election of
Continental, either: (i) the successor entity resulting from such Preferred
Extraordinary Transaction shall issue or deliver to each holder of Continental
Series B Preferred Stock either (a) certificates representing shares of
preferred stock of such successor entity of a class or series having
substantially similar terms as those of the Continental Series B Preferred
Stock in exchange for such holders' shares of Continental Series B Preferred
Stock, or (b) such shares of stock, securities or other assets of such
successor entity to which the holders of Continental Series B Preferred Stock
would have been entitled pursuant to such Preferred Extraordinary Transaction
if, immediately prior thereto, each share of Continental Series B Preferred
Stock had been redeemed by Continental with shares of Continental Class A
Common Stock (as described under "Redemption Rights" above); or (ii)
immediately prior to the consummation of such Preferred Extraordinary
Transaction, Continental shall redeem all, but not less than all, of the shares
of Continental Series B Preferred Stock then outstanding in the manner
described above under the caption "Redemption Rights".
DGCL AND CERTAIN PROVISIONS OF THE CONTINENTAL RESTATED CERTIFICATE AND THE
CONTINENTAL BY-LAWS
The Continental Restated Certificate and the Continental By-Laws contain
certain provisions that could delay or make more difficult the acquisition of
Continental by means of a tender offer, a proxy contest or otherwise. These
provisions, as described below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of Continental first to negotiate with
Continental. Continental believes that the benefits of increased protection of
Continental's potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure Continental
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiations with respect to such proposals could result in an
improvement of their terms.
CLASSIFIED BOARD OF DIRECTORS. The Continental Restated Certificate and the
Continental By-Laws provide for a Board of Directors that is divided into three
classes of Directors, with the term of each class expiring in a different year.
(See "Description of Continental--Directors, Executive Officers and Other
Officers of Continental".) The Continental By-Laws provide that the number of
Directors will be fixed from time to time exclusively by the Continental Board,
but shall consist of not less than three Directors. The classified Board is
intended to promote continuity and stability of Continental's management and
policies since a majority of the Directors at any given time will have prior
experience as Directors of Continental. Such continuity and stability
facilitates long-range planning of Continental's business and ensures the
quality of Continental's business operations. The classification of Directors
has the effect of making it more difficult to change the composition of the
Continental Board of Directors. At least two annual stockholder meetings,
instead of one, would be required to effect a change in the majority control of
the Continental Board, except
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in the event of vacancies resulting from removal (in which case the remaining
Directors will fill the vacancies so created). (See "Removal of Directors;
Filling Vacancies on the Continental Board of Directors".)
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE CONTINENTAL BOARD OF
DIRECTORS. Pursuant to the DGCL, a member of the Board of Directors of a
corporation with a classified board may be removed by the stockholders only for
cause, at any time during his term of office by affirmative vote of the holders
of a majority of the shares then entitled to vote at an election of Directors.
The Continental By-Laws and the Continental Restated Certificate both provide
that a vacancy on the Continental Board, including a vacancy created by an
increase in the size of the Continental Board by the Directors, may be filled
by a majority of the remaining Directors or by a sole remaining Director, and
if no Directors remain, then by the stockholders. The Continental Restated
Certificate also provides that any Director elected by the Continental Board to
replace another Director of a given class of Directors will hold office until
the next election of such class of Directors. These provisions are to ensure
that a third-party would be precluded from removing incumbent Directors and
simultaneously gaining control of the Continental Board by filling the
vacancies created by such removal with its own nominees. Moreover, even if a
majority of the holders of the outstanding Continental voting securities were
to vote to remove Directors for cause, only the remaining Directors would have
the power to fill the vacancies created by such removal, unless such vote
provided for the removal of the entire Continental Board of Directors for
cause.
AMENDMENT OF CERTAIN PROVISIONS OF THE CONTINENTAL RESTATED CERTIFICATE AND
THE CONTINENTAL BY-LAWS. The Continental Restated Certificate and the
Continental By-Laws contain provisions requiring the affirmative vote of the
holders of at least 66 2/3% of the Continental voting securities (including,
after the Merger, the Continental Series B Preferred Stock), voting together as
a single class, to amend certain provisions of the Continental Restated
Certificate and the Continental By-Laws. In addition to the provisions
described under "Continental Common Stock--Voting Rights" above, this super-
majority voting provision also applies to (i) the provisions of the Continental
Restated Certificate authorizing Continental to release the Directors of
Continental from any liability for monetary damages as a result of any breach
of their fiduciary duties, with certain exceptions mandated by the DGCL, (ii)
the provisions allowing for the indemnification of officers and Directors of
Continental, and (iii) the provisions imposing certain restrictions on
Continental's stock to prevent any violations of governmental regulations.
Finally, the Continental Restated Certificate provides that the Continental By-
Laws may be amended only by a majority of the full Continental Board of
Directors or by the holders holding at least 66 2/3% of the total votes of all
outstanding Continental voting securities (including, after the Merger, the
Continental Series B Preferred Stock). The DGCL provides that By-Laws may not
be amended by a corporation's Board of Directors unless the corporation's
certificate of incorporation expressly authorizes such amendments by the Board
of Directors; the Continental Restated Certificate includes such a provision.
PROVISIONS RELATING TO GOVERNMENTAL REGULATIONS. The Continental Restated
Certificate includes provisions designed to insure that the ownership or
purchase of Continental's shares in the public market or otherwise will not
result in a violation of any laws or regulations that would materially
adversely affect Continental's business. Specifically, Continental may seek
information from stockholders and persons to whom shares of Continental's
capital stock are proposed to be transferred in order to ascertain whether
ownership of Continental's shares by such persons would violate such laws or
regulations. If any person refuses to provide such information or Continental
concludes in its good faith judgment that such ownership would result in the
violation of such laws and regulations, Continental may (a) refuse to transfer
shares to such person, (b) refuse to allow such stockholder to exercise such
rights with respect to Continental's shares as would result in such violation
or (c) redeem such shares for cash or certain other securities, as provided in
the Continental Restated Certificate.
Continental may redeem shares of Continental's capital stock to the extent
necessary to prevent the loss or secure the reinstatement of any license or
franchise from any governmental agency held by Continental to
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conduct any material portion of Continental's business in accordance with the
terms that are summarized in general as follows:
(1) the redemption price of the price of the shares to be redeemed would
be equal to the lesser of (x) fair market value (as defined in the
Continental Restated Certificate) or (y) if such stock was purchased by the
stockholder within one year of the redemption date, then the price such
stockholder paid for such shares;
(2) the redemption price of such shares may be paid in cash, or certain
securities of Continental, or any combination thereof; and
(3) Continental shall give thirty (30) days' written notice of such
redemption.
Each certificate representing shares of Continental Preferred Stock,
Continental Class A Common Stock and Continental Class B Common Stock must bear
a legend indicating that the shares are subject to these restrictions on their
transfer.
ANTI-TAKEOVER STATUTE. Subject to certain exceptions set forth therein,
Section 203 of the DGCL provides that a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the date that such stockholder becomes an interested stockholder
unless (a) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder, (b) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares) or (c) on or subsequent to such date, the business combination
is approved by the Board of Directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Except as specified therein, an interested
stockholder is defined to mean any person that (i) is the owner of 15% or more
of the outstanding voting stock of the corporation, or (ii) is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date, and the affiliates and associates of
such person referred to in (i) or (ii) of this sentence. Under certain
circumstances, Section 203 of the DGCL makes it more difficult for an
interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may, by adopting
an amendment to the corporation's certificate of incorporation or by-laws,
elect not to be governed by this section, effective twelve months after
adoption. The Continental Restated Certificate and the Continental By-Laws do
not exclude Continental from the restrictions imposed under Section 203 of the
DGCL. It is anticipated that the provisions of Section 203 of the DGCL may
encourage companies interested in acquiring Continental to negotiate in advance
with the Continental Board.
TRANSFER AGENT
The Bank of New York will serve as the Transfer Agent and Registrar for the
Continental Class A Common Stock and the Continental Series B Preferred Stock.
CONTINENTAL SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the consummation of the Merger, giving effect to the Continental
Recapitalization Amendment and the Continental Stock Split, there will be
36,895,209 shares of Continental Class A Common Stock, 109,289,675 shares of
Continental Class B Common Stock, 1,142,858 shares of Continental Series A
Preferred Stock and 4,987,113 shares of Continental Series B Preferred Stock
outstanding.
Of these shares, the 28,260,309 shares of Continental Class A Common Stock
and the 4,987,113 shares of Continental Series B Preferred Stock (otherwise
referred to collectively as the Continental Merger Stock)
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registered and sold to the Providence Journal stockholders pursuant to the
Continental Registration Statement will be freely tradeable without restriction
or registration under the Securities Act, except for shares of Continental
Merger Stock issued to current "affiliates" of Providence Journal, which must
be sold in accordance with the provisions of Rule 145 promulgated under the
Securities Act. (See "Rule 144 and 145 Restrictions" below.)
The remaining shares of Continental Class A Common Stock, all of the shares
of Continental Class B Common Stock and all of the shares of Continental Series
A Preferred Stock outstanding are "restricted securities", as that term is
defined in Rule 144 promulgated under the Securities Act. Only the Continental
Class A Common Stock and the Continental Series B Preferred Stock will be
listed and traded in the public market. Treating the Continental Class B Common
Stock and the Continental Series A Preferred Stock as if all outstanding shares
thereof were converted into Continental Class A Common Stock, (i) there would
be 143,444,475 shares of restricted Continental Class A Common Stock
outstanding (excluding any unvested shares granted as part of incentive
compensation to officers of Continental and its subsidiaries) and, (ii) of such
shares, (x) immediately following the Registration Effective Date, 45,383,450
shares would be eligible for sale in the public market without regard to volume
or other limitations pursuant to Rule 144(k) of the Securities Act and (y)
beginning 90 days after the Registration Effective Date, 93,910,000 shares
would be eligible for sale, subject to compliance with volume and other
limitations under Rule 144. The remaining shares of currently outstanding
Continental Class A Common Stock or shares of Continental Class A Common Stock
issuable upon currently outstanding convertible securities would become
eligible for sale at various times thereafter.
RULE 144 AND 145 RESTRICTIONS
Restricted securities may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including Rule 144. In general, under Rule 144 as currently in
effect, beginning 90 days after the Registration Effective Date, a person (or
persons whose shares are required to be aggregated) who has beneficially owned
shares of Continental Common Stock or shares of Continental Series A Preferred
Stock (which is convertible into shares of Continental Common Stock) that have
been outstanding and not held by any "affiliate" of Continental for a period of
at least two years is entitled to sell within any three-month period a number
of shares that does not exceed the greater of (a) one percent of the then
outstanding shares of the Continental Class A Common Stock (approximately
368,952 shares, based on the number of shares of Continental Common Stock that
will be outstanding after the Merger), or (b) the average weekly reported
trading volume of the Continental Class A Common Stock during the four calendar
weeks preceding the date on which notice of such sale is given, subject to
certain manner of sale provisions, notice requirements and the availability of
current public information (which requirement as to the availability of current
public information is expected to be satisfied commencing 90 days after the
date of this Joint Proxy Statement-Prospectus). As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly, through the
use of one or more intermediaries controls, or is controlled by, or is under
common control with, such issuer.
Affiliates of Continental are also subject to the restrictions and
requirements of Rule 144 with respect to restricted securities of Continental
beneficially owned by them. In addition, sales of shares of Continental Common
Stock that are not "restricted securities" by affiliates of Continental (such
as shares acquired by affiliates in the public market following the Merger) are
subject to the Rule 144 restrictions and requirements, other than the two-year
holding period requirement.
Under Rule 144(k), a person who is not an affiliate of Continental at any
time during the three months preceding a sale, and who has beneficially owned
shares of Continental Common Stock that were not acquired from Continental or
an affiliate of Continental within the previous three years, is entitled to
sell such shares without regard to volume limitations, manner of sale
provisions, notification requirements or the availability of current public
information concerning Continental.
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The shares of Continental Class A Common Stock and Continental Series B
Preferred Stock issued and sold pursuant to the Continental Registration
Statement in connection with the Merger are registered securities, and thus not
restricted securities. Non-affiliates of Providence Journal will be able to
freely sell the Continental Merger Stock after the Merger in the public market,
subject only to any lock-up, standstill or other contractual restrictions to
which such holders may agree.
Persons who are currently affiliates of Providence Journal and who are not
affiliates of Continental, for two years after the Effective Time, may only
sell the Continental Merger Stock pursuant to the Rule 144 volume limitations,
manner of sale provisions, notification requirements and requirements as to
current public information concerning Continental. For the period from two
years after the Effective Time until three years after the Effective Time, such
persons are subject only to the Rule 144 requirement as to current public
information regarding Continental. After three years, such persons may sell
their shares of Continental Merger Stock freely.
Persons who are currently affiliates of Providence Journal and will become
affiliates of Continental after the Merger are subject to the same Rule 144
requirements as an affiliate of Continental with respect to non-restricted
shares, except that no notification of sale is required to be filed with
respect to such shares. (See "Description of Continental--Directors, Executive
Officers and Other Officers of Continental" for a description of the rights of
Providence Journal to appoint two persons to serve on the Board of Directors of
Continental.)
RULE 701
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
an exemption from the registration requirements of the Securities Act for the
resale of shares originally purchased from an issuer by its employees,
directors, officers, consultants or advisers pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such persons
before such issuer becomes subject to the reporting requirements of the
Exchange Act. Securities issued in reliance on Rule 701 are "restricted";
however, beginning 90 days after the Registration Effective Date, such shares
may be sold (i) by persons other than affiliates of Continental subject only to
the manner of sale provisions of Rule 144 and (ii) by affiliates of Continental
under Rule 144 without compliance with its two-year minimum holding period
requirements, but subject to all other requirements of Rule 144.
In January 1995, Continental issued 2,368,750 shares of Continental Class B
Common Stock to certain of its officers and employees pursuant to its 1995
Restricted Stock Purchase Program V, including 832,500 shares to persons deemed
to be affiliates of Continental and 1,536,250 shares to non-affiliates of
Continental. Such shares are subject to vesting over a period of seven years at
6-month intervals, beginning on June 30, 1995. The vesting is not straight-line
and commences slowly, peaks in the middle years of the vesting schedule and
then slows again at the end of the vesting schedule. These shares of
Continental Class B Common Stock are convertible into shares of Continental
Class A Common Stock and may be sold in reliance on Rule 701 once they vest.
OUTSTANDING REGISTRATION RIGHTS
Certain persons and entities (the "Continental Rightsholders") are entitled
to certain rights with respect to the registration under the Securities Act of
a total of 1,760,499 shares of Continental Common Stock (which is equivalent to
44,012,475 shares of Continental Common Stock after giving effect to the
Continental Recapitalization Amendment and the Continental Stock Split and
assuming conversion of the Continental Series A Preferred Stock into
Continental Common Stock) (the "Registrable Shares") under the terms of
agreements among Continental and the Continental Rightsholders (the
"Registration Agreements"). The Continental Preferred Stock Investors have the
right to request that Continental register the 1,142,858 shares of Continental
Series A Preferred Stock outstanding or the Continental Common Stock into which
the Continental Series A Preferred Stock is convertible upon five occasions,
with Continental paying certain
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expenses of such registration upon four occasions. The Boston Ventures
Investors have the right to request that Continental register the 300,563
shares of Continental Class A Common Stock (which is equivalent to 7,514,075
shares after giving effect to the Continental Recapitalization Amendment and
the Continental Stock Split) shares of Continental Common Stock that they own
or would own upon conversion, upon two occasions, certain expenses of which are
to be paid by Continental. The other purchasers who purchased Continental Class
B Common Stock at the same time as the Boston Ventures Investors do not have
the right to demand registration; however they have the right to participate
with respect to 168,712 shares (which is equivalent to 4,217,800 shares after
giving effect to the Continental Recapitalization Amendment and the Continental
Stock Split) in any registration requested by the Continental Preferred Stock
Investors or the Boston Ventures Investors. Each of the Registration Agreements
also provides that in the event Continental proposes to register any of its
securities under the Securities Act for its own account or upon the demand of a
Continental Rightsholder, the Continental Rightsholders shall be entitled, with
certain exceptions, to include Registrable Shares in such registration, unless
the managing underwriters of such offering recommended excluding for marketing
reasons some or all of such Registrable Shares from such registration.
In addition to the rights of the Continental Rightsholders described above,
MD Co. has the right to demand registration of the shares of Continental Class
A Common Stock into which the 148,366 shares (which is equivalent to 3,709,150
shares after giving effect to the Continental Recapitalization Amendment and
the Continental Stock Split) of Continental Class B Common Stock held by it are
convertible; however, such rights do not continue after an initial public
offering of Continental Class A Common Stock and, therefore would not exist
after the consummation of the Merger. MD Co. does have rights which survive the
Merger to participate, in certain circumstances, in registrations; however, its
rights are junior in priority to those of the Continental Preferred Stock
Investors, the Boston Ventures Investors and the other investors who purchased
shares of Continental Class B Common Stock in a private placement. Continental
is required to use its best efforts to effect such registrations, subject to
certain conditions and limitations.
Prior to the Effective Time, there will be no public market for the
Continental Class A Common Stock and no predictions can be made as to the
effect, if any, that market sales of shares or the availability of shares for
sale will have on the market price for the Continental Class A Common Stock
prevailing from time to time. Sales of substantial amounts of Continental Class
A Common Stock in the public market could adversely affect prevailing market
prices.
DESCRIPTION OF CONTINENTAL INDEBTEDNESS
The following is a summary description of the various material credit
arrangements which Continental has entered into with its lenders. The summary
does not purport to be complete and is qualified in its entirety by reference
to such agreements. Copies of such agreements have been filed as exhibits or
are incorporated by reference as exhibits to the Continental Registration
Statement of which this Joint Proxy Statement-Prospectus forms a part.
"Restricted Subsidiaries" are subsidiaries that Continental has designated as
such for purposes of certain of Continental's credit arrangements, including
the 1994 Credit Facility. Restricted Subsidiaries as a group are subject to the
covenants and obligations imposed by the agreements representing such
indebtedness to the same extent as Continental, and their relevant financial
measures are taken into account in computing the various ratios and tests
imposed by such agreements. To be eligible for such designation, Continental or
one or more other Restricted Subsidiaries must own at least 80% of the voting
stock or the equity, partnership or other beneficial interests of such
subsidiary, and such subsidiary must conduct its business so as to derive its
revenues from the cable television or telecommunications businesses and related
activities. Upon designation, Restricted Subsidiaries typically become
guarantors of the obligations of Continental under the 1994 Credit Facility and
the Prudential Notes. All subsidiaries of Continental that currently own and
operate systems located in the United States have been designated Restricted
Subsidiaries.
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"Unrestricted Subsidiaries" are subsidiaries that have not been so designated
as Restricted Subsidiaries. The Unrestricted Subsidiaries are not currently
parties to any of Continental's credit agreements. Such agreements give
Continental the ability to terminate the designation of a Restricted Subsidiary
under certain circumstances.
1994 CREDIT FACILITY. Continental and its Restricted Subsidiaries (the
"Restricted Group") are parties to the 1994 Credit Facility with various
financial institutions (the "Credit Agreement Lenders"), which provides for
revolving credit availability to Continental of $2,200,000,000. Credit
availability under the 1994 Credit Facility will decrease on a schedule
commencing December 31, 1997 with annual reductions on each December 31
thereafter, with a final maturity of October 10, 2003. As of March 31, 1995,
Continental had credit availability of $662,550,000 under the 1994 Credit
Facility. Continental's obligations under the 1994 Credit Facility are
guaranteed by substantially all of the Restricted Subsidiaries. Continental
applied a portion of the borrowings under the 1994 Credit Facility to refinance
in their entirety (i) all amounts outstanding under the 1992 Credit Facility
and (ii) all amounts outstanding under the 12 7/8% Senior Subordinated
Debentures. (See "Description of Continental--Capitalization".)
The 1994 Credit Facility permits Continental to elect interest rates from
time to time, as to all or a portion of the borrowings made thereunder, which
rates are composed of two elements: (i) the reference rate and the (ii) margin
(or "spread") over such reference rate. The reference rate is, subject to
certain exceptions, based on the "base" rate of the agent, as from time to time
in effect, or may be fixed for periods of up to 60 months for each fixing by
reference to interest rates prevailing at the date of fixing in selected
interbank Eurodollar markets ("Eurodollar" rates). The "spread" over the
reference rate is determined by the ratio of the consolidated total debt of the
Restricted Group, minus cash and certain cash equivalents held by the
Restricted Group ("Consolidated Total Debt"), to annualized consolidated
operating income, including income on account of management fees, before
depreciation, amortization, non-cash regulatory reserves and non-operating
expenses, interest and income taxes of the Restricted Group ("Consolidated
Operating Income"). The margins currently in effect are .25% for base rate
borrowings and 1.5% for Eurodollar borrowings.
In accordance with the 1994 Credit Facility, Continental is required to
maintain a minimum of 50% of its debt at fixed interest rates when the ratio of
total debt to EBITDA exceeds certain levels. As of December 31, 1994,
Continental's ratio of fixed interest rate debt (which factors in Swaps, Caps
and debt fixed by its terms) to total debt was approximately 58%. Continental's
policy is to use interest rate protection products in order to hedge its
interest rate risk.
Swaps are matched with layers of either fixed or variable rate debt.
Continental accounts for outstanding Swaps on a settlement basis as an
adjustment to interest expense. Gains or losses resulting from the termination
of Swaps are amortized over the remaining life of the underlying debt or the
Swap, whichever is less. As of December 31, 1994 Continental had Swaps,
pursuant to which it pays fixed interest rates averaging 9.1% on notional
amounts of $800,000,000 (expiring in 1995 through 2000) and variable interest
rates on notional amounts of $1,575,000,000 (expiring in 1998 through 2003).
The variable interest rates are based on 6-month LIBOR, which currently is
approximately 6.4%. As of December 31, 1994, Continental had $800,000,000 of
Caps, which limit 6-month LIBOR to approximately 8%. Continental amortizes the
cost of a Cap over the life of the Cap agreement as an adjustment to interest
expense. Continental's exposure, if the other parties fail to perform under
both Swaps and Caps, would be limited to the impact of variable interest rate
fluctuations and the periodic settlement of amounts due under these agreements.
Prepayments of outstanding borrowings under the 1994 Credit Facility are
required in certain circumstances out of a portion of the proceeds of certain
sales of Restricted Group assets.
In addition to customary financial covenants, covenants restricting the
incurrence of debt, investments and encumbrances on assets, and covenants
limiting mergers and acquisitions, the 1994 Credit Facility provides that (i)
the Restricted Group may not purchase or redeem, or pay cash dividends on,
capital stock of Continental and (ii) a Restricted Subsidiary may not pay cash
dividends on its capital stock (other than
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dividends paid to Continental or another Restricted Subsidiary that is a
guarantor of Continental's obligations under the 1994 Credit Facility) if, at
the time of such payment and giving effect thereto, (i) there exists any
default under the 1994 Credit Facility (including defaults arising because of
the existence of defaults under other instruments relating to indebtedness) or
(ii) the aggregate of all amounts spent since June 30, 1994 for such
repurchases of and dividends on capital stock would exceed the sum of (a)
$400,000,000 plus (b) the excess, if any, of (I) Consolidated Operating Income
after June 30, 1994 over (II) 120% of consolidated interest expense (all
interest accruable or paid in cash by the Restricted Group, including payments
in the nature of interest under capitalized leases) incurred after that date,
plus (c) the aggregate net proceeds received by Continental since June 30, 1994
from the issuance or sale of capital stock of Continental. Approximately
$506,193,000 was available as of December 31, 1994 for payments subject to this
test. In addition to the foregoing limitations, Continental is prohibited from
paying cash dividends on its capital stock outstanding on October 17, 1994
until Continental has received in exchange for its capital stock, cash or
certain operating assets having an aggregate value (after deducting certain
underwriting discounts and expenses) of at least $100,000,000.
In addition to customary events of default it is an event of default under
the 1994 Credit Facility if Amos B. Hostetter, Jr., certain of his permitted
transferees and the other officers of Continental and its subsidiaries
(collectively, the "Management Group") fail to own at least 25% of the voting
power of Continental's capital stock; provided that such percentage may fall
below 25% after an offering and sale of capital stock of Continental so long as
the Management Group maintains a block of voting power larger than any block of
voting power held by any other person, together with such person's affiliates
and any members of a group with such person. After giving effect to the
issuance of Continental Class A Common Stock pursuant to the Merger,
Continental anticipates that the Management Group will hold greater than 25% of
the voting power of Continental's capital stock.
INDENTURES FOR NOTES AND DEBENTURES. Continental is currently party to
indentures for the following debt securities (collectively, the "Notes and
Debentures"):
(i) $300,000,000 of 9% Debentures due September 1, 2008; $100,000,000 of
8 5/8% Notes due August 15, 2003; $200,000,000 of 8 1/2% Notes due
September 15, 2001; and $275,000,000 of 8 7/8% Debentures due September 15,
2005 (collectively, the "Non-Callable Notes and Debentures"); and
(ii) the Prudential Notes; $300,000,000 of 11% Debentures due June 1,
2007; $100,000,000 of 10 5/8% Notes due June 15, 2002; $525,000,000 of 9
1/2% Debentures due August 1, 2013 and $100,000,000 of floating rate
Debentures (the "Floating Rate Debentures") (which currently bear interest
at a rate per annum equal to three-month LIBOR, adjusted quarterly, plus
300 basis points (collectively, the "Callable Notes and Debentures").
The Non-Callable Notes and Debentures are not redeemable at the option of
Continental prior to their maturity. At any time after, June 1, 1999 for the
11% Debentures, June 15, 1997 for the 10 5/8% Notes, and August 1, 2005 for the
9 1/2% Debentures, Continental may prepay all or any part of each such class of
securities at a premium (which differs for each class and which decreases on an
annual basis after the date on which a particular class becomes callable). The
Callable Notes and Debentures may be prepaid at the option of Continental at
any time, in whole or in part, at a premium.
The holders of each class of the Notes and Debentures are entitled to demand
prepayment of such securities, plus a premium (which differs for each class and
which decreases on an annual basis), if Continental, under certain defined
circumstances, proposes to (a) incur additional indebtedness or (b) repurchase
shares of its Continental Common Stock which are subject to the 1998-1999 Share
Repurchase Program. Such holders (other than holders of the Floating Rate
Debentures) are also entitled to demand prepayment, without a premium, if
Continental, in certain circumstances, proposes to redeem shares of its
Continental Series A Preferred Stock in connection with a change of control of
Continental. (See "Description of Continental Capital Stock".)
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Continental is required to prepay the principal amount of the Prudential
Notes on a semi-annual amortization schedule with a final principal repayment
of $17,500,000 due on July 1, 1999. Continental's obligations under the
Prudential Notes are guaranteed by substantially all of the Restricted
Subsidiaries. As of December 31, 1994, $150,000,000 in aggregate principal
amount of the Prudential Notes was outstanding.
The Floating Rate Debentures are subject to mandatory prepayments at the
election of the holders if, under certain circumstances, Amos B. Hostetter, Jr.
and certain of his permitted transferees fail to own, directly or indirectly,
at least 30% of Continental Common Stock. Upon a Change of Control Event, each
holder of the Floating Rate Debentures has the right to tender all, but not
less than all, of such holder's Floating Rate Debentures to Continental for
redemption at the principal amount thereof, plus (i) accrued interest and (ii)
certain other amounts relating to breakage costs and certain taxes. Continental
is required to give notice of the Change of Control Event and the right of the
holders to have their Floating Rate Debentures redeemed within 10 days of the
occurrence thereof by publishing a notice in certain specified newspapers to
that effect, which notice must include the date on which payment will be made
by Continental in respect of all Floating Rate Debentures tendered for
redemption (which must be at least 31 and no more than 60 days after the date
of Continental's notice). Any holder of Floating Rate Debentures who elects to
have its Floating Rate Debentures redeemed as a result of the Change of Control
Event must give notice to such effect to Continental within 30 days after
Continental's notice.
The indentures for the Notes and Debentures contain customary financial and
other covenants, as well as a restriction against the redemption or repurchase
of, or the payment of cash dividends on, the capital stock of Continental
similar to those contained in the 1994 Credit Facility, as described above.
Continental is currently in the process of arranging a new revolving credit
facility with a group of financial institutions (the "1995 Credit Facility").
Continental anticipates that the maximum credit availability of the 1995 Credit
Facility will be approximately $1,200,000,000 and that such facility will have
terms and conditions which are similar in certain respects to those contained
in the 1994 Credit Facility. Continental plans to use the proceeds from the
1995 Credit Facility to fund: (1) the $755,000,000 of New Cable Indebtedness,
(2) approximately $245,000,000 of cable system acquisitions in Michigan (see
"Capital Expenditures and Domestic Acquisitions") and (3) general corporate
purposes, which would include capital expenditures of the PJC Cable Business
after the Effective Time and of the Michigan cable systems after they have been
acquired. Continental anticipates closing the 1995 Credit Facility prior to the
Effective Time. There can be no assurance of the final terms and conditions of
the 1995 Credit Facility.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF PROVIDENCE JOURNAL AND CONTINENTAL
Continental and Providence Journal are incorporated in Delaware and Rhode
Island, respectively. Stockholders of Providence Journal, whose rights as
stockholders are currently governed by Rhode Island Law, the Providence Journal
Charter, and the Providence Journal By-Laws, upon consummation of the Plan of
Reorganization and the Merger will (in addition to being stockholders of New
Providence Journal), automatically become stockholders of Continental, holding
shares of Continental Class A Common Stock and Continental Series B Preferred
Stock, and, as stockholders of Continental, their rights will be governed by
the DGCL, the Continental Restated Certificate and the Continental By-Laws.
Although it is impractical to note all of the differences, the following is a
summary of certain material differences between the rights of holders of
Providence Journal Class A Common Stock and Providence Journal Class B Common
Stock on the one hand and those of holders of Continental Class A Common Stock
and Continental Series B Preferred Stock on the other. The following does not
purport to be a complete description of the differences between the rights of
Continental and Providence Journal stockholders. Such differences may be
determined in full by reference to the RIBCA, the DGCL, the Continental
Restated Certificate, the Providence Journal Charter, the respective
Continental and Providence Journal By-Laws and the Rights Agreement.
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RIGHTS TO PURCHASE OR REDEEM SHARES
PROVIDENCE JOURNAL. The Providence Journal Charter contains a provision
granting Providence Journal the right to purchase any shares offered by the
holder of such shares for sale to a third party at the lowest price at which
the holder is willing to sell such shares.
CONTINENTAL. The Continental Restated Certificate does not contain a similar
provision granting a right of first refusal with respect to third party
purchases of shares of its capital stock. However, the Continental Restated
Certificate includes provisions designed to ensure that the ownership or
purchase of shares of Continental's capital stock will not result in a
violation of laws or regulations. Specifically, Continental may redeem shares
to the extent necessary to prevent the loss or secure the reinstatement of any
license or franchise from any governmental authority at a price equal to the
lesser of (a) fair market value or (b) if the shares were purchased within one
year of the redemption date, the price paid for such shares.
REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATIONS
Both the RIBCA and the DGCL generally require approval of a merger,
consolidation, dissolution or sale of all or substantially all of a
corporation's assets by the affirmative vote of the holders of a majority of
the outstanding shares of stock of the corporation entitled to vote thereon. In
certain instances, a charter may require super-majority stockholder approval of
a transaction if it is a "Business Combination" as described below. In
addition, under Rhode Island Law, if any class of stock is entitled to vote
separately, approval of the plan of merger or consolidation, dissolution or
sale of all or substantially all assets also requires the affirmative vote of
the holders of a majority of the shares of each class of stock entitled to vote
as a class thereon. The DGCL, absent a charter provision to the contrary, does
not require such a class vote.
PROVIDENCE JOURNAL. Rhode Island Law provides that, unless the corporate
charter provides otherwise, the vote of the stockholders of a surviving
corporation is not required to approve a merger if (a) the plan of merger does
not amend the corporation's charter and (b) the number of shares of common
stock to be issued or transferred in the merger, plus the number of shares of
common stock into which any other securities to be issued in the merger are
convertible within one year, does not exceed one-third of the total combined
voting power of all classes of stock then entitled to vote for the election of
directors which would be outstanding immediately after the merger.
The Providence Journal Charter provides that with regard to: (a) the sale,
lease, exchange, transfer, or other disposition by Providence Journal or any of
its subsidiaries of all or substantially all of its assets to or with any
person participating in the Business Combination, as defined in the Business
Combination Act of 1990 (Section 7-5.2-1 et seq.); (b) any merger or
consolidation of Providence Journal or any of its subsidiaries into or with a
corporation, irrespective of which corporation is the surviving corporation in
such merger or consolidation; or (c) any reclassification of securities,
recapitalization, or other transaction which has the effect, directly or
indirectly, of any partial or complete liquidation or spin-off of Providence
Journal (each of clauses (a) through (c) is hereinafter referred to as a
"Providence Journal Business Combination"), such Providence Journal Business
Combination must either (x) receive the approval by affirmative vote of not
less than two-thirds of the whole Board of Directors of Providence Journal plus
any affirmative vote of stockholders required under Rhode Island Law; or (y)
receive the prior approval of 80% or more of the outstanding capital stock of
Providence Journal entitled to vote thereon and must satisfy certain enumerated
qualification tests relating to the adequacy of price and procedure including
solicitation of stockholder approval of the Providence Journal Business
Combination pursuant to a proxy statement including any recommendations of the
Providence Journal Board and any fairness opinion (or lack of fairness) from a
selected investment banking firm. The Providence Journal Charter adopts the
provisions set forth in the Business Combination Act of 1990 (Section 7-5.2-1
et seq.). (See "State Anti-Takeover Statutes".) The Merger would constitute a
Providence Journal Business Combination, and accordingly, the voting
requirements set forth above must be satisfied.
CONTINENTAL. Pursuant to the DGCL, unless the corporate charter provides
otherwise, no vote of the stockholders of a surviving corporation is required
to approve a merger if (a) the agreement of merger does
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not amend in any respect, the surviving corporation's charter; (b) each share
of the corporation's stock outstanding immediately prior to the effective date
of the merger is to remain outstanding; and (c) the number of shares of the
surviving corporation's common stock (including shares issuable upon conversion
of any convertible securities) to be issued or delivered under the plan of
merger does not exceed 20% of the surviving corporation's common stock
outstanding immediately prior to the effective date of the merger. For
transactions falling outside the enumerated exceptions, majority stockholder
approval is required. The Merger must be approved by the affirmative vote of a
majority of the outstanding shares of Continental Voting Stock.
The DGCL sets forth specific requirements for certain business combinations.
(See "Description of Continental Capital Stock--DGCL and Certain Provisions of
the Continental Restated Certificate and the Continental By-Laws--Anti-Takeover
Statute".)
CHARTER AMENDMENTS
GENERAL LAW. To authorize an amendment to the corporate charter, both
Delaware and Rhode Island Law generally require the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote thereon. Both
Delaware and Rhode Island Law provide for any class or series of stock to vote
as a class for the proposed amendment if the amendment would increase or
decrease the number of authorized shares or change the number or par value of
the aggregate authorized shares of a class or series, unless the charter
provides otherwise. The DGCL also provides for class voting if the amendment
would alter or modify the powers, preferences or special rights of the shares
of such class to affect such class adversely. Rhode Island Law similarly
requires separate class voting if the amendment would, among other things,
change the designations, preferences, limitations, or relative rights of the
class, effect an exchange, or create a right of exchange of all or any part of
the shares of another class into shares of the class, or create a new class of
shares having rights and preferences prior and superior to the shares of the
class.
PROVIDENCE JOURNAL. The Providence Journal Charter provides that any
amendment, alteration, change, repeal or adoption of the provisions of the
Providence Journal Charter relating to election and service of Directors,
liability of Directors, Providence Journal Business Combinations, and
Providence Journal's right of first refusal requires either the affirmative
vote of 80% of the outstanding capital stock entitled to vote thereon, or the
approval by a two-thirds vote of the Providence Journal Board and any
stockholder vote required by law.
CONTINENTAL. Under the Continental Restated Certificate, the approval of 66
2/3% of the votes entitled to be cast by the holders of Continental Voting
Stock is required for the amendment of certain provisions of the Continental
Restated Certificate. A separate majority vote of the Continental Series A
Preferred Stock is also required as to certain amendments affecting the
Continental Preferred Stock. The Continental Restated Certificate overrides
certain separate class votes of the Continental Class A Common Stock and Class
B Common Stock that would otherwise be required under the DGCL. (See
"Description of Continental Capital Stock--Continental Common Stock--Voting
Rights" and "DGCL and Certain Provisions of the Continental Restated
Certificate and the Continental By-Laws--Amendment of Certain Provisions of the
Continental Restated Certificate and the Continental By-Laws".)
BY-LAW AMENDMENTS
GENERAL LAW. The RIBCA generally, and the DGCL if so provided in the charter,
provides that the by-laws of a corporation may be amended by the vote of a
majority of the Board of Directors. The DGCL similarly permits the Board to
amend a corporation's certificate of incorporation so provided. The Board of
Directors' authority to adopt, amend or repeal the by-laws of a corporation
does not divest nor limit the power of stockholders to adopt, amend or repeal
by-laws. Any amendment by the Board of Directors to the by-laws may be
subsequently changed by the affirmative vote of holders of a majority of the
shares entitled to vote thereon.
PROVIDENCE JOURNAL. The Providence Journal By-Laws generally provide that the
affirmative vote of a majority of shares entitled to vote or an affirmative
vote of a majority of the Providence Journal Board may alter, amend or repeal
provisions of the Providence Journal By-Laws. However, the Providence Journal
By-
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Law provisions relating to the number, election, classes, or removal and
replacement, and indemnification of Directors may only be amended, altered or
repealed by either (a) an affirmative vote of 80% of the holders of the
outstanding shares of capital stock entitled to vote thereon or (b) the
affirmative vote of two-thirds of the whole Providence Journal Board and
majority stockholder approval.
CONTINENTAL. The Continental Restated Certificate provides that the
Continental By-Laws may only be amended by a majority vote of the entire
Continental Board or by the approval of 66 2/3% of the votes entitled to be
cast by the holders of Continental Voting Stock.
VOTING RIGHTS
PROVIDENCE JOURNAL. Holders of Providence Journal Class A Common Stock are
entitled to one vote per share, and holders of Providence Journal Class B
Common Stock are entitled to four votes per share. Holders of Providence
Journal Class A Common Stock and Providence Journal Class B Common Stock vote
together as a single class, except as otherwise required by Rhode Island Law.
Any proposed increase in the number of authorized shares of Providence Journal
Class A Common Stock or Providence Journal Class B Common Stock requires the
approval of a majority of the then outstanding shares of Providence Journal
Class A Common Stock and Providence Journal Class B Common Stock, voting
together as a single class.
CONTINENTAL. Holders of Continental Class A Common Stock are entitled to one
vote per share, and holders of Continental Class B Common Stock are entitled to
ten votes per share. Holders of Continental Class A and Continental Class B
Common Stock vote together as a single class, except as otherwise required by
the DGCL. Each share of Continental Series A Preferred Stock entitles the
holder to vote on all matters voted on by the holders of Continental Common
Stock into which such Continental Series A Preferred Stock is convertible. The
Continental Series A Preferred Stock is convertible into either Continental
Class A Common Stock or Continental Class B Common Stock and has certain class
voting rights. (See "Description of Continental Capital Stock--Continental
Series A Preferred Stock--Voting Rights" and "Board Representation".) The
holders of the Continental Series B Preferred Stock, when it is issued in
connection with the Merger, will have one vote per share and will vote together
with the Continental Common Stock and the Continental Series A Preferred Stock
on all matters except that such holders will not be entitled to vote on any
increase or decrease in the number of authorized shares of any class or classes
of Continental capital stock. BOTH THE HOLDERS OF PROVIDENCE JOURNAL CLASS A
COMMON STOCK AND PROVIDENCE JOURNAL CLASS B COMMON STOCK WILL RECEIVE THE SAME
CONSIDERATION PURSUANT TO THE MERGER FROM CONTINENTAL, THEREFORE THE CURRENT
DISPARATE VOTING RIGHTS OF SUCH HOLDERS WILL NOT BE PRESERVED UPON RECEIPT OF
THE CONTINENTAL MERGER STOCK.
RIGHTS AGREEMENT
PROVIDENCE JOURNAL. Pursuant to the Providence Journal Charter, approximately
75% of the shares of each of Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock are set aside for issuance under the
Rights Agreement. FOR A DESCRIPTION OF TERMS OF THE PROVIDENCE JOURNAL RIGHTS
AGREEMENT SEE "DESCRIPTION OF NEW PROVIDENCE JOURNAL CAPITAL STOCK--NPJ RIGHTS
AGREEMENT" WHICH IS IDENTICAL IN SUBSTANCE TO THE RIGHTS AGREEMENT.
CONTINENTAL. Continental does not have a Rights Agreement or any similar
arrangement.
PREEMPTIVE RIGHTS
PROVIDENCE JOURNAL. The Providence Journal Charter grants stockholders
preemptive rights to acquire authorized but unissued shares to the extent
permitted by Rhode Island Law. Such preemptive rights do not extend to (a) the
acquisition of treasury shares upon reissuance; (b) any right to acquire
Providence Journal Class A Common Stock issued upon conversion of Providence
Journal Class B Common Stock; or (c) any rights inconsistent with the Rights
Agreement.
CONTINENTAL. The Continental Restated Certificate contains no provision
relating to preemptive rights.
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TRANSFERABILITY OF SHARES
PROVIDENCE JOURNAL. The Providence Journal Charter prohibits transfer of
shares of Providence Journal Class B Common Stock except to permitted
transferees (as such term is defined in the Providence Journal Charter), which
generally includes the spouse, parent and children of the transferor, as well
as trusts for the benefit of and corporations owned by such family members of
the transferor.
CONTINENTAL. Although the Continental Restated Certificate similarly
restricts transfer of Continental Class B Common Stock, no such restrictions
are imposed on shares of Continental Class A Common Stock or Continental Series
B Preferred Stock, which will be acquired in the Merger by Providence Journal
stockholders.
SPECIAL MEETINGS
PROVIDENCE JOURNAL. Rhode Island Law permits a special meeting of
stockholders to be called by the President, the Board of Directors, or by the
holders of 10% or more of the shares entitled to vote at such meeting, or such
other officers or persons specified by the charter or by-laws. The Providence
Journal By-Laws permit a special meeting of the stockholders to be called at
any time for any purpose by the Chairman of the Board, the President, the
Providence Journal Board, or by a stockholder or stockholders holding of record
at least 20% of the voting power of the outstanding shares of Providence
Journal entitled to vote at such meeting.
CONTINENTAL. Under the DGCL, a special meeting of stockholders may be called
by the Board of Directors or such other persons as are authorized by the
certificate of incorporation or by-laws. The Continental By-Laws provide
special meetings may be called for any purpose, unless otherwise prescribed by
law, by the Chairman, or Vice Chairman of the Continental Board, or by a
majority of the Continental Board then in office, and shall be called by the
President or Secretary at the written request of the stockholders holding of
record a majority of the shares of stock of Continental issued and outstanding
and entitled to vote. Additionally, the Series A Certificate of Designation
provides that the Chairman shall call a special meeting upon receipt of the
written request of the holders of record of 20% of the voting power represented
by the outstanding shares of Continental Series A Preferred Stock, if the
holders of the Continental Series A Preferred Stock are entitled to vote
separately as a single class for Directors upon Default, or the holders of
record of 20% of the voting power represented by the outstanding shares of
Continental Series A Preferred Stock and any series of preferred stock with
rights on parity with the Continental Series A Preferred Stock or Continental
Series B Preferred Stock, if Continental is in default under the terms of such
stock.
CORPORATE ACTION WITHOUT A MEETING
PROVIDENCE JOURNAL. Except for corporate action relating to a merger or
consolidation, acquisition or disposition, Rhode Island Law permits corporate
action without a meeting if the charter or by-laws of a corporation authorizes
such action, and the stockholders consenting to such action would be entitled
to vote thereon and comprise at least the minimum number of votes which would
be required to take such action. Rhode Island Law further provides that
corporate action relating to a merger, consolidation, acquisition or
disposition may be taken without a meeting if all stockholders entitled to vote
thereon consent in writing. The Providence Journal By-Laws authorize corporate
action without a meeting by unanimous written consent, or by less than
unanimous consent to the extent permitted by Rhode Island Law and the
Providence Journal Charter.
CONTINENTAL. The DGCL permits corporate action without a stockholder's
meeting, without prior notice and without a vote of stockholders upon receipt
of the written consent of that number of shares that would be necessary to
authorize the proposed corporate action at a meeting at which all shares
entitled to vote thereon were present and voting, unless the charter expressly
provides otherwise. Prompt notice of the taking of action without a meeting by
less than unanimous written consent must be given to all stockholders who have
not consented in writing. The Continental By-Laws permit corporate action
without a meeting of the stockholders in accordance with the parameters set
forth in the DGCL.
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DIVIDENDS
PROVIDENCE JOURNAL. Under Rhode Island Law, the Board of Directors has the
power to declare and pay dividends in cash, property or securities of the
corporation unless (a) such corporation is or would be thereby made insolvent
or (b) the declaration or payment of such dividends would be contrary to any
restrictions contained in the charter. Rhode Island Law further provides that
no distribution may be made (i) if the corporation would become unable to pay
its debts as they become due in the usual course of business or (ii) the
corporation's total assets would be less than the sum of its liabilities plus,
unless the articles of incorporation permit otherwise, the amount that would be
needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose rights are superior to those receiving the distribution. The
Providence Journal Charter provides for the ratable payment of dividends to
holders of shares of Providence Journal Class A Common Stock and Providence
Journal Class B Common Stock in accordance with Rhode Island Law.
CONTINENTAL. Under the DGCL, the directors of a corporation are generally
permitted to declare and pay dividends out of surplus or out of net profits for
the current and/or preceding fiscal year, provided that such dividends will not
reduce capital below the amount of capital represented by all classes of issued
and outstanding stock having a preference upon the distribution of assets. Also
under the DGCL, a corporation may generally redeem or purchase shares of its
stock if such redemption or purchase will not impair the capital of the
corporation. Pursuant to the Continental Restated Certificate, the holders of
shares of Continental Class A Common Stock and Continental Class B Common Stock
share ratably in dividends, but the right of holders of either Continental
Class A Common Stock or Continental Class B Common Stock to receive dividends
is subject to the rights of the Continental Series A Preferred Stock (and,
after the Merger, the rights of the Continental Series B Preferred Stock).
LIQUIDATION
GENERAL LAW. Pursuant to both Rhode Island Law and the DGCL, upon the winding
up, dissolution or liquidation of a corporation, the stockholders of such
corporation are entitled to share in any of the assets distributable to the
holders of the respective corporation's stock upon such liquidation,
dissolution or winding up in accordance with their respective rights and
interests.
PROVIDENCE JOURNAL. The Providence Journal Charter provides for the ratable
distribution to holders of Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock in the event of any liquidation,
dissolution or winding up. The Plan of Reorganization, however, provides for a
non-ratable distribution in connection with the Restructuring (one step of
which is the dissolution of Providence Journal). The approval of the Plan of
Reorganization by the stockholders of Providence Journal will have the same
effect as an amendment of the Providence Journal Charter by providing that each
stockholder of Providence Journal Class A Common Stock will receive, in the
Restructuring, one share of Restructured PJC Class A Common Stock in exchange
for and in redemption of each share of Providence Journal Class A Common Stock
held and one share of Restructured PJC Class B Common Stock in exchange for and
in redemption of each share of Providence Journal Class B Common Stock held.
CONTINENTAL. Similarly, the Continental Restated Certificate provides for the
ratable distribution to holders of Continental Class A Common Stock and
Continental Class B Common Stock in the event of a liquidation, dissolution or
winding up. However, the rights of holders of Continental Class A Common Stock
and Continental Class B Common Stock (or any other capital stock, if issued,
ranking junior to Continental Series A Preferred Stock) are subject to the
preferential rights of the holders of Continental Series A Preferred Stock
(and, after the Merger, the Continental Series B Preferred Stock).
APPRAISAL OR DISSENTERS' RIGHTS
PROVIDENCE JOURNAL. Under Rhode Island Law, dissenters' rights are available
only in connection with (a) a plan of merger or consolidation (unless the
corporation is the surviving corporation and stockholder
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approval is not required); (b) acquisitions that require stockholder approval;
and (c) sales or exchanges of all or substantially all of the property and
assets of a corporation in a transaction requiring stockholder approval. In
addition, unless otherwise provided in the articles of incorporation, no
dissenters' rights are available to holders of shares of any class of stock
which, as of the date fixed to determine the stockholders entitled to receive
notice of the proposed transaction, is either (i) listed on a national
securities exchange or included as national market securities on NASDAQ or any
successor system or (ii) held of record by 2,000 or more stockholders. There
are no provisions in the Providence Journal Charter relating to dissenters'
rights. Pursuant to Rhode Island Law, the stockholders of Providence Journal
will have dissenters' rights in connection with the Merger. (See "Rights of
Dissenting Stockholders--Providence Journal".)
CONTINENTAL. Under the DGCL, appraisal rights are available in connection
with a statutory merger or consolidation in certain specified situations.
Appraisal rights are not available when a corporation is to be a surviving
corporation, and no vote of its stockholders is required to approve the merger.
In addition, unless otherwise provided in the charter, no appraisal rights are
available to holders of shares of any class of stock which is either: (a)
listed on a national securities exchange or designated as a national market
system security and quoted on NASDAQ or (b) held of record by more than 2,000
stockholders, unless such stockholders are required by the terms of the merger
to accept anything other than: (i) shares of stock of the surviving
corporation; (ii) shares of stock of another corporation which are or will be
so listed on a national securities exchange or designated as a national market
system security and quoted on NASDAQ or held of record by more than 2,000
stockholders; (iii) cash in lieu of fractional shares of such stock; or (iv)
any combination thereof. The Continental Restated Certificate has no provision
relating to appraisal rights. (See "Rights of Dissenting Stockholders--
Continental".)
PROVISIONS RELATING TO DIRECTORS AND OFFICERS
GENERAL LAW. Under both Rhode Island Law and Delaware Law, a corporation must
have a Board of Directors consisting of at least one director. Under Rhode
Island Law and the DGCL, a corporation's charter may (i) confer upon holders of
any class or series of stock the right to elect one or more directors to serve
for such term and to have such voting powers as may be specified therein, (ii)
permit classification of the Board of Directors, and (iii) permit cumulative
voting for the election of directors.
PROVIDENCE JOURNAL. The Providence Journal Charter provides for a Board of
Directors consisting of no less than nine and no more than 15 Directors. The
exact number of Directors is to be determined from time to time by an
affirmative vote of a majority of the whole Board of Directors. Currently, the
Providence Journal Board consists of 12 members and is divided into three equal
classes with staggered terms. Any vacancies on the Providence Journal Board,
however caused, shall be filled solely by a majority vote of the Directors then
in office, whether or not a quorum, and any Director so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of the class to which the Director has been chosen expires. The Providence
Journal Charter does not provide for cumulative voting or class voting for
election of Directors.
CONTINENTAL. The Continental Restated Certificate provides that the number of
Directors is determined by the Continental Board (exclusive of Directors to be
elected, if any, by holders of shares of Continental Series A Preferred Stock).
(See "Voting Rights--Continental".) Currently, the Continental Board consists
of nine members and is divided into three classes with staggered terms. Any
vacancy on the Continental Board shall be filled by a majority of the remaining
Directors or by a sole remaining Director, and if no Directors remain, then by
the stockholders. The Continental Restated Certificate does not provide for
cumulative voting. The Continental Restated Certificate permits class voting
only with respect to holders of shares of Continental Series A Preferred Stock
in the event of certain dividend arrearages, breaches of specific obligations
owed to such holders or with respect to any proposed action which would result
in a modification of their rights as holders of Continental Series A Preferred
Stock. (See "Description of Continental Capital Stock--Continental Series A
Preferred Stock--Board Representation".)
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STOCKHOLDER NOMINATIONS AND RIGHTS OF PREFERRED STOCKHOLDERS TO ELECT
DIRECTORS
PROVIDENCE JOURNAL. Neither the Providence Journal Charter nor the
Providence Journal By-Laws sets forth the procedure for nominating individuals
for election to the Providence Journal Board.
CONTINENTAL. The Continental By-Laws require nominations of persons for
election to the Continental Board to be made at a meeting of stockholders by
or at the direction of the Continental Board, by any nominating committee or
person appointed by the Continental Board or by any stockholder of Continental
entitled to vote for the election of Directors at the meeting.
Notwithstanding, in the event any holder of Continental Series A Preferred
Stock is entitled to elect Directors at the annual meeting the number of
Directors of Continental shall be increased as required under the Preferred
Stock Purchase Agreement. (See "Description of Continental Capital Stock--
Continental Series A Preferred Stock--Voting Rights" and "Board
Representation".)
REMOVAL
PROVIDENCE JOURNAL. Under Rhode Island Law, a director may be removed by the
stockholders without cause, if the charter or by-laws so provide. The
Providence Journal Charter provides that any director or the entire Providence
Journal Board may be removed at any time, but only for cause and only by the
affirmative vote of (a) the holders of 80% of the outstanding shares of
capital stock entitled to vote in the election of directors; or (b) the
holders of a majority of outstanding shares and upon the recommendation of not
less than two-thirds of the whole Providence Journal Board.
CONTINENTAL. Under the DGCL, any director or the entire Board of Directors
of a corporation may be removed, with or without cause, by the holders of a
majority of the shares then entitled to elect Directors. In the case of a
corporation whose Board of Directors is classified, stockholders may effect
such removal only for cause unless the charter provides otherwise. The
Continental Restated Certificate does not contain any provision setting forth
an alternative standard for removal of directors. (See "Description of
Continental Capital Stock--DGCL and Certain Provisions of the Continental
Restated Certificate and the Continental By-Laws".)
DERIVATIVE SUITS
Under both Rhode Island Law and the DGCL, stockholders may bring suit on
behalf of the corporation to enforce the rights of a corporation. Under both
Rhode Island Law and the DGCL, a person may institute and maintain a suit only
if such person was a stockholder at the time of the transaction which is the
subject of the suit.
RHODE ISLAND LAW. Under Rhode Island Law, upon final judgment and a finding
that the commencement of a derivative action by a stockholder was without
reasonable cause, a court may require the plaintiff(s) to pay to the parties
named as defendant(s) the reasonable expenses including legal fees incurred by
them in defense of such action.
DGCL. Additionally, under the DGCL, the plaintiff generally must be a
stockholder not only at the time of the transaction which is the subject of
the suit, but also through the duration of the derivative suit. The DGCL also
requires that the derivative plaintiff make demand on the directors of the
corporation to assert the corporate claim unless such demand would be futile
before the suit may be prosecuted by the derivative plaintiff.
CONFLICT OF INTEREST TRANSACTIONS
Both Rhode Island Law and the DGCL provide that contracts or other
transactions between a corporation and one or more or its directors or
officers or between a corporation and any other corporation or other entity
with respect to which any of the corporation's directors or officers are
directors, officers or financially interested persons, are permitted if: (a)
the material facts as to the contract or transaction and the director's
relationship or interest are disclosed to the Board of Directors or committee,
and the Board of
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Directors or committee authorizes the contract in good faith by the affirmative
vote of a majority of disinterested directors (even though less than a quorum);
(b) if the material facts as to the contract or transaction and the director's
relationship or interest are disclosed to the stockholders entitled to vote
thereon and it is approved in good faith by vote of the stockholders; or (c) if
the contract or transaction is fair and reasonable as to the corporation as of
the time it is approved by the Board of Directors, a committee, or the
stockholders. Neither the Providence Journal Charter nor Providence Journal By-
Laws nor the Continental Restated Certificate or Continental By-Laws contain
additional provisions governing transactions involving interested directors.
STATE ANTI-TAKEOVER STATUTES
PROVIDENCE JOURNAL. Pursuant Sections 7-5.2-1 et seq. of RIBCA, a corporation
shall not engage in any business combination with an interested stockholder
(generally defined as the beneficial owner of 10% or more of the corporation's
outstanding voting stock or an affiliate of the corporation who within five
years prior to the date in question was the beneficial owner of 10% or more of
the corporation's outstanding voting stock) for a period of five years
following the date the stockholder became an interested stockholder unless
either (a) the Board of Directors of the corporation approved the business
combination or transaction prior to the date the stockholder became an
interested stockholder; (b) holders of two-thirds of the outstanding voting
stock, excluding any stock owned by the interested stockholder or any affiliate
or associate of the interested stockholder, have approved the business
combination at a meeting called for such purpose no earlier than five years
after the interested stockholder's stock acquisition date; or (c) the business
combination meets each of the following conditions: (i) the nature, form and
adequacy of the consideration to be received by the corporation's stockholders
in the business combination transaction satisfies certain specific enumerated
criteria; (ii) the holders of all the outstanding shares of stock of the
corporation not beneficially owned by the interested stockholder are entitled
to receive the specified consideration in the business combination transaction;
and (iii) the interested stockholder shall not acquire additional shares of
voting stock of the corporation except in certain specifically identified
transactions.
The restrictions prescribed by the statute will not be applicable to any
business combination (a) involving a corporation that does not have a class of
voting stock, registered under the Exchange Act, unless the charter provides
otherwise; (b) involving a corporation which did not have a class of voting
stock registered under the Exchange Act at the time corporation's charter was
amended to provide that the corporation shall be subject to the statutory
restriction provisions and the interested stockholder's stock acquisition date
is prior to the effective date of the charter amendment; (c) involving a
corporation whose original charter contains a provision expressly electing not
to be subject to the statutory restrictions or which adopted an amendment
expressly electing not to be subject to the statutory restrictions either to
its by-laws prior to March 31, 1991 or to its charter if such charter amendment
is approved by the affirmative vote of holders, other than the interested
stockholders, and their affiliates and associates, of two-thirds of the
outstanding voting stock, excluding the voting stock of the interested
stockholders; provided, that the amendment to the charter shall not be
effective until 12 months after the vote of the stockholders and shall not
apply to any business combination of the corporation with an interested
stockholder whose stock acquisition date is on or prior to the effective date
of the amendment; or (d) involving a corporation with an interested stockholder
who became an interested stockholder inadvertently, if the interested
stockholder divests itself of such number of shares so that it is no longer the
beneficial owner of 10% of the outstanding voting stock and, but for such
inadvertent ownership, was not an interested stockholder within the five-year
period preceding the announcement of the business combination. The Providence
Journal Charter explicitly adopts the terms of this Rhode Island statute. For
specific voting requirements applicable to the Merger, see "Required Vote For
Certain Business Combinations".
CONTINENTAL. (For a discussion of Section 203 of the DGCL, see "Description
of Continental Capital Stock--DGCL and Certain Provisions of the Continental
Restated Certificate and the Continental By-Laws--Anti-Takeover Statute".)
Although Continental is not presently subject to the restrictions prescribed by
the statute, it will be so following the consummation of the Merger.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state governments
and substantially all local governments. In addition, various legislative and
regulatory proposals under consideration from time to time by Congress and
various federal agencies may materially affect the cable television industry.
The following is a summary of federal laws and regulations affecting the growth
and operation of the cable television industry and a description of certain
state and local laws.
CABLE COMMUNICATIONS POLICY ACT OF 1984
The 1984 Cable Act became effective in December 1984. This federal statute,
which amended the Communications Act of 1934, creates uniform national
standards and guidelines for the regulation of cable television systems.
Violations by a cable television system operator of provisions of the 1984
Cable Act, as well as of FCC regulations, can subject the operator to
substantial monetary penalties and other sanctions. Among other things, the
1984 Cable Act affirmed the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more franchises
within their jurisdictions. It also prohibited non-grandfathered cable
television systems from operating without a franchise in such jurisdictions. In
connection with new franchises, the 1984 Cable Act provides that in granting or
renewing franchises, franchising authorities may establish requirements for
cable-related facilities and equipment, but may not establish or enforce
requirements for video programming or information services other than in broad
categories.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
OVERVIEW. In October 1992, Congress enacted the 1992 Cable Act. This
legislation made significant changes to the legislative and regulatory
environment in which the cable industry operates. It amended the 1984 Cable Act
in many respects. The 1992 Cable Act became effective in December 1992,
although certain provisions, most notably those dealing with rate regulation
and retransmission consent, became effective at later dates. The legislation
required the FCC to initiate a number of rule-making proceedings to implement
various provisions of the statute, the majority of which, including certain of
those related to rate regulation, have been completed. The 1992 Cable Act
allows for a greater degree of regulation of the cable industry with respect
to, among other things: (i) cable system rates for both basic and certain cable
programming services; (ii) programming access and exclusivity arrangements;
(iii) access to cable channels by unaffiliated programming services; (iv)
leased access terms and conditions; (v) horizontal and vertical ownership of
cable systems; (vi) customer service requirements; (vii) franchise renewals;
(viii) television broadcast signal carriage and retransmission consent; (ix)
technical standards; (x) customer privacy; (xi) consumer protection issues;
(xii) cable equipment compatibility; (xiii) obscene or indecent programming;
and (xiv) subscription to tiers of service other than basic service as a
condition of purchasing premium services. Additionally, the legislation
encourages competition with existing cable television systems by: allowing
municipalities to own and operate their own cable television systems without a
franchise; preventing franchising authorities from granting exclusive
franchises or unreasonably refusing to award additional franchises covering an
existing cable system's service area; and prohibiting the common ownership of
cable systems and co-located MMDS or SMATV systems. The 1992 Cable Act also
precludes video programmers affiliated with cable television companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multi-channel video distributors.
Various cable operators have filed actions in the United States District
Court in the District of Columbia challenging the constitutionality of several
sections of the 1992 Cable Act. Pursuant to special jurisdictional provisions
in the 1992 Cable Act, a challenge to the must-carry provisions of the Act was
heard by a three-judge panel of the district court. In April 1993, the three-
judge court granted summary judgment for the government, upholding the
constitutional validity of the must-carry provisions of the 1992 Cable Act.
That decision was appealed directly to the United States Supreme Court. In June
1994, the United States Supreme Court remanded the case to the district court.
Pending the outcome of further proceedings before the district court, the must-
carry statutes and the FCC regulations remain in place.
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The cable operators' constitutional challenge to the balance of the 1992
Cable Act provisions was heard by a single judge of the district court. In
September 1993, the court rendered its decision upholding the constitutionality
of all but three provisions of the statute (multiple ownership limits for cable
operators, advance notice of free previews for certain programming services,
and channel set-asides for DBS operators). This decision has been appealed to
the United States Court of Appeals for the District of Columbia Circuit.
Appeals have also been filed in that court from the FCC's rate regulation rule-
making decisions.
FEDERAL REGULATION
The FCC, the principal federal regulatory agency with jurisdiction over cable
television, has promulgated regulations covering such areas as the registration
of cable television systems, cross-ownership between cable television systems
and other communications businesses, carriage of television broadcast
programming, consumer education and lockbox enforcement, origination,
cablecasting and sponsorship identification, children's programming, the
regulation of basic cable service rates in areas where cable television systems
are not subject to effective competition, signal leakage and frequency use,
technical performance, maintenance of various records, equal employment
opportunity, and antenna structure notification, marking and lighting. The FCC
has the authority to enforce these regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the
imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities often used in
connection with cable operations. The 1992 Cable Act required the FCC to adopt
additional regulations covering, among other things, cable rates, signal
carriage, consumer protection and customer service, leased access, indecent
programming, programmer access to cable television systems, programming
agreements, technical standards, consumer electronics equipment compatibility,
ownership of home wiring, program exclusivity, equal employment opportunity,
and various aspects of DBS system ownership and operation. A brief summary of
certain of these federal regulations as adopted to date follows.
RATE REGULATION. The 1984 Cable Act codified existing FCC preemption of rate
regulation for premium channels and optional cable programming service tiers.
The 1984 Cable Act also deregulated basic cable rates for cable television
systems determined by the FCC to be subject to effective competition. The 1992
Cable Act substantially changed the 1984 Cable Act and FCC rate regulation
standards then in existence. The 1992 Cable Act replaced the FCC's old standard
for determining effective competition, under which most cable systems were not
subject to local rate regulation, with a statutory provision that results in
nearly all cable television systems becoming subject to local rate regulation
of basic service. Additionally, the legislation eliminates the 5% annual rate
increase for basic service previously allowed by the 1984 Cable Act without
local approval; requires the FCC to adopt a formula, for franchising
authorities to enforce, to assure that basic cable rates are reasonable; allows
the FCC to review rates for cable programming service tiers (other than per-
channel or per-event services) in response to complaints filed by franchising
authorities and/or cable customers; prohibits cable television systems from
requiring subscribers to purchase service tiers above basic service in order to
purchase premium services if the system is technically capable of doing so;
requires the FCC to adopt regulations to establish, on the basis of actual
costs, the price for installation of cable service, remote controls, converter
boxes and additional outlets; and allows the FCC to impose restrictions on the
retiering and rearrangement of cable services under certain limited
circumstances. The FCC issued rule-making decisions designed to implement these
rate regulation provisions in April 1993.
The FCC's regulations adopted in April 1993 set standards for the regulation
of basic and cable programming service tier rates. The FCC also ordered an
interim 120-day freeze on these rates effective April 5, 1993, which was
extended until May 15, 1994. The FCC's rules governing rates became effective
for cable systems serving more than 1,000 subscribers in September 1993. The
FCC had granted a temporary stay of its rate regulation rules for small systems
serving 1,000 or fewer subscribers, but the stay was lifted when the FCC
revised its rate regulations on February 22, 1994, to be effective on the
effective date of those revised regulations, May 15, 1994.
The April 1993 rate regulations adopted a benchmark price cap system for
measuring the reasonableness of existing basic and cable programming service
rates. Regulated services include: (i) the basic service tier
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required to be established by the 1992 Cable Act, consisting, at a minimum, of
all broadcast signals carried by such system except those imported by satellite
from another market (i.e., superstations) and all public, educational and
governmental access programming and (ii) other cable programming (service tiers
above the basic service tier, excluding per-channel and per-program
programming). Alternatively, cable operators are given the opportunity to make
a cost-of-service showing to justify rates above the applicable benchmarks. If
a cost-of-service showing is unsuccessful, the rates for a system may be
reduced below the applicable benchmark. As discussed below, the FCC has
published regulations setting forth the procedures to be utilized in such a
cost-of-service showing; however, the rules are not yet final. The rules
regarding rate regulation also require that charges for cable-related equipment
(e.g., converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus
a reasonable profit and established a formula for evaluating future rate
increases. Local franchising authorities (if certified by the FCC) and/or the
FCC are empowered to order a reduction of existing rates. Refund liability for
basic cable rates is limited to a one-year period, initially calculated from
the effective date of the FCC's regulations. Refund liability for cable
programming service rates is calculated from the date a complaint is filed with
the FCC until the refund is implemented. A complaint alleging an unreasonable
rate for a cable programming service in effect on September 1, 1993, must have
been filed by February 28, 1994. After that date, a complaint regarding a rate
increase for a cable programming service must be filed with the FCC within 45
days from the date that the complainant receives the bill. In general, in order
to avoid refund liability, cable operators whose rates were above FCC benchmark
levels were required, absent a successful cost-of-service showing, to reduce
those rates to the benchmark level or by up to 10% of the rates in effect on
September 30, 1992, whichever reduction was less, adjusted for inflation and
channel modifications occurring subsequent to September 30, 1992. The FCC,
however, reserved the right to raise or lower the benchmarks that it
established. The regulations also provided that future rate increases could not
exceed an inflation-indexed amount, plus increases in certain costs beyond the
cable operator's control, such as taxes, franchise fees and increased
programming costs that exceed the inflation index.
On February 22, 1994, the FCC adopted a revision of its benchmark regulations
effective May 15, 1994. The FCC allowed a sixty day transition period for
implementing the new rates to July 15, 1994. The new benchmarks subject cable
television systems to rate reductions, absent a successful cost-of-service
showing, of up to 17% of the rates in effect on September 30, 1992, adjusted
for inflation, channel modifications, equipment costs and certain increases in
programming costs. Further rate reductions for cable systems whose rates are
below the revised benchmark levels will be held in abeyance pending completion
by the FCC of cable system cost studies, as will reductions that would require
operators to reduce rates below benchmark levels in order to achieve a 17% rate
reduction. These additional rate reductions below the new benchmarks would be
required only if validated by the studies. The FCC also announced its intention
to investigate cable systems whose rates are substantially above the permitted
benchmark levels.
Also on February 22, 1994, the FCC adopted interim rules for cost-of-service
showings that establish a regulatory framework pursuant to which a cable
television operator may attempt to justify rates in excess of the new
benchmarks. Such justifications are based upon (i) the operator's costs in
operating a cable television system (including certain operating expenses,
depreciation and taxes) and (ii) a return on the investment the operator has
made to provide regulated cable television services in such system (such
investment being referred to as its "rate base"). The guidelines disallow from
a cable operator's rate base "excess acquisition costs" beyond the original
construction costs or "book value" of a cable system but include in the rate
base the costs associated with certain intangibles such as franchise rights and
customer lists. The uniform rate of return for regulated cable television
service is 11.25%, after taxes, on a cable system's rate base. The interim
guidelines originally included a "productivity offset feature" that could
reduce otherwise justifiable rate increases based on a claimed increase in a
cable television system's operational efficiencies. The FCC dropped this
proposal in September, 1994.
Some cable operators, relying on provisions in the 1992 Cable Act that exempt
programming offered on an individual per-channel basis from rate regulation,
offered a group of such per-channel (or "a la carte")
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offerings at a discounted package price. On February 22, 1994, the FCC adopted
rules that revised its treatment of a la carte programming offerings by
applying various criteria to determine whether a cable operator's a la carte
packages should be subject to rate regulation. Local franchising authorities
were given the authority under FCC rules, subject to review by the FCC, to
determine whether an a la carte offering should be subject to rate regulation.
If a cable operator is found to have bundled channels in an a la carte package
to evade rate regulations, the FCC may impose forfeitures or other sanctions.
The FCC on November 10, 1994 reversed its policy regarding rate regulation of
packages of a la carte services. A la carte services that are offered in a
package will now be subject to rate regulation by the FCC. In light of the
uncertainty created by the various criteria that the FCC previously applied to
a la carte packages, the FCC, in those cases in which it was not clear how the
FCC's previous criteria should have been applied to the package at issue, and
where only a "small number" of channels were moved from a previously regulated
tier to the package, will allow cable operators to treat existing packages as
NPTs as discussed below.
The FCC, in addition to revising its rules governing a la carte channels,
also on November 10, 1994 revised its regulations governing the manner in which
cable operators may charge subscribers for new cable programming services. The
FCC instituted a three-year flat fee mark-up plan for charges relating to new
channels of cable programming services in addition to the present formula for
calculating the permissible rate for new services. Commencing on January 1,
1995, operators may charge for new channels of cable programming services added
after May 14, 1994 at a markup of up to 20 cents per channel over actual
programming costs, but may not make adjustments to monthly rates totalling more
than $1.20, plus an additional 30 cents solely for programming license fees,
per subscriber over the first two years of the three-year period for these new
services. Cable operators may charge an additional 20 cents in the third year
only for channels added in that year. Cable operators electing to use the 20
cent per channel adjustment may not take a 7.5% mark-up on programming cost
increases, which is permitted under the FCC's current rate regulations. The FCC
requested further comment on whether cable operators should continue to receive
the 7.5% mark-up on increases in license fees on existing programming services.
Additionally, the FCC will permit cable operators to offer NPTs at rates
which they elect so long as, among other conditions, other service tiers that
are subject to rate regulation are priced in conformity with applicable FCC
regulations, and cable operators do not remove programming services from
existing service tiers and offer them on the NPT.
Many franchising authorities have become certified by the FCC to regulate the
rates charged by Continental and Providence Journal for basic cable service and
associated basic cable service equipment. In addition, a number of the
Continental and Providence Journal customers have filed complaints with the FCC
regarding the rates charged for cable programming services. Some local
franchising authority decisions have been rendered that were adverse to
Continental and Providence Journal. Several of these have been appealed to the
FCC, and it is likely that some refunds will be ordered in the future. Either
Continental and Providence Journal revenues could be materially and adversely
affected if either Continental or Providence Journal was required to reduce its
rates and pay refunds, or if the ability to implement rate increases consistent
with past practices were materially limited by the regulations that the FCC has
adopted.
The FCC also has publicly announced that it will consider "social contracts"
as an alternative form of rate regulation for cable operators. Continental has
negotiated a social contract with the FCC, which, if approved, will settle all
of its pending cost-of-service rate cases and all of its benchmark cable
programming service tier rate cases. Benchmark BBT cases would be resolved by
Continental and local franchising authorities. (See "Description of
Continental--Regulatory Response".)
Legislation recently approved by the U.S. Senate Commerce, Science and
Transportation Committee would significantly modify the rate regulation
provisions of the 1992 Cable Act. Neither Continental nor
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Providence Journal can predict the likelihood of passage of this or other
legislation that would reduce the regulatory restrictions on the ability of
Continental or Providence Journal to market and price their services.
OTHER REGULATIONS UNDER THE 1992 CABLE ACT. In addition to the foregoing rate
regulations, the FCC has adopted regulations pursuant to the 1992 Cable Act
which require cable systems to permit customers to purchase video programming
on a per-channel or a per-event basis without the necessity of subscribing to
any tier of service, other than the basic service tier, unless the cable system
is technically incapable of doing so. Generally, this exemption from compliance
with the statute for cable systems that do not have such technical capability
is available until a cable system obtains the capability, but not later than
December 2002. The FCC also has adopted a number of measures for improving
compatibility between existing cable systems and consumer equipment. In
conjunction therewith, the FCC rules prohibit cable operators from scrambling
program signals carried on the basic tier, absent a waiver. The FCC also is
proposing to extend this prohibition to cover all regulated tiers.
The FCC also has adopted regulations in connection with its cost-of-service
proceedings which govern programming charges for affiliated entities. These
rules apply to systems subject to regulation under both the benchmark and cost-
of-service regulations. The cost of programming to affiliated entities must be
the prevailing company price, based on the sale of programming to third
parties, or a price equal to the lower of the programming service's net book
cost and its estimated fair market value.
CARRIAGE OF BROADCAST TELEVISION SIGNALS. The 1992 Cable Act contains new
signal carriage requirements. These new rules allow commercial television
broadcast stations which are "local" to a cable system, i.e., the system is
located in the station's Area of Dominant Influence, to elect every three years
whether to require the cable system to negotiate for "retransmission consent"
to carry the station. The first such election was made in June 1993. A recent
amendment to the Copyright Act will in some cases increase the number of
stations that may elect must-carry status on cable systems located within such
stations' Areas of Dominant Influence. Local non-commercial television stations
are given mandatory carriage rights, subject to certain exceptions, within the
larger of: (i) a 50 mile radius from the station's city of license or (ii) the
station's Grade B contour (a measure of signal strength). Unlike commercial
stations, noncommercial stations are not given the option to negotiate
retransmission consent for the carriage of their signal. In addition, cable
systems have to obtain retransmission consent for the carriage of all "distant"
commercial broadcast stations, except for certain "superstations" (i.e.,
commercial satellite-delivered independent stations such as WTBS). The must-
carry provisions for non-commercial stations became effective in December 1992.
Implementing must-carry rules for non-commercial and commercial stations and
retransmission consent rules for commercial stations were adopted by the FCC in
March 1993. All commercial stations entitled to carriage were to have been
carried by June 1993, and any non-must-carry stations (other than
superstations) for which retransmission consent had not been obtained could no
longer be carried after October 5, 1993.
NONDUPLICATION OF NETWORK PROGRAMMING. Cable television systems that have
1,000 or more customers must, upon the appropriate request of a local
television station, delete the simultaneous or nonsimultaneous network
programming of a distant station when such programming has also been contracted
for by the local station on an exclusive basis.
DELETION OF SYNDICATED PROGRAMMING. FCC regulations enable television
broadcast stations that have obtained exclusive distribution rights for
syndicated programming in their market to require a cable system to delete or
"black out" such programming from other television stations which are carried
by the cable system. The extent of such deletions will vary from market to
market and cannot be predicted with certainty. However, it is possible that
such deletions could be substantial and could lead the cable operator to drop a
distant signal in its entirety. The FCC also has commenced a proceeding to
determine whether to relax or abolish the geographic limitations on program
exclusivity contained in its rules, which would allow parties to set the
geographic scope of exclusive distribution rights entirely by contract, and to
determine whether such exclusivity rights should be extended to noncommercial
educational stations. It is possible that the outcome of these proceedings will
increase the amount of programming that cable operators are required to black
out.
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Finally, the FCC has declined to impose equivalent syndicated exclusivity rules
on satellite carriers who provide services to the owners of home satellite
dishes similar to those provided by cable systems.
FRANCHISE FEES. Although franchising authorities may impose franchise fees
under the 1984 Cable Act, such payments cannot exceed 5% of a cable system's
annual gross revenues. Franchising authorities are also empowered in awarding
new franchises or renewing existing franchises to require cable operators to
provide cable-related facilities and equipment and to enforce compliance with
voluntary commitments. In the case of franchises in effect prior to the
effective date of the 1984 Cable Act, franchising authorities may enforce
requirements contained in the franchise relating to facilities, equipment and
services, whether or not cable-related. The 1984 Cable Act, under certain
limited circumstances, permits a cable operator to obtain modifications of
franchise obligations.
RENEWAL OF FRANCHISES. The 1984 Cable Act established renewal procedures and
criteria designed to protect incumbent franchises against arbitrary denials of
renewal. While these formal procedures are not mandatory unless timely invoked
by either the cable operator or the franchising authority, they can provide
substantial protection to incumbent franchisees. Even after the formal renewal
procedures are invoked, franchising authorities and cable operators remain free
to negotiate a renewal outside the formal process. Nevertheless, renewal is by
no means assured, as the franchisee must meet certain statutory standards. Even
if a franchise is renewed, a franchising authority may impose new and more
onerous requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.
The 1992 Cable Act makes several changes to the process under which a cable
operator seeks to enforce its renewal rights that could make it easier in some
cases for a franchising authority to deny renewal. While a cable operator must
still submit its request to commence renewal proceedings within 30 to 36 months
prior to franchise expiration to invoke the formal renewal process, the request
must be in writing and the franchising authority must commence renewal
proceedings not later than six months after receipt of such notice. The four-
month period for the franchising authority to grant or deny the renewal now
runs from the submission of the renewal proposal, not the completion of the
public proceeding. Franchising authorities may consider the "level" of
programming service provided by a cable operator in deciding whether to renew.
Franchising authorities are no longer precluded from denying renewal based on
failure to substantially comply with the material terms of the franchise where
the franchising authority has "effectively acquiesced" to such past violations.
However, the franchising authority is estopped from denying renewal if, after
giving the cable operator notice and opportunity to cure, it fails to respond
to a written notice from the cable operator of its failure or inability to
cure. Courts may not reverse a denial of a renewal based on procedural
violations found to be "harmless error."
CHANNEL SET-ASIDES. The 1984 Cable Act permits local franchising authorities
to require cable operators to set aside certain channels for public, education
and governmental access programming. The 1984 Cable Act further requires cable
television systems with 36 or more activated channels to designate a portion of
their channel capacity for commercial leased access by unaffiliated third
parties. While the 1984 Cable Act allowed cable operators substantial latitude
in setting leased access rates, the 1992 Cable Act required leased access rates
to be set according to an FCC-prescribed formula. The FCC adopted such a
formula and implemented regulations in April 1993, but various parties have
filed petitions requesting the FCC to reconsider its decision.
COMPETING FRANCHISES. Questions concerning the right of a municipality to
award de facto exclusive cable television franchises and to impose certain
franchise restrictions upon cable television companies are under consideration
in Preferred Communications, Inc. v. City of Los Angeles, involving a proposed
applicant for a franchise in one of Continental's service areas, in which the
United States Supreme Court declared that cable television operators have First
Amendment rights which cannot be abridged in the absence of overriding
governmental interests. While establishing this broad judicial standard, the
Supreme Court remanded the case to a lower federal court for trial on the
factual issues surrounding a cable television operator's use of public
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rights-of-way and a municipality's interest in awarding a de facto exclusive
franchise, or placing a limit on the number of franchisees. Recently, the
United States Supreme Court denied a petition to review the Ninth Circuit's
January 1994 decision reaffirming that a municipality may not constitutionally
restrict the award of a cable franchise to a single entity. Until the United
States Supreme Court rules definitively on the scope of cable television's
First Amendment protections, the legality of the franchising process and of
various specific franchise requirements is likely to be in a state of flux. It
is not possible at the present time to predict the constitutionally permissible
bounds of cable franchising and particular franchise requirements. However, the
1992 Cable Act, among other things, prohibits franchising authorities from
unreasonably refusing to grant franchises to competing cable television systems
and permits franchising authorities to operate their own cable television
systems without franchises.
OWNERSHIP AND CROSS-OWNERSHIP LIMITATIONS. The 1984 Cable Act codified
existing FCC cross-ownership regulations, which, in part, prohibit LECs from
providing video programming directly to customers within their local exchange
telephone service areas, except in rural areas or by specific waiver of FCC
rules. Several federal district courts have struck down the 1984 Cable Act's
cable/telco cross-ownership prohibition as facially invalid and inconsistent
with the First Amendment. Two district court decisions have been upheld by the
United States Courts of Appeals for the Fourth Circuit and the Ninth Circuit.
Other decisions have been appealed or will be appealed. Similar litigation by
other telephone companies has commenced in several other district courts. The
FCC in 1992 amended its rules to permit local telephone companies to offer
"video dialtone" service for video programmers, including channel capacity for
the carriage of video programming and certain noncommon carrier activities such
as video processing, billing and collection and joint marketing arrangements.
The FCC recently issued an order on reconsideration reaffirming its initial
decision, and this order has been appealed. Several LECs in the service areas
of Continental's cable systems have applied to the FCC for permission to offer
video-dialtone service, and some of these applications have been granted. In
its video dialtone order, the FCC concluded that neither the 1984 Cable Act nor
its rules apply to prohibit the IXC's (i.e., long distance telephone companies
such as AT&T) from providing such services to their customers. Additionally,
the FCC also concluded that where a LEC makes its facilities available on a
common carrier basis for the provision of video programming to the public, the
1984 Cable Act does not require the LEC or its programmer customers to obtain a
franchise to provide such service. This aspect of the FCC's video dialtone
order was upheld on appeal by the U.S. Court of Appeals for the D.C. Circuit.
Because cable operators are required to bear the costs of complying with local
franchise requirements, including the payment of franchise fees, the FCC's
decision could place cable operators at a competitive disadvantage vis-a-vis
services offered on a common carrier basis over local telephone company-
provided facilities. The FCC is currently examining whether a LEC is required
to obtain a franchise, and meet other regulatory requirements of cable systems,
if and when a LEC acts as a programmer over its own video dialtone facilities
because of a court's removal of the statutory prohibition on such programming
activities.
As part of the same proceeding in which it approved "video dialtone", the FCC
recommended that Congress amend the 1984 Cable Act to allow LECs to provide
their own video programming services over their facilities in competition with
their customers' services. The FCC also decided to loosen ownership and
affiliation restrictions currently applicable to telephone companies, and has
proposed to increase the numerical limit on the population of areas qualifying
as "rural" and in which LECs can provide cable service without FCC waiver.
Legislation to repeal the telco/cable cross-ownership ban, subject to certain
regulatory requirements, has been introduced in the U.S. Senate and approved by
the Senate Commerce, Science and Transportation Committee. Under the terms of
this bill, a telephone company could build and operate a cable system within
its region or acquire an in-region cable operator, under certain circumstances.
The bill would also, inter alia, preempt state and locally-imposed barriers to
the provision of intrastate and interstate telecommunications services by cable
system operators in competition with local telephone companies. The outcome of
these FCC legislative or court proceedings and proposals or the effect of such
outcome on cable system operations cannot be predicted.
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The 1984 Cable Act and the FCC's rules also prohibit the common ownership,
operation, control or interest in a cable system and a local television
broadcast station whose predicted grade B contour (a measure of a television
station's significant signal strength as defined by the FCC's rules) covers any
portion of the community served by the cable system. Common ownership or
control has historically also been prohibited by the FCC (but not by the 1984
Cable Act) between a cable system and a national television network, although
the FCC has adopted an order that substantially relaxes the network/cable
cross-ownership prohibitions subject to certain national and local ownership
limits. As a part of the same action, the FCC also voted to recommend to
Congress that the broadcast/cable cross-ownership restrictions contained in the
1984 Cable Act be repealed. Finally, in order to encourage competition in the
provision of video programming, the FCC adopted a rule prohibiting the common
ownership, affiliation, control or interest in cable television systems and MDS
facilities having overlapping service areas, except in very limited
circumstances. The 1992 Cable Act codified this restriction and extended it to
co-located SMATV systems. Permitted arrangements in effect as of October 5,
1992 were grandfathered. In January 1995, the FCC loosened its previously
stringent interpretation of the lack of ability of a cable operator to purchase
a SMATV system in the same franchise area. The 1992 Cable Act permits states or
local franchising authorities to adopt certain additional restrictions on the
ownership of cable television systems. Many of these cross-ownership
limitations would be eliminated or modified by a bill recently approved by the
U.S. Senate Commerce, Science and Transportation Committee.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more
than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder
of more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the United States District Court
decision holding the multiple ownership limit provision of the 1992 Cable Act
unconstitutional.
The FCC has also adopted rules which limit the number of channels on a cable
system which can be occupied by programming in which the entity that owns the
cable system has an attributable interest. The limit is 40% of all activated
channels.
BROADBAND PCS AUCTIONS. PCS represents mobile radio communications services
that can be integrated with a variety of networks. The FCC has allocated 120
MHz of spectrum in the 2GHz band to be licensed to competing broadband PCS
providers, who it is anticipated will offer advanced digital wireless services
in competition with current cellular and specialized mobile radio services as
well as with landline telephone service. Broadband PCS spectrum will be
auctioned by the FCC in three separate auctions that began in December 1994.
Six licenses will be auctioned in each service area, and FCC rules permit some
aggregation of PCS spectrum by PCS operators. The first broadband PCS auction,
which was completed in the first quarter of 1995 included 30 MHz frequency
blocks of spectrum (Blocks "A" and "B") licensed by MTA. The next auction will
include spectrum Blocks C and F, which are available only to parties that meet
specific FCC eligibility criteria and will be licensed using Basic Trading
Areas. The final auctions will include two Basic Trading Area 10 Mhz blocks of
spectrum, Blocks D and E, which will not be subject to the additional
eligibility requirements imposed on Blocks C and F.
EQUAL EMPLOYMENT OPPORTUNITY. The 1984 Cable Act includes provisions to
ensure that minorities and women are provided equal employment opportunities
within the cable television industry. The statute requires the FCC to adopt
reporting and certification rules that apply to all cable system operators with
more than five full-time employees. Pursuant to the requirements of the 1992
Cable Act, the FCC has imposed more detailed annual Equal Employment
Opportunity ("EEO") reporting requirements on cable operators and has expanded
those requirements to all multi-channel video service distributors. Failure to
comply with the EEO requirements can result in the imposition of fines and/or
other administrative sanctions, or may, in certain circumstances, be cited by a
franchising authority as a reason for denying a franchisee's renewal request.
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PRIVACY. The 1984 Cable Act imposes a number of restrictions on the manner in
which cable system operators can collect and disclose data about individual
system customers. The statute also requires that the system operator
periodically provide all customers with written information about its policies
regarding the collection and handling of data about customers, their privacy
rights under federal law and their enforcement rights. In the event that a
cable operator is found to have violated the customer privacy provisions of the
1984 Cable Act, it could be required to pay damages, attorneys' fees and other
costs. Under the 1992 Cable Act, the privacy requirements are strengthened to
require that cable operators take such actions as are necessary to prevent
unauthorized access to personally identifiable information.
ANTI-TRAFFICKING. The 1992 Cable Act precludes cable operators from selling
or otherwise transferring ownership of a cable television system within 36
months after acquisition or initial construction, except for: resales required
by the terms of a contract covering the acquisition of multiple systems; tax-
free sales or reorganizations; governmentally required divestitures; or
internal transfers to a commonly controlled entity. The anti-trafficking
restriction applies to systems acquired prior to the effective date of the new
law (i.e., December 4, 1992) as well as subsequent acquisitions. The FCC may
waive the foregoing restrictions where generally consistent with the public
interest, unless the franchising authority has refused to grant any required
approval. The 1992 Cable Act also requires franchising authorities to act on
any franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
REGISTRATION PROCEDURE AND REPORTING REQUIREMENTS. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they will
carry and certain other information. Additionally, cable operators periodically
are required to file various informational reports with the FCC. Cable
operators who operate in certain frequency bands are required on an annual
basis to file the results of their periodic cumulative leakage testing
measurements. Operators who fail to make this filing or who exceed the FCC's
allowable cumulative leakage index risk being prohibited from operating in
those frequency bands in addition to other sanctions.
TECHNICAL REQUIREMENTS. Historically, the FCC has imposed technical standards
applicable to the cable channels on which broadcast stations are carried, and
has prohibited franchising authorities from adopting standards that were in
conflict with or more restrictive than those established by the FCC. The FCC
has recently revised such standards and made them applicable to all classes of
channels which carry downstream National Television System Committee video
programming. Local franchising authorities are permitted to enforce the FCC's
new technical standards. The FCC also has adopted additional standards
applicable to cable television systems using frequencies in the 108-137 MHz and
225-400 MHz bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
system signal leakage. The 1992 Cable Act requires the FCC to periodically
update its technical standards to take into account changes in technology and
to entertain waiver requests from franchising authorities who would seek to
impose more stringent technical standards upon their franchised cable
television systems. Although the 1992 Cable Act requires the FCC to establish
"minimum technical standards relating to cable televisions systems' technical
operation and signal quality," the FCC has announced that its recently
completed cable television technical standards rule-making satisfies the new
statutory mandate.
POLE ATTACHMENTS. The FCC currently regulates the rates and conditions
imposed by certain public utilities for use of their poles, unless under the
Federal Pole Attachments Act state public utility commissions are able to
demonstrate that they regulate rates, terms and conditions of the cable
television pole attachments. A number of states and the District of Columbia
have certified to the FCC that they regulate the rates, terms and conditions
for pole attachments. In the absence of state regulation, the FCC administers
such pole attachment rates through use of a formula which it has devised and
from time to time revises.
OTHER MATTERS. FCC regulation also includes matters regarding a cable
system's carriage of local sports programming; restrictions on origination and
cablecasting by cable system operators; application of the rules
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governing political broadcasts; customer service; home wiring and limitations
on advertising contained in nonbroadcast children's programming.
Implementing provisions of the 1993 Budget Act, the FCC adopted requirements
for payment of 1994 annual "regulatory fees." Cable television systems were
required to pay regulatory fees of $0.37 per subscriber, which may be passed on
to subscribers as "external cost" adjustments to rates for basic cable service.
This amount is proposed to be increased to $0.51 per subscriber in 1995. Fees
are also assessed for other licenses, including licenses for business radio,
cable television relay systems and earth stations, which, however, may not be
collected directly from subscribers.
COPYRIGHT REGULATION
Cable television systems are subject to federal copyright licensing covering
carriage of broadcast signals. In exchange for making semi-annual payments to a
federal copyright royalty pool and meeting certain other obligations, cable
operators obtain a statutory license to retransmit broadcast signals. The
amount of this royalty payment varies, depending on the amount of system
revenues from certain sources, the number of distant signals carried and the
location of the cable system with respect to over-the-air television stations.
Cable operators are liable for interest on underpaid and unpaid royalty fees,
but are not entitled to collect interest on refunds received for the
overpayment of copyright fees. Originally, the Federal Copyright Royalty
Tribunal was empowered to make and, in fact, did make several adjustments in
copyright royalty rates. This tribunal was eliminated by Congress in 1993. Any
future adjustment to the copyright royalty rates will be done through an
arbitration process to be supervised by the U.S. Copyright Office. Present
rates will remain in place through 1995, barring the successful filing of a new
petition for ratemaking with the Copyright Office and any changes in the FCC's
signal carriage, syndicated exclusivity or sports blackout rules.
Various bills have been introduced into Congress over the past several years
that would eliminate or modify the cable television compulsory license. The FCC
has recommended to Congress that it repeal the cable industry's compulsory
copyright license. The FCC determined that the statutory compulsory copyright
license for local and distant broadcast signals no longer serves the public
interest and that private negotiations between the applicable parties would
better serve the public. Without the compulsory license, cable operators might
need to negotiate rights from the copyright owners for each program carried on
each broadcast station in the channel lineup. Such negotiated agreements could
increase the cost to cable operators of carrying broadcast signals. The 1992
Cable Act's retransmission consent provisions expressly provide that
retransmission consent agreements between television broadcast stations and
cable operators do not obviate the need for cable operators to obtain a
copyright license for the programming carried on each broadcaster's signal.
Copyright music performed in programming supplied to cable television systems
by pay cable networks (such as HBO) and cable programming networks (such as the
USA Network) has generally been licensed by the networks through private
agreements with the American Society of Composers and Publishers ("ASCAP") and
BMI, Inc. ("BMI"), the two major performing rights organizations in the United
States. ASCAP and BMI offer "through to the viewer" licenses to the cable
networks, which cover the retransmission of the cable networks' programming by
cable television systems to their customers. The cable industry has not yet
concluded negotiations on licensing fees with music performing rights societies
for the use of music performed in programs locally originated by cable
television systems.
STATE AND LOCAL REGULATIONS
Because cable television systems use local streets and rights-of-way, cable
television systems are subject to state and local regulation, typically imposed
through the franchising process. State and/or local officials are usually
involved in franchise selection, system design and construction, safety,
service rates, consumer relations, billing practices and community related
programming and services.
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed
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terms and in many cases are terminable if the franchise operator fails to
comply with material provisions. Although the 1984 Cable Act provides for
certain procedural protection, there can be no assurance that renewals will be
granted or that renewals will be made on similar terms and conditions.
Franchises usually call for the payment of fees, often based on a percentage of
the system's gross customer revenues, to the granting authority. Upon receipt
of a franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction, and even from city to city within the same state,
historically ranging from reasonable to highly restrictive or burdensome. The
1984 Cable Act places certain limitations on a franchising authority's ability
to control the operation of a cable system, and the courts have from time to
time reviewed the constitutionality of several general franchise requirements,
including franchise fees and access channel requirements, often with
inconsistent results. On the other hand, the 1992 Cable Act prohibits exclusive
franchises, and allows franchising authorities to exercise greater control over
the operation of franchised cable television systems, especially in the areas
of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multi-channel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of cable
television systems. Moreover, franchising authorities are immunized from
monetary damage awards arising from regulation of cable television systems or
decisions made on franchise grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws and regulations
under which it was granted directly affect the profitability of the cable
television system. Cable franchises generally contain provisions governing
charges for basic cable television services, fees to be paid to the franchising
authority, length of the franchise term, renewal, sale or transfer of the
franchise, territory of the franchise, design and technical performance of the
system, use and occupancy of public streets and number and types of cable
services provided.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulations of a character similar to that of a public utility.
The attorneys general of approximately 25 states have announced the
initiation of investigations designed to determine whether cable television
systems in their states have acted in compliance with the FCC's rate
regulations.
REGULATION OF TELECOMMUNICATIONS ACTIVITIES
As noted above under "Description of Continental--Strategic Investments--
Telecommunications and Technology Investments", Continental provides in certain
of its systems alternate access local telecommunications services over a
portion of its fiber-optic cable facilities, and Continental owns a 20%
interest in TCG. Local telecommunications activities are regulated by either
the FCC or state public utility commissions, or both. In some instances,
Continental or TCG may be required to obtain regulatory permission to offer
such services, and may be required to file tariffs for its service offerings,
depending on whether particular alternate access activities of Continental or
TCG are classified as common carriage or private carriage. (See "Federal
Regulation--Ownership and Cross-Ownership Limitations".)
The foregoing does not purport to be a summary of all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing,
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings, and
administrative and legislative proposals which could change, in varying
degrees, the manner in which cable television systems operate. Neither the
outcome of these proceedings nor their impact upon the cable industry or
Providence Journal or Continental can be predicted at this time.
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RIGHTS OF DISSENTING STOCKHOLDERS
CONTINENTAL
The Continental Merger Stock to be received by holders of Providence Journal
Common Stock will exceed 20% of the aggregate number of shares of Continental
Class A Common Stock and Continental Class B Common Stock outstanding
immediately prior to the Effective Time. Accordingly, each holder of
Continental Voting Stock may demand and perfect appraisal rights in accordance
with the conditions established by Section 262.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS ANNEX IV TO THIS JOINT PROXY
STATEMENT-PROSPECTUS. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF
THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX IV. THIS DISCUSSION AND ANNEX IV SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR
WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY WITH THE
PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF APPRAISAL
RIGHTS.
A holder of record of Continental Voting Stock as of the Continental Record
Date who makes the demand described below with respect to such shares, who
continuously is the record holder of such shares through the Effective Time,
who otherwise complies with the statutory requirements of Section 262 and who
neither votes in favor of the Merger Agreement nor consents thereto in writing
may be entitled to an appraisal by the Delaware Court of Chancery (the
"Delaware Court") of the fair value of his or her shares of stock. All
references in this summary of appraisal rights to a "stockholder" is to the
record holder or holders of shares of Continental Voting Stock. Except as set
forth herein, stockholders of Continental will not be entitled to appraisal
rights in connection with the Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Continental Special Meeting, not less than
20 days prior to the meeting, each constituent corporation must notify each of
the holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of
Section 262. This Joint Proxy Statement-Prospectus shall constitute such notice
to the record holders of Continental Voting Stock.
Continental voting stockholders who desire to exercise their appraisal rights
must not vote in favor of the Merger Agreement or the Merger and must deliver a
separate written demand for appraisal to Continental prior to the vote by the
stockholders of Continental on the Merger Agreement and the Merger. A
stockholder who signs and returns a proxy without expressly directing by
checking the applicable boxes on the reverse side of the proxy card enclosed
herewith that his or her shares of Continental Voting Stock be voted against
the proposal or that an abstention be registered with respect to his or her
shares of Continental Voting Stock in connection with the proposal will
effectively have thereby waived his or her appraisal rights as to those shares
of Continental Voting Stock because, in the absence of express contrary
instructions, such shares of Continental Voting Stock will be voted in favor of
the proposal. (See "The Special Meetings--Solicitation and Voting of Proxies".)
Accordingly, a stockholder who desires to perfect appraisal rights with respect
to any of his or her shares of Continental Voting Stock must, as one of the
procedural steps involved in such perfection, either (i) refrain from executing
and returning the enclosed proxy card and from voting in person in favor of the
proposal to approve the Merger Agreement or (ii) check either the "Against" or
the "Abstain" box next to the proposal on such card or affirmatively vote in
person against the proposal or register in person an abstention with respect
thereto. A demand for appraisal must be executed by or on behalf of the
stockholder of record and must reasonably inform Continental of the identity of
the stockholder of record and that such record stockholder intends thereby to
demand appraisal of the Continental Voting Stock. A person having a beneficial
interest in shares of Continental Voting Stock that are held of record in the
name of another person, such as a broker, fiduciary or other nominee, must act
promptly to cause the record holder
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to follow the steps summarized herein properly and in a timely manner to
perfect whatever appraisal rights are available. If the shares of Continental
Voting Stock are owned of record by a person other than the beneficial owner,
including a broker, fiduciary (such as a trustee, guardian or custodian) or
other nominee, such demand must be executed by or for the record owner. If the
shares of Continental Voting Stock are owned of record by more than one person,
as in a joint tenancy or tenancy in common, such demand must be executed by or
for all joint owners. An authorized agent, including an agent for two or more
joint owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such person is acting as agent for the
record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Continental Voting Stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In
such case, the written demand must set forth the number of shares covered by
such demand. Where the number of shares is not expressly stated, the demand
will be presumed to cover all shares of Continental Voting Stock outstanding in
the name of such record owner.
A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his or her written demand to: Continental Cablevision, Inc.,
The Pilot House, Lewis Wharf, Boston, Massachusetts, 02110, Attention: P. Eric
Krauss, Vice President and Treasurer.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Continental Voting Stock owned, and
that the stockholder is thereby demanding appraisal of his or her shares. A
proxy or vote against the Merger Agreement will not by itself constitute such a
demand. Within ten days after the Effective Time, the surviving corporation
must provide notice of the Effective Time to all stockholders who have complied
with Section 262.
Within 120 days after the Effective Time, either the surviving corporation or
any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the surviving
corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
Accordingly, Continental stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262. If
appraisal rights are available, within 120 days after the Effective Time, any
stockholder who has theretofore complied with the applicable provisions of
Section 262 will be entitled, upon written request, to receive from the
surviving corporation a statement setting forth the aggregate number of shares
of Continental Voting Stock not voting in favor of the Merger Agreement and
with respect to which demands for appraisal were received by Continental and
the number of holders of such shares. Such statement must be mailed within 10
days after the written request therefor has been received by the surviving
corporation.
If a petition for an appraisal is timely filed and assuming appraisal rights
are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of Continental Voting Stock owned by such stockholders,
determining the fair value of such shares exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise
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admissible in court" should be considered, and that "fair price obviously
requires consideration of all relevant factors involving the value of a
company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts
ascertainable as of the date of the merger that throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated
that "elements of future value, including the nature of the enterprise, which
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware Court
and taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a dissenting stockholder of Continental, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
Any holder of shares of Continental Voting Stock who has duly demanded
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote for any purpose any shares subject to such demand or to
receive payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior to
the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal; after this period, the
stockholder may withdraw such demand for appraisal only with the consent of the
surviving corporation. If no petition for appraisal is filed with the Delaware
Court within 120 days after the Effective Time, stockholders' rights to
appraisal shall cease. Any stockholder may withdraw such stockholder's demand
for appraisal by delivering to the surviving corporation a written withdrawal
of his or her demand for appraisal and acceptance of the Merger, except that
(i) any such attempt to withdraw made more than 60 days after the Effective
Time will require written approval of the surviving corporation and (ii) no
appraisal proceeding in the Delaware Court shall be dismissed as to any
stockholder without the approval of the Delaware Court, and such approval may
be conditioned upon such terms as the Delaware Court deems just.
PROVIDENCE JOURNAL
Each stockholder of Providence Journal has the right to dissent from the Plan
of Reorganization and the Merger and, in lieu of receiving Restructured PJC
Common Stock and, in turn, Continental Merger Stock pursuant to the Merger and
New Providence Journal Common Stock pursuant to the PJC Spin-Off, to seek the
"fair value" of all of his, her or its Providence Journal Common Stock, as
determined in accordance with the applicable provisions of the RIBCA. In order
to perfect such dissenters' rights, a stockholder is required to follow the
procedures set forth in Section 74.
SECTION 74 IS REPRINTED IN ITS ENTIRETY AS ANNEX V TO THIS JOINT PROXY
STATEMENT-PROSPECTUS. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF
THE LAW RELATING TO DISSENTERS' RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX V. THIS DISCUSSION AND ANNEX V SHOULD BE REVIEWED CAREFULLY
BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY DISSENTERS' RIGHTS OR WHO WISHES
TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY WITH THE PROCEDURES SET
FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
A Providence Journal stockholder may only elect to dissent from the Plan of
Reorganization and the Merger with respect to all of the Providence Journal
Common Stock registered in his, her or its name. A
242
<PAGE>
stockholder who votes in favor of either the Plan of Reorganization or the
Merger, whether in person at the Providence Journal Special Meeting or by
proxy, will waive his, her or its dissenters' rights. However, a stockholder
is not required to vote against the Plan of Reorganization or the Merger in
order to qualify to exercise dissenters' rights.
Any stockholder electing to exercise the right to dissent must file with
Providence Journal, prior to or at the Providence Journal Special Meeting, a
written objection to the Plan of Reorganization and the Merger. If the Plan of
Reorganization and the Merger are approved by the required vote, and the
stockholder shall not have voted in favor of either, the stockholder must,
within ten days after the date on which the vote was taken, make written
demand on Continental for payment of the fair value of the stockholder's
shares, and, if the proposed Reorganization and Merger are effected,
Continental shall pay to the stockholder, upon surrender of the certificate or
certificates representing the shares, the fair value thereof as of the day
prior to the date on which the vote was taken approving the Plan of
Reorganization and the Merger, excluding any appreciation or depreciation in
anticipation of the Reorganization and the Merger. Any stockholder failing to
make demand within such ten day period shall be bound by the terms of the Plan
of Reorganization and the Merger. Pursuant to Section 74, "fair value" is
measured as of the day prior to the date on which a vote is taken approving
the Plan of Reorganization and the Merger, in this case the day before the
date of the Providence Journal Special Meeting. Any stockholder making the
demand shall thereafter be entitled only to payment as provided in Section 74
and shall not be entitled to vote or to exercise any other rights of a
stockholder.
FAILURE TO MAKE SUCH WRITTEN DEMAND WILL CONSTITUTE A WAIVER OF THE
STOCKHOLDER'S DISSENTERS' RIGHTS. VOTING AGAINST THE PLAN OF REORGANIZATION
AND THE MERGER, WHETHER IN PERSON AT THE PROVIDENCE JOURNAL SPECIAL MEETING OR
BY PROXY, OR ABSTAINING FROM VOTING ON THE PLAN OF REORGANIZATION AND THE
MERGER, DOES NOT BY ITSELF CONSTITUTE A PROPER WRITTEN OBJECTION OR WRITTEN
DEMAND.
A stockholder may not dissent as to less than all the shares registered in
his or her name which are owned beneficially by him or her. A nominee or
fiduciary may not dissent on behalf of any beneficial owner as to less than
all of the shares of the owner registered in the name of the nominee or
fiduciary.
No demand may be withdrawn unless Continental shall consent thereto. If,
however, the demand shall be withdrawn upon consent, or if the Plan of
Reorganization and the Merger shall be abandoned or the stockholders shall
revoke the authority to effect the Plan of Reorganization and the Merger, or
if, on the date of the filing of the articles of merger, Continental is the
owner of all the outstanding shares of the other corporations, domestic and
foreign, that are parties to the Merger, or if no demand or petition for the
determination of fair value by a court shall have been made or filed within
the time provided in Section 74, or if a court of competent jurisdiction shall
determine that the stockholder is not entitled to the relief provided by
Section 74, then the right of the stockholder to be paid the fair value of his
or her shares shall cease and his or her status as a stockholder shall be
restored, without prejudice to any corporate proceedings which may have been
taken during the interim. In such event, the stockholder will be entitled to
receive the shares of Continental Merger Stock and New Providence Journal
Common Stock such stockholder would have been entitled to receive had he, she
or it not exercised dissenters' rights.
Within ten (10) days after the Reorganization, Continental shall give
written notice thereof to each dissenting stockholder who has made demand as
herein provided and shall make a written offer to each dissenting stockholder
to pay for the shares at a specified price deemed by Continental to be the
fair value thereof. The dissenters' notice and offer shall be accompanied by a
balance sheet of Providence Journal, as of the latest available date and not
more than twelve (12) months prior to the making of the offer, and a profit
and loss statement of Providence Journal for the twelve (12) months' period
ended on the date of the balance sheet.
If within thirty (30) days after the date on which the Reorganization was
effected the fair value of the shares is agreed upon between any dissenting
stockholder and Continental, payment therefor shall be made within ninety (90)
days after the date on which the Reorganization was effected, upon surrender
of the
243
<PAGE>
certificate or certificates representing the shares. Upon payment of the agreed
value, the dissenting stockholder shall cease to have any interest in the
shares.
If within the period of thirty (30) days a dissenting stockholder and
Continental do not so agree, then Continental, within thirty (30) days after
receipt of a written request for the filing from any dissenting stockholder
given within sixty (60) days after the date on which the Reorganization was
effected, shall, or at its election at any time within the period of sixty (60)
days may, file a petition in any court of competent jurisdiction in Providence
County in Rhode Island praying that the fair value of the shares be found and
determined. If Continental shall fail to institute the proceeding as provided
in Section 74, any dissenting stockholder may do so in the name of Continental.
All dissenting stockholders, wherever residing, shall be made parties to the
proceeding as an action against their shares quasi in rem. A copy of the
petition shall be served on each dissenting stockholder who is a resident of
Rhode Island and shall be served by registered or certified mail on each
dissenting stockholder who is a nonresident.
Service on nonresidents shall also be made by publication as provided by law.
The jurisdiction of the court shall be plenary and exclusive. All stockholders
who are parties to the proceeding shall be entitled to judgment against
Continental for the amount of the fair value of their shares. The court may, if
it so elects, appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers shall have
such power and authority as shall be specified in the order of their
appointment or an amendment thereof. The judgment shall be payable only upon
and concurrently with the surrender to Continental of the certificate or
certificates representing the shares. Upon payment of the judgment, the
dissenting stockholder shall cease to have any interest in the shares.
The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable in all the circumstances, from the date
on which the vote was taken on the Merger to the date of payment.
The costs and expenses of any proceeding shall be determined by the court and
shall be assessed against Continental, but all or any part of the costs and
expenses may be apportioned and assessed as the court may deem equitable
against any or all of the dissenting stockholders who are parties to the
proceeding to whom Continental shall have made an offer to pay for the shares
if the court shall find that the action of the stockholders in failing to
accept the offer was arbitrary or vexatious or not in good faith. The expenses
shall include reasonable compensation for and reasonable expenses of the
appraisers, but shall exclude the fees and expenses of counsel for and experts
employed by any party; but if the fair value of the shares as determined
materially exceeds the amount which Continental offered to pay therefor, or if
no offer was made, the court in its discretion may award to any stockholder who
is a party to the proceeding such sum as the court may determine to be
reasonable compensation to any expert or experts employed by the stockholder in
the proceeding.
Within twenty (20) days after demanding payment for his, her or its shares of
Providence Journal Common Stock, each stockholder demanding payment shall
submit the certificate or certificates representing his, her or its shares of
Providence Journal Common Stock to Continental for notation thereon that the
demand has been made. His, her or its failure to do so shall, at the option of
Continental, terminate his, her or its rights under Section 74 unless a court
of competent jurisdiction, for good and sufficient cause shown, shall otherwise
direct. If shares of Providence Journal Common Stock represented by a
certificate on which notation has been so made shall be transferred, each new
certificate issued therefor shall bear similar notation, together with the name
of the original dissenting holder of the shares, and a transferee of the shares
shall acquire by the transfer no rights in Providence Journal other than those
which the original dissenting stockholder had after making demand for payment
of the fair value thereof.
Any notice, objection, demand or other written communication required to be
given to Providence Journal or Continental by a dissenting stockholder should
be delivered to the Secretary of such respective corporation at the address set
forth on the cover of this Joint Proxy Statement-Prospectus for the respective
244
<PAGE>
corporation or should be delivered as otherwise permitted by law. Although not
specifically required, Providence Journal and Continental recommend that such
written communications be sent by registered or certified mail, return receipt
requested.
Pursuant to the Merger Agreement, New Providence Journal has agreed to
reimburse Continental for any payments Continental makes to any dissenting
Providence Journal stockholder who become entitled under Section 74 to payment
for such holder's shares of Providence Journal Common Stock and for any other
payments and expenses incurred by Continental in connection with the exercise
by Providence Journal stockholders of their dissenters' rights under Section
74. The Merger Agreement further provides that any Continental Merger Stock
that would have been issued to such dissenting stockholders had they not
exercised their dissenters' rights will be issued to New Providence Journal
after its reimbursement of all payments made by Continental to such dissenting
stockholders.
Stockholders should be aware that in the absence of contrary directions, any
proxy that is not revoked prior to being voted at the Providence Journal
Special Meeting will be voted in favor of the Plan of Reorganization and the
Merger Agreement, and the holder of any shares represented by a proxy that is
so voted will not be entitled to exercise dissenters' rights, even though such
holder may have filed a written objection to the Plan of Reorganization and
Merger Agreement.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF RHODE ISLAND LAW, ANY
STOCKHOLDER WHO IS CONSIDERING DISSENTING FROM THE MERGER AND EXERCISING
DISSENTERS' RIGHTS SHOULD CONSULT HIS OR HER LEGAL ADVISOR.
PAYMENT AND DISTRIBUTION TO STOCKHOLDERS
In order to receive the New Providence Journal Common Stock to which
stockholders will be entitled as a result of the PJC Spin-Off and shares of
Continental Merger Stock, together with any cash in lieu of fractional
interests, pursuant to the Merger (collectively, the "Transaction
Consideration"), each stockholder of Restructured PJC (the former stockholders
of Providence Journal) will be required to surrender the certificates
evidencing the shares of Restructured PJC Common Stock (which formerly
evidenced shares of Providence Journal Common Stock) to such bank or trust
company as is agreed to by Continental and Providence Journal, which shall act
as exchange agent (the "Exchange Agent"). Promptly after the Effective Time,
the Exchange Agent will mail or make available to each stockholder a notice and
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the shares of Restructured PJC Common Stock shall
pass, only upon proper delivery of the shares to the Exchange Agent) advising
such stockholder of the effectiveness of the Reorganization and the Merger and
the procedures to be used in effecting the surrender of shares for payment
therefor. Promptly after surrender of such shares the stockholder will receive
the Transaction Consideration. Stockholders should surrender shares only with a
letter of transmittal. Please do not send shares with the enclosed proxy.
If payment of the Transaction Consideration is to be made to a person other
than a person in whose name the shares are registered, it shall be a condition
of payment that the shares so surrendered be properly endorsed or otherwise be
in proper form for transfer and that the person requesting such payment shall
pay any transfer or other taxes required by reason of the payment to a person
other than the registered holder of the shares, or shall establish to the
satisfaction of Restructured PJC that such tax either has been paid or is not
applicable.
Until surrendered and exchanged in accordance with the Merger Agreement,
after the Effective Time each share of Restructured PJC Common Stock shall
represent only the right to receive the Transaction Consideration to which such
shares are entitled. At the close of business on the day prior to the date of
the Effective Time, the stock transfer books shall be closed and no further
transfers shall be made. If, thereafter, any shares are presented for transfer,
such shares shall be canceled and exchanged for the Transaction
245
<PAGE>
Consideration; provided however, that no party shall be liable to any holder of
certificates formerly representing Restructured PJC Common Stock for any amount
paid to a public official pursuant to any applicable abandoned property,
escheat or similar law.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of New
Providence Journal Series A Common Stock and New Providence Journal Class B
Common Stock will be passed upon by Edwards & Angell. Certain legal matters
relating to the validity of the shares of Continental Class A Common Stock, and
Continental Series B Preferred Stock will be passed upon by Sullivan &
Worcester.
EXPERTS
The portions of this Joint Proxy Statement-Prospectus under the caption
"Description of Continental Business--Competition" and "Legislation and
Regulation" have been reviewed by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Washington, D.C., and the statements therein have been included
herein in reliance upon their opinion.
The consolidated financial statements and schedule of Providence Journal
Company and Subsidiaries as of December 31, 1993 and 1994 and for each of the
years in the three-year period ended December 31, 1994 have been included in
this Joint Proxy Statement-Prospectus in reliance upon the reports of KPMG Peat
Marwick LLP and Deloitte & Touche LLP, independent auditors, appearing herein
and elsewhere in this registration statement, and upon the authority of said
firms as experts in accounting and auditing. The report of KPMG Peat Marwick
LLP, refers to a change in accounting for income taxes and a change in
accounting for postretirement benefits in 1992.
The consolidated financial statements of King Holding Corp. included in this
Joint Proxy Statement-Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and is
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The combined financial statements of Providence Journal Cable as of December
31, 1993 and 1994 and for each of the years in the three-year period ended
December 31, 1994 have been included in this Joint Proxy Statement-Prospectus
in reliance upon the reports of KPMG Peat Marwick LLP and Deloitte & Touche
LLP, independent auditors, appearing herein and elsewhere in this registration
statement and upon the authority of said firms as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP, refers to a change in accounting
for income taxes in 1992.
The consolidated financial statements of King Videocable Company (not
included herein) have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and is included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Continental Cablevision, Inc. and
subsidiaries included in this Joint Proxy Statement-Prospectus and the related
financial statement schedule included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports (which reports express an unqualified opinion and includes an
explanatory paragraph referring to a change in the method of accounting for
income taxes and investments in 1993 and 1994, respectively) appearing herein
and elsewhere in the registration statement, and are included in reliance upon
the reports of such firm given upon their authority as experts in accounting
and auditing.
246
<PAGE>
The financial statements as of December 31, 1993 and 1994 and for each of the
two years ended December 31, 1994 of Columbia Cable of Michigan (a division of
Columbia Associates, L.P.) included in this Joint Proxy Statement-Prospectus
have been audited by Arthur Andersen LLP, independent auditors, as stated in
their report appearing herein.
The financial statements as of September 30, 1994 and for the nine months
ended September 30, 1994 of Clay Cablevision (a division of Rifkin Cable Income
Partners, L.P.) included in this Joint Proxy Statement-Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of N-Com Limited Partnership II at
September 30, 1993 and 1994, and for each of the two years ended September 30,
1994, appearing in this Joint Proxy Statement-Prospectus have been audited by
Ernst & Young, LLP, independent auditors, as stated in their report appearing
herein and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Cablevision of Chicago (a limited partnership) as
of December 31, 1993 and 1994 and for each of the two years ended December 31,
1994 have been included in this Joint Proxy Statement-Prospectus in reliance
upon the report of KPMG Peat Marwick LLP, independent auditors, appearing
herein, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements described above are included in reliance upon such
applicable reports as given upon the authority of such firms as experts in
accounting and auditing.
247
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
Independent Auditors' Reports........................................... F-3
Consolidated Balance Sheets, December 31, 1993, and 1994................ F-4
Consolidated Statements of Operations, for the Years Ended December 31,
1992, 1993, and 1994................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1992, 1993, and 1994................................................... F-6
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1992, 1993, and 1994...................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
KING HOLDING CORP. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-27
Consolidated Balance Sheets, December 31, 1993 and 1994................. F-28
Consolidated Statements of Operations for the Period February 25, 1992
to December 31, 1992 and the years ended December 31, 1993 and 1994.... F-29
Consolidated Statements of Stockholders' Equity for the Period February
25, 1992 to December 31, 1992 and the years ended December 31, 1993 and
1994................................................................... F-30
Consolidated Statements of Cash Flows, for the Period February 25, 1992
to December 31, 1992 and the years ended December 31, 1993 and 1994.... F-31
Notes to Consolidated Financial Statements.............................. F-32
PROVIDENCE JOURNAL CABLE
Independent Auditors' Reports........................................... F-42
Combined Balance Sheets, December 31, 1993 and 1994..................... F-44
Combined Statements of Operations for the Years Ended December 31, 1992,
1993, and 1994......................................................... F-45
Combined Statements of Changes in Group Equity for the Years Ended
December 31, 1992, 1993, and 1994...................................... F-46
Combined Statements of Cash Flows, for the Years Ended December 31,
1992, 1993, and 1994................................................... F-47
Notes to Combined Financial Statements.................................. F-48
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES:
Independent Auditors' Report............................................ F-57
Consolidated Balance Sheets, December 31, 1993 and 1994................. F-58
Statements of Consolidated Operations, for the Years Ended December 31,
1992, 1993, and 1994................................................... F-59
Statements of Consolidated Shareholders' Equity (Deficiency), for the
Years Ended December 31, 1992, 1993 and 1994........................... F-60
Statements of Consolidated Cash Flows, for the Years Ended December 31,
1992, 1993 and 1994.................................................... F-61
Notes to Consolidated Financial Statements.............................. F-62
COLUMBIA CABLE OF MICHIGAN (A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
Report of Independent Public Accountants................................ F-77
Statements of Assets, Liabilities and Control Account, December 31, 1993
and 1994............................................................... F-78
Statements of Operations and Control Account, for the Years Ended
December 31, 1993 and 1994............................................. F-79
Statements of Cash Flows, for the Years Ended December 31, 1993 and
1994................................................................... F-80
Notes to Financial Statements........................................... F-81
CLAY CABLEVISION (A DIVISION OF RIFKIN CABLE INCOME PARTNERS, L.P.)
Report of Independent Accountants....................................... F-84
Balance Sheet, September 30, 1994....................................... F-85
Statement of Operations, for the Nine Months Ended September 30, 1994... F-86
Statements of Cash Flows, for the Nine Months Ended September 30, 1994.. F-87
Notes to Financial Statements........................................... F-88
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
N-COM LIMITED PARTNERSHIP II
Report of Independent Auditors......................................... F-91
Consolidated Balance Sheet, September 30, 1993 and 1994................ F-92
Consolidated Statement of Operations and Partners' Net Capital
Deficiency, for the Year Ended
September 30, 1993 and 1994........................................... F-93
Consolidated Statement of Cash Flows, for the Year Ended September 30,
1993 and 1994......................................................... F-94
Notes to Consolidated Financial Statements............................. F-95
CABLEVISION OF CHICAGO (A LIMITED PARTNERSHIP)
Independent Auditors' Report........................................... F-99
Balance Sheets, December 31, 1993 and 1994............................. F-100
Statements of Operations and Partners' Deficiency, for the Years ended
December 31, 1993 and 1994............................................ F-101
Statements of Cash Flows, for the Years Ended December 31, 1993 and
1994.................................................................. F-102
Notes to Financial Statements.......................................... F-103
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Providence Journal Company:
We have audited the accompanying consolidated balance sheets of Providence
Journal Company and Subsidiaries (the Company) as of December 31, 1993 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the consolidated financial statements of King Holding Corp. a 50%
owned investee company. The Company's investment in King Holding Corp. at
December 31, 1993 and 1994 was $85,154,000 and $76,829,000, respectively and
its equity in losses of King Holding Corp. was $12,602,000 for the period from
February 25, 1992 through December 31, 1992 and $7,244,000 and $8,325,000 for
the year ended December 31, 1993 and 1994, respectively. The consolidated
financial statements of King Holding Corp. were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for King Holding Corp. is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
As discussed more fully in note 2 to the consolidated financial statements,
the Company entered into an Agreement and Plan of Merger, dated November 18,
1994, whereby it will sell all owned and partially owned cable television
businesses to Continental Cablevision, Inc.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Providence Journal Company and
Subsidiaries as of December 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes, and as discussed in
notes 1 and 11 to the consolidated financial statements, the Company also
changed its method of accounting for certain postretirement benefits in 1992.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 10, 1995
F-3
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash................................................. $ 1,017 $ 1,319
Accounts receivable, net of allowance for doubtful
accounts of $2,134 in 1993, and $1,950 in 1994...... 24,432 24,916
Television program rights, net (note 9).............. 5,006 4,699
Inventories, prepaid expenses and other current
assets.............................................. 2,725 4,593
Federal and state income taxes receivable............ 667 1,661
Deferred income taxes (note 7)....................... 5,159 20,526
-------- --------
Total current assets............................... 39,006 57,714
Investments in affiliated companies (note 3)........... 101,780 93,053
Notes receivable (note 4).............................. 22,599 19,513
Television program rights, net (note 9)................ 3,093 2,670
Property, plant and equipment, net (note 5)............ 142,320 130,287
License costs, goodwill and other intangible assets,
net................................................... 51,420 35,222
Other assets (note 11)................................. 30,302 31,331
Net assets of discontinued operations (note 2)......... 385,165 354,923
-------- --------
$775,685 $724,713
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable..................................... $ 7,657 $ 10,202
Accrued expenses and other current liabilities (note
6).................................................. 25,782 92,840
Current installments of long-term debt (note 8)...... 3,505 13,588
Current portion of television program rights payable
(note 9)............................................ 5,251 4,542
-------- --------
Total current liabilities.......................... 42,195 121,172
Long term debt (note 8)................................ 276,601 247,173
Television program rights payable (note 9)............. 2,246 2,822
Other liabilities (note 11)............................ 45,984 44,428
Deferred income taxes (note 7)......................... 14,271 11,944
Deferred compensation (note 11)........................ 34,813 11,287
-------- --------
Total liabilities.................................. 416,110 438,826
-------- --------
Commitments and contingencies (notes 3,10,11,14)
Stockholders' equity (notes 11,15):
Class A common stock, par value $2.50 per share;
authorized 600,000 shares; issued 38,353 shares, and
38,369 shares in 1993 and 1994, respectively........ 96 96
Class B common stock, par value $2.50 per share;
authorized 300,000 shares; issued 47,297 shares, and
47,281 shares in 1993 and 1994, respectively........ 118 118
Additional capital................................... 1,225 1,225
Retained earnings.................................... 361,293 291,791
Unrealized gain on securities held for sale, net..... -- 105
Treasury stock at cost--427 shares and 961 shares in
1993 and 1994, respectively......................... (3,157) (7,448)
-------- --------
Total stockholders' equity......................... 359,575 285,887
-------- --------
$775,685 $724,713
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Newspaper advertising.......................... $ 88,253 $ 93,886 $ 97,006
Circulation.................................... 32,263 31,028 30,887
Broadcasting................................... 43,281 45,506 54,024
Other.......................................... 9,782 10,053 10,374
-------- -------- --------
Total net revenues........................... 173,579 180,473 192,291
-------- -------- --------
Expenses:
Operating...................................... 98,338 96,571 97,607
Selling, general and administrative............ 62,787 74,986 83,656
Depreciation and amortization.................. 21,566 21,412 20,708
Provision for impairment of assets............. 661 3,363 1,016
-------- -------- --------
Total expenses............................... 183,352 196,332 202,987
-------- -------- --------
Operating loss................................... (9,773) (15,859) (10,696)
Other income (expense):
Interest income from related parties (note 12). 31,452 -- --
Management fees from related parties (note 3).. 9,592 3,781 3,525
Interest expense (note 2)...................... (6,455) (2,578) (2,426)
Equity in loss of affiliated companies (note
3)............................................ (11,328) (7,350) (10,962)
Other income (note 4).......................... 5,707 1,051 1,698
-------- -------- --------
Total other income (expense)................. 28,968 (5,096) (8,165)
-------- -------- --------
Income (loss) from continuing operations, before
income taxes (benefits), discontinued
operations, extraordinary item and cumulative
effect of accounting changes.................... 19,195 (20,955) (18,861)
Income taxes (benefits) (note 7)................. 11,837 (5,765) 2,367
-------- -------- --------
Income (loss) from continuing operations, before
discontinued operations, extraordinary item and
cumulative effect of accounting changes......... 7,358 (15,190) (21,228)
Discontinued operations (note 2):
Income (loss) from operations of discontinued
segments, net of income taxes................. 1,555 (7,494) (3,799)
Loss on disposal of segments, net of income tax
benefits...................................... -- -- (34,764)
-------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of accounting changes......... 8,913 (22,684) (59,791)
Extraordinary item, net.......................... -- 1,551 --
Cumulative effect of changes in accounting
principles, net................................. 1,257 -- --
-------- -------- --------
Net income (loss)................................ $ 10,170 $(21,133) $(59,791)
======== ======== ========
Net income (loss) per common share:
From continuing operations..................... $ 85.53 $(178.08) $(250.09)
From discontinued operations................... 18.08 (87.85) (454.31)
Extraordinary item and changes in accounting
principles.................................... 14.61 18.18 --
-------- -------- --------
Net income (loss) per common share............... $ 118.22 $(247.75) $(704.40)
======== ======== ========
Weighted average shares outstanding.............. 86,026 85,302 84,882
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1992 1993 1994
--------- -------- --------
<S> <C> <C> <C>
Operating activities:
Income (loss) from continuing operations..... $ 7,358 $(15,190) $(21,228)
Adjustments to reconcile income (loss) from
continuing operations to cash flows provided
by continuing operations:
Depreciation and amortization.............. 21,566 21,412 20,708
Program rights amortization................ 8,080 7,674 7,356
Provision for impairment of assets......... 661 3,363 1,016
Equity in loss of affiliated companies..... 11,328 7,350 10,962
Interest income on notes receivable........ (22,611) -- --
Deferred income taxes...................... (1,093) (4,846) (3,258)
Provision (payments) for deferred
compensation.............................. (2,952) 5,767 7,740
Changes in assets and liabilities:
Accounts receivable........................ (2,456) (1,451) (484)
Inventories, prepaid expenses and other
current assets............................ 4,187 (660) (1,868)
Accounts payable........................... (5,988) (3,128) 2,545
Accrued expenses and other current
liabilities............................... (153) 1,961 (280)
Other, net................................... 1,326 1,131 1,718
--------- -------- --------
Cash flows provided by continuing
operations.............................. 19,253 23,383 24,927
Income (loss) from discontinued operations..... 1,555 (7,494) (38,563)
Adjustments to reconcile income (loss) from
discontinued operations to cash flows provided
by discontinued operations.................... 28,291 52,451 85,707
--------- -------- --------
Cash flows provided by operating
activities.............................. 49,099 68,340 72,071
Investing activities:
Investment securities held for sale.......... -- (5,551) --
Investments in and advances to affiliated
companies................................... (105,820) (5,783) (6,555)
Dividends from affiliates.................... 2,939 3,301 4,320
Additions to property, plant and equipment... (20,030) (11,597) (6,481)
Collections on notes receivable.............. 15,959 2,751 3,086
Proceeds from sale of assets................. 3,501 1,073 594
--------- -------- --------
Cash flows used in investing activities of
continuing operations....................... (103,451) (15,806) (5,036)
Investment in discontinued operations........ (97,062) (37,555) (26,964)
--------- -------- --------
Cash flows used in investing activities.. (200,513) (53,361) (32,000)
Financing activities:
Proceeds from long-term debt................. 234,100 30,000 --
Principal payments on long-term debt and
financing costs............................. (50,699) (11,153) (19,345)
Payments on television program rights
payable..................................... (8,112) (7,296) (6,760)
Dividends paid............................... (8,128) (8,872) (9,711)
Purchase of treasury stock................... (10,014) (2,387) (4,291)
--------- -------- --------
Cash flows provided by (used in) financing
activities of continuing operations......... 157,147 292 (40,107)
Financing activities of discontinued
operations.................................. (5,000) (15,000) --
--------- -------- --------
Cash flows provided by (used in)
financing activities.................... 152,147 (14,708) (40,107)
Increase (decrease) in cash.................... 733 271 (36)
Net cash provided by (used in) discontinued
operations.................................... (117) (231) 338
--------- -------- --------
Increase in cash of continuing operations...... 616 40 302
Cash at beginning of year...................... 361 977 1,017
--------- -------- --------
Cash at end of year............................ $ 977 $ 1,017 $ 1,319
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B UNREALIZED
COMMON STOCK COMMON STOCK GAIN ON TREASURY STOCK
-------------- -------------- ADDITIONAL RETAINED SECURITIES ---------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS HELD FOR SALE SHARES AMOUNT TOTAL
------ ------ ------ ------ ---------- -------- ------------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 29,
1991................... 38,986 $ 97 47,975 $120 $1,225 $399,267 -- (100) $ (770) $399,939
Treasury stock activity:
Purchases............. -- -- -- -- -- -- -- (1,311) (10,014) (10,014)
Retirement............ (1,021) (2) (290) (1) -- (10,011) -- 1,311 10,014 --
Conversion upon sale of
Class B to Class A
common stock........... 14 -- (14) -- -- -- -- -- -- --
Dividends declared,
$94.60 per share....... -- -- -- -- -- (8,128) -- -- -- (8,128)
Net income.............. -- -- -- -- -- 10,170 -- -- -- 10,170
------ ---- ------ ---- ------ -------- ------- ------ ------- --------
Balances at December 31,
1992................... 37,979 95 47,671 119 1,225 391,298 -- (100) (770) 391,967
Treasury stock activity:
Tender offer and other
purchases............ -- -- -- -- -- -- -- (337) (2,460) (2,460)
Issuance of common
stock from treasury.. -- -- -- -- -- -- -- 10 73 73
Conversion upon sale of
Class B to Class A
common stock........... 374 1 (374) (1) -- -- -- -- -- --
Dividends declared, $104
per share.............. -- -- -- -- -- (8,872) -- -- -- (8,872)
Net loss................ -- -- -- -- -- (21,133) -- -- -- (21,133)
------ ---- ------ ---- ------ -------- ------- ------ ------- --------
Balances at December 31,
1993................... 38,353 96 47,297 118 1,225 361,293 -- (427) (3,157) 359,575
Purchases of treasury
stock.................. -- -- -- -- -- -- -- (534) (4,291) (4,291)
Conversion upon sale of
Class B to Class A
common stock........... 16 -- (16) -- -- -- -- -- -- --
Dividends declared,
$114.40 per share...... -- -- -- -- -- (9,711) -- -- -- (9,711)
Cumulative effect of
change in accounting
principle (note 1(c)).. -- -- -- -- -- -- 5,120 -- -- 5,120
Decrease in unrealized
gain on securities held
for sale............... -- -- -- -- -- -- (5,015) -- -- (5,015)
Net loss................ -- -- -- -- -- (59,791) -- -- -- (59,791)
------ ---- ------ ---- ------ -------- ------- ------ ------- --------
Balances at December 31,
1994................... 38,369 $ 96 47,281 $118 $1,225 $291,791 $ 105 (961) $(7,448) $285,887
====== ==== ====== ==== ====== ======== ======= ====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Providence Journal Company and Subsidiaries (the
"Company") are:
(a) Description of Business and Basis of Consolidation
The consolidated financial statements present the financial position and
results of operations of Providence Journal Company and its wholly-owned and
majority-owned subsidiaries:
. Providence Journal Company, the parent company, engaged in newspaper
operations and its wholly-owned subsidiaries ("Providence Journal").
. Colony Communications, Inc. and its wholly-owned and majority-owned cable
television subsidiaries ("Colony"). As discussed in note 2, these cable
television operations have been presented as discontinued operations.
. Providence Journal Broadcasting Corp. and its wholly-owned television
broadcasting subsidiaries ("Broadcasting").
Investments in affiliates in which the Company has significant influence
(generally 20% to 50% owned) are accounted for using the equity method. Other
investments (generally less than 20% owned) are carried at the lower of cost or
net realizable value. The results of operations of wholly-owned and majority-
owned subsidiaries acquired or disposed of during the year are included in the
consolidated statements of operations since the date of acquisition or up to
the date of disposal. All significant intercompany balances and transactions
have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
(b) Cash
The Company has a cash management program whereby outstanding checks in
excess of cash in the concentration account are not accounted for as reductions
of cash until presented to the bank for payment. At December 31, 1993 and 1994,
the Company reclassified $3,991 and $2,805, respectively, of net outstanding
checks to accounts payable.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Income taxes paid during the year................ $ 9,823 $ 9,815 $ 2,588
======== ======== ========
Interest paid during the year, net of amounts
capitalized..................................... $ 10,686 $20,285 $20,911
======== ======== ========
Obligations incurred for acquisition of
television program rights (non-cash
transactions)................................... $ 5,428 $ 5,898 $ 6,627
======== ======== ========
</TABLE>
During 1992, the Company acquired certain assets and assumed certain
liabilities in connection with various purchase business combinations, as
follows:
<TABLE>
<S> <C>
Tangible assets (primarily property, plant and equipment) acquired. $ 86,388
========
Intangible assets acquired......................................... $270,325
========
Liabilities assumed................................................ $ 24,214
========
Exchange of note receivable in connection with purchase business
combination....................................................... $250,555
========
</TABLE>
F-8
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(c) Marketable Equity Securities
Marketable equity securities consist of one common stock investment, which is
included in other assets on the accompanying consolidated balance sheets. Prior
to January 1, 1994, marketable equity securities were stated at cost.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Under this standard, the Company's marketable equity
securities are considered to be "held for sale" and unrealized gains, net of
the related tax effect, are recorded as a separate component of stockholders'
equity. At December 31, 1993 and 1994, the cost of marketable equity securities
totaled $5,873 and $5,552, respectively; fair market value totaled $14,406 and
$5,727, respectively.
A decline in the market value of any marketable equity security below cost
that is deemed other than temporary results in an adjustment to the cost basis
of the security which is charged to the statement of operations.
(d) Inventories
Inventories, principally comprising raw materials, are stated at the lower of
cost or market. Cost is determined principally on the last-in, first-out (LIFO)
basis. Replacement cost of inventories was $1,433 and $1,945 at December 31,
1993 and 1994, respectively.
(e) Television Program Rights
Television program rights acquired under license agreements are recorded as
assets at the gross value of the related liabilities at the time the programs
become available for showing. The rights are amortized using accelerated
methods over the term of the applicable contract. Amortized costs are included
in operating expenses in the accompanying statements of operations.
Program rights classified as a current asset represent the total amount
estimated to be amortized within a year. Related liabilities due to licensers
are classified as current or long-term in accordance with the payment terms.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to income as incurred; significant
improvements are capitalized. The Company provides for depreciation using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements...................................... 2-45 years
Machinery and equipment......................................... 3-15
Furniture and fixtures.......................................... 5-11
Broadcast equipment............................................. 6-15
</TABLE>
When the Company determines that certain property, plant and equipment is
impaired, a loss for impairment is recorded for the excess of the carrying
value over the fair value of the asset. Fair value is determined by independent
appraisal, if an active market exists for the related asset. Otherwise, fair
value is estimated through forecasts of expected cash flows.
(g) License Costs, Goodwill and Other Intangible Assets
License costs and other intangible assets are stated at cost. Goodwill
represents the excess of purchase price over fair value of net assets acquired.
The Company provides for amortization using the straight-line method over
periods ranging from 5 to 40 years.
F-9
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Amortization expense on intangible assets charged to continuing operations
totaled $3,851, $3,649 and $3,366 in 1992, 1993, and 1994, respectively.
Accumulated amortization on intangible assets totaled $33,440 and $36,002 at
December 31, 1993 and 1994, respectively.
The Company continually reviews its intangible assets to determine whether
any impairment has occurred. The Company assesses the recoverability of
intangible assets by reviewing the performance of the underlying operations, in
particular the future operating cash flows (earnings before income taxes,
depreciation, and amortization) of the acquired operation.
Costs of obtaining debt financing have been deferred and are being amortized
using the straight-line method over the period of the related debt. Deferred
financing costs totaled $7,097 at December 31, 1993 and 1994. Accumulated
amortization at December 31, 1993 and 1994 aggregated $985 and $1,876,
respectively.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.
Effective January 1, 1992, the Company adopted Statement 109 and it has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1992 consolidated statement of operations (see note 7).
(i) Pension and Other Postretirement Benefits
The Company has defined benefit pension plans covering substantially all
employees of Providence Journal and certain employees of Broadcasting. The
plans are funded in accordance with the requirements of the Employee Retirement
Income Security Act.
The Company sponsors a defined life insurance and medical plan for its
newspaper and one of its broadcast operations, respectively. Effective January
1, 1992, the Company adopted Statement of Financial Accounting Standards No.
106, "Employer's Accounting for Postretirement Benefits Other than Pensions",
which establishes a new accounting principle for the cost of retiree health
care and other postretirement benefits (see note 11). The cumulative effect of
the change in method of accounting for postretirement benefits other than
pensions is reported in the 1992 consolidated statement of operations.
(j) Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Derivative financial
instruments are used only to manage well-defined interest rate risks.
The Company has entered into interest rate swap agreements which are
accounted for as a hedge of the obligation and, accordingly, the net swap
settlement amount is recorded as an adjustment to interest expense in the
period incurred (see note 8). Gains and losses upon settlement of a swap
agreement are deferred and amortized over the remaining term of the agreement.
F-10
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(k) Net Income Per Share
Net income (loss) per share is based on the weighted average number of Class
A and Class B shares of common stock outstanding. Restricted stock units and
stock options are both considered common stock equivalents. Common stock
equivalents were anti-dilutive for all periods in which the common stock
equivalents were outstanding.
(2) DISCONTINUED OPERATIONS
On November 18, 1994, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement) with Continental Cablevision, Inc. (Continental),
whereby Continental will acquire all of the Company's cable television
businesses in a tax-free merger. In order to facilitate the tax-free nature of
the merger, the Company will reorganize its corporate structure in a series of
transactions, the end result of which will be to spin-off all non-cable
television businesses into a new company (New Providence Journal). Upon
completion of the spin-off, shareholders of the Company will also own the
equivalent number and class of common shares of New Providence Journal.
The Merger Agreement provides that, as a condition to the merger, each of the
following transactions shall have been completed prior to the closing:
a) The Company will have completed its corporate reorganization described
in the preceding paragraph;
b) The Company will incur additional indebtedness in a minimum principal
amount of $755,000. Such indebtedness will be used to repay existing
indebtedness of the Company and King Holding Corp., complete the King
acquisition (see (c) below), and purchase minority interests in other cable
television subsidiaries/investments; and,
c) The Company will acquire all of the capital stock of King Holding
Corp. (as discussed in note 3(a)), the Company presently owns 50% of such
capital stock). The Company has signed an agreement, dated January 18, 1995
with its joint venture partner, whereby both parties have agreed to the
acquisition by the Company of all capital stock of King Holding Corp. at a
purchase price of $265,000 (including transaction costs).
The merger will be completed by an exchange of shares of the Company (after
spin-off of all non-cable television businesses) for shares of capital stock of
Continental with a value equal to approximately $645,000. The number of
Continental shares exchanged may be reduced to the extent the Company is unable
to acquire minority interests in existing cable television
subsidiaries/investments.
In addition, Continental will assume substantially all liabilities of the
Company's cable television businesses, including $755,000 of the additional
indebtedness described in (b) above. However, the Company will indemnify
Continental from any and all liabilities arising from the non-cable television
businesses, and will be responsible for all Federal and state income tax
liabilities for periods ending on or before the closing date. Pursuant to such
indemnification, New Providence Journal has agreed that for a period of four
years subsequent to the closing it will not sell or otherwise dispose of
assets, nor will it pay dividends or make other distributions such that the
fair market value of New Providence Journal falls below specified levels.
The Company is obligated to make capital improvements to all cable systems
being sold, totaling $55,000 on an annualized basis, from November 18, 1994,
until the closing of the merger.
If the Merger Agreement is terminated under certain limited circumstances,
the Company may be required to pay Continental a termination fee of $42,000,
plus up to an additional $10,000 to reimburse Continental for reasonable fees
and expenses it incurred in connection with the merger transaction.
F-11
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Consummation of the merger requires approval by the shareholders of the
Company and Continental, consent of the FCC to the transfer of control of
certain licenses issued to the Company, and consent and/or waiver from relevant
governmental authorities under certain franchises issued to the Company. As
such, closing of the merger is not expected to be completed until the second
half of 1995.
The net assets of the cable television businesses to be acquired by
Continental are presented in the accompanying consolidated balance sheets as
"net assets of discontinued operations". Discontinued assets consist primarily
of plant and equipment, and intangible assets. Liabilities to be assumed
consist primarily of accounts payable and accrued expenses.
The results of operations of the cable television segment, the cellular
system and the paging subsidiary have been reported as discontinued in the
accompanying consolidated statements of operations. Prior year financial
statements have been reclassified to present these businesses as discontinued
operations. Operating results of these discontinued operations were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1992 1993 1994
-------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $112,334 $ 177,417 $ 177,953
Costs and expenses.......................... (107,824) (185,998) (180,597)
-------- --------- ---------
Income (loss) before income taxes........... 4,510 (8,581) (2,644)
Income tax expense (benefit)................ 2,955 (1,087) 1,155
-------- --------- ---------
Net income (loss)........................... $ 1,555 $ (7,494) $ (3,799)
======== ========= =========
</TABLE>
Income (loss) from operations of discontinued segments includes allocated
interest expense totaling $8,774, $19,807 and $20,674 in 1992, 1993 and 1994,
respectively. Interest allocated to discontinued segments was limited to the
associated interest on debt that is to be repaid in connection with the merger.
The estimated loss on disposal of segments of $34,764, which is net of income
tax benefits of $8,038, includes severance packages, transaction costs and a
provision for loss during the phase-out period of approximately $6,800 (which
includes allocated interest of $21,671). In addition, in 1994 the Company sold
its remaining cellular system investment and its paging subsidiary. As a result
of these transactions, the Company recorded gains of $1,390 (net of phase-out
period operating losses and income taxes).
(3) INVESTMENTS IN AFFILIATED COMPANIES
(a) King Holding Corp.
In February 1992 Providence Journal acquired 50% of King Holding Corp. for
$105,000. King Holding Corp. subsequently acquired all of the common stock of
King Broadcasting Company ("King"), a company engaged in broadcast and cable
television operations, for $547,000. The Company has accounted for this
investment under the equity method.
In connection with this investment the Company received a transaction fee in
1992 totaling $6,000. The transaction fee paid to the Company in 1992 was for
time and effort incurred to structure the merger, secure debt financing, and
related matters. The Company also receives annual governance fees of $1,000,
all of which have been included with management fees from related parties in
the accompanying consolidated statements of operations. Providence Journal has
a management agreement with King to operate its broadcast stations and cable
systems and charged King base contracted management fees of $2,104, $2,525 and
$2,525 in 1992, 1993 and 1994, respectively, which has also been included in
management fees from related parties. The
F-12
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Company charged King $300 and $1,130 for accounting services in 1993 and
1994,respectively, and was also reimbursed $2,202, $2,842 and $3,240, by King
for expenses in its capacity as manager in 1992, 1993 and 1994, respectively.
No fee for accounting services was charged in 1992.
As part of the initial financing of the King transaction, the Company was
awarded a warrant allowing for the purchase of 2,102 shares of Class B
nonvoting common stock at $0.10 per share. In addition, the management
agreement provides for the awarding of certain warrant bonuses, both on an
annual and cumulative basis, based on operating cash flow during defined
periods. The Company was awarded a warrant bonus providing for the purchase of
1,050, 339 and 163 shares, during 1992, 1993 and 1994, respectively, of King's
Class B nonvoting common stock at $0.10 per share. It is not management's
intention to exercise any outstanding warrants.
The Company can also earn cash bonuses based on operating cash flow achieved
during defined periods. The Company recorded a cash bonus under the management
agreement equal to $488 and $257 in 1992 and 1993, respectively. No cash bonus
was earned in 1994.
(b) Copley/Colony, Inc.
Colony owns 50% of Copley/Colony, Inc. ("Copley/Colony") a joint venture,
with Copley Press Electronics Company (Copley), engaged in cable television
operations. Colony has a management agreement with Copley/Colony, which pays it
3% of revenues, to operate its cable television systems and charged
Copley/Colony management fees of $744, $738 and $719 in 1992, 1993 and 1994,
respectively.
Colony and Copley have entered into a letter of intent agreement dated
November 29, 1994, whereby Copley would sell one thousand (1,000) shares of
Class A common stock to Colony for a fixed aggregate purchase price of $47,790
in cash. The purchase and sale of these shares will be consummated in
connection with the acquisition by Continental of all the cable television
businesses of the Company.
(c) Television Food Network, G.P.
In August 1993, the Company, through its wholly owned subsidiaries PJ
Programming, Inc. and Colony Cable Networks, Inc., acquired a 21% interest in
Television Food Network, G.P. The Company controls 20% of the voting interest
in the partnership, which was formed specifically to own and operate the
Television Food Network channel (TVFN). TVFN develops cable television
programming related to food, its preparation and other related topics. The
Company invested $5,001 and $2,500 in the partnership in 1993 and 1994,
respectively. In addition, it has agreed to invest $3,900 in 1995. The
investment is accounted for under the equity method.
Effective March 1994 the Company entered into a sub-lease agreement with TVFN
for use of the Company's C-band primary transponder. The lease is effective
through March 1999. Monthly lease payments received by the Company were $200
through September 1994 and $100, thereafter. The monthly lease payment will be
reduced for each additional sublease agreement the Company enters into. The
Company received $1,700 in rental payments from TVFN in 1994. The Company also
grants TVFN carriage rights on its cable networks.
(d) Linkatel Pacific, L.P.
In July 1993, the Company, through its wholly-owned subsidiary
Colony/Linkatel Networks, Inc., invested in Linkatel Pacific, L.P. (a
development stage enterprise), with two other communications
F-13
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
companies. The Company has a 42% limited interest in the partnership, which was
formed to pursue the development of alternative access networks.
Through December 31, 1994, the Company had invested $4,507 in Linkatel
Pacific, L.P. In addition, the Company has committed to invest an additional
$4,500 during 1995. The investment is accounted for under the equity method.
Summary combined financial information for King Holding Corp.; Copley/Colony,
Inc.; Television Food Network, G.P.; and Linkatel Pacific, L.P. as of December
31, 1993 and 1994, and for the years ended December 31, 1992, 1993 and 1994 is
as follows:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Current assets......................................... $ 61,160 $ 53,009
Current liabilities.................................... (39,703) (55,225)
--------- ---------
Working capital...................................... 21,457 (2,216)
Property, plant and equipment, net..................... 72,772 80,755
Intangible and other assets............................ 161,893 146,841
Net assets of discontinued operations.................. 286,931 255,902
Long-term liabilities.................................. (329,743) (290,140)
--------- ---------
Net assets........................................... $ 213,310 $ 191,142
========= =========
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- ---------
<S> <C> <C> <C>
Revenues...................................... $109,128 $126,795 $ 142,981
======== ======== =========
Operating income.............................. $ 15,725 $ 10,671 $ 7,473
======== ======== =========
Loss from continuing operations............... $(12,827) $ (5,255) $ (10,858)
======== ======== =========
Net loss...................................... $(22,575) $(20,644) $ (34,773)
======== ======== =========
</TABLE>
(4) NOTES RECEIVABLE
In September 1990, Providence Journal advanced the Lowell Sun Publishing
Company and Lowell Sun Realty Company (collectively the "Lowell Sun") $25,650
and agreed to provide a $6,500 revolving credit facility. The loan and
revolving credit facility are available through March 1996. As of December 31,
1994 amounts outstanding bear interest at a floating rate of prime plus 1.25%.
The advance is collateralized by all assets of the Lowell Sun and an interest
in Lowell Sun stock.
As additional consideration for making the advance, the Lowell Sun granted
Providence Journal a warrant to acquire a 41.67% interest in the Lowell Sun.
The warrant is exercisable by Providence Journal between September 1993 and
September 1995. The exercise price is calculated based on the maximum amount
advanced by Providence Journal to the Lowell Sun. In the event that the warrant
is not exercised, Providence Journal will receive a percentage of the increase
in value of the Lowell Sun since September 1990 based upon the warrant formula.
The Company collected in full its note receivable, with a principal balance
including accrued interest of $14,716 and a carrying value of approximately
$11,800, with Dial Page, Inc. in November of 1992. The corresponding gain
($2,916) has been included in other income in the accompanying consolidated
statements of operations.
F-14
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(5) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost, consist of the following at December
31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Land...................................................... $ 17,444 $ 17,054
Machinery and equipment................................... 80,516 78,503
Buildings and improvements................................ 76,216 75,608
Broadcast equipment....................................... 37,593 38,307
Furniture and fixtures.................................... 39,982 39,871
Construction in progress.................................. 651 1,564
-------- --------
252,402 250,907
Less accumulated depreciation............................. 110,082 120,620
-------- --------
$142,320 $130,287
======== ========
</TABLE>
Depreciation expense on property, plant and equipment used in continuing
operations totaled $17,715, $17,761 and $17,342 in 1992, 1993 and 1994,
respectively.
In 1993, the Company wrote down its investment in the Washington Street
Garage by $2,702. The Company wrote down its investment in the Omni Biltmore
Hotel by $561 in 1992.
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Significant components of accrued expenses and other current liabilities
consisted of the following amounts at December 31:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Accrued costs on disposal of the cable television segment... $ -- $35,075
Deferred compensation....................................... -- 31,266
Accrued interest............................................ -- 7,263
Salaries, wages and other employee benefits................. 7,825 7,033
Unearned revenue............................................ 3,211 4,024
Purchase price payable on Palmer Communications, Inc.
acquisition................................................ 6,045 --
Other....................................................... 8,701 8,179
------- -------
$25,782 $92,840
======= =======
</TABLE>
(7) FEDERAL AND STATE INCOME TAXES
As discussed in note 1, the Company adopted Statement 109 as of January 1,
1992. The cumulative effect of this change in accounting for income taxes of
$3,371 was determined as of January 1, 1992 and is included in the cumulative
effect of changes in accounting principles, net, in the consolidated statement
of operations for the year ended December 31, 1992. Income tax expense
(benefit) has been allocated as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Continuing operations............................. $11,837 $(5,765) $ 2,367
Operations of discontinued segments............... 2,955 (1,087) 1,155
Loss on disposal of segments...................... -- -- (8,038)
Extraordinary item................................ -- 799 --
Stockholder's equity.............................. -- -- 70
Changes in accounting principles.................. (4,460) -- --
------- ------- -------
$10,332 $(6,053) $(4,446)
======= ======= =======
</TABLE>
F-15
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1992:
U.S. Federal.................................. $13,316 $(3,137) $ 10,179
State......................................... (386) 2,044 1,658
------- ------- --------
$12,930 $(1,093) $ 11,837
======= ======= ========
Year ended December 31, 1993:
U.S. Federal.................................. $ (547) $(4,886) $ (5,433)
State......................................... (372) 40 (332)
------- ------- --------
$ (919) $(4,846) $ (5,765)
======= ======= ========
Year ended December 31, 1994:
U.S. Federal.................................. $ 6,272 $(3,258) $ 3,014
State......................................... (647) -- (647)
------- ------- --------
$ 5,625 $(3,258) $ 2,367
======= ======= ========
</TABLE>
During the fourth quarter of 1994 the Company agreed to a final settlement
with the Internal Revenue Service (IRS) relating to examinations of its income
tax returns for the years 1984 through 1986. In addition, the Company also
agreed to a settlement in connection with the IRS initiative for settlement of
intangible asset issues.
Deferred tax liabilities previously recorded for uncertainties related to
income taxes in connection with prior purchase business combinations were
adjusted to reflect the revised tax basis resulting from the aforementioned
settlements. As a result of these adjustments, deferred tax liabilities and
goodwill associated with the purchase business combinations, were reduced by
approximately $12,500.
During 1994, the Company provided additional income tax expense of $6,000,
relating primarily to interest on settlements discussed above and various
contingencies on income tax exposures identified during on-going examinations.
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax income from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
1992 1993 1994
------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)....... $ 6,526 $(7,125) $ (6,413)
Increase (decrease) in income taxes resulting
from:
Reserve for tax contingencies and interest on
settlements.................................. -- -- 6,000
Equity in net loss of King Holding Corp....... 4,285 2,463 2,831
State and local income taxes, net of federal
income tax................................... 1,117 (219) (427)
Rehabilitation credit......................... -- (1,248) --
Amortization of goodwill...................... 138 271 231
Equity in earnings of affiliate not subject to
taxation because of dividends received
deduction for tax purposes................... (447) (47) (405)
Other, net.................................... 218 140 550
------- ------- --------
$11,837 $(5,765) $ 2,367
======= ======= ========
</TABLE>
F-16
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Gross deferred tax assets:
Deferred compensation................................. $ 14,892 $ 14,915
State net operating loss carryforwards................ 4,481 3,252
Investment and other reserves......................... 5,219 5,117
Partnership investment, principally due to book and
tax basis differences................................ 1,325 --
Self-insurance reserves............................... 1,103 1,027
Vacation accrual...................................... 811 702
Postretirement benefits............................... 942 1,897
Accounts receivable, principally due to allowance for
doubtful accounts.................................... 598 438
Loss on disposal of segments.......................... -- 7,021
Other................................................. 3,364 3,510
-------- --------
Total gross deferred tax assets..................... 32,735 37,879
Less valuation allowance............................ (4,535) (3,252)
-------- --------
Net deferred tax assets............................. 28,200 34,627
-------- --------
Gross deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest................ (19,470) (15,477)
Net intangibles, principally due to differences in
basis................................................ (11,758) (4,140)
Pension income........................................ (4,355) (4,016)
Partnership investment................................ -- (486)
Other................................................. (1,729) (1,926)
-------- --------
Total gross deferred tax liabilities................ (37,312) (26,045)
-------- --------
Net deferred tax asset (liability).................. $ (9,112) $ 8,582
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible, or the recovery of taxes
paid in the carryback period. Management considers the scheduled reversal of
deferred tax liabilities, available taxes in the carryback period, projected
future taxable income and tax planning strategies in making this assessment.
Management's analysis of the realizability of deferred tax assets indicates
that temporary differences relating to certain costs for the disposal of a
segment and certain amounts accrued for deferred compensation, will reverse in
1995. The net operating loss resulting in 1995, due to the reversal of these
temporary differences, can be carried back and offset in full by taxable income
for the year ended December 31, 1992, totaling approximately $42,000. Deferred
tax assets related to these temporary differences total approximately $17,000,
at December 31, 1994.
Based upon its consideration of the aforementioned items, management believes
it is more likely than not the Company will realize the benefits of recorded
deferred tax assets, net of the valuation allowance, as of December 31, 1994.
F-17
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The valuation allowance for deferred tax assets as of January 1, 1993 was
$4,141. The net change in the total valuation allowance was an increase of $394
in 1993 and a decrease of $1,283 in 1994. Changes to the valuation allowance
relate principally to deferred tax assets recorded for state net operating loss
carryforwards.
At December 31, 1994, the Company had net operating loss carryforwards for
state income tax purposes of approximately $60,052 which are available to
offset future state taxable income, if any, expiring in various years ending in
2009.
(8) LONG-TERM DEBT
At December 31, 1993 and 1994, long-term debt consists of the following:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Revolving credit and term loan facility at rates of
interest averaging 4.8% and 5.8% in 1993 and 1994,
respectively............................................ $262,000 $243,655
Bonds payable at various rates of interest averaging 3.5%
payable through December 2022........................... 10,000 9,900
Note payable at an annual rate of interest equal to 18%
payable through April 2002.............................. 8,014 7,123
Other.................................................... 92 83
-------- --------
Total long-term debt................................... 280,106 260,761
Less current installments................................ 3,505 13,588
-------- --------
Long-term debt, excluding current installments......... $276,601 $247,173
======== ========
</TABLE>
Scheduled principal payments on outstanding debt total $260,761 and are due
in the following years: 1995--$13,588; 1996--$26,015; 1997--$45,525; 1998--
$60,035; 1999--$52,545 and thereafter--$63,053.
In September of 1992 the Company negotiated a $340,000 revolving credit and
term loan facility with a syndicate of banks to refinance existing debt,
complete certain acquisitions and finance working capital requirements. The
agreement consists of a $240,000 two-year revolving credit, converting to a
seven-year term loan with a final maturity of September 30, 2001 and a $100,000
eight-year revolving credit with a final maturity of September 30, 2000. The
agreement provides for borrowings indexed to the higher of the managing banks'
prime rate or federal funds rate, the certificate of deposit rate or eurodollar
rate at the option of the Company, plus certain margins as defined in the
agreement. A commitment fee of 3/8% per annum is payable on the unused portion
of the facilities, quarterly in arrears. At December 31, 1994, the Company had
$93,845 available for use under the agreement. Commitments under the $240,000
revolving credit and term loan began reducing on a quarterly basis in the
fourth quarter of 1994. Quarterly reductions will range from $2,500 to $15,500
over the term of the loan.
The facilities are secured by a pledge of stock of Colony Communications,
Inc. and its subsidiaries, Providence Journal Broadcasting Corp. and its
subsidiaries, in addition to a pledge of intercompany notes due to the Company
from Providence Journal Broadcasting Corp.
The revolving credit and term loan facilities contain restrictive covenants
which, among other things, include limitations as to levels of indebtedness,
capital expenditures and sales of subsidiaries.
F-18
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
In January 1993, the Company retired an industrial revenue bond with a face
value of $9,500 for $7,150. The gain resulting from this transaction, totaling
$1,551 net of tax, has been presented as an extraordinary item in the 1993
statement of operations. In addition, during December 1993 the Company settled
the 11.25% note payable and incurred a prepayment penalty equal to $546
(included with discontinued operations). Both retirements were funded through
additional borrowings under the revolving credit and term loan facility.
In November 1992, the Company entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its revolving credit and term
loan facilities described above. The interest rate under the swap agreement is
equal to 6.71% plus an applicable margin as defined in the revolving credit and
term loan facility which effectively sets the interest rate at 8.1% on the
first $200,000 of outstanding debt. The Company recorded additional interest
expense during 1993 and 1994 totaling approximately $6,883 and $4,880,
respectively, which represents the excess of the swap agreement rate over the
original contractual rate. The notional amounts and respective periods covered
under the agreement are as follows:
<TABLE>
<CAPTION>
AMOUNT PERIOD
------ ------
<S> <C>
$200,000............................... December 30, 1992--December 30, 1996
$175,000............................... December 30, 1996--December 30, 1997
$150,000............................... December 30, 1997--December 30, 1999
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap agreement, however, the Company does not
anticipate nonperformance under the agreement.
(9) TELEVISION PROGRAM RIGHTS PAYABLE
Television program rights payable consist of the gross value of payments due
on the acquisition of program rights. Future payments total $7,364 and are due
in the following years: 1995--$4,542; 1996--$1,619; 1997--$934; 1998--$162; and
1999--$107.
Television program rights are reviewed periodically and, if necessary,
adjusted to estimated net realizable value. Accumulated amortization on
television program rights totaled $17,272 and $24,628 at December 31, 1993 and
1994, respectively.
(10) OPERATING LEASES
The Company has certain noncancelable operating leases with renewal options
for land, buildings, machinery and equipment. Future minimum lease payments
under noncancelable operating leases are due in the following years: 1995--
$4,631; 1996--$3,826; 1997--$3,661; 1998--$3,228; 1999--$2,929; and
thereafter--$16,056. Gross rental expense for the years ended December 31,
1992, 1993 and 1994, was $1,604, $2,173, and $5,167, respectively.
Future minimum rental income under noncancelable subleases is as follows:
1995--$2,146; 1996--$2,338; 1997--$2,565; 1998--$2,838; and 1999--$1,704.
Sublease rental income totaled $2,100 in 1994. There was no sublease rental
income in 1992 and 1993.
(11) PENSIONS AND OTHER EMPLOYEE BENEFITS
(a) Defined Benefit Pension Plans
The Company has two noncontributory defined benefit retirement plans. The
Company's funding policy for the defined benefit plans is to contribute such
amounts as are deductible for federal income tax purposes. Benefits are based
on the employee's years of service and average compensation immediately
preceding retirement.
F-19
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The funded status of the defined benefit plans is as follows:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations............................ $(47,939) $(49,956)
======== ========
Accumulated benefit obligations....................... $(51,926) $(54,169)
======== ========
Projected benefit obligations........................... $(68,045) $(71,227)
Plan assets at fair value (primarily corporate equity
and debt securities, government securities and real
estate)................................................ 95,230 89,106
-------- --------
Excess of plan assets over projected benefit
obligations.......................................... $ 27,185 $ 17,879
======== ========
</TABLE>
Certain changes in the items shown above are not recognized as they occur,
but are amortized systematically over subsequent periods. Unrecognized amounts
to be amortized and amounts included in the consolidated balance sheets are
shown below:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Unrecognized net gain (loss)............................... $ 1,564 $(8,336)
Unrecognized net transition asset being amortized
principally over 18 years................................. 13,184 11,956
Unrecognized prior service cost due to plan amendment...... (3,856) (3,504)
Prepaid pension cost (included in other assets)............ 16,293 17,763
------- -------
Excess of plan assets over projected benefit obligations. $27,185 $17,879
======= =======
</TABLE>
The components of 1992, 1993 and 1994 pension income as determined by the
plans' actuary, are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Service cost..................................... $(1,556) $(1,971) $(2,017)
Interest cost.................................... (4,309) (5,022) (5,093)
Actual return on plan assets..................... 6,594 8,681 (2,724)
Net amortization of unrecognized net assets and
deferrals....................................... 1,284 (691) 11,304
------- ------- -------
Pension income................................. $ 2,013 $ 997 $ 1,470
======= ======= =======
</TABLE>
The assumptions used in the above valuations are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 8.0% 7.5% 7.5%
Rate of increase in compensation levels.................... 5.5 5.0 5.0
Expected long-term rate of return on assets................ 8.5 8.5 8.5
</TABLE>
(b) Defined Contribution and Incentive Compensation Plans
The Company contributes to defined contribution plans based on the amount of
each employee's plan contribution, not to exceed a predetermined amount as
defined by each plan. The total expense of these plans was $1,115, $1,086 and
$1,150 in 1992, 1993 and 1994, respectively.
F-20
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company has a deferred incentive compensation plan which is administered
by the Executive Committee of the Board of Directors. The expense under this
plan was $2,492, $5,330 and $12,747 in 1992, 1993 and 1994, respectively. On
October 26, 1994, the Company's Board of Directors voted to terminate and pay-
out the aforementioned deferred incentive compensation plan. Payment will be
made in 1995 upon revaluation of the Company. As of December 31, 1993 and 1994,
the amount accrued under this plan equaled $23,385 and $31,266, respectively.
The 1994 amount has been classified as current.
(c) Other Postretirement Benefit Plans
In addition to the Company's defined benefit pension plans, Broadcasting
provides postretirement medical benefits to a limited group of employees and
the Journal provides postretirement life insurance benefits to substantially
all of its employees. The plans are non-contributory and are not funded.
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", as of
January 1, 1992. The cumulative effect of adopting Statement 106 was recognized
in full during 1992 and totaled $2,114 (net of income taxes).
The Company's accrued postretirement benefit cost as of December 31, 1993 and
1994 was $3,008 and $3,086, respectively, consisting primarily of accumulated
postretirement benefit obligations for retirees. Net periodic postretirement
benefit cost for 1992, 1993 and 1994 totaled $251, $252 and $300, respectively,
consisting primarily of interest costs.
For measurement purposes relating to the medical plan, a medical trend rate
of 17.0% for pre-65 year old participants was used grading to 7.0% after ten
years and a medical trend rate of 12.0% for post-64 year old participants was
used grading to 6.0% after six years. A 1% change in the medical trend rate
does not result in a material impact to the Company's reported postretirement
benefits. The discount rate used in determining the accumulated postretirement
benefit obligation for the medical and life insurance plans was 7.5% in 1993
and 1994.
(d) Supplemental Retirement Plan
The Company maintains an unfunded supplemental retirement plan which provides
supplemental benefits to a select group of senior management employees. At
December 31, 1993 and 1994, the vested benefit obligation was $211 and $376,
respectively, and the accumulated benefit obligation was $1,649 and $2,593,
respectively. The projected benefit obligation totaled $4,154 and $4,955,
respectively, at December 31, 1993 and 1994.
The net periodic pension cost for 1993 and 1994 was $1,501 and $997,
respectively, consisting of service and interest costs. An assumed discount
rate of 7.5% and compensation level increase rate of 5.0% were used at December
31, 1993 and 1994.
(e) Restricted Stock Unit Plan
During 1993, the Company established a Restricted Stock Unit Plan for certain
key executives. Participants are awarded restricted stock units with each unit
being equivalent to one share of Class A Common Stock. Restricted stock units,
including additional units accrued as a result of dividends and reinvested
dividends, will be 100% vested at the end of three years from the date of the
award. Upon vesting, the restricted stock units will be paid out, net of taxes,
in actual shares of Class A Common Stock. Participants will be offered an
opportunity to defer such payout. Vesting is accelerated for death, total
F-21
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
disability, termination other than for cause, and for retirement (pro-rata). In
connection with the Plan, a total of 680 Class A shares have been reserved. As
of December 31, 1993 and 1994, 655 and 666 units, respectively, were awarded.
Compensation expense, included in continuing operations, totaled $405 and
$2,400, during 1993 and 1994, respectively.
(f) Stock Option Plans
Effective October 1, 1994, the Board of Directors of the Company adopted the
"1994 Employee Stock Option Plan" and the "1994 Non-Employee Director Stock
Option Plan", (The "Option Plans"). The Option Plans are being submitted for
approval, by the stockholders of the Company, at its Annual Meeting in 1995. If
such approval has not occurred by August 31, 1995, the aforementioned Option
Plans will be terminated, and any option grants previously made shall be void.
Assuming that approval is obtained prior to August 31, 1995, and assuming
stockholder approval of the Plan of Reorganization and the Merger, the Option
Plans will remain in effect until the earlier of October 1, 1999 or termination
of the aforementioned Option Plans by the Board of Directors of New Providence
Journal.
Under the terms of the Option Plans, key employees recommended by the
Executive Committee of the Board (or by any other committee appointed by the
Board consisting of two or more non-employee Directors) and all ten non-
employee directors, are eligible to receive grants of stock options. The
maximum number of shares of Class A Common Stock that can be used for purposes
of the Option Plans is 4,000. Shares may be awarded from authorized and
unissued shares or from treasury shares, as determined by the Executive
Committee.
Options granted under the "1994 Employee Stock Option Plan" are exercisable
in four equal annual installments beginning one year after the grant date.
Options under the "1994 Non-Employee Director Stock Option Plan" are
exercisable on the first anniversary date of the grant. Options granted under
both plans have a term of ten years.
Upon a "Change of Control" as defined in the Option Plans, all options
granted will become immediately vested and exercisable. During 1994, 687
options were granted, at an exercise price of $7,700. None of the options were
exercisable as of December 31, 1994.
(g) Change in Control Agreements
The Company has agreements with various management employees which only
become effective upon a change-in-control of the Company. These agreements were
executed effective October 11, 1993.
In event of a change of control, the agreements offer a maximum three year
term of employment with responsibilities, compensation, and benefits at least
commensurate as those during the prior six (6) months. If terminated
involuntarily, the individuals are entitled to a maximum of 299% of their
highest base pay and average bonus received during the prior three years as a
lump sum severance payment. In a supplemental agreement, also executed on
October 11, 1993, the Company committed to paying the severance stated above in
the event an individual was involuntarily terminated as a result of corporate
restructuring, even if prior to a change-in-control.
(12) ACQUISITION
In December 1992, the Company completed the acquisition of the cable
television assets of Palmer Communications, Inc. (Palmer) for approximately
$326,000. The Company has accounted for this acquisition as a purchase and has
included the results of operations in the accompanying consolidated financial
statements from the date of acquisition.
F-22
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
In December 1990, the Company advanced Palmer $210,500 in cash comprising a
six-year term loan of $205,500 and revolving credit commitment of $5,000. In
December 1992, the note was settled in full in connection with the acquisition
of Palmer's cable television assets. Interest income earned on this note
totaled $31,452 during 1992.
(13) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
(a) Current Assets and Liabilities
The carrying amount of cash, trade receivables, trade accounts payable and
accrued expenses approximates fair value because of the short maturity of these
instruments.
(b) Notes Receivable
The fair values of the Company's notes receivable are based on the amount of
future cash flows associated with each instrument, discounted using current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same maturities.
(c) Long-Term Debt and Obligations for Television Program Rights
The fair values of each of the Company's long-term debt instruments are based
on the amount of future cash flows associated with each instrument discounted
using the Company's current borrowing rate, for similar debt instruments of
comparable maturity.
The fair value of obligations for television program rights are based on
future cash flows, discounted using the Company's current borrowing rate, over
the term of the related contract.
(d) Interest Rate Swaps
The fair value of interest rate swaps is the amount at which they could be
settled, based on estimates obtained from dealers. The amount of payment
required to settle outstanding interest rate swaps at December 31, 1993
approximated $12,135. At December 31, 1994 settlement approximated a $9,443
receivable to the Company.
(e) Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The estimated fair value of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993 AT DECEMBER 31, 1994
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Notes receivable.............. $ 22,599 $ 22,599 $ 19,513 $ 19,513
========== ========== ========== ==========
Long-term debt................ $ 280,106 $283,409 $260,761 $263,430
========== ========== ========== ==========
Television program rights
payable...................... $ 7,497 $ 7,016 $ 7,364 $ 6,458
========== ========== ========== ==========
</TABLE>
F-23
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(14) COMMITMENTS AND CONTINGENCIES
The Company has outstanding payment commitments at December 31, 1994, for not
yet available broadcast television programming, totaling $22,950.
The Company has insurance programs for workers' compensation, general
liability, auto and certain health coverages which comprise a form of self-
insurance. The Company's liability for large losses is capped, individually and
in the aggregate, through contracts with insurance companies. In addition, the
Company is self-insured for environmental hazards. An estimate for claims
incurred but not paid is accrued annually.
The Company is party to various claims, legal actions and complaints arising
in the ordinary course of business. In the opinion of management, all such
matters are adequately covered by insurance or, if not so covered, are without
merit or are of such kind, or involve such amounts, that unfavorable
disposition would not have a material effect on the consolidated financial
position or results of operations of the Company.
The Company has a letter of credit commitment in an amount not to exceed
$12,000 in support of industrial revenue bonds of a wholly-owned subsidiary.
In 1987, the Company repurchased approximately 8% of its outstanding shares
of common stock from an unaffiliated party. Additional consideration may be
payable to the seller in the event of a significant change in the ownership of
the Company prior to April 2002. Management does not believe that the merger
discussed in note 2 will result in any contingent consideration.
In October, 1992, the Congress of the United States passed the Cable
Television Consumer Protection and Competition Act of 1992 (Cable Act). As a
result the 1992 Cable Act, several cable television systems of the Company are
subject to regulation by local franchise authorities and/or the FCC.
Regulations imposed by the 1992 Cable Act, among other things, allow regulators
to limit and reduce the rates that cable operators can charge for certain basic
cable television services and equipment rental charges. The Company has been
notified by certain franchise authorities that various regulated rates charged
to subscribers were in excess of the rates permitted. The Company has reviewed
the notifications as well as the disputed rates and has accrued amounts for
refunds it believes will be made.
Further rules and regulations are being considered by the FCC, however, these
regulations have not yet been finalized. The ultimate impact on the operations
of the Company resulting from existing rules and regulations and proposed rules
and regulations, if any, cannot be determined.
On August 12, 1994, Department of Insurance regulators seized control of
Confederation Life Insurance Company. The Company's Qualified Compensation
Deferral Plan has an investment contract with Confederation Life Insurance
Company. The contract was entered into in 1991 and is scheduled to mature on
January 2, 1996. As a result of the seizure, the value of the contract as of
August 11, 1994, has been frozen at $3,840. The Company has agreed to guarantee
the difference between the amount eventually paid by the regulators and the
contract value on the seizure date. To date this amount cannot be quantified.
The Company's share of other allocated fees associated with the settlement
process would not have a material effect on the consolidated financial position
or results of operations of the Company.
(15) STOCKHOLDERS' EQUITY
The Company has two classes of common stock: Class A and Class B. Each class
has the same rights and privileges, except that Class A common stock is
entitled to one vote per share, whereas Class B common stock is entitled to
four votes per share. In addition, the transfer of Class B common stock is
limited to "Permitted Transferees" only, otherwise the shares convert to Class
A common stock upon sale.
F-24
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Effective September 26, 1990, pursuant to a shareholder rights agreement, the
Company issued to shareholders one common stock right for each share of Class A
or Class B common stock then outstanding. The right entitles the holder to
purchase one share of Class A or Class B common stock at a purchase price of
$35,000 per share. Upon the occurrence of certain events, as defined in the
rights agreement, the Board of Directors may order the exchange of three common
shares for each right held. The shareholder rights agreement will be terminated
in connection with the closing under the Merger Agreement and a substantially
similar agreement will be entered into by New Providence Journal.
Treasury stock at December 31, 1993 and 1994, consisted of 221 and 641, Class
A shares and 206 and 320 Class B shares, respectively.
(16) BUSINESS SEGMENT INFORMATION
The Company operates in principally two industries, publishing and broadcast
television. Publishing consists primarily of the publication and sale of the
only daily newspaper serving Rhode Island and parts of southeastern
Massachusetts. Broadcast television consists of four stations that serve
markets in Louisville, Charlotte, Tucson and Albuquerque.
F-25
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Operating results and other financial data for the principal business
segments of the Company for 1992, 1993 and 1994 are presented below. Operating
income (loss) by business segment is total revenue less operating expenses.
Other income (expense), income taxes and extraordinary items have all been
excluded from the computation of operating income (loss) by segment.
Identifiable assets by business segment are those assets used in Company
operations in each segment. Capital expenditures are reported exclusive of
acquisitions.
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Publishing.................................. $120,516 $124,914 $127,893
Broadcasting................................ 43,281 45,506 54,024
Other....................................... 9,782 10,053 10,374
-------- -------- --------
$173,579 $180,473 $192,291
======== ======== ========
Operating income (loss):
Publishing.................................. $ 10,590 $ 9,891 $ 9,233
Broadcasting................................ (5,276) (2,213) 5,576
Corporate................................... (14,441) (20,886) (26,386)
Other....................................... (646) (2,651) 881
-------- -------- --------
$ (9,773) $(15,859) $(10,696)
======== ======== ========
Identifiable assets
Publishing.................................. $158,878 $162,327 $174,108
Broadcasting................................ 116,837 108,305 85,724
Discontinued operations, net................ 390,123 385,165 354,923
Investments in affiliated companies......... 106,648 101,780 93,053
Other....................................... 20,947 18,108 16,905
-------- -------- --------
$793,433 $775,685 $724,713
======== ======== ========
Depreciation and amortization:
Publishing.................................. $ 10,387 $ 11,426 $ 11,198
Broadcasting................................ 10,162 8,682 7,856
Other....................................... 1,017 1,304 1,654
-------- -------- --------
$ 21,566 $ 21,412 $ 20,708
======== ======== ========
Capital expenditures
Publishing.................................. $ 14,870 $ 9,962 $ 3,756
Broadcasting................................ 3,746 1,368 1,587
Other....................................... 1,414 267 1,138
-------- -------- --------
$ 20,030 $ 11,597 $ 6,481
======== ======== ========
</TABLE>
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
King Holding Corp.:
We have audited the accompanying consolidated balance sheets of King Holding
Corp. and subsidiaries as of December 31, 1993 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period February 25, 1992 (date of commencement of operations) to December
31, 1992 and for the years ended December 31, 1993 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of King Holding Corp. and
subsidiaries at December 31, 1993 and 1994, and the results of their operations
and their cash flows for the periods ended December 31, 1992, 1993 and 1994, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1995
F-27
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents............................ $ 833 $ 3,578
Accounts receivable--net............................. 23,685 26,801
Film and syndication rights, current portion......... 10,589 7,995
Prepaid and other current assets..................... 2,137 1,604
-------- --------
Total current assets............................... 37,244 39,978
-------- --------
PROPERTY AND EQUIPMENT--Net............................ 58,389 58,131
-------- --------
OTHER ASSETS:
Film and syndication rights, long-term portion....... 4,567 787
Deferred financing costs--net........................ 12,107 10,625
Intangible assets--net............................... 130,887 124,070
Long-term pension asset.............................. 3,481 2,927
Other assets......................................... 94 44
-------- --------
Total other assets................................. 151,136 138,453
-------- --------
NET ASSETS OF DISCONTINUED OPERATIONS.................. 286,930 255,902
-------- --------
TOTAL ASSETS....................................... $533,699 $492,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 15,000 $ 28,804
Current portion of film and syndication rights....... 9,614 7,753
Accounts payable and other accrued expenses.......... 9,756 12,247
-------- --------
Total current liabilities.......................... 34,370 48,804
LONG-TERM OBLIGATIONS:
Long-term debt....................................... 300,000 265,245
Film and syndication rights obligations.............. 5,525 1,501
Deferred income taxes................................ 17,948 17,202
Other................................................ 5,213 5,721
-------- --------
Total liabilities.................................. 363,056 338,473
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, Class A; $0.10 par value; 200 shares
authorized, issued and outstanding..................
Common stock, Class B (nonvoting); $0.10 par value;
240,000 shares authorized; 211,000 issued and
outstanding......................................... 21 21
Additional paid-in capital........................... 210,314 210,314
Accumulated deficit.................................. (39,692) (56,344)
-------- --------
Total stockholders' equity......................... 170,643 153,991
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $533,699 $492,464
======== ========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FEBRUARY 25, 1992 TO DECEMBER 31, 1992 AND
YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Gross broadcast revenue........................ $ 97,241 $117,967 $135,177
Less agency commission......................... 12,775 15,627 18,118
-------- -------- --------
Net revenues................................. 84,466 102,340 117,059
-------- -------- --------
COST AND EXPENSES:
Operating...................................... 38,666 44,005 48,734
Selling, general, and administrative........... 23,415 25,233 27,179
Management and other fees paid to related
parties....................................... 2,131 2,034 2,624
Depreciation and amortization.................. 12,364 14,697 13,746
-------- -------- --------
Total........................................ 76,576 85,969 92,283
-------- -------- --------
OPERATING INCOME................................. 7,890 16,371 24,776
OTHER INCOME (EXPENSE):
Interest expense, net of allocation to
discontinued operations....................... (7,696) (8,972) (8,694)
Other--net..................................... 24 288 24
-------- -------- --------
Total other expense (7,672) (8,684) (8,670)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES........................................... 218 7,687 16,106
INCOME TAX PROVISION............................. 1,620 6,787 8,843
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS......... (1,402) 900 7,263
LOSS FROM DISCONTINUED CABLE OPERATIONS, NET OF
TAXES........................................... (11,266) (15,389) (11,837)
PROVISION FOR LOSS ON DISCONTINUED CABLE OPERA-
TIONS DURING PHASE-OUT PERIOD, NET OF TAXES..... -- -- (12,078)
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM................... (12,668) (14,489) (16,652)
EXTRAORDINARY ITEM--LOSS ON EXTINGUISHMENT OF
DEBT, NET OF TAXES.............................. (12,535) -- --
-------- -------- --------
NET LOSS......................................... $(25,203) $(14,489) $(16,652)
======== ======== ========
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations....... $ (7.79) $ 4.26 $ 34.38
Discontinued operations........................ (62.60) (72.86) (113.23)
Extraordinary item............................. (69.66) -- --
-------- -------- --------
Net loss per common share...................... $(140.05) $ (68.60) $ (78.85)
======== ======== ========
Weighted average shares outstanding.............. 179,952 211,198 211,198
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FEBRUARY 25, 1992 TO DECEMBER 31, 1992 AND
YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------
ADDITIONAL TOTAL
CLASS CLASS PAID-IN ACCUMULATED STOCKHOLDERS'
A B CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION OF THE
COMPANY AT THE ACQUISITION
DATE (February 25, 1992)... $-- $ 21 $209,979 $ 210,000
Net loss.................. $(25,203) (25,203)
------ ----- -------- -------- ---------
BALANCE, DECEMBER 31, 1992 -- 21 209,979 (25,203) 184,797
Compensation costs related
to warrant bonuses....... 335 335
Net loss.................. (14,489) (14,489)
------ ----- -------- -------- ---------
BALANCE, DECEMBER 31, 1993.. -- 21 210,314 (39,692) 170,643
Net loss.................. (16,652) (16,652)
------ ----- -------- -------- ---------
BALANCE, DECEMBER 31, 1994.. $-- $ 21 $210,314 $(56,344) $ 153,991
====== ===== ======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FEBRUARY 25, 1992 TO DECEMBER 31, 1992 AND
YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing
operations......................... $ (1,402) $ 900 $ 7,263
-------- -------- --------
Adjustments to reconcile income
(loss) from continuing operations
to net cash provided by operating
activities:
Depreciation and amortization...... 12,364 14,697 13,746
Loss on disposal of fixed assets... 345 -- 464
Compensation costs related to
warrant bonuses................... -- 335 --
Deferred income taxes.............. (13,603) 18 (746)
Changes in assets and liabilities:
Accounts receivable............... 5,755 (4,695) (3,116)
Prepaid and other current assets.. 1,124 905 533
Accounts payable and other accrued
expenses......................... (2,422) 838 2,491
Other, net........................ 1,263 575 2,595
Film rights assets and
liabilities...................... (1,509) (1,286) 489
-------- -------- --------
Total adjustments................ 3,317 11,387 16,456
-------- -------- --------
Net cash provided by continuing
operating activities............ 1,915 12,287 23,719
-------- -------- --------
Loss from discontinued operations... (11,266) (15,389) (11,837)
Adjustment to derive cash flows from
discontinued operating activities:
Change in net operating assets..... 25,571 37,318 31,997
-------- -------- --------
Net cash provided by discontinued
operating activities............. 14,305 21,929 20,160
-------- -------- --------
Net cash provided by operating
activities....................... 16,220 34,216 43,879
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments...... 608 -- --
Purchase of property and equipment.. (3,050) (3,086) (7,136)
Increase in other assets, net....... (45) (250) --
-------- -------- --------
Net cash used in investing
activities of continuing
operations....................... (2,487) (3,336) (7,136)
Net cash used in investing
activities of discontinued
operations....................... (11,859) (14,691) (13,047)
-------- -------- --------
Net cash used in investing
activities....................... (14,346) (18,027) (20,183)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable........... (19,000) (16,000) (20,951)
Early extinguishment of debt........ (12,535) -- --
-------- -------- --------
Net cash used in financing
activities....................... (31,535) (16,000) (20,951)
-------- -------- --------
NET INCREASE (DECREASE)................ (29,661) 189 2,745
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD (INCLUDING CASH AND CASH
EQUIVALENTS INCLUDED IN NET ASSETS
OF DISCONTINUED OPERATIONS)......... 30,348 687 876
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD:
Continuing operations............... 647 833 3,578
Included in net assets of
discontinued operations............ $ 40 $ 43 $ 43
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FEBRUARY 25, 1992 TO DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--King Holding Corp. (the Company) owns and operates certain
television stations and cable television properties throughout the central and
western United States and Hawaii. The Company was formed as a joint venture
between the Providence Journal Company and subsidiaries (the Providence
Journal) and an investment banking organization (the Investor Stockholder). The
Providence Journal and Investor Stockholder each own a 50% interest in the
Company. On February 25, 1992, the Company acquired the outstanding capital
stock of King Broadcasting Company (Broadcasting), the parent company of King
Videocable Company (Videocable), for a purchase price of approximately $364,000
plus assumed liabilities aggregating $183,000 (the Acquisition). The
Acquisition has been accounted for as a purchase, and accordingly, the
accompanying consolidated statements of operations, stockholders' equity, and
cash flows include the operations of the Company and its subsidiaries
commencing February 25, 1992. The purchase price was funded through the initial
capitalization of the Company and proceeds received from debt financing with a
syndicate of banks (see Note 5). As part of the initial capitalization of the
Company, the Providence Journal was awarded a warrant allowing for the purchase
of 2,012 shares of Class B nonvoting common stock at $.10 per share.
During 1994 the Company entered into a plan to discontinue its Cable
operations (see Note 2).
Summary of Significant Accounting Policies
Basis of Presentation--The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The accompanying
consolidated financial statements differ from those previously issued by the
Company due to the reporting of its discontinued cable operations (see Note 2).
All significant transactions between the consolidated entities have been
eliminated (see Note 9).
Revenue Recognition--Revenues from broadcast activities are recognized as
advertisements are broadcast. Revenues from cable activities are recognized as
the services are provided.
Investment in Nonconsolidated Partnerships--The Company has made certain
investments in media partnerships as a limited and general partner with voting
interests of approximately 10% and 50%, respectively. These investments are
accounted for using the equity method and are included in net assets of
discontinued operations. Income attributable to the Company's proportional
share of the partnership earnings is reported within other expense.
Allowance for Doubtful Accounts--The allowance for doubtful accounts of the
continuing operations at December 31, 1993 and 1994 aggregated $715 and $1,200,
respectively.
Property and Equipment--Property and equipment are recorded at cost, or in
the case of property and equipment acquired as a result of the Acquisition, at
appraised fair value at the date of purchase. Cable system betterments,
including materials, labor and interest, are recorded at cost. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets, generally three to twenty years.
In 1993, due to provisions of the Cable Television Consumer Protection and
Competition Act of 1992 (Cable Act) which effectively transferred ownership of
wiring and additional outlets installed in a customer's residence, Videocable
wrote off the remaining unamortized cost of these items and will henceforth
expense costs of installation and wiring in the home as incurred. The total
charge recorded in December 1993 related to these items aggregated $4,607.
F-32
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Deferred Financing Costs--Costs of obtaining debt financing have been
deferred and are being amortized using the straight-line method over the
amortization period of the related debt (ten years). Included in such costs are
$12,000 of fees paid to the Company's stockholders to assist in the arrangement
of the financing. Accumulated amortization at December 31, 1993 and 1994
aggregated $2,718 and $4,201, respectively.
Intangible Assets--Intangible assets are recorded at their appraised fair
value at the date of Acquisition. Amortization is provided using the straight-
line method over the estimated useful lives of the related assets, generally
fifteen to forty years. The Company evaluates the recoverability of intangible
asset by reviewing the performance of the underlying operations, in particular
the future undiscounted operating cash flows. The Company also evaluates the
amortization periods of the intangible assets to determine whether events or
circumstances warrant revised estimates of useful lives.
Film and Syndication Rights--Assets and liabilities related to film and
syndication rights are recorded at cost, when the related film or television
series is available for broadcast. Film rights assets are amortized using
principally accelerated methods, based on the anticipated value of each film
showing and the number of anticipated showings. Syndication rights are
amortized ratably over the term of the series expected showing.
Cash and Cash Equivalents--The Company considers all short-term, highly
liquid investments purchased with remaining maturities of three months or less
to be cash equivalents.
Supplemental cash flow information for the periods ended December 31, 1992,
1993 and 1994 is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Cash paid for interest expense....................... $22,765 $25,453 $25,165
Cash paid for income taxes........................... 373 3,021 4,736
</TABLE>
Income Taxes--Deferred income taxes are provided to recognize temporary
differences between book and tax bases of the Company's assets and liabilities
and the effects of credits and other items not yet recognized for tax purposes.
Interest Rate Swaps--The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes. Derivative
financial instruments are used only to manage well-defined interest rate risks.
The Company has entered into interest rate swap agreements which are
accounted for as a hedge of the obligation and accordingly, the net swap
settlement amount is recorded as an adjustment to interest expense in the
period incurred. Gains and losses upon settlement of a swap agreement are
deferred and amortized over the remaining term of the agreement.
Net Loss Per Common Share--Net loss per common share is computed using the
weighted average number of common shares outstanding during the year.
F-33
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. DISCONTINUED OPERATIONS
On November 18, 1994, the Providence Journal signed a definitive merger
agreement with Continental Cablevision, Inc. (Continental) whereby Continental
will acquire all of the Providence Journal's owned and partially owned cable
systems in a tax-free merger. The Providence Journal has entered into a
purchase and sale agreement dated January 18, 1995 with its Investor
Stockholder whereby both parties have agreed in principle to the acquisition by
the Providence Journal of all capital stock of the Company prior to the
exchange with Continental. The Company's cable systems will then be included in
Continental's acquisition.
As part of the merger, outstanding borrowings under the credit agreement (see
Note 5) will be repaid out of the proceeds of additional indebtedness to be
assumed by Continental.
A number of legal and regulatory approvals are required to finalize the
merger. Stockholder approval from Continental and the Providence Journal will
also be required. The transaction is not expected to close until the second
half of 1995.
The net assets of Videocable have been segregated in the accompanying
consolidated balance sheets as "net assets of discontinued operations". Net
assets to be acquired consist primarily of property and equipment, and
intangible assets.
The results of operations of Videocable have been reported as discontinued
operations in the accompanying consolidated statements of operations. Prior
year financial statements have been reclassified to conform to the current year
presentation. The condensed statements of operations relating to the
discontinued cable operations are presented below:
<TABLE>
<CAPTION>
1992 1993 1994
-------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $ 66,006 $ 83,538 $ 84,174
Costs and expenses.......................... (82,602) (106,342) (101,261)
-------- --------- ---------
(Loss) before income taxes.................. (16,596) (22,804) (17,087)
Income tax benefit.......................... 5,330 7,415 5,250
-------- --------- ---------
Net (loss).................................. $(11,266) $ (15,389) $ (11,837)
======== ========= =========
</TABLE>
The Company does not anticipate a loss on the disposal of its Videocable
operations. The provision for loss during the phase-out period, including
allocated interest of $18,258, net of taxes is $12,078.
3. PROPERTY AND EQUIPMENT
Property and equipment of continuing operations consisted of the following at
December 31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Land and buildings....................................... $ 40,118 $ 40,225
Broadcast equipment...................................... 27,625 30,352
Office equipment......................................... 2,749 2,979
Leasehold improvements................................... 1,176 1,207
Construction-in-process.................................. 1,422 4,343
-------- --------
Total................................................ 73,090 79,106
Less accumulated depreciation and amortization........... (14,701) (20,975)
-------- --------
Property and equipment--net.............................. $ 58,389 $ 58,131
======== ========
</TABLE>
F-34
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
4. INTANGIBLE ASSETS
Intangible assets of continuing operations consisted of the following at
December 31:
<TABLE>
<CAPTION>
1193 1994
-------- --------
<S> <C> <C>
FCC license agreements................................... $ 59,780 $ 59,780
Goodwill................................................. 28,774 28,774
Advertiser relations..................................... 47,200 47,200
Other.................................................... 7,484 7,669
-------- --------
Total................................................ 143,238 143,423
Less accumulated amortization............................ (12,351) (19,353)
-------- --------
Intangible assets--net................................... $130,887 $124,070
======== ========
</TABLE>
5. FINANCING AGREEMENTS
The Company has a credit agreement (the Credit Agreement) with a syndicate of
banks which consists of a revolving credit facility, "swing" loans (as
defined), and a term loan.
The revolving credit facility provides for borrowings of up to $50,000 of
which $10,800 was outstanding on December 31, 1994. Borrowings outstanding
under the facility are payable in full in February 2000. The term loan of
$283,249 is payable in 32 quarterly installments commencing in March 1994.
"Swing" loans are available to the Company from the lead bank of the
syndicate. "Swing" loans are available up to a maximum aggregate borrowing
level of $5,000 at any one time, and are generally subject to the same
repayment terms as the revolving credit facility.
Borrowings under the Credit Agreement bear interest at either a bank's CD
rate plus an applicable margin (as defined), the LIBOR rate plus the applicable
margin or an alternate base rate determined as the greater of a bank's prime
rate, the Federal Funds rate plus 1/2% or a secondary market determined rate
plus 1 1/4% all determined at the Company's option. At December 31, 1994, the
interest rate on the revolving credit facility was 7.375%. During 1994,
interest rates on the term loan ranged between 4.88% and 7.75%, based on the
one and three month LIBOR rates, respectively.
In connection with the Credit Agreement, the Company is required to pay an
annual fee of 3/8 of 1% of the average daily unused availability under the
revolving credit facility. In addition, the Company is required to pay the lead
bank an annual fee of 3/8 of 1% of the average daily unused "swing" loan
availability. Such fees aggregated $97, $187 and $194 in 1992, 1993 and 1994,
respectively.
The Credit Agreement contains certain limitations on additional indebtedness,
capital expenditures, payments to affiliates and disposition of assets and
requires the Company to maintain certain leverage and interest coverage ratios,
all as defined in the Agreement.
At December 31, 1994, long-term debt is due as follows:
<TABLE>
<S> <C>
1995........................................................ $ 28,804
1996........................................................ 38,408
1997........................................................ 38,408
1998........................................................ 38,408
1999........................................................ 28,804
Thereafter.................................................. 121,217
--------
Total................................................... $294,049
========
</TABLE>
F-35
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
In March 1992, the Company entered into two interest rate swap agreements to
minimize interest rate risk on its revolving and term credit facilities
described above and to access lower interest rates in certain markets. The
interest rate under the swap agreements is equal to 7.23%, plus an applicable
margin as defined in the revolving credit and term loan facility, which
effectively sets the interest rate at 8.6%. The agreements expire March 25,
1999 and cover $250,000 of notional principal amount.
The Company recorded additional interest expense during 1992, 1993 and 1994
totaling approximately $6,433, $9,915 and $7,427, respectively, which
represents the excess of the swap agreement rate over the original contractual
rate. The notional amounts and respective periods covered under the agreements
are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
$250,000.......................... March 25, 1992--March 25, 1995
$200,000.......................... March 25, 1995--March 25, 1996
$160,000.......................... March 25, 1996--March 25, 1997
$110,000.......................... March 25, 1997--March 25, 1998
$ 50,000.......................... March 25, 1998--March 25, 1999
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements, however, the Company does
not anticipate nonperformance under the agreement.
Videocable has been allocated interest (including amortization of deferred
financing costs) of $16,355, $19,054 and $18,224 for the periods ended December
31, 1992, 1993 and 1994, respectively. Interest expense has been allocated to
Videocable based upon intercompany financing in connection with the
Acquisition. The effective interest rate used in these allocations was 8.36%
during these periods. The common stock and assets of the Company are pledged to
collateralize all external financing arrangements.
The Company was required to pay certain lenders to the predecessor owners a
prepayment penalty of approximately $19,000 at the date of Acquisition. The
payment, which is a loss associated with the early extinguishment of debt, has
been reported as an extraordinary item in the accompanying 1992 consolidated
financial statements.
6. EMPLOYEE BENEFIT PLANS
In connection with the Acquisition described in Note 1, the Company assumed a
defined benefit pension plan (the Plan). The Plan covers all qualified
employees who meet certain employment service and age requirements and are not
covered by union pension plans. Net periodic pension cost is comprised of the
components listed below, as determined using the actuarial cost aggregate
method. The Company's funding policy is to make annual contributions to the
Plan in such amounts necessary to fund benefits provided by the Plan on the
basis of information provided by the Plan's actuary.
Consolidated net periodic pension cost without regard to the effect of the
discontinued operations for the periods ended December 31, 1992, 1993 and 1994
is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned during the
period......................................... $ 696 $ 852 $ 908
Interest cost on projected benefit obligation... 1,463 1,804 1,896
Return on Plan assets........................... (412) (2,481) 774
Net deferral.................................... (1,427) 323 (3,030)
Amortization of prior service cost.............. -- -- (18)
------- ------- -------
Total....................................... $ 320 $ 498 $ 530
======= ======= =======
</TABLE>
F-36
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The following table sets forth the Plan's funded status and obligations at
December 31, 1993 and 1994 without regard to the effect of the discontinued
operations:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of $20,753 and
$20,012 in 1993 and 1994, respectively................. $(20,787) $(23,146)
======== ========
Projected benefit obligation............................ $(25,110) $(26,596)
Plan assets at fair value, consisting of cash and equity
securities............................................. 27,123 28,226
-------- --------
Plan assets in excess of projected benefit obligation... 2,013 1,630
Prior service cost...................................... -- (176)
Unrecognized net loss................................... 1,926 1,955
-------- --------
Pension asset........................................... $ 3,939 $ 3,409
======== ========
</TABLE>
The assumptions used in the above valuations are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 8.0% 7.5% 7.5%
Rate of increase in compensation levels.................... 5.5 5.0 5.0
Expected long-term rate of return on assets................ 8.5 8.5 8.5
</TABLE>
In 1993, the Company instituted an employee savings plan (401(k) Plan) to
provide benefits for substantially all employees of the Company meeting certain
eligibility requirements. The Plan requires the Company to match 25% of
employee contributions, up to a maximum of 1% of covered compensation. Expense
related to the Plan without regard to the effect of the discontinued operations
aggregated $228 and $252 for the years ended December 31, 1993 and 1994,
respectively.
Pension expense allocated to Videocable, pursuant to these plans, aggregated
$60 and $54 for 1993 and 1994, respectively. Further, prepaid pension costs
with respect to the defined benefit plan of $457 and $384 have been allocated
to Videocable at December 31, 1993 and 1994, respectively.
7. INCOME TAXES
The income tax provision for continuing operations recorded for the periods
ended December 31, 1992, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------ ------
<S> <C> <C> <C>
Currently payable:
Federal.......................................... $ 10,696 $5,577 $8,103
State............................................ 1,184 579 1,486
-------- ------ ------
Total.......................................... 11,880 6,156 9,589
-------- ------ ------
Deferred:
Federal.......................................... (9,146) 651 (886)
State............................................ (1,114) (20) 140
-------- ------ ------
Total.......................................... (10,260) 631 (746)
-------- ------ ------
Income tax provision--net.......................... $ 1,620 $6,787 $8,843
======== ====== ======
</TABLE>
F-37
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
A reconciliation of the net income tax provision computed using the U.S.
federal statutory rate of 34% (35% in 1994) to pretax income from continuing
operations was as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense........................ $ 74 $2,614 $5,637
Amortization of goodwill............................... 1,500 1,800 1,850
State and local taxes, net of federal tax benefit...... 46 362 1,057
Enacted future rate change............................. -- 1,880 362
Other.................................................. -- 131 (63)
------ ------ ------
Effective tax.......................................... $1,620 $6,787 $8,843
====== ====== ======
</TABLE>
The significant components of deferred income tax provision attributable to
income from continuing operations for the periods ended December 31, 1992, 1993
and 1994 are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------- -------
<S> <C> <C> <C>
Deferred income tax (exclusive of the effects
of other components below).................... $ (9,661) $(1,950) $(4,899)
(Increase) decrease in alternative minimum tax. (526) 701 3,845
State net operating loss benefit, net of
federal tax................................... (73) -- 244
Federal net operating loss benefit............. -- -- 64
Enacted future rate change..................... -- 1,880
-------- ------- -------
Total deferred tax provision (benefit)......... $(10,260) $ 631 $ (746)
======== ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts....................................... $ 372 $ 279
Film and syndication rights, principally due to different
accounting methods...................................... 714 511
Compensated absences, principally due to accrual for
financial reporting purposes............................ 265 212
Net operating loss carryforwards......................... 321 13
Alternative minimum tax credit carryforwards............. 2,574 --
Other.................................................... (1,035) 1,186
------- -------
Gross deferred tax assets.................................. 3,211 2,201
------- -------
Deferred tax liabilities:
Property and equipment, principally due to basis
differences............................................. 18,121 17,778
Retirement plan, principally due to accrual for financial
reporting purposes...................................... 1,304 1,256
Enacted future rate increases............................ 1,880 --
Other.................................................... (146) 369
------- -------
Gross deferred tax liabilities............................. 21,159 19,403
------- -------
Net deferred tax liabilities............................... $17,948 $17,202
======= =======
</TABLE>
F-38
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
At December 31, 1994, the Company has net operating loss carryforwards of
$75,000 for state income tax purposes which are available to offset future
state taxable income, if any, through 2009. Approximately $54,000 of these net
operating loss carryforwards were present at Acquisition and, due to
uncertainty of eventual realization, a full valuation reserve was provided
against these assets at that time. Should these net operating loss
carryforwards be realized in the future, the effect would be to reduce the
recorded value of certain intangible assets.
8. COMMITMENTS
Film and Syndication Rights--The Company has entered into certain film and
syndication rights' agreements which allow for showings of certain programs
over various periods. At December 31, 1994, film and syndication rights
liabilities related to programs available for broadcast are due as follows:
<TABLE>
<S> <C>
1995.......................................................... $7,753
1996.......................................................... 787
1997.......................................................... 487
1998.......................................................... 189
1999.......................................................... 38
Thereafter.................................................... --
------
Total..................................................... $9,254
======
</TABLE>
In addition, the Company has entered into film and syndication rights'
agreements covering programs not yet available for broadcast. No asset or
liability related to these programs has been reflected in the financial
statements. At December 31, 1994, the Company had executed contracts
aggregating $36,745 (net of deposits) for programs not yet available for
broadcast.
Operating Leases--The Company leases office and other facilities under
operating leases expiring at various dates through 2004. At December 31, 1994,
minimum payments required under noncancelable leases with terms in excess of
one year for continuing operations are as follows:
<TABLE>
<S> <C>
1995.......................................................... $ 888
1996.......................................................... 880
1997.......................................................... 812
1998.......................................................... 567
1999.......................................................... 309
Thereafter.................................................... 899
------
Total..................................................... $4,355
======
</TABLE>
Rent expense under operating leases from continuing operations aggregated
$324, $383 and $490 for the periods ended December 31, 1992, 1993 and 1994,
respectively.
9. RELATED-PARTY TRANSACTIONS
The Company has entered into a management agreement (the Management
Agreement) with the Providence Journal, under the terms of which the Providence
Journal will operate and manage the Company's cable systems and Broadcasting's
television stations through February 1997. The Management Agreement provides
for a base management fee of $2,525 per year and payment of bonuses based on
operating cash flow
F-39
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(as defined in the Management Agreement) at the end of each fiscal year for
managing both the Company and Broadcasting. Bonus expense earned by the
Providence Journal during 1992 was $745. No bonus was earned during 1993 and
1994.
In addition, the Management Agreement provides for the awarding of certain
warrant bonuses, both on an annual and cumulative basis, based on operating
cash flow at the end of defined periods. Through December 31, 1994, the
Providence Journal had been awarded warrant bonuses providing for the purchase
of 1,552 shares, of the Company's Class B nonvoting common stock at $0.10 per
share. Compensation expense recorded related to these warrant issuances
aggregated $335 in 1993. Based upon the purchase and sale agreement (See note
2) whereby the Providence Journal will buy out the Investor Stockholder for a
fixed price, it is not probable that the Providence Journal will exercise any
outstanding warrants and accordingly, the Company has not recorded compensation
expense during 1994.
The Providence Journal is also entitled to compensation for out-of-pocket
costs incurred in its capacity as manager of the cable systems for which the
Company reimbursed the Providence Journal $2,202, $2,842 and $3,844 during
1992, 1993 and 1994, respectively.
The Company is also obligated to pay the Providence Journal an annual $1,000
governance fee, in advance, on December 20 of each year.
The Company entered into a consulting and advisory services agreement (the
Services Agreement) with the Investor Stockholder. Under the terms of the
Services Agreement, the Company is obligated to pay the Investor Stockholder an
annual fee of $1,000, in advance, on January 1 of each year.
For the periods ended December 31, 1992, 1993 and 1994, Videocable has been
allocated expenses under the terms of the Management Agreement, and other
related fees discussed above, aggregating $2,131, $2,034 and $1,901,
respectively.
10. FAIR VALUE DISCLOSURE
Current Assets and Liabilities--The carrying amount of cash, trade
receivables, trade accounts payable and accrued expenses approximates fair
value because of the short maturity of these instruments.
Long-term Debt--The fair values of each of the Company's long-term debt
instruments are based on the amount of future cash flows associated with each
instrument discounted using current borrowing rates for similar debt
instruments of comparable maturity. The fair value of long-term debt
approximated carrying value at December 31, 1993 and 1994.
Interest Rate Swaps--The fair value of interest rate swaps is the amount at
which they could be settled based on estimates obtained from dealers. The
amount required to settle outstanding interest rate swaps at December 31, 1993
and 1994 approximated ($17,343) (loss) and $3,575 (gain), respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company is the defendant in a number of legal actions, the outcome of
which management believes, based upon the advice of counsel, will not have a
material effect on the Company's financial position or results of operations.
F-40
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The Company has outstanding letter of credit commitments amounting to $756 as
of December 31, 1994.
In October 1992, the Congress of the United States passed the Cable Act. As a
result of the Cable Act, several cable television systems of the Company are
subject to regulation by local franchise authorities and/or the FCC.
Regulations imposed by the Cable Act, among other things, allow regulators to
limit and reduce the rates that cable operators can charge for certain basic
cable television services and equipment rental charges. The Company has been
notified by certain franchise authorities that various regulated rates charged
to subscribers were in excess of the rates permitted. The Company is in the
process of reviewing the notifications as well as the disputed rates.
Further rules and regulations are being considered by the FCC, however, these
regulations have not yet been finalized. The ultimate impact on the operations
of the Company resulting from existing rules and regulations and proposed rules
and regulations, if any, cannot be determined.
Videocable is obligated to make capital improvements of $17,100 on an
annualized basis under the terms of the various agreements entered into at the
Merger Agreement date (see Note 2).
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Providence Journal Company:
We have audited the accompanying combined balance sheets of Colony
Communications, Inc., Copley/Colony, Inc., Colony Cablevision, a division of
Providence Journal Company, and King Videocable Company, (collectively
"Providence Journal Cable"), as of December 31, 1993 and 1994, and the related
combined statements of operations, changes in group equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
combined financial statements are the responsibility of Providence Journal
Cable's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits. We did not audit the
consolidated financial statements of King Videocable Company, which statements
reflect total assets constituting 45 percent of the related combined totals in
1993 and 1994, and total revenues constituting 33 percent in 1992, and 30
percent in 1993 and 1994, respectively, of the related combined totals. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for King
Videocable Company, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
The accompanying combined financial statements are intended to present the
cable television businesses owned or partially owned by Providence Journal
Company that are to be acquired by Continental Cablevision, Inc., pursuant to
an agreement and plan of merger described in note 1.
In our opinion, based on our audits and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the financial position of Providence Journal Cable as of December 31,
1993 and 1994, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in notes 1(h) and 9 to the combined financial statements,
Providence Journal Cable changed its method of accounting for income taxes in
1992.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 10, 1995
F-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
King Videocable Company:
We have audited the consolidated balance sheets of King Videocable Company
and subsidiaries (a wholly owned subsidiary of King Broadcasting Company, a
subsidiary of King Holding Corp.) as of December 31, 1993 and 1994, and the
related consolidated statements of operations, stockholders's equity, and cash
flows for the period February 25, 1992 (date acquired by King Holding Corp.) to
December 31, 1992 and for the years ended December 31, 1993 and 1994 (not
presented herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of King Videocable Company at
December 31, 1993 and 1994, and the results of their operations and their cash
flows for the period February 25, 1992 (date acquired by King Holding Corp.) to
December 31, 1992 and for the years ended December 31, 1993 and 1994 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1995
F-43
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
-------- --------
<S> <C> <C>
ASSETS
Cash......................................................... $ 543 $ 237
Accounts receivable, less allowance for doubtful accounts of
$805 and $419 at December 31, 1993 and 1994, respectively... 23,176 26,894
Inventory (note 4)........................................... 5,914 6,131
Prepaid expenses............................................. 3,629 5,124
Property, plant and equipment, net (note 5).................. 256,199 254,728
Franchise costs and other intangible assets, net (note 6).... 519,553 480,886
Other assets................................................. 4,292 3,102
-------- --------
Total assets............................................. $813,306 $777,102
======== ========
LIABILITIES AND GROUP EQUITY
Accounts payable............................................. 13,565 11,993
Accrued expenses............................................. 18,815 22,313
Deferred revenue............................................. 13,456 13,438
Deferred income taxes (note 9)............................... 69,030 70,686
Minority interests in combined entities...................... 34,964 26,709
Amounts due to parent companies (note 8)..................... 593,073 574,821
-------- --------
Total liabilities............................................ 742,903 719,960
Commitments and contingencies (notes 2, 10, 11 and 12)
Group equity................................................. 70,403 57,142
-------- --------
Total liabilities and group equity....................... $813,306 $777,102
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-44
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue (note 2)................................. $199,684 $281,593 $284,993
-------- -------- --------
Operating costs and expenses:
Operating...................................... 76,523 103,637 114,868
Selling, general and administrative............ 45,180 62,446 58,152
Depreciation and amortization.................. 58,750 92,710 85,783
Allocated overhead from parent companies (note
8(b))......................................... 6,513 9,651 11,034
-------- -------- --------
Total operating costs and expenses........... 186,966 268,444 269,837
-------- -------- --------
Operating income................................. 12,718 13,149 15,156
Other income (note 3)............................ 3,660 2,746 2,547
Interest expense (note 7)........................ (3,052) (1,908) (88)
Allocated interest expense from parent companies
(note 8(a))..................................... (16,516) (39,938) (41,318)
Loss on sale of assets........................... (17) (2,679) (1,904)
Loss on abandonment of assets (note 5)........... -- (8,244) --
-------- -------- --------
Loss before income taxes, cumulative effect of
accounting change and minority interests........ (3,207) (36,874) (25,607)
Provision for income taxes (note 9).............. 694 (11,219) (8,182)
-------- -------- --------
Loss before cumulative effect of accounting
change and minority interests................... (3,901) (25,655) (17,425)
Cumulative effect at January 1, 1992 of change in
accounting for income taxes (note 9)............ 4,831 -- --
-------- -------- --------
Income (loss) before minority interests.......... 930 (25,655) (17,425)
Minority interests in combined entities.......... 4,152 6,724 4,164
-------- -------- --------
Net income (loss)................................ $ 5,082 $(18,931) $(13,261)
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-45
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1991 (unaudited)............................. $ 61,470
Capitalization of King Videocable Company, net of minority interest
(note 3)............................................................ 22,782
Net income........................................................... 5,082
--------
Balance at December 31, 1992......................................... 89,334
Net loss............................................................. (18,931)
--------
Balance at December 31, 1993......................................... 70,403
Net loss............................................................. (13,261)
--------
Balance at December 31, 1994......................................... $ 57,142
========
</TABLE>
See accompanying notes to combined financial statements.
F-46
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................... $ 5,082 $(18,931) $(13,261)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Change in accounting for income taxes.......... (4,831) -- --
Depreciation and amortization.................. 58,750 92,710 85,783
Loss on sale or abandonment of assets.......... 17 10,923 1,904
Equity in income of affiliates................. (183) (1,187) (1,615)
Minority interests in combined entities........ (4,152) (6,724) (4,164)
Deferred income taxes.......................... 2,261 (10,114) 1,656
Changes in assets and liabilities:
Accounts receivable........................... (3,616) (791) (3,718)
Prepaid expenses.............................. (2,650) 748 (1,495)
Other assets.................................. (309) (413) 1,290
Accounts payable.............................. 1,738 (1,714) (1,572)
Accrued expenses.............................. (3,470) 5,381 3,498
Deferred revenue.............................. 5,116 52 (18)
-------- -------- --------
Net cash provided by operating activities.... 53,753 69,940 68,288
-------- -------- --------
Investing activities:
Cash distributions received from affiliates..... 50 1,095 1,515
Property, plant, and equipment.................. (27,391) (49,094) (47,766)
-------- -------- --------
Net cash used in investing activities........ (27,341) (47,999) (46,251)
-------- -------- --------
Financing activities:
Cash distributions to minority shareholders..... (3,085) (2,982) (4,091)
Principal payments on long-term debt............ (5,000) (15,000) --
Decrease in amounts due to parent companies..... (18,116) (3,812) (18,252)
-------- -------- --------
Net cash used in financing activities........ (26,201) (21,794) (22,343)
-------- -------- --------
Increase (decrease) in cash...................... 211 147 (306)
Cash at beginning of year........................ 185 396 543
-------- -------- --------
Cash at end of year.............................. $ 396 $ 543 $ 237
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-47
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Basis of Presentation
The combined financial statements are intended to present the cable
television businesses owned or partially owned by Providence Journal Company
(Journal) that are to be acquired by Continental Cablevision, Inc.
(Continental) pursuant to an agreement and plan of merger dated November 18,
1994. The cable television businesses included in the combined financial
statements are Colony Communications, Inc. ("Colony"), a wholly owned
subsidiary of the Journal; Copley/Colony, Inc. ("Copley"), a joint venture
between Colony and Copley Press Electronics Company; Colony Cablevision
(formerly Palmer Communications, Inc.) ("Cablevision"), a division of the
Journal; and King Videocable Company ("KVC"), (collectively, Providence Journal
Cable). KVC is wholly owned by King Broadcasting Company ("Broadcasting"),
which in turn is wholly owned by King Holding Corp. ("King Holding"), a joint
venture between the Journal and an investment banking organization (the
Investor Stockholder). All significant intercompany and affiliated company
balances and transactions have been eliminated in combination. The accompanying
combined financial statements do not reflect adjustments to the valuation of
assets or for the recognition of liabilities that may be required as a
consequence of the aforementioned merger. These combined financial statements
include certain allocations from the Journal and King Holding (collectively,
the parent companies).
Although Journal accounted for the operations of investments in the 50% joint
ventures under the equity method, the operations of such ventures have been
fully combined on the basis that they are managed, together with all wholly-
owned and majority owned cable television businesses, by the Journal and its
subsidiaries. In connection with the aforementioned merger, the Journal will
purchase the 50% joint venture partners interest and therefore, at the date of
merger with Continental, all acquired cable television businesses will be
wholly-owned.
Cable franchise areas are located in California, Florida, Massachusetts, New
York, Rhode Island, Minnesota, Idaho and Washington state. Providence Journal
Cable's credit risk is limited primarily to outstanding trade accounts
receivable from subscribers in these states.
(b) Cash
Providence Journal Cable participates in the cash management programs of the
Journal and King Holding. Under these programs, outstanding checks in excess of
cash are not accounted for as reductions of cash until presented to the bank
for payment. Consequently, at December 31, 1993 and 1994, Providence Journal
Cable reclassified outstanding checks to accounts payable totaling $6,132 and
$5,225 respectively.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Income taxes paid during the year (including federal
and certain state taxes paid to the parent companies
for returns filed on a combined basis)............... $11,863 $1,250 $3,648
======= ====== ======
Interest paid during the year, net of amounts
capitalized.......................................... $ 2,102 $2,092 $ 45
======= ====== ======
</TABLE>
F-48
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred; major improvements
are capitalized. Providence Journal Cable provides for depreciation using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements........................................ 5-20 years
Cable systems..................................................... 3-10 years
Furniture and fixtures............................................ 5-10 years
</TABLE>
When assets are sold or retired, the related cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
credited or charged to income.
When Providence Journal Cable determines that certain property, plant and
equipment is impaired, a loss for impairment is recorded for the excess of the
carrying value over the fair value of the asset.
(d) Franchise Costs and Other Intangible Assets
Franchise costs represent the amount paid to acquire the operating franchises
of Providence Journal Cable. These costs are amortized using the straight-line
method over three to forty years, beginning when the franchise is awarded.
Goodwill resulting from the excess of purchase price over fair value of net
assets acquired is generally amortized over 15-40 years.
Amortization expense on franchise costs and other intangible assets totaled
$18,968, $39,814 and $38,730 for the years ended December 31, 1992, 1993 and
1994, respectively.
Providence Journal Cable continually reviews its intangible assets to
determine whether any impairment has occurred. Providence Journal Cable
assesses the recoverability of intangible assets by reviewing the performance
of the underlying operations, in particular the future operating cash flows
(earnings before income taxes, depreciation, and amortization) of the acquired
operation.
(e) Investments in Affiliated Companies
Providence Journal Cable has investments in three media limited partnerships
which are accounted for using the equity method with voting interests of
approximately 10%, 10% and 50%. The excess of cost of one investment over
Providence Journal Cable's share of net partnership assets is being amortized
over the life of the related partnership agreement (7 years). These investments
are included with other assets in the accompanying combined financial
statements.
(f) Revenue Recognition
Providence Journal Cable bills subscribers one month in advance for certain
cable television services. These revenues are deferred and recognized when the
related service is provided.
(g) Fair Value of Financial Instruments
The carrying amount of substantially all of Providence Journal Cable's
financial instruments approximates fair value due to the short maturity of the
instruments.
F-49
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in the period that includes the enactment
date.
Effective January 1, 1992, Providence Journal Cable adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" and it has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1992 combined statement of operations (see note 9).
Colony and Cablevision are included in the consolidated Federal income tax
return of the Journal. KVC is included in the consolidated Federal income tax
return of Broadcasting and King Holding. Copley files its own Federal income
tax return. Federal income taxes are computed for Colony, Cablevision and KVC
as if those entities filed a separate Federal income tax return.
(2) LEGISLATION AND REGULATION
In October, 1992, the Congress of the United States passed the Cable
Television Consumer Protection and Competition Act of 1992 (Cable Act) which
among other matters, provides for the regulation of basic and cable programming
services (other than per-event and per-channel services), allows broadcast
television stations to choose either "must carry" rights or retransmission
consent rights, regulates the sale of cable programming and implements other
operational requirements.
In April 1993, the Federal Communications Commission (FCC) adopted
regulations governing rates for basic and cable programming services which
became effective September 1, 1993. Under the provisions of these regulations,
certain of Providence Journal Cable's revenues derived from cable television
are determined under either a "benchmark" or "cost of service" method.
Effective December 31, 1994, all but one of Providence Journal Cable's systems
had set their rates using the bench-mark method which compares Providence
Journal Cable's rates to those which are in effect at cable systems deemed by
the FCC to face effective competition.
In February 1994, the FCC significantly modified the September 1993 rate
regulations. These modifications were designed to further reduce subscriber
rates and most annual basic and cable programming service rate increases (other
than per-event and per-channel services). Management has implemented the rules
in a manner it believes to be consistent with the regulations promulgated by
the FCC.
As a result of the 1992 Cable Act, several cable television systems of
Providence Journal Cable are subject to regulation by local franchise
authorities and/or the FCC. Regulations imposed by the 1992 Cable Act, among
other things, allow regulators to limit and reduce the rates that cable
operators can charge for certain basic cable television services and equipment
rental charges. Providence Journal Cable has been notified by certain franchise
authorities that various regulated rates charged to subscribers were in excess
of the rates permitted. Providence Journal Cable has reviewed the notifications
as well as the disputed rates and has accrued for amounts it believes it will
be required to refund.
On December 22, 1994, the Federal Communications Commission (FCC) issued an
Order concerning one cable television system of Providence Journal Cable. The
Order ruled that certain "a la carte" channels
F-50
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
offered by the system are subject to rate regulation and directed the system to
recalculate its maximum permitted rates as determined under rules and
regulations of the FCC. Providence Journal Cable has filed a petition for
reconsideration of this decision with the FCC. If such petition does not result
in adequate relief, Providence Journal Cable can and presently intends to,
pursue its remedies of an appeal to the FCC and/or the courts. It is too early
for management of Providence Journal Cable to determine whether any rate
refunds and prospective rate reductions to subscribers may result from this
action. Accordingly, no amounts have been accrued for rate refund liabilities
in the accompanying combined financial statements.
Further rules and regulations are being considered by the FCC, however, these
regulations have not yet been finalized. The ultimate impact on the operations
of Providence Journal Cable resulting from existing rules and regulations and
proposed rules and regulations, if any, cannot be determined.
(3) ACQUISITIONS
Colony Cablevision (Cablevision)
In 1992 the Journal completed the acquisition of the cable television assets
of Cablevision (formerly Palmer Communications, Inc.) for approximately
$326,000. Prior to the acquisition of Cablevision, Colony managed Cablevision
and received a management fee totaling $2,770 in 1992 which has been included
in other income in the accompanying combined statements of operations.
King Videocable Company (KVC)
In February 1992, King Holding acquired the outstanding capital stock of
Broadcasting for a purchase price of approximately $364,000 plus assumed
liabilities aggregating $183,000, resulting in a total purchase price of
$547,000. Based upon the 1992 appraisal of assets acquired, $327,000 of the
total purchase price was allocated to KVC.
Lakewood Cable, Inc.
In January, 1992, Colony completed the acquisition of Lakewood Cable, Inc.
("Lakewood") in Lakewood, California for $25,000.
The aforementioned acquisitions were accounted for as purchases, and for
purposes of these combined financial statements have been presented as
purchases by Providence Journal Cable. The acquisition of KVC in 1992 resulted
in the contribution of capital (push-down of equity) to this entity of $22,782
(net of minority interest). The results of operations have been included in the
accompanying combined financial statements from the respective dates of
acquisition.
(4) INVENTORY
Inventory is recorded at cost and consists primarily of supplies used in
repairs and maintenance and construction inventory used in the construction of
cable plant.
F-51
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Cable systems.............................................. $369,636 $384,563
Land and buildings......................................... 29,483 31,197
Machinery and equipment.................................... 23,953 33,582
Furniture and fixtures..................................... 7,543 8,214
Construction in progress................................... 4,381 8,843
-------- --------
434,996 466,399
Less accumulated depreciation.............................. 178,797 211,671
-------- --------
$256,199 $254,728
======== ========
</TABLE>
During 1992, 1993 and 1994, Providence Journal Cable capitalized interest
expense on construction in progress of $109, $223 and $300, respectively.
Depreciation expense on property, plant and equipment totaled $39,782, $52,896
and $47,053 in 1992, 1993 and 1994, respectively.
In 1993, due to provisions of the Cable Act (see note 2) which effectively
transferred to cable customers ownership of wiring and additional outlets
located in cable customers' homes, Providence Journal Cable expensed the
remaining undepreciated cost of these assets. The total charge recorded in the
fourth quarter of 1993 was $8,244.
(6) FRANCHISE COSTS AND OTHER INTANGIBLE ASSETS
Franchise costs and other intangible assets consist of the following:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Franchise costs............................................ $446,760 $446,760
Goodwill................................................... 107,299 107,299
Non-compete agreements..................................... 19,683 19,683
Other intangible assets.................................... 16,328 15,719
-------- --------
590,070 589,461
Less accumulated amortization.............................. 70,517 108,575
-------- --------
$519,553 $480,886
======== ========
</TABLE>
(7) LONG-TERM DEBT
During 1993, Providence Journal Cable had a note outstanding payable in
annual installments of $2,500. Interest expense on this note totaled $2,268 and
$1,546 in 1992 and 1993, respectively. In December 1993, Providence Journal
Cable settled this note payable and incurred a prepayment penalty equal to $546
(included with interest expense).
F-52
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(8) RELATED PARTY TRANSACTIONS
(a) Amounts Due to Parent Companies
Substantially all financing arrangements are provided through the parent
companies. Amounts due to parent companies are the net result of transactions
occurring through the shared cash management systems, additions due to
intercompany financing in connection with the acquisitions discussed in note 3,
as well as amounts allocated by parent companies for income taxes, interest and
overhead. Major activity relating to amounts due to parent companies included
the following during 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Beginning balance........................................ $596,885 $593,073
Allocated interest and overhead.......................... 49,589 52,352
Repayments and other activity............................ (53,401) (70,604)
-------- --------
$593,073 $574,821
======== ========
</TABLE>
Interest expense was allocated by parent companies based upon average monthly
balances of amounts due to parent companies. The effective rates on interest
allocated were 7.57% and 8.21% during 1993 and 1994, respectively. Effective
interest rates are based upon parent company financing arrangements.
(b) Allocated Overhead
The parent companies provide certain services to Providence Journal Cable
including cash management, human resources, accounting, legal, tax, and other
corporate services. For purposes of the accompanying combined financial
statements corporate overhead relating to these services, totaling $6,513,
$9,651 and $11,034 in 1992, 1993 and 1994, respectively, has been allocated to
Providence Journal Cable. In the opinion of management these charges have been
made on a basis (revenue of each individual business to total revenue) that is
reasonable, however, these charges are not necessarily indicative of the level
of expenses that might have been incurred by Providence Journal Cable on a
stand-alone basis.
KVC, through King Holding, has entered into a consulting and advisory
services agreement with the Investor Stockholder and a management agreement
with the Journal under which the Journal will operate and manage KVC's cable
systems through 1997. In connection with these agreements, King Holding is
obligated to pay $3,500 in annual fees to the Journal and $1,000 to the
Investor Stockholder. For purposes of the accompanying combined financial
statements, a portion of the expenses incurred in relation to these agreements
has been allocated to KVC. Amounts totaling $2,131, $2,034 and $1,901 were
allocated to KVC in 1992, 1993 and 1994, respectively, on the basis of KVC
revenue to total King Holding revenue. These expenses have been included in the
allocation of corporate overhead discussed in the preceding paragraph.
F-53
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(9) INCOME TAXES
As discussed in note 1(h), Providence Journal Cable adopted Statement 109 as
of January 1, 1992. The cumulative effect of this change in accounting for
income taxes of $4,831 was determined as of January 1, 1992 and was reported
separately in the combined statement of operations for the year ended December
31, 1992.
Provision for income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1992:
U.S. Federal................................... $ (453) $ (496) $ (949)
State.......................................... 2,376 (733) 1,643
------- ------ -------
$ 1,923 (1,229) 694
======= ====== =======
Year ended December 31, 1993:
U.S. Federal................................... $(4,247) (7,763) (12,010)
State.......................................... 1,677 (886) 791
------- ------ -------
$(2,570) (8,649) (11,219)
======= ====== =======
Year ended December 31, 1994:
U.S. Federal................................... $(9,318) 2,201 (7,117)
State.......................................... (519) (546) (1,065)
------- ------ -------
$(9,837) $1,655 $(8,182)
======= ====== =======
</TABLE>
Provision for income tax expense (benefit) differed from the amounts computed
by applying the U.S. federal income tax rate of 34% to pretax income as a
result of the following:
<TABLE>
<CAPTION>
1992 1993 1994
------- -------- -------
<S> <C> <C> <C>
Computed "expected" tax......................... $(1,090) $(12,533) $(8,707)
Increase (reduction) in income taxes resulting
from:
State and local income taxes, net of federal
income tax benefit........................... 1,085 521 (703)
Amortization of goodwill...................... 1,211 1,198 1,165
Excess of fair value of securities, donated to
charitable foundation, over basis in those
securities................................... (304) -- --
Utilization of investment tax credit
carryforwards................................ -- (209) --
Other, net.................................... (208) (196) 63
------- -------- -------
$ 694 $(11,219) $(8,182)
======= ======== =======
</TABLE>
F-54
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets:
State net operating loss carryforwards.................. $ 5,658 $ 5,572
Alternative minimum tax credit carryforward............. 1,489 883
Uniform capitalization and Section 263A depreciation.... 1,434 1,560
Deferred compensation and vacation accrual.............. 655 776
Self-insurance reserves................................. 437 404
Partnership investment, principally due to basis
differences............................................ 1,084 2,235
Other................................................... 722 930
------- -------
Total gross deferred tax assets....................... 11,479 12,360
Less valuation allowance.............................. (5,456) (5,569)
------- -------
Net deferred tax assets............................... 6,023 6,791
------- -------
Deferred tax liabilities:
Intangibles, principally due to differences in
amortization........................................... 47,891 48,130
Plant and equipment, principally due to differences in
depreciation and capitalized interest.................. 25,895 28,824
Other................................................... 1,267 523
------- -------
Total gross deferred tax liabilities.................. 75,053 77,477
------- -------
Total net deferred tax liability...................... $69,030 $70,686
======= =======
</TABLE>
The 1993 beginning valuation allowance for deferred tax assets was $4,867.
The net change in the total valuation allowance was an increase of $589 and
$113 in 1993 and 1994, respectively. Changes to the valuation allowance relate
principally to deferred tax assets recorded for state net operating loss
carryforwards.
At December 31, 1994, Providence Journal Cable has net operating loss
carryforwards for state income tax purposes of $99,000, which are available to
offset future state taxable income, if any, expiring in various years ending in
2008.
(10) OPERATING LEASES
Providence Journal Cable has certain noncancelable operating leases with
renewal options for land, buildings and equipment. Leases for land and
buildings are subject to annual consumer price index adjustments. In 1992, 1993
and 1994, rental expense for all leases, including pole rentals, totaled
$3,973, $5,081 and $5,125, respectively.
At December 31, 1994, commitments under noncancelable lease agreements were
as follows:
<TABLE>
<S> <C>
1995............................................................... $ 2,583
1996............................................................... 2,011
1997............................................................... 1,636
1998............................................................... 1,403
1999............................................................... 1,184
Thereafter......................................................... 3,808
-------
$12,625
=======
</TABLE>
F-55
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(11) RETIREMENT PLANS
Providence Journal Cable has three defined contribution retirement plans
which include a 401(k) plan and cover substantially all of its employees.
Providence Journal Cable matches participants' 401(k) contributions up to a
maximum of 1% of participants' compensation. Additionally, KVC participates in
a defined benefit plan sponsored by Broadcasting, covering substantially all
employees of KVC. Expenses recorded under these plans totaled $774, $1,516 and
$1,108 in 1992, 1993 and 1994, respectively. Prepaid pension costs with respect
to the defined benefit plan of $457 and $384 have been allocated to KVC at
December 31, 1993 and 1994, respectively.
(12) COMMITMENTS AND CONTINGENCIES
Providence Journal Cable is obligated to make capital improvements of $55,000
on an annualized basis from the date of the merger agreement with Continental
until the merger's closing date (see note 1). Providence Journal Cable also has
letter of credit commitments amounting to $3,203 at December 31, 1994.
Providence Journal Cable has, or participates with its parent companies in,
insurance programs for workers compensation, general liability, auto and
certain health coverages which are a form of self-insurance. Providence Journal
Cable's liability for large losses is capped, individually and in the
aggregate, through contracts with insurance companies. An estimate for claims
incurred but not paid is accrued annually.
The Journal has a revolving credit and term loan facility (totaling $243,655
at December 31, 1994) that is secured in part by a pledge of stock of Colony
Communications, Inc. and its subsidiaries. King Holding has a credit agreement
with a syndicate of banks (totaling $294,049 at December 31, 1994) that is
secured in part by a pledge of stock and assets of KVC.
Providence Journal Cable is a party to various claims, legal actions and
complaints arising in the ordinary course of business. In the opinion of
management, all such matters are without merit or are of such kind, or involve
such amounts, that unfavorable disposition would not have a material effect on
the financial position or results of operations of Providence Journal Cable.
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
CONTINENTAL CABLEVISION, INC.:
We have audited the accompanying consolidated balance sheets of Continental
Cablevision, Inc. and its subsidiaries as of December 31, 1993 and 1994 and the
related statements of consolidated operations, consolidated shareholders'
equity (deficiency) and consolidated cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements of Continental
Cablevision, Inc. and its subsidiaries present fairly, in all material
respects, the financial position of the companies at December 31, 1993 and 1994
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Notes 12 and 4 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and investments in
1993 and 1994, respectively.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1995
F-57
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
------
Cash and Cash Equivalents............................ $ 122,640 $ 11,564
Accounts Receivable-net.............................. 44,530 58,212
Prepaid Expenses and Other........................... 4,800 14,321
Supplies............................................. 31,638 62,517
Marketable Equity Securities......................... 58,676 122,510
Investments.......................................... 136,186 335,479
Property, Plant and Equipment-net.................... 1,211,507 1,353,789
Intangible Assets-net................................ 387,719 421,420
Other Assets-net..................................... 94,157 103,827
----------- -----------
Total............................................ $ 2,091,853 $ 2,483,639
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Accounts Payable..................................... $ 43,342 $ 82,083
Accrued Interest..................................... 72,424 82,040
Accrued and Other Liabilities........................ 145,191 206,271
Debt................................................. 3,177,178 3,449,907
Deferred Income Taxes................................ 105,041 116,482
Minority Interest in Subsidiaries.................... 2,217 2,791
Redeemable Common Stock, $.01 par value;
670,682 and 667,366 shares outstanding.............. 213,548 232,399
Commitments and Contingencies........................ -- --
Shareholders' Equity (Deficiency):
Preferred Stock, $.01 par value; 1,557,142 shares
authorized;
none outstanding................................... -- --
Series A Convertible Preferred Stock, $.01 par val-
ue:
1,142,858 shares authorized and outstanding; liqui-
dation preference $450,976,000 and $487,776,000.... 11 11
Class A Common Stock, $.01 par value; 7,500,000
shares authorized;
248,060 and 343,420 shares outstanding............. 2 3
Class B Common Stock, $.01 par value; 7,500,000
shares authorized;
3,652,420 and 3,611,655 shares outstanding......... 37 36
Additional Paid-In Capital.......................... 577,249 583,368
Unearned Compensation............................... (23,577) (12,097)
Net Unrealized Holding Gain on Marketable Equity Se-
curities........................................... -- 47,996
Deficit............................................. (2,220,810) (2,307,651)
----------- -----------
Shareholders' Equity (Deficiency).................. (1,667,088) (1,688,334)
----------- -----------
Total............................................ $ 2,091,853 $ 2,483,639
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-58
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1992 1993 1994
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues......................... $ 1,113,475 $ 1,177,163 $ 1,197,977
Costs and Expenses:
Operating...................... 365,513 382,195 405,535
Selling, General and Adminis-
trative....................... 259,632 267,376 267,349
Restricted Stock Purchase Pro-
gram.......................... 9,683 11,004 11,316
Depreciation and Amortization.. 272,851 279,009 283,183
------------- ------------- -------------
Total........................ 907,679 939,584 967,383
------------- ------------- -------------
Operating Income................. 205,796 237,579 230,594
------------- ------------- -------------
Other (Income) Expense:
Interest....................... 296,031 282,252 315,541
Equity in Net Loss of Affili-
ates.......................... 9,402 12,827 25,002
Gain on Sale of Marketable Eq-
uity Securities............... -- (4,322) (1,204)
Gain on Sale of Investments.... (10,253) (17,067) --
Partnership Litigation......... 10,280 (2,325) --
Minority Interest in Net Income
(Loss) of Subsidiaries........ 136 184 (205)
Dividend Income................ (330) (650) (824)
Other.......................... 1,836 375 1,279
------------- ------------- -------------
Total........................ 307,102 271,274 339,589
------------- ------------- -------------
Loss From Operations Before In-
come Taxes, Extraordinary Item
and Cumulative Effect of Change
in Accounting for Income Taxes.. (101,306) (33,695) (108,995)
Income Tax Expense (Benefit)..... 1,654 (7,921) (40,419)
------------- ------------- -------------
Loss Before Extraordinary Item
and Cumulative Effect of Change
in Accounting for Income Taxes.. (102,960) (25,774) (68,576)
Extraordinary Item, Net of Income
Taxes........................... -- -- (18,265)
------------- ------------- -------------
Loss Before Cumulative Effect of
Change in Accounting for Income
Taxes........................... (102,960) (25,774) (86,841)
Cumulative Effect of Change in
Accounting for Income Taxes..... -- (184,996) --
------------- ------------- -------------
Net Loss......................... (102,960) (210,770) (86,841)
Preferred Stock Preferences...... (16,861) (34,115) (36,800)
------------- ------------- -------------
Loss Applicable to Common Share-
holders......................... $ (119,821) $ (244,885) $ (123,641)
============= ============= =============
Loss Per Common Share:
Loss Before Extraordinary Item
and Cumulative Effect of
Change in Accounting for In-
come Taxes................... $ (25.06) $ (13.13) $ (23.04)
Extraordinary Item............ -- -- (3.99)
------------- ------------- -------------
Loss Before Cumulative Effect
of
Change in Accounting for In-
come Taxes................... (25.06) (13.13) (27.03)
Cumulative Effect of Change in
Accounting for Income Taxes.. -- (40.55) --
------------- ------------- -------------
Net Loss....................... $ (25.06) $ (53.68) $ (27.03)
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-59
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
NET UNREALIZED
SERIES A COMMON STOCK GAIN ON
CONVERTIBLE -------------- ADDITIONAL MARKETABLE RETAINED
PREFERRED CLASS CLASS PAID-IN UNEARNED EQUITY EARNINGS
STOCK A B CAPITAL COMPENSATION SECURITIES (DEFICIT)
----------- ------ ------ ---------- ------------ -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1992................... $ -- $ 32 $ -- $ -- $(12,477) $ -- $(1,907,080)
Net Loss............... -- -- -- -- -- -- (102,960)
Accretion of Redeemable
Common Stock.......... -- -- -- (13,806) -- -- --
Reclassification of
Redeemable Common
Stock................. -- 3 1 141,958 -- -- --
Issuance of Series A
Convertible Preferred
Stock................. 11 -- -- 394,338 -- -- --
Conversion of Class A
to Class B Common
Stock................. -- (33) 33 -- -- -- --
Issuance of Class B
Common Stock.......... -- -- 5 153,834 -- -- --
Restricted Stock Pur-
chase Program:
Stock Issued.......... -- 1 -- 32,779 (32,779) -- --
Stock Vested.......... -- -- -- -- 9,683 -- --
Stock Forfeited....... -- -- -- (654) 654 -- --
Stock Exchanged for
Loans................ -- -- -- (3,513) -- -- --
Stock Repurchased...... -- (2) (2) (146,257) -- -- --
----- ----- ------ -------- -------- ------- -----------
Balance, December 31,
1992................... 11 1 37 558,679 (34,919) -- (2,010,040)
Net Loss............... -- -- -- -- -- -- (210,770)
Accretion of Redeemable
Common Stock.......... -- -- -- (14,766) -- -- --
Issuance of Class A
Common Stock.......... -- 1 -- 46,499 -- -- --
Reclassification of
Redeemable Common
Stock to Class A
Common Stock.......... -- -- -- 5,085 -- -- --
Restricted Stock
Purchase Program:
Stock Issued (Class
B)................... -- -- -- 544 (544) -- --
Stock Vested.......... -- -- -- -- 11,004 -- --
Stock Forfeited....... -- -- -- (882) 882 -- --
Stock Exchanged for
Loans................ -- -- -- (6,526) -- -- --
Stock Repurchased...... -- -- -- (11,384) -- -- --
----- ----- ------ -------- -------- ------- -----------
Balance December 31,
1993................... 11 2 37 577,249 (23,577) -- (2,220,810)
Adjustment due to
change in accounting
principle for
marketable equity
securities, net of
income taxes of
$56,434............... -- -- -- -- -- 84,650 --
Net Loss............... -- -- -- -- -- -- (86,841)
Accretion of Redeemable
Common Stock.......... -- -- -- (19,932) -- -- --
Restricted Stock
Purchase Program:
Stock Vested.......... -- -- -- -- 11,316 -- --
Stock Forfeited....... -- -- -- (164) 164 -- --
Stock Exchanged for
Loans................ -- -- -- (611) -- -- --
Conversion of Class B
to Class A Common
Stock................. -- 1 (1) -- -- -- --
Stock Repurchased...... -- -- -- (3,674) -- -- --
Issuance of Class A
Common Stock.......... -- -- -- 30,500 -- -- --
Change in Unrealized
Gain, net of income
taxes of $24,081...... -- -- -- -- -- (36,654) --
----- ----- ------ -------- -------- ------- -----------
Balance December 31,
1994................... $ 11 $ 3 $ 36 $583,368 $(12,097) $47,996 $(2,307,651)
===== ===== ====== ======== ======== ======= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-60
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1993 1994
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss............................... $ (102,960) $ (210,770) $ (86,841)
Adjustments to Reconcile Net Loss to
Net Cash Provided from Operating Ac-
tivities:
Extraordinary Item................... -- -- 18,265
Cumulative Effect of Change in Ac-
counting for
Income Taxes........................ -- 184,996 --
Depreciation and Amortization........ 272,851 279,009 283,183
Restricted Stock Purchase Program.... 9,683 11,004 11,316
Amortization of Deferred Financing
Costs............................... 6,552 5,554 5,759
Equity in Net Loss of Affiliates..... 9,402 12,827 25,002
Gain on Sale of Marketable Equity Se-
curities............................ -- (4,322) (1,204)
Gain on Sale of Investments.......... (10,253) (17,067) --
Minority Interest in Net Income
(Loss) of Subsidiaries.............. 136 184 (205)
Deferred Income Taxes................ -- (9,788) (42,272)
Accrued Interest..................... (10,965) 15,787 9,632
Accounts Payable, Accrued and Other
Liabilities......................... 40,649 (3,633) 66,142
Other Working Capital Changes........ (50) (13,277) (52,473)
----------- ----------- -----------
NET CASH PROVIDED FROM OPERATING
ACTIVITIES............................. 215,045 250,504 236,304
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from Borrowings--net.......... 918,000 1,502,304 1,709,980
Repayment of Borrowings................ (1,292,712) (1,369,341) (1,456,061)
Premium Paid on Extinguishment of Debt. -- -- (20,924)
Increase (Decrease) in Minority Inter-
ests.................................. 389 (2,580) 779
Issuance of Series A Convertible Pre-
ferred Stock.......................... 394,349 -- --
Issuance of Common Stock............... 153,840 46,500 30,500
Repurchase of Common Stock and Redeem-
able
Common Stock.......................... (233,984) (31,232) (4,755)
----------- ----------- -----------
NET CASH PROVIDED FROM (USED FOR)
FINANCING ACTIVITIES................... (60,118) 145,651 259,519
----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisitions, Net of Liabilities As-
sumed and Cash Acquired............... -- -- (114,990)
Property, Plant and Equipment.......... (145,189) (185,691) (300,511)
Investments............................ (17,908) (106,819) (192,119)
Other Assets........................... (12,996) (7,182) (16,832)
Purchase of Marketable Equity Securi-
ties.................................. -- (8,042) --
Proceeds from Sale of Marketable Equity
Securities............................ -- 5,719 17,553
Proceeds from Sale of Investment--net.. 34,253 1,148 --
----------- ----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES.. (141,840) (300,867) (606,899)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVA-
LENTS.................................. 13,087 95,288 (111,076)
BALANCE AT BEGINNING OF YEAR............ 14,265 27,352 122,640
----------- ----------- -----------
BALANCE AT END OF YEAR.................. $ 27,352 $ 122,640 $ 11,564
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-61
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Continental Cablevision, Inc. (the Company) and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents. The carrying amount of cash and
cash equivalents approximates fair value due to the short maturity of these
investments.
Supplies and Property, Plant and Equipment
Supplies are stated at the lower of cost (first-in, first-out method) or
market. Property, plant and equipment are stated at cost and include
capitalized interest of $766,000, $908,000 and $2,377,000 in 1992, 1993 and
1994, respectively. Depreciation is provided using the straight-line group
method over estimated useful lives as follows: buildings, 25 to 40 years;
reception and distribution facilities, 3 to 15 years; and equipment and
fixtures, 4 to 12 1/2 years. (See Note 6)
Intangible and Other Assets
Intangible assets consist primarily of franchise costs and goodwill recorded
in various acquisitions. Such amounts are generally amortized over 10 to 40
years. Franchise costs, net of accumulated amortization, at December 31, 1993
and 1994 are $365,887,000 and $355,488,000, respectively. Other assets
represent deferred financing costs and loans to employees (see Note 11).
Accumulated amortization for intangible assets aggregated $622,453,000 and
$714,492,000 at December 31, 1993 and 1994, respectively.
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of intangible assets by reviewing the
performance of the underlying operations, in particular, the future
undiscounted operating cash flows of the acquired entities.
Allowance for Doubtful Accounts
The allowance for doubtful accounts at December 31, 1993 and 1994 is
$9,435,000 and $9,771,000, respectively.
Investments
The Company implemented Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS 115) as
of January 1, 1994. SFAS 115 requires that certain debt and equity securities
be categorized as either securities available for sale, securities held to
maturity or trading account securities. The Company has classified all
investments subject to SFAS 115 as available for sale and as such reports these
securities at fair value, with the unrealized gains or losses, net of tax,
reported as a separate component of shareholders' equity (deficiency). Realized
gains and losses are included in results of operations. Prior to January 1,
1994, marketable equity securities were carried at either the lower of cost or
market. In accordance with SFAS 115, prior period financial statements have not
been restated to reflect the change in accounting principle. (See Note 4)
Investments in 20-50% owned affiliates are generally accounted for using the
equity method. The excess of the cost of equity investments over the underlying
value of the net assets is amortized over a period of approximately 10 to 25
years. Investments in less than 20% owned companies whose equity securities do
not
F-62
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
have a readily determinable market value are generally accounted for using the
cost method. Investments in debt securities not subject to SFAS 115 are
reported at amortized cost. (See Note 5)
Derivative Financial Instruments
The Company implemented Statement of Financial Accounting Standards No. 119,
Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments (SFAS 119), which requires disclosure about amounts, nature and
terms associated with the derivative financial instruments held.The Company
uses derivative financial instruments as a means of managing interest-rate risk
associated with current debt or anticipated debt transactions that have a high
probability of being executed. Derivative financial instruments used include
Interest Rate Exchange Agreements (Swaps) and Interest Rate Cap Agreements
(Caps). These instruments are matched with either fixed or variable rate debt
and periodic cash payments are accrued on a settlement basis as an adjustment
to interest expense. Derivative financial instruments are not held for trading
purposes. Any premiums associated with the instruments are amortized over their
term and realized gains or losses as a result of the termination of the
instruments are deferred and amortized over the shorter of the remaining term
of the instrument or the underlying debt.
Income Taxes
The Company implemented Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109) as of January 1, 1993. SFAS 109 requires
the recognition of deferred tax liabilities and assets for the future tax
consequences of temporary differences between the financial reporting and tax
bases of existing assets and liabilities. In addition, future tax benefits,
such as net operating loss and investment tax credit carryforwards, are
recognized to the extent realization of such benefits is more likely than not.
(See Note 12)
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts. The fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1993 and 1994.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from the amounts
presented herein. The following is a summary of the estimated fair value and
carrying value of the Company's financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1993 1994
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
ASSETS VALUE VALUE VALUE VALUE
------ ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Marketable Equity Securities (See
Note 4)........................... $ 58,676 $ 199,596 $ 122,510 $ 122,510
Cost Method Investments (See Note
5)................................ 27,740 40,543 33,175 47,322
LIABILITIES
Total Debt, Swaps and Caps (See
Note 7)........................... 3,177,178 3,510,020 3,449,907 3,516,588
Redeemable Common Stock (See Note
9)................................ 213,548 339,365 232,399 329,011
</TABLE>
The Company believes carrying value approximates fair value for all other
financial instruments.
F-63
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loss per Common Share
Loss per common share is calculated by dividing the loss available to common
shareholders by the weighted average number of common shares outstanding of
4,782,000, 4,562,000 and 4,573,000 for the years ended December 31, 1992, 1993
and 1994, respectively. Shares of the Series A Convertible Preferred Stock were
not assumed to be converted into shares of common stock since the result would
be anti-dilutive by decreasing the loss per share for the years ended December
31, 1992, 1993 and 1994.
Recent Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan (SFAS 114), which, is effective for fiscal years beginning after
December 15, 1994. SFAS 114, as amended, addresses the accounting by creditors
for impairment of certain loans. The effect of implementing this statement will
not be significant to the Company's financial position and results of
operation.
Reclassifications
Certain amounts have been reclassified from previous presentation in the
accompanying consolidated financial statements.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The following represents non-cash investing and financing activities and cash
paid for interest and income taxes during the years ended December 31, 1992,
1993 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1992 1993 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Dispositions:
Gain on Sale of Investment (See Note 5)........... $ 10,253 $ 15,919 $ --
Deferred Gain on Sale of Investment............... -- 165 --
Bases of Assets Sold.............................. -- 429 --
Gain on Sale of Marketable Equity Securities...... -- 3,471 --
Bases of Properties Received...................... -- (19,984) --
Promissory Note Issued to Buyer................... 24,000 -- --
-------- -------- --------
Proceeds Received from Disposition.............. $ 34,253 $ -- $ --
======== ======== ========
Accretion of Redeemable Common Stock................ $ 13,806 $ 14,766 $ 19,932
======== ======== ========
Accretion of Series A Convertible Preferred Stock... $ 16,861 $ 34,115 $ 36,800
======== ======== ========
Cash Paid During the Year for Interest.............. $301,210 $261,846 $299,115
======== ======== ========
Cash Paid During the Year for Income Taxes.......... $ 1,259 $ 2,370 $ 2,411
======== ======== ========
</TABLE>
3. ACQUISITIONS
In June 1994, the Company purchased cable television systems in Manchester,
New Hampshire for approximately $47,990,000, and in November 1994 purchased
cable television systems in Florida for approximately $67,000,000. The
accompanying financial statements reflect the results of operations commencing
on the acquisition dates. Had these acquisitions occurred on January 1, 1993,
the results of operations of the Company would not have been materially
different for 1993 or 1994.
The Company has entered into purchase and sale agreements to purchase several
cable television systems in the Chicago, Illinois area for approximately
$168,500,000 and several cable television systems in Michigan for approximately
$155,000,000. These transactions will be accounted for using the purchase
method and are expected to close in 1995.
F-64
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During November 1994, the Company, Providence Journal Company and The
Providence Journal Company entered into an agreement and plan of merger (the
Merger) which provides that Restructured Providence Journal Company
(Restructured PJC) (which at the time of the merger, will include only the
Providence Journal cable business) will be merged with and into the Company.
The Company will issue shares of capital stock to shareholders of Providence
Journal Company in exchange for all shares of Restructured PJC. The fair value
of the shares to be exchanged is approximately $645,000,000. The Merger
provides for the assumption of $755,000,000 of debt of Restructured PJC and a
working capital adjustment to be settled in cash. The Merger will be accounted
for using the purchase method of accounting and is expected to close in the
third quarter of 1995.
4. MARKETABLE EQUITY SECURITIES
At December 31, 1993, marketable equity securities were carried at cost and
had an aggregate market value of $199,596,000. Effective January 1, 1994, the
Company adopted SFAS 115 and classified marketable equity securities as
available for sale. These investments had a fair value of $183,245,000 and a
cost of $42,161,000 at the date of adoption. The unrealized gain of
$141,084,000, less income taxes of $56,434,000 was reported as an adjustment to
shareholders' equity (deficiency). These securities have an aggregate cost
basis of $42,161,000 as of December 31, 1994. During the year ended December
31, 1994, the Company recognized a gross unrealized holding loss of $60,735,000
and a gross realized gain of $1,204,000.
5. INVESTMENTS
Investments consist of the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
APPROXIMATE -----------------
OWNERSHIP 1993 1994
----------- -------- --------
<S> <C> <C> <C>
Equity Method Investments:
Teleport Communications Group, Inc. (TCG)
and TCG Partners........................... 20% $ 67,473 $ 93,954
Regional TCG Partnerships................... 10%-30% 19,056 34,609
Fintelco S.A. .............................. 50% -- 146,040
Singapore Cablevision Pte Ltd. ............. 25% -- 8,484
PrimeStar Partners, L.P. ................... 10% 19,521 12,500
Other....................................... 20%-50% 2,396 6,717
-------- --------
108,446 302,304
-------- --------
Cost Method Investments....................... 27,740 33,175
-------- --------
Total..................................... $136,186 $335,479
======== ========
</TABLE>
Management's estimated fair value of cost method investments are $40,543,000
and $47,322,000 as of December 31, 1993 and 1994, respectively, primarily based
on recent private transactions or other valuation methods.
In September 1992, the Company completed the disposition of its 50% interest
in North Central Cable Communications Corporation (NCCC) to Meredith/New
Heritage Strategic Partners, L.P. (Meredith) and simultaneously purchased an
ownership interest in Meredith. The Company sold a portion of its interest in
NCCC for $48,253,000 in cash and simultaneously invested $14,000,000 of the
proceeds in Meredith. In addition, the Company exchanged its remaining interest
in NCCC and issued a $24,000,000 promissory note to Meredith and, as a result,
currently has approximately a one-third ownership interest in Meredith. The
$10,253,000 preliminary gain represented the proceeds received less the basis
in NCCC, the cash investment in Meredith and the promissory note. In April
1993, an additional gain of $1,148,000 was recorded due to
F-65
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the receipt of previously escrowed funds. The Company also received $14,000,000
from Meredith as a prepayment for services provided by the Company which is
included in accrued and other liabilities on the balance sheet. Meredith
operates several cable systems in Minnesota and North Dakota.
In October 1993, the Company exchanged its equity interest in Insight
Communications Company U.K., L.P. for stock representing less than a 5%
interest in International CableTel, Incorporated (CableTel), a
telecommunications company operating in the United Kingdom. The Company
accounted for the investment in CableTel as a marketable equity security and
recorded a gain of $15,919,000. During the year ended December 31, 1994, the
CableTel marketable equity securities were sold and an additional gain of
$1,204,000 was realized.
In addition to its equity investment, the Company has made commitments to TCG
to loan up to $69,920,000 through 2003, of which $39,500,000 was outstanding as
of December 31, 1994. These loans bear interest at approximately 7 1/4%. TCG
and its affiliates are telecommunications companies which operate fiber optic
networks in the United States. The initial investment in TCG was acquired in
1993 at a cost of $66,000,000.
As of December 31, 1994, the Company has advanced $114,000,000 in cash to
Fintelco, S.A. which owns and operates cable television systems in Argentina.
Continental currently holds an approximate 50% interest in Fintelco, S.A.
subject to certain regulatory approvals. In addition, the Company has recorded
commitments to contribute an additional $32,216,000 to Fintelco S.A. The
initial investment in Fintelco, S.A. was acquired in February 1994 at a cost of
$80,000,000.
In September 1994, the Company made an initial equity investment in Singapore
Cablevision Private Limited (SCV), which will construct, own and operate a
cable television system in Singapore. The Company is committed to make
additional capital contributions to SCV of approximately $34,800,000 to be paid
through 1996. In addition, the Company has made commitments to SCV to loan up
to approximately $43,000,000, if third party debt financing cannot be obtained
by SCV.
During 1994, a wholly owned subsidiary of the Company issued a standby letter
of credit of $38,750,000 on behalf of PrimeStar Partners L.P. (PrimeStar), a
limited partnership that provides direct broadcast satellite services. The
standby letter of credit guarantees a portion of the financing PrimeStar
incurred to construct a satellite system and is collateralized by certain
marketable equity securities with a carrying value of $65,781,000 as of
December 31, 1994. As a result of the commitments and other qualitative
factors, the Company accounts for its investment in PrimeStar using the equity
method. Subsequent to December 31, 1994, the amount of the standby letter of
credit was increased to $56,250,000.
The Company also has various investments in cable television companies which
are not individually material to the Company. The Company has approximately a
one-third ownership interest in these companies and therefore accounts for
these investments using the equity method.
F-66
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The major components of all equity method investees' combined financial
position as of the balance sheet dates and the results of operations for the
years then ended were as follows (reflects the Company's proportionate share
for the periods which the investments were owned):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property, Plant and Equipment............................. $106,000 $226,000
Total Assets.............................................. 253,000 495,000
Total Liabilities......................................... 196,000 387,000
Equity.................................................... 57,000 108,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1992 1993 1994
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues......................................... $49,000 $63,000 $146,000
Depreciation and Amortization.................... 20,000 22,000 27,000
Operating Loss................................... (4,000) (5,000) (4,000)
Net Loss......................................... (21,000) (19,000) (28,000)
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and Buildings.................................... $ 50,040 $ 56,630
Reception and Distribution Facilities................. 1,893,925 2,122,304
Equipment and Fixtures................................ 249,192 288,950
---------- ----------
Total............................................... 2,193,157 2,467,884
Less-Accumulated Depreciation......................... 981,650 1,114,095
---------- ----------
Property, Plant and Equipment-net................... $1,211,507 $1,353,789
========== ==========
</TABLE>
7. DEBT
Total debt outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Bank Indebtedness..................................... $ 754,550 $1,373,790
Insurance Company Notes............................... 171,500 150,000
Senior Notes and Debentures........................... 1,400,000 1,400,000
Subordinated Debt..................................... 825,000 500,000
Other................................................. 26,128 26,117
---------- ----------
Total............................................. $3,177,178 $3,449,907
========== ==========
</TABLE>
F-67
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1994, the Company amended and restated its bank indebtedness by
entering into a $2,200,000,000 unsecured reducing revolver credit agreement
(Reducing Revolver). Borrowings under the Reducing Revolver were utilized to
refinance the prior bank indebtedness agreements. Credit availability under the
Reducing Revolver will decrease annually commencing December 31, 1997 with a
final maturity in October 2003. Borrowings under the Reducing Revolver bear
interest at a rate between the agent bank's prime rate (8 1/2% as of December
31, 1994) and prime plus 1/2%, depending on certain financial tests. At the
Company's option, borrowings may bear interest at spreads over LIBOR. The
Company's obligations under the Reducing Revolver are guaranteed by
substantially all of the Restricted Subsidiaries, which represent the Company's
owned and operated cable systems. Prepayments are required from the proceeds of
certain sales of Restricted Subsidiaries' assets.
The Insurance Company Notes are unsecured, bear interest at 10.12%, require
increasing semi-annual repayments through July 1, 1999 and rank pari passu in
right of payment with the Reducing Revolver.
The Company's unsecured Senior Notes and Debentures rank pari passu in right
of payment with the Insurance Company Notes and Reducing Revolver
(collectively, Senior Debt) and are non-redeemable prior to maturity, except
for the 9 1/2% Senior Debentures. The 9 1/2% Senior Debentures are redeemable
at the Company's option at par plus declining premiums beginning in 2005. In
addition, at any time prior to August 1996, the Company may redeem a portion of
the 9 1/2% Senior Debentures at a premium with the proceeds from any offering
by the Company of its capital stock. No sinking fund is required for any of the
Senior Notes and Debentures. The Senior Notes and Debentures consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
8 1/2% Senior Notes, Due September 15, 2001............ $ 200,000 $ 200,000
8 5/8% Senior Notes, Due August 15, 2003............... 100,000 100,000
8 7/8% Senior Debentures, Due September 15, 2005....... 275,000 275,000
9% Senior Debentures, Due September 1, 2008............ 300,000 300,000
9 1/2% Senior Debentures, Due August 1, 2013........... 525,000 525,000
---------- ----------
Total................................................ $1,400,000 $1,400,000
========== ==========
</TABLE>
The Company's Senior Debt limits the Restricted Group with respect to, among
other things, payment of dividends and the repurchase of certain capital stock
in excess of $490,000,000, the creation of liens and additional indebtedness,
property dispositions, investments and leases, and require certain minimum
ratios of debt to cash flow and cash flow to related fixed charges.
The Company's Subordinated Debt is redeemable at the Company's option at par
plus declining premiums at various dates, and is subordinated to the Company's
Senior Debt. Subordinated Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
10 5/8% Senior Subordinated Notes, Due June 15, 2002...... $100,000 $100,000
12 7/8% Senior Subordinated Debentures, Due November 1,
2004..................................................... 325,000 --
Senior Subordinated Floating Rate Debentures, Due November
1, 2004.................................................. 100,000 100,000
11% Senior Subordinated Debentures, Due June 1, 2007...... 300,000 300,000
-------- --------
Total................................................... $825,000 $500,000
======== ========
</TABLE>
F-68
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1993, the Company repurchased $25,000,000 of the 12 7/8% Senior
Subordinated Debentures at a premium of $3,075,000, which was recorded as
interest expense. During November 1994, the Company redeemed the remaining
$325,000,000 of these debentures for a price equal to 106.438% of their
principal amounts plus accrued interest thereon. As a result of the redemption
and the write-off of $7,176,000 of unamortized deferred financing costs, the
Company recorded an extraordinary loss of $28,100,000, less an income tax
benefit of $9,835,000.
The Senior Subordinated Floating Rate Debentures bear interest at LIBOR plus
3% through November 1996, increasing to LIBOR plus 6.5% through maturity.
As of December 31, 1994, the Company has Swaps pursuant to which it pays
fixed interest rates averaging 9.1% on notional amounts of $800,000,000
(expiring 1995 through 2000) and variable interest rates on notional amounts of
$1,575,000,000 (expiring 1998 through 2003). The variable interest rates are
based on six month LIBOR (7% as of December 31, 1994). In addition, the Company
has a notional amount of $800,000,000 of Caps, included in Other Assets, with a
carrying value of $1,176,000 expiring in 1995 and 1996, which limit six month
LIBOR to approximately 8%. The Company's exposure, if the other parties fail to
perform under the agreements, would be limited to the impact of variable
interest rate fluctuations and the periodic settlement of amounts due under
these agreements. As of December 31, 1993 and 1994, amounts receivable
(payable) under Swaps were $658,000 and $(5,000,000), respectively.
The variable-rate Swaps include $325,000,000 of Swaps that may be extended by
the counterparty at a certain time in the future at the existing contracted
rates. The Company entered into such Swaps to further manage its interest rate
risk. Such Swaps are related to specific portions of the Company's fixed-rate
debt and are with counterparties that are lenders to the Company under the
Reducing Revolver. Premium income or expense is amortized over the life of the
agreement and is included in the Company's results of operations.
The fair value of total debt, Swaps and Caps is estimated to be
$3,510,020,000 and $3,516,588,000 as of December 31, 1993 and 1994,
respectively, and is based on recent trades and dealer quotes. The components
of the fair value are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Carrying Value of Debt................................ $3,177,178 $3,449,907
Unrealized Loss/(Gain) on Debt........................ 238,295 (130,442)
Unrealized Loss on Floating to Fixed Rate Swaps....... 81,222 14,247
Unrealized Loss on Fixed to Floating Rate Swaps....... 13,325 184,903
Unrealized Gain on Interest Rate Cap Agreements....... -- (2,027)
---------- ----------
Total............................................... $3,510,020 $3,516,588
========== ==========
</TABLE>
Annual maturities of debt for the five years subsequent to December 31, 1994,
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1995.......................................................... $ 24,265
1996.......................................................... 27,250
1997.......................................................... 30,550
1998.......................................................... 33,250
1999.......................................................... 35,000
Thereafter.................................................... 3,299,592
----------
Total....................................................... $3,449,907
==========
</TABLE>
8. COMMITMENTS
The Company and its subsidiaries have entered into various operating lease
agreements, with total commitments of $34,952,000 as of December 31, 1994.
Commitments under such agreements for the years
F-69
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1995-1999 approximate $8,778,000, $7,534,000, $5,437,000, $4,189,000 and
$3,230,000, respectively. The Company and its subsidiaries also rent pole space
from various companies under agreements which are generally terminable on short
notice. Lease and rental costs charged to operations for the years ended
December 31, 1992, 1993 and 1994 were $17,876,000, $18,378,000 and $20,113,000,
respectively.
9. REDEEMABLE STOCK
Pursuant to a Stock Liquidation Agreement with certain shareholders (the
Selling Shareholders), the Company committed to repurchase 1,228,193 shares of
its common stock in December 1998 or January 1999 at a defined purchase price
(Purchase Price). The Purchase Price is the greater of the estimated amount of
net proceeds per share from an underwritten public offering of the Company's
common stock or, the net proceeds per share from the liquidation of the Company
less a 22.5% discount. The Stock Liquidation Agreement also required the
Company to offer to repurchase up to 300,000 shares from all shareholders by
October 15, 1993 (the Mandatory Tender Offer).
The fair value of the Redeemable Common Stock is estimated at $339,365,000
and $329,011,000 as of December 31, 1993 and 1994, respectively, based on the
estimate of the Purchase Price at these dates of $506 and $493 per share,
respectively, as determined by an investment banker of the Company.
In the event the Company is unable to meet its commitments under the Stock
Liquidation Agreement, the Selling Shareholders may cause the sale of all or
substantially all of the assets of the Company.
Pursuant to the Company's August 1992 Tender Offer, the Company repurchased
319,022 Redeemable Common shares, 159,437 Class A shares, and 237,302 Class B
shares in October 1992 for approximately $239,852,000, of which $5,868,000 was
paid in January 1993. This transaction satisfied the Mandatory Tender Offer
and, together with agreements with certain shareholders to withdraw from the
1998-1999 Share Repurchase, reduced the number of Redeemable Common shares to
751,305 shares.
During 1993, the Company repurchased 64,176 Redeemable Common shares for
approximately $31,125,000 and during 1994, the Company repurchased 8,705 of
Class B shares and 1,099 of Class A shares. These transactions, together with
an agreement with a certain shareholder to withdraw from the 1998-1999 Share
Repurchase, reduced the number of Redeemable Common shares to 670,682 shares
and 667,366 shares at December 31, 1993 and 1994, respectively. The effect of
these transactions on certain accounts is as follows:
<TABLE>
<CAPTION>
REDEEMABLE ADDITIONAL
COMMON COMMON PAID-IN
STOCK STOCK CAPITAL
---------- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Repurchase of 715,761 Shares
(319,022 were Redeemable Shares).............. $ (93,591) $ (4) $(146,257)
Reclassification of 457,866 Shares to Common
Stock......................................... (141,962) 4 141,958
--------- ---- ---------
Total for the Year Ended December 31, 1992... $(235,553) $-- $ (4,299)
========= ==== =========
Repurchase of 64,176 Redeemable Shares......... $ (19,848) $-- $ (11,277)
Reclassification of 16,447 Shares to Common
Stock......................................... (5,085) -- 5,085
--------- ---- ---------
Total for the Year Ended December 31, 1993... $ (24,933) $-- $ (6,192)
========= ==== =========
Repurchase of 9,804 Shares
(3,316 were Redeemable Shares)
Total for the Year Ended December 31, 1994... $ (1,081) $-- $ (3,674)
========= ==== =========
</TABLE>
The initial estimated repurchase cost for the Redeemable Common Stock has
been adjusted by periodic accretions through the repurchase dates, based on the
interest method, of the difference between the initial estimate and the
subsequent estimates of the Purchase Price.
F-70
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SHAREHOLDERS' EQUITY (DEFICIENCY)
In May 1992, the Company adopted amendments to its Certificate of
Incorporation and By-laws which reclassified the Company's outstanding common
stock, which has one vote per share, as Class A Common Stock, and created a new
class of common stock, Class B Common Stock, which has ten votes per share. At
December 31, 1994, there were 345,604 and 4,276,837 Class A and Class B shares
of common stock outstanding, respectively. Shareholders' Equity (Deficiency)
reflects only 343,420 and 3,611,655 Class A and Class B shares of common stock
outstanding, respectively, due to the classification of 667,366 shares as
Redeemable Common Stock.
During 1992, the Company sold 469,275 shares of Class B Common Stock for
approximately $153,839,000 after $1,161,000 of expenses related to the
offerings. In November 1993, the Company sold 95,876 shares of Class A Common
Stock for approximately $46,500,000. During 1994, the Company sold 62,886
shares of Class A Common Stock for approximately $30,500,000.
In June 1992, the Company sold 1,142,858 shares of Series A Convertible
Preferred Stock (Convertible Preferred), $.01 par value, for $350 per share.
Net proceeds were approximately $394,349,000 after expenses related to the
offering. Each Convertible Preferred share is entitled to ten votes per share,
shares equally with each common share in all dividends and distributions, and
is convertible into one share of common stock, at any time, at the option of
the holder. The Convertible Preferred stockholders have the right, at any time
after June 1995, to sell their shares in a public offering by causing the
Company to register such shares under the Securities Act of 1933. Certain other
shareholders of the Company have similar registration rights.
The Convertible Preferred has a liquidation preference equal to the greater
of its Accreted Value or the amount which would be distributed to common
stockholders assuming conversion of the Convertible Preferred. The Accreted
Value assumes a yield of 8% per annum, compounded semi-annually in arrears on
the $350 purchase price per share. During the year ended December 31, 1994, the
carrying value of the Convertible Preferred has been increased by $36,800,000
to reflect the Accreted Value of $487,776,000 as of December 31, 1994.
After June 1997, if the value of the common stock is greater than 137.5% of
the then Accreted Value, the Company will have the right to convert each
outstanding share of Convertible Preferred into one share of common stock.
In June 2002, each outstanding share of Convertible Preferred may be
converted at the option of the holder or the Company into a number of common
shares which will have a value equal to the Accreted Value. The Company may, at
its sole option, purchase for cash at the Accreted Value all or part of the
Convertible Preferred instead of accepting or requiring conversion.
In connection with the above-referenced sale of shares of Convertible
Preferred Stock and Class B Common Stock, the issuance of subordinated debt,
senior notes, and debentures, and certain other investment banking services,
the Company paid aggregate fees and underwriting discounts to Lazard Freres &
Company (Lazard) of approximately $9,000,000 and $7,700,000 in 1992 and 1993,
respectively. Two directors of the Company are general partners of Lazard and
are managing directors of Corporate Partners, L.P., which purchased 728,953
shares of Convertible Preferred on the same terms as all other purchasers of
Convertible Preferred.
11. RESTRICTED STOCK PURCHASE PROGRAM
The Company maintains a Restricted Stock Purchase Program under which certain
employees of the Company, selected by the Board of Directors, are permitted to
buy shares of the Company's common stock
F-71
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
at the par value of one cent per share. The shares remain wholly or partly
subject to forfeiture for five years, during which a pro rata portion of the
shares becomes "vested" at six-month intervals. Upon termination of employment
with the Company, an employee must resell to the Company, for the price paid by
the employee, the employee's shares which are not then vested. For financial
statement presentation, the difference between the purchase price and the fair
market value at the date of issuance (as determined by the Board of Directors)
is recorded as additional paid-in capital and unearned compensation, and
charged to operations through 1996 as the shares vest. Shares of common stock
issued under the program for the years ended December 31, 1992 and 1993 were
108,450 and 1,600, respectively, none were issued during 1994. At December 31,
1993 and 1994, 78,327 and 40,157 shares, respectively, were not yet vested. In
connection with the Restricted Stock Purchase Program, a wholly-owned
subsidiary of the Company has loaned approximately $14,035,000 and $13,541,000
at December 31, 1993 and 1994, respectively, to the participating employees to
fund their individual tax liabilities. These loans are due through 1996, bear
interest at a range from 5% to 8%, and are included in Other Assets in the
accompanying financial statements.
12. INCOME TAXES
Effective January 1, 1993, the Company implemented the provisions of SFAS 109
and recognized an additional charge of $184,996,000 for deferred income taxes.
Such amount has been reflected in the consolidated financial statements as the
cumulative effect of change in accounting for income taxes.
During 1993, the Company revised its estimated annual effective tax rate to
reflect a change in the federal statutory rate from 34% to 35%. The income tax
benefit for the year decreased approximately $4,182,000 as a result of applying
the newly enacted federal tax rates to deferred tax balances as of January 1,
1993.
The provision (benefit) for income taxes is comprised of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1992 1993 1994
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $ 647 $ (196)
State........................................... 1,654 1,220 2,049
Deferred:
Federal......................................... -- (7,968) (35,549)
State........................................... -- (1,820) (6,723)
------ ------- --------
Total......................................... $1,654 $(7,921) $(40,419)
====== ======= ========
Extraordinary Item--Deferred...................... -- -- $ (9,835)
====== ======= ========
</TABLE>
Differences between the effective income tax rate and the federal statutory
rates are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Federal Statutory Rate........................ (34.0)% (35.0)% (35.0)%
Enacted Tax Rate Change....................... -- 12.4 --
Net Operating Losses without Current Income
Tax Benefit.................................. 14.8 -- --
Depreciation and Amortization Not Deductible
for Tax Purposes............................. 17.4 -- --
State Income Tax, Net of Federal Income Tax
Benefit...................................... 1.1 (1.2) (2.2)
Other......................................... 2.3 .3 .5
------- ------- -------
Total....................................... 1.6 % (23.5)% (36.7)%
======= ======= =======
</TABLE>
F-72
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes prior to the implementation of SFAS 109 resulted
primarily from timing differences in the recognition of certain expense items
for tax and financial reporting purposes. The tax effect of each major
component is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1992
----
(IN THOUSANDS)
<S> <C>
Accelerated Depreciation and Amortization............. $7,811
Restricted Stock Purchase Program..................... 7,469
Gain on Sale of Investment............................ 3,486
Deferred Income....................................... (4,555)
Utilization of Accounting Net Operating Losses........ (7,669)
Other................................................. (6,542)
------
Total............................................... $ --
======
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and Amortization....................... $(482,320) $(506,560)
Unrealized Holding Gain on Marketable Equity Securi-
ties............................................... -- (32,353)
Other............................................... (14,989) (5,245)
Deferred Tax Assets:
Net Operating Loss Carryforwards.................. 439,577 460,469
Tax Credit Carryforwards.......................... 60,304 59,397
Other............................................. 49,858 60,836
Valuation Allowance............................... (157,471) (153,026)
--------- ---------
Net Deferred Tax Liability.......................... $(105,041) $(116,482)
========= =========
</TABLE>
The Company and its subsidiaries have net operating loss carryforwards of
approximately $1,000,000,000 at December 31, 1994 for federal income tax
purposes expiring through 2009, and investment tax credit carryforwards of
approximately $60,000,000 expiring through 2005.
Valuation allowances have been established for uncertainties in realizing
transitional investment tax credit carryforwards and the tax benefit of certain
limited use net operating losses for federal and state income tax purposes. If
in future periods the realization of tax credit and net operating loss
carryforwards acquired as a result of business combinations becomes more likely
than not, $29,000,000 of the valuation allowance will be allocated to reduce
goodwill and other intangible assets. The net change of the valuation allowance
during 1993 and 1994, was an increase of $34,971,000 and a decrease of
$4,445,000, respectively. The 1993 increase relates to state net operating loss
carryforwards that were not expected to be realized and the 1994 decrease
relates primarily to the expiration of investment tax credit carryforwards.
An affirmed tax court decision affecting the cable television industry
ratified the deductibility of certain franchise cost amortization. As a result,
the Company revised the estimated tax bases of certain intangible assets as of
December 31, 1993. This resulted in the Company adjusting the carrying values
of goodwill, franchise costs and deferred tax relating to specific acquisitions
by $16,287,000, $54,506,000 and $70,793,000, respectively.
F-73
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RETIREMENT AND MATCHED SAVINGS PLANS
The Company has a non-contributory defined benefit plan covering
substantially all employees. Benefits under the plan are determined based on
formulas which reflect employees' years of service and the average of the five
consecutive years of highest compensation. The Company's policy is to make
contributions sufficient to meet the minimum funding requirements of ERISA.
The components of net periodic pension expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1992 1993 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service Cost-Benefits Earned During the Year...... $ 2,479 $ 2,584 $ 2,934
Interest Cost on Projected Benefit Obligations.... 1,118 1,336 1,576
Actual (Return) Loss on Plan Assets............... (179) (136) 417
Other Items....................................... (422) (615) (1,514)
------- ------- -------
Total........................................... $ 2,996 $ 3,169 $ 3,413
======= ======= =======
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial Present Value of:
Vested Benefit Obligation............................. $ (8,384) $ (9,159)
Non-Vested Benefit Obligation......................... (1,647) (1,201)
-------- --------
Accumulated Benefit Obligation.......................... (10,031) (10,360)
Effect of Projected Salary Increases.................... (10,553) (12,691)
-------- --------
Projected Benefit Obligation............................ (20,584) (23,051)
Plan Assets at Market Value............................. 11,350 12,397
-------- --------
Funded Status........................................... (9,234) (10,654)
Deferred Transition Loss................................ 1,264 1,194
Unrecognized Prior Service Cost......................... (89) (511)
Unrecognized Net Loss................................... 1,884 2,233
-------- --------
Accrued Pension Cost................................ $ (6,175) $ (7,738)
======== ========
</TABLE>
The actuarial assumptions as of the year-end measurement date are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Discount Rate.................................................. 7.75% 8.75%
Expected Long-Term Rate of Return.............................. 9.00% 9.00%
Rate of Increase in Future Salary Levels....................... 4.75% 5.75%
</TABLE>
At December 31, 1994, plan assets consist of equity and debt securities, U.S.
Government obligations and cash equivalents.
The Company sponsors a defined contribution Matched Savings Plan covering
substantially all of its employees. The Company's contribution for this plan is
based on a percentage of each participant's salary.
F-74
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total costs for the years ended December 31, 1992, 1993 and 1994 were
$2,418,000, $2,550,000, and $2,652,000, respectively.
14. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have a material effect
on the consolidated financial position and results of operations of the
Company.
15. LEGISLATION AND REGULATION
Pursuant to the Cable Television Consumer Protection and Competition Act of
1992, the FCC in April 1993 promulgated rate regulations that establish maximum
allowable rates for cable television services, except for services offered on a
per-channel or per-program basis. On February 22, 1994, the FCC adopted a
revised regulatory scheme which included, among other things, interim cost-of-
service standards and a new benchmark formula to determine service rates. In
creating the new benchmark formula, the FCC authorized a further reduction in
rates for certain regulated services. As a result, rates for certain regulated
services may now be reduced as much as 17% below their September 30, 1992
level, adjusted for inflation, if they exceed the new per-channel benchmark
rates. The FCC's regulations require rates for equipment and installations to
be cost-based, and require reasonable rates for regulated cable television
services to be established based on, at the election of the cable television
operator, either application of the FCC's benchmark formula or a cost-of-
service showing pursuant to interim standards adopted by the FCC.
Under current FCC regulations, a rate complaint or certification of a local
franchising authority is required to regulate a system. As a result of such
actions, the Company's basic service, equipment, and installation rates are
currently regulated in systems serving approximately 45% of its basic
subscribers. In accordance with the regulations, the Company elected to follow
the FCC's benchmark methodology to determine service rates for approximately
50% of these subscribers, reducing rates in September 1993 and again in July
1994. The rates for the remaining 50% of the subscribers served by the
regulated systems are supported by cost-of-service showings. Certain positions
taken by the Company in its cost-of-service filings are based on provisions of
the FCC's interim cost-of-service rules that allow certain "presumptions" in
the rules to be overcome on a case-by-case basis. While the Company believes
that its showings in this regard are sufficient, the results of these cases are
unknown. As a result, the Company has recorded a revenue reserve. In the
opinion of management, the ultimate resolution of these filings will not have a
material adverse effect on the Company's consolidated financial position.
F-75
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for 1993 and 1994 are summarized below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1993
Revenues....................... $ 287,542 $ 297,238 $ 295,458 $ 296,925
Depreciation and Amortization.. 68,010 68,817 70,087 72,095
Restricted Stock Purchase
Program....................... 2,690 2,689 2,690 2,935
Operating Income............... 58,780 63,713 57,469 57,617
Loss Before Cumulative Effect
of Change in Accounting for
Income Taxes.................. (5,397) (1,491) (13,487) (5,399)
Cumulative Effect of Change in
Accounting for Income Taxes... (184,996) -- -- --
Net Loss....................... (190,393) (1,491) (13,487) (5,399)
Loss Applicable to Common
Shareholders.................. (198,602) (9,819) (22,305) (14,159)
Loss Per Common Share:
Loss Before Cumulative Effect
of Change in Accounting for
Income Taxes................. (2.99) (2.16) (4.90) (3.08)
Cumulative Effect of Change in
Accounting for Income Taxes.. (40.61) -- -- --
Net Loss..................... (43.60) (2.16) (4.90) (3.08)
1994
Revenues....................... $ 290,764 $ 298,626 $ 296,246 $ 312,341
Depreciation and Amortization.. 67,458 68,065 71,277 76,383
Restricted Stock Purchase
Program....................... 2,838 2,837 2,827 2,814
Operating Income............... 59,284 61,507 53,565 56,238
Loss Before Extraordinary Item. (13,640) (9,981) (21,871) (23,084)
Extraordinary Item............. -- -- -- (18,265)
Net Loss....................... (13,640) (9,981) (21,871) (41,349)
Loss Applicable to Common
Shareholders.................. (22,518) (18,990) (31,309) (50,824)
Loss Per Common Share:
Loss Before Extraordinary
Item......................... (4.93) (4.16) (6.87) (7.07)
Extraordinary Item............ -- -- -- (3.96)
Net Loss...................... (4.93) (4.16) (6.87) (11.03)
</TABLE>
See Notes to Consolidated Financial Statements.
F-76
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Columbia Associates, L.P.:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of Columbia Associates, L.P. as of December 31, 1993
and 1994, and have issued our report thereon dated February 24, 1995. In
connection therewith, we have also audited the statements of assets,
liabilities and control account of Columbia Cable of Michigan (a division of
Columbia Associates, L.P.) as of December 31, 1993 and 1994, and the related
statements of operations and control account and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Columbia Cable of Michigan as
of December 31, 1993 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Stamford, Connecticut,
February 24, 1995
F-77
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF ASSETS, LIABILITIES AND CONTROL ACCOUNT
DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
ASSETS
------
CASH................................................ $ 674,099 $ 385,054
----------- -----------
SUBSCRIBER RECEIVABLES, net of allowance for
doubtful accounts of $213,482 and $162,191 in 1993
and 1994, respectively............................. 573,723 605,547
----------- -----------
INVESTMENT IN CABLE TELEVISION SYSTEMS (Notes 3 and
4):
Property, plant and equipment, at cost............ 54,140,130 58,271,277
Less--Accumulated depreciation.................... (18,032,166) (23,441,707)
----------- -----------
36,107,964 34,829,570
Franchising costs, net of accumulated amortization
of $13,245,295 and $14,882,450 in 1993 and 1994,
respectively..................................... 4,257,209 2,631,381
Goodwill and other intangible assets, net of
accumulated amortization of $2,390,633 and
$2,663,051 in 1993 and 1994, respectively........ 637,415 332,766
----------- -----------
Total investment in cable television systems.... 41,002,588 37,793,717
----------- -----------
OTHER ASSETS, net................................... 991,729 1,058,194
----------- -----------
$43,242,139 $39,842,512
=========== ===========
LIABILITIES AND CONTROL ACCOUNT
-------------------------------
LIABILITIES:
Accounts payable and accrued expenses............. $ 1,868,647 $ 2,070,908
Subscriber advance payments and deposits.......... 632,171 658,394
----------- -----------
Total liabilities............................... 2,500,818 2,729,302
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)
CONTROL ACCOUNT, excess of assets over liabilities.. 40,741,321 37,113,210
----------- -----------
$43,242,139 $39,842,512
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-78
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF OPERATIONS AND CONTROL ACCOUNT
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
REVENUES.............................................. $25,130,342 $26,428,244
----------- -----------
EXPENSES:
Service costs....................................... 9,402,956 10,143,788
Selling, general and administrative expenses........ 4,168,761 4,491,103
Indirect expenses................................... 1,413,452 1,449,917
Depreciation and amortization (Notes 3 and 4)....... 7,046,029 7,620,122
Other expense....................................... -- 18,255
Gain on disposal of equipment, net.................. (57,958) (26,975)
----------- -----------
Total expenses.................................... 21,973,240 23,696,210
----------- -----------
Net income........................................ 3,157,102 2,732,034
CONTROL ACCOUNT, beginning of year.................... 39,723,609 40,741,321
ADVANCES TO PARENT.................................... (2,139,390) (6,360,145)
----------- -----------
CONTROL ACCOUNT, end of year.......................... $40,741,321 $37,113,210
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-79
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 3,157,102 $2,732,034
----------- ----------
Adjustments to reconcile division income to net cash
provided by operating activities:
Depreciation and amortization..................... 7,046,029 7,620,122
Gain on disposal of equipment..................... (57,958) (26,975)
Change in assets and liabilities--
(Increase) in subscriber receivables............ (107,581) (31,824)
(Increase) in other assets...................... (213,137) (66,604)
Increase in accounts payable and accrued
expenses....................................... 115,297 202,261
Increase (decrease) in subscriber advance
payments and deposits.......................... (2,984) 26,223
----------- ----------
Total adjustments............................. 6,779,666 7,723,203
----------- ----------
Net cash provided by operating activities..... 9,936,768 10,455,237
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investment in existing cable television
systems............................................ (7,574,365) (4,454,226)
Proceeds on disposal of equipment................... 169,165 70,089
----------- ----------
Net cash used in investing activities......... (7,405,200) (4,384,137)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to parent.................................. (2,139,390) (6,360,145)
----------- ----------
Net cash used in financing activities......... (2,139,390) (6,360,145)
----------- ----------
Net increase (decrease) in cash............... 392,178 (289,045)
CASH, beginning of year............................... 281,921 674,099
----------- ----------
CASH, end of year..................................... $ 674,099 $ 385,054
=========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-80
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994
(1) PARTNERSHIP FORMATION AND SALE:
Columbia Cable of Michigan ("Michigan") is a division of Columbia Associates,
L.P. (the "Partnership"). The Partnership is a limited partnership which was
formed on March 7, 1985, under the laws of the State of Delaware and which
operates under the terms of the Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") dated as of June 2, 1992. The
Partnership will continue until March 1, 1995 unless previously dissolved in
accordance with the terms of the Partnership Agreement. The partners are
presently contemplating an extension of the Partnership Agreement.
On November 1, 1994, the Partnership entered into an agreement to sell
substantially all the assets and certain of the liabilities of Michigan for
$155 million, subject to closing adjustments. The Partnership expects the sale
to be completed in 1995.
(2) CABLE REGULATION:
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "Act") which, among other things, expanded
governmental regulation of rates for basic and other cable services. Pursuant
to the Act, the Federal Communications Commission (the "FCC") issued
regulations in April 1993. The FCC's regulations require rates for equipment to
be cost-based. Rates for basic and any regulated tiers of service were to be
based on, at the election of the cable operator, either the FCC's benchmark
rates or a cost-of-service showing based upon interim standards adopted by the
FCC. As a result of these regulations and the actions of the local franchise
authorities, Michigan is currently subject to regulation by the local franchise
authorities and the FCC.
Effective September 1, 1993, Michigan elected to use the FCC's benchmark
methodology. In February 1994, the FCC significantly modified the April 1993
regulations. The new regulations, among other things, ordered a lower benchmark
rate that became effective in May 1994 with allocable extensions until July
1994.
In July 1994, Michigan elected to justify its rates using a cost of service
showing instead of the benchmark methodology, but did not raise its rates to
the maximum permitted cost of service rates. Set forth below is a summary of
rates for the regulated tiers of service:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------
COST OF
BENCHMARK SERVICE
NUMBER OF RATE PER RATE PER
SYSTEM SUBSCRIBERS ACTUAL RATE FILING FILING
------ ----------- ----------- --------- --------
<S> <C> <C> <C> <C>
Michigan--Ann Arbor Filing.......... 63,043 $21.25 $20.42 $22.92
Michigan--Brighton Filing........... 12,353 21.00 20.24 23.50
</TABLE>
Michigan's cost of service filings are currently being reviewed by the local
franchise authorities and the FCC. Michigan believes it is in compliance in all
material respects with the provisions of the Act and current regulations, and
accordingly, no revenue reserves have been recorded.
(3) SIGNIFICANT ACCOUNTING POLICIES:
Basis of financial statement presentation--
Michigan's financial statements include all the direct costs of operating the
business. Costs specifically incurred by the Partnership on behalf of Michigan
were directly included in selling, general and
F-81
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
administrative expenses and service costs. Costs which were not incurred
specifically for any of the Partnership's divisions were allocated to Michigan
based on Michigan's total subscribers as a percentage of the Partnership's
total subscribers. All the indirect cost incurred by the Partnership which have
been allocated to Michigan have been included as "indirect expenses" in the
accompanying statements of operations and control account. Management believes
the foregoing allocations were made on a reasonable basis. Nonetheless, the
financial information included herein may not necessarily reflect the financial
position and results of operations of Michigan in the future or what the
financial position or results of operations of Michigan would have been as a
separate stand-alone entity.
The control account consists of accumulated earnings/losses, allocated
expenses from the Partnership, as well as any payable/receivable balance due
to/from the Partnership resulting from cash transfers. No provision for
interest has been made to the control account. Set forth below is an analysis
of the control account for the years ended December 31, 1993 and 1994.
<TABLE>
<S> <C>
Control account--December 31, 1992................................. $39,723,609
Net income--1993................................................... 3,157,102
Cash transfers to the Partnership.................................. (25,024,245)
Cash transfers from the Partnership................................ 16,950,000
Direct and indirect expenses....................................... 5,934,855
-----------
Control account--December 31, 1993................................. 40,741,321
Net income--1994................................................... 2,732,034
Cash transfers to the Partnership.................................. (26,789,688)
Cash transfers from the Partnership................................ 14,000,000
Direct and indirect expenses....................................... 6,429,543
-----------
Control account--December 31, 1994................................. $37,113,210
===========
</TABLE>
The average balance outstanding of the control account was approximately
$40,200,000 and $38,900,000 during 1993 and 1994, respectively.
Property, plant and equipment--
Property, plant and equipment is recorded at purchased cost, together with
labor and indirect labor costs amounting to approximately $446,000 and $364,000
in 1993 and 1994, respectively.
Intangible assets--
Franchise costs include the assigned fair value of the franchises from
purchased cable television systems and costs of original franchise
applications, which are deferred until the franchise has been granted, at which
time such costs are amortized. All costs related to unsuccessful franchise
applications are charged to expense when it is determined that the efforts to
obtain the franchises were unsuccessful. Franchise costs are amortized over the
remaining franchise life, while goodwill is amortized over ten years and other
intangible assets (primarily subscriber lists) are amortized over the average
period that a subscriber is expected to remain connected to the cable system.
Amortization of franchise costs, goodwill and other intangible assets amounted
to approximately $1,646,000, $263,000 and $48,000 respectively, in 1993 and
approximately $1,642,000, $261,000 and $44,000, respectively in 1994.
Revenue recognition--
Revenues are recognized as the services are provided.
F-82
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
(4) PROPERTY, PLANT AND EQUIPMENT:
As of December 31, 1993 and 1994, property, plant and equipment consisted of:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Cable systems and equipment......................... $51,855,580 $55,994,897
Land, buildings and improvements.................... 808,174 809,696
Vehicles............................................ 770,857 753,121
Furniture and fixtures.............................. 705,519 713,563
----------- -----------
$54,140,130 $58,271,277
=========== ===========
</TABLE>
Depreciation is calculated on a straight-line basis over the following useful
lives:
<TABLE>
<S> <C>
Cable systems and equipment................................... 5 to 12 years
Buildings and improvements.................................... 15 to 20 years
Vehicles...................................................... 5 years
Furniture and fixtures........................................ 5 to 10 years
</TABLE>
(5) SALARY DEFERRAL PLAN:
The Partnership established a salary deferral plan (the "Plan") in accordance
with Internal Revenue Code Section 401(k), as amended, in 1989. The Plan
provides for discretionary and matching contributions by Michigan on behalf of
participating employees. Discretionary and matching contributions totaled
approximately $151,000 and $162,000 in 1993 and 1994, respectively.
(6) COMMITMENTS:
Under various lease and rental agreements, Michigan had rental expense of
approximately $114,000 and $112,000 in 1993 and 1994, respectively. Approximate
future minimum annual payments under these agreements are as follows:
<TABLE>
<S> <C>
1995.............................................. 38,000
1996.............................................. 39,000
1997.............................................. 32,000
1998.............................................. 18,000
1999.............................................. 18,000
Thereafter........................................ 46,000
</TABLE>
In addition, Michigan rents access to utility poles in its operations
generally under short-term, but recurring, agreements. Total rental expense for
utility poles was approximately $157,000 and $160,000 in 1993 and 1994,
respectively.
F-83
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Rifkin Cable Income Partners L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Clay Cablevision, a Division of Rifkin Cable Income
Partners L.P. (RCIP), at September 30, 1994 and the results of its operations
and its cash flows for the nine months then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Division's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
March 31, 1995
Denver, Colorado
F-84
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
BALANCE SHEET
SEPTEMBER 30, 1994
<TABLE>
<S> <C>
ASSETS
------
Cash.............................................................. $ 24,383
Subscriber accounts receivable, net of allowance for doubtful
accounts of $87,179.............................................. 216,384
Other receivables................................................. 29,700
Prepaid expenses and deposits..................................... 144,820
Property, plant and equipment, at cost:
Cable television transmission and distribution systems and
related equipment.............................................. 19,994,782
Land, buildings, vehicles and furniture and fixtures............ 1,731,480
-----------
21,726,262
Less accumulated depreciation................................... (10,177,292)
-----------
Net property, plant and equipment............................. 11,548,970
Franchise costs, net of accumulated amortization of $11,776,013... 11,585,731
Other assets, net of accumulated amortization of $189,751......... 216,878
-----------
Total assets.................................................. $23,766,866
===========
LIABILITIES AND DIVISION DEFICIT
--------------------------------
Accounts payable, trade........................................... $ 110,711
Other accrued liabilities......................................... 811,940
Subscriber deposits and prepayments............................... 262,616
Interest payable.................................................. 1,154,445
Advances from RCIP................................................ 26,450,447
-----------
Total liabilities............................................. 28,790,159
Commitments (Note 3)
Division deficit.................................................. (5,023,293)
-----------
Total liabilities and division deficit............................ $23,766,866
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
REVENUE
Service.......................................................... $8,901,680
Installation and other........................................... 451,149
----------
Total revenue.................................................. 9,352,829
==========
COSTS AND EXPENSES
Operating expense................................................ 3,658,130
Selling, general and administrative expense...................... 1,090,328
Depreciation and amortization.................................... 2,430,245
Management fees.................................................. 503,732
Loss on retirement of assets..................................... 16,544
----------
Total costs and expenses....................................... 7,698,979
----------
Operating income................................................... 1,653,850
Interest expense................................................... 2,012,487
----------
Net loss........................................................... $ (358,637)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................... $ (358,637)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.................................. 2,430,245
Loss on retirement of assets................................... 16,544
Decrease in accounts payable................................... (98,097)
Decrease in other liabilities.................................. (10,018)
Increase in subscriber deposits and prepayments................ 3,200
Increase in interest payable................................... 568,350
Decrease in subscriber accounts receivables.................... 43,400
Decrease in other receivables.................................. 17,282
Decrease in prepaid expenses and deposits...................... 10,726
----------
Net cash provided by operating activities.................... 2,622,995
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment....................... (589,797)
Proceeds from disposal of assets................................. 12,609
----------
Net cash used in investing activities........................ (577,188)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from RCIP............................................... 2,085,903
Repayments to RCIP............................................... (3,519,486)
Net change in division deficit................................... (615,296)
----------
Net cash used in financing activities........................ (2,048,879)
----------
Net decrease in cash............................................... (3,072)
Cash at beginning of period........................................ 27,455
----------
Cash at end of period.............................................. $ 24,383
==========
</TABLE>
Interest paid for the nine months ended September 30, 1994 was $1,444,137.
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information
Clay Cablevision (Clay, a Division of Rifkin Cable Income Partners L.P
(RCIP)) operates cable television (CATV) systems in Florida. RCIP was formed in
1986 as a limited partnership under the laws of the state of Delaware to
acquire and operate CATV systems. Rifkin Cable Management Partners L.P., an
affiliate of Rifkin and Associates, Inc., is the general partner of RCIP.
On August 24, 1994, RCIP signed an Asset Purchase Agreement ("Agreement")
providing for the sale of substantially all of the net assets of Clay to
Continental Cablevision of Jacksonville, Inc. On November 7, 1994, the sale was
finalized.
Basis of Presentation
The accompanying financial statements present Clay as if it had existed as a
company separate from RCIP and includes the historical assets, liabilities,
revenues, and expenses that are directly related to Clay's business.
Clay's financial statements include all the direct costs of operating the
business. General and administrative expenses specifically incurred by RCIP on
behalf of Clay were included while costs which were not incurred specifically
for any of RCIP's divisions were allocated to Clay based on Clay's total assets
as a percentage of RCIP's total assets. Management believes the foregoing
allocations were made on a reasonable basis. Nonetheless, the financial
information included herein may not necessarily reflect the financial position
and results of operations of Clay in the future or what the financial position
or results of operations of Clay would have been as a separate stand-alone
entity.
Revenue and Programming
Subscriber fees are recorded as revenue in the period the service is
provided. The cost to acquire the rights to the programming generally is
recorded when the product is initially available to be viewed by the
subscriber.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost, which in the
case of assets constructed includes amounts for material, labor, overhead and
interest, if applicable.
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings....................................................... 21-30 years
Cable television transmission and distribution systems and
related equipment.............................................. 3-15 years
Vehicles and furniture and fixtures............................. 3- 5 years
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
F-88
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Franchise Costs
The costs to acquire cable television franchises are capitalized and
amortized using the straight-line method over the remaining lives of the
franchises as of the date they were acquired, ranging from four to fifteen
years.
Other Assets
Certain loan costs of RCIP have been deferred and are amortized over the term
of the related debt. A portion of RCIP's loan costs and related accumulated
amortization of $270,795 and $167,581, respectively, have been allocated to
Clay (Note 2).
Income Taxes
RCIP is not an income tax paying entity. Accordingly, no provision is made
for income taxes since the effects of RCIP's operations are reportable by its
partners on their income tax returns.
Advances from RCIP
The indebtedness of RCIP is joint and severally secured by the assets of all
of its divisions, including Clay, and accordingly, a portion of RCIP's debt has
been allocated to Clay (Note 2) as advances from RCIP.
Cash
The only cash balances allocated to Clay were the nominal cash balances
maintained at Clay's operating facilities.
Division Deficit
The division deficit account consists of accumulated earnings/losses as well
as any payable/receivable balance due to/from RCIP resulting from cash
transfers. No provision for interest has been made on interdivisional balances.
The net change in division deficit shown on the Statement of Cash Flows
represents the change in payable/receivable balance due to/from RCIP.
2. RELATED PARTY TRANSACTIONS
RCIP has entered into a management agreement with Rifkin and Associates, Inc.
(Rifkin). The management agreement provides that Rifkin shall act as manager of
RCIP's CATV systems, and shall be entitled to annual compensation of 5% of
RCIP's CATV revenues, net of certain CATV programming costs ("net CATV
revenue"). In addition, the management agreement provides for the reimbursement
by RCIP of certain costs and expenses incurred on its behalf by Rifkin,
including the expense of certain employees devoting time of providing services
to RCIP. This fee has been allocated to Clay based on Clay's net CATV revenue
as a percentage of RCIP's net CATV revenue.
The advances from RCIP of $26,450,447 at September 30, 1994, represent a
portion of RCIP's third-party debt allocated to Clay based on Clay's total
assets as a percentage of RCIP's total assets. The advances from RCIP bear
interest at approximately 7.48 percent, which represents RCIP's average monthly
overall borrowing rate. Interest allocated to Clay for the nine months totaled
$2,012,487, of which $1,154,445 is reflected as interest payable at September
30, 1994.
3. COMMITMENTS AND RENTAL EXPENSE
Clay leases certain real and personal property under noncancelable operating
leases expiring through the year 2002. Future minimum lease payments under such
noncancelable leases as of September 30, 1994
F-89
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
are: $5,341 remaining in 1994; $12,991 in 1995; $10,485 in 1996; $6,288 in
1997; $5,092 in 1998; and $17,882 thereafter, totaling $58,079.
Total rental expense for the nine months ended September 30, 1994 was
$127,822, including $94,180 relating to cancelable pole rental agreements.
4. CABLE REREGULATION
On September 14, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the Cable Act). On April 1, 1993, the
Federal Communications Commission (FCC) adopted, with effect from September 1,
1993, rules for implementing regulation of CATV subscriber rates. The rates may
be determined under one of two methods, calculation of benchmark rates or cost
of service showings. The Cable Act also gives subscribers and franchisors
certain rights with respect to challenging and regulating local rates.
Regulations to implement the Cable Act were issued in April 1993, and
management, using its best interpretation of regulations, calculated benchmark
rates for its systems, which it implemented effective September 1, 1993.
On February 22, 1994, the FCC issued a statement regarding regulations and
notices of proposed rule-making to implement further the provisions of the
Cable Act. These regulations included a number of significant changes to the
rules issued in 1993 and were intended to achieve a further overall reduction
in cable rates. Clay's calculations of the maximum permitted rates for
regulated programming services and equipment are based on management's best
estimates.
F-90
<PAGE>
REPORT OF INDEPENDENT AUDITORS
General and Limited Partners
N-COM Limited Partnership II
We have audited the accompanying consolidated balance sheets of N-COM Limited
Partnership II at September 30, 1993 and 1994, and the related consolidated
statements of operations, partners' net capital deficiency, and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of N-COM Limited
Partnership II at September 30, 1993 and 1994, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
December 23, 1994
F-91
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1993 1994
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash......................................... $ 1,670,307 $ 1,484,300
Subscriber and other accounts receivable;
less allowance for doubtful accounts of
$3,668 in 1993 and $3,965 in 1994........... 1,086,328 933,394
Prepaid expenses............................. 256,645 184,566
------------ ------------
Total current assets....................... 3,013,280 2,602,260
Property, plant and equipment, at cost:
Land and improvements........................ 16,000 16,000
Building and improvements.................... 332,501 338,921
Cable television distribution systems........ 14,915,497 16,662,687
Vehicles..................................... 327,027 511,167
Other equipment and furniture................ 310,621 375,213
Construction in progress..................... 710,744 975,838
------------ ------------
16,612,390 18,879,826
Less accumulated depreciation.................. (4,164,921) (6,856,833)
------------ ------------
Net property, plant and equipment.............. 12,447,469 12,022,993
Other assets, at cost:
Intangible assets, less accumulated
amortization................................ 33,662,304 24,408,514
Other assets................................. 22,960 22,910
------------ ------------
33,685,264 24,431,424
------------ ------------
$ 49,146,013 $ 39,056,677
============ ============
LIABILITIES AND PARTNERS' NET CAPITAL DEFICIENCY
- ------------------------------------------------
Current liabilities:
Accounts payable............................. $ 430,233 $ 463,774
Accrued liabilities:
Programming costs............................ 343,479 473,986
Compensation and related taxes............... 96,449 64,093
Management fee............................... 70,000 70,000
State taxes.................................. 97,467 9,200
Interest..................................... 169,442 214,558
Other........................................ 392,899 293,828
Unearned subscriber revenues................... 1,071,722 947,731
Long-term debt due within one year............. 1,770,366 3,775,000
------------ ------------
Total current liabilities.................. 4,442,057 6,312,170
Deferred management fee........................ 676,100 912,400
Deferred incentive compensation................ 524,014 568,510
Long-term debt................................. 47,114,294 41,395,000
Promissory notes to partners................... 21,730,563 28,535,001
Partners' net capital deficiency............... (25,341,015) (38,666,404)
------------ ------------
$ 49,146,013 $ 39,056,677
============ ============
</TABLE>
See accompanying notes.
F-92
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED STATEMENT OF OPERATIONS AND PARTNERS' NET CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
--------------------------
1993 1994
------------ ------------
<S> <C> <C>
Revenues:
Subscriber....................................... $ 18,607,097 $ 18,830,785
Other............................................ 676,987 892,080
------------ ------------
19,284,084 19,722,865
Operating expenses:
Direct operating expenses........................ 7,653,673 8,403,794
Selling, general and administrative.............. 3,264,030 2,939,681
Management Fee................................... 338,565 345,230
Depreciation and amortization.................... 11,750,559 12,079,983
------------ ------------
Operating loss..................................... (3,722,743) (4,045,823)
Interest expense ( including partners' amounts of
$5,692,883 and $6,278,203)........................ 8,233,622 9,279,566
------------ ------------
Net loss........................................... (11,956,365) (13,325,389)
Partners' net capital deficiency at beginning of
year.............................................. (13,384,650) (25,341,015)
------------ ------------
Partners' net capital deficiency at end of year.... $(25,341,015) $(38,666,404)
============ ============
</TABLE>
See accompanying notes.
F-93
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1993 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................... $(11,956,365) $(13,325,389)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Deferred interest.............................. 5,563,729 6,107,973
Depreciation and amortization.................. 11,750,559 12,079,983
Deferred management fee and incentive
compensation.................................. 469,560 280,796
Loss on disposal of equipment.................. 81,828 106,806
Changes in cash due to:
Accounts receivable.......................... 174,663 152,934
Prepaid expenses............................. (69,952) 72,079
Accounts payable............................. (149,237) 33,541
Accrued liabilities.......................... 68,423 (44,071)
Unearned subscriber revenue.................. (174,943) (123,991)
------------ ------------
Net cash provided by operating activities.. 5,758,265 5,340,661
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................. (2,101,790) (2,402,656)
Other assets..................................... (10,527) (105,817)
------------ ------------
Net cash used in investing activities...... (2,112,317) (2,508,473)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt......... 49,759,502 1,477,450
Principal payment of long-term debt and capital
lease obligations............................... (52,029,872) (4,495,645)
------------ ------------
Net cash used in financing activities.............. (2,270,370) (3,018,195)
------------ ------------
Net increase (decrease) in cash............ 1,375,578 (186,007)
Cash, beginning of year............................ 294,729 1,670,307
------------ ------------
Cash, end of year.................................. $ 1,670,307 $ 1,484,300
============ ============
Supplemental disclosures of cash flow information:
Interest paid.................................... $ 4,459,959 $ 3,623,092
============ ============
</TABLE>
See accompanying notes.
F-94
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
1. ORGANIZATION AND BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
N-COM Limited Partnership II (the Partnership) owns all of the outstanding
capital stock of N-COM Holding Corporation (the Company) which was incorporated
on October 9, 1985 and commenced operations on January 2, 1986 with the
purchase of the outstanding capital stock of Omnicom of Michigan, Inc. and
Clear Cablevision, Inc. In addition, the Company holds 99% partnership
interests in Irish Hills Cablevision Limited Partnership and 99.9% partnership
interest in Omnicom CATV Limited Partnership.
Net income and losses of the Partnership are allocated 17.67% to the General
Partner and 82.33% to the Limited Partners.
Description of Business
The Company operates cable television systems, all of which are located in
the state of Michigan. Subscribers served by each of the systems as of
September 30, 1994 are as follows:
<TABLE>
<CAPTION>
SUBSCRIBERS
-----------
<S> <C>
Omnicom of Michigan, Inc....................................... 33,099
Clear Cablevision, Inc......................................... 7,342
Irish Hills Cablevision Limited Partnership.................... 4,149
Omnicom CATV Limited Partnership............................... 8,384
------
Total subscribers.............................................. 52,974
======
</TABLE>
Summary of Significant Accounting Policies
Taxes
The Partnership is not a tax paying entity for state and federal income tax
purposes. Accordingly, the taxable income, or loss of the Partnership, which
may vary substantially from income or loss reported for financial reporting
purposes, is included in the state and federal income tax returns of the
Partners.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets and is computed on the straight-
line method for financial reporting purposes and on accelerated methods for
income tax purposes.
Unearned Subscriber Revenues
Unearned subscriber revenues represent advance billings for future services.
The related revenue is recognized as services are provided.
F-95
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INTANGIBLE ASSETS
Intangible assets are being amortized on the straight-line method and consist
of the following:
<TABLE>
<CAPTION>
AMORTIZATION
CATEGORY PERIOD 1993 1994
-------- ------------ ----------- -----------
<S> <C> <C> <C>
Cost in excess of fair value of tangible
net assets acquired...................... 5.25 years $46,048,466 $46,048,466
Franchise agreements...................... 12 years 94,388 200,254
Organization costs........................ 5.25 years 832,785 832,785
Refinancing costs......................... 4-5 years 1,778,732 1,778,732
----------- -----------
48,754,371 48,860,237
Less accumulated amortization............. 15,092,067 24,451,723
----------- -----------
$33,662,304 $24,408,514
=========== ===========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Senior Secured Credit Agreement..................... $48,875,000 $45,170,000
Other notes payable................................. 9,660 --
----------- -----------
48,884,660 45,170,000
Less current portion due within one year............ 1,770,366 3,775,000
----------- -----------
$47,114,294 $41,395,000
=========== ===========
25% subordinated promissory notes to Partners
including deferred interest, interest payable
quarterly with option for deferral through March
31, 1997, at which time the entire balance is due.. $10,721,965 $14,968,264
Subordinated promissory notes to Partners including
deferred interest, fixed interest at 21% payable
quarterly, with option for deferral through March
31, 1997, at which time the entire balance is due.
Additional interest at 4% is payable upon payment
of the principal, contingent upon the Partnership
exceeding operating cash flow, as defined.......... 11,008,598 13,566,737
----------- -----------
$21,730,563 $28,535,001
=========== ===========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1995................................................. $ 3,775,000
1996................................................. 3,500,000
1997................................................. 34,785,001
1998................................................. 8,500,000
1999................................................. 11,062,500
Thereafter........................................... 12,082,500
-----------
$73,705,001
===========
</TABLE>
As of December 31, 1992, the Company refinanced its revolving credit
agreement and entered into a Senior Secured Credit Facility with a consortium
of banks whereby the Company can borrow up to
F-96
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$60,000,000 comprised of a $50,000,000 term loan (Facility A) and a $10,000,000
revolving credit arrangement (Facility B). Interest under the facility (5.3125%
and 7.125% at September 30, 1993 and 1994, respectively) is based on a ratio of
debt to cash flow and will range from 3/8% to 1 1/8% above prime or 1 5/8% to 2
3/8% above LIBOR rate. Interest on a certain portion of such debt shall not
exceed 8% under an interest rate cap agreement. Facility A is charged an agency
fee of .125% per annum and Facility B is charged a commitment fee of one-half
of one percent per annum on the unused balance. The term loan is payable in
quarterly installments through December 31, 2000 and the revolving credit
facility has commitment reductions over its term. The Senior Secured Credit
Facility Agreement provides that the Company shall prepay the term loan in
amounts equal to 100% of excess cash flow, as defined, commencing December 31,
1993. Excess cash flow for calendar year 1994 is anticipated based on the
Company's estimate and accordingly, $1,900,000 has been classified as current.
The Senior Secured Credit Facility and the subordinated promissory notes
include significant restrictive covenants, which include the requirements that
the Company maintain certain financial ratios relating to leverage and cash
flows. The loans are collateralized by substantially all of the assets of the
Company. At March 31, 1994 and September 30, 1994, the Partners elected to
defer the quarterly interest payment then due on the subordinated notes, and
accordingly, waivers of default were obtained from the Partners.
4. RELATED PARTY TRANSACTIONS
N-COM Inc., the Partnership's general partner, charges the Partnership a
management fee for administrative salaries and related benefits, legal fees and
other administrative expenses. For the year ended September 30, 1993 and 1994,
the management fee amounted to $338,565 and $345,230, respectively. At
September 30, 1994, certain management fees were deferred totaling $912,400 (of
which $184,600 bears interest at prime and $727,800 bears interest at 25%) and
is due in 1997. At September 30, 1993 $676,100 of management fees were
deferred.
Annually, the Company pays to N-Com II Inc., an affiliate of the Company,
approximately $70,000 to compensate for certain tax effects of the January,
1992 restructuring transaction.
Continental Cablevision Investments, Inc., (Continental) a limited partner of
the Partnership, obtains programming services for the Company at rates more
favorable than would otherwise be available to the Company. The Company
reimburses Continental for such programming services at the higher service
costs and receives loans for the difference in programming service costs. Such
loans may be up to a maximum of $4,465,250 and bear interest at 25% (see Note
3). At September 30, 1994, the Company had loans together with deferred
interest totaling $3,984,881 ($1,808,176 at September 30, 1993).
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases tower sites, vehicles and administrative facilities under
noncancelable operating leases. Rent expense amounted to $273,400 and $278,000
for the year ended September 30, 1993 and 1994, respectively. Minimum future
lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1995.................................................... $114,410
1996.................................................... 99,388
1997.................................................... 75,210
1998.................................................... 10,195
1999.................................................... 20,351
Thereafter.............................................. 39,408
--------
$358,962
========
</TABLE>
F-97
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Incentive Plan
The Company provides an incentive compensation plan to key employees which is
contingent upon certain conditions including continuous employment through
December 31, 1996. The amount of the incentive payment for each employee is
based on the results of operations. Estimated incentive compensation is being
accrued over the period of the Plan. Incentive compensation expense amounted to
$324,792 and $0 for the years ended September 30, 1993 and 1994, respectively.
Payments under the plan are payable at the termination of the plan (1997) or
earlier upon certain sale transactions.
Franchise Renewal
Since 1992, the Company has been engaged in negotiations with a consortium of
four municipalities (representing approximately 25,000 of the Company's cable
subscribers), for the long term renewal of their respective cable television
franchises. Under the provisions of the Federal Cable Communications Policy Act
of 1984 (the "Cable Act"), the Company has submitted formal proposals for these
franchise renewals. In the context of the continuing negotiations, each of the
municipalities has made a preliminary assessment not to accept the Company's
formal proposal. If the negotiations do not result in mutually acceptable
franchise renewals, the municipalities are required to convene an
Administrative Hearing at which they would have to establish by a preponderance
of the evidence that the Company's formal proposals are not entitled to the
strong presumption of renewal provided under the Cable Act. One of the
municipalities has postponed its Administrative Hearing to an indefinite date,
and none of the other municipalities has scheduled an Administrative Hearing.
If necessary, the Company intends to pursue vigorously the franchise renewals
in any Administrative Hearings and, if needed, through its rights of appeal in
the federal or state courts, as provided under the Cable Act. The Company
expects in the near term to reach mutually agreeable franchise renewal terms
with the communities. In any event, it is the Company's opinion, based on the
opinion of legal counsel, that it is probable that the franchises will
ultimately be renewed.
Authority to Sell
As a result of the failure of the Partnership in 1994 to meet cash flow
levels, as defined, and failure to make quarterly interest payment due on
September 30, 1994, certain of the partners have the right to elect to cause
the business of the partnership to be sold during a period of one year from
such election subject to approval of terms of sale by a majority in interest of
the partners electing to sell. To date such election has not been made or
waived.
Other
The Company has performance bonds outstanding at September 30, 1994
aggregating $384,000 representing obligations under franchise and utility
license agreements.
6. CALL OPTION
Continental has the right to purchase 80% of the Partnership's interests at a
formula price based on cash flow anytime from December 31, 1996 through January
31, 1997 or in the event that the partnership is sold. If Continental exercises
the Call Option, the remaining Partners shall have the right to sell to
Continental the remaining 20% interest in the Partnership.
7. EVENT (UNAUDITED) SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT
On March 29, 1995 the partners of N-Com Limited Partnership II (the
"Partnership") executed an Agreement to Purchase Partnership Interests in N-Com
Limited Partnership II (the "Purchase Agreement"). If the transactions
contemplated by the Purchase Agreement are consummated, Continental Cablevision
Investments, Inc. will own 100% of the partnership interests in the
Partnership. The Purchase Agreement contains a number of closing conditions,
including obtaining all necessary franchise consents and certain franchise
renewals. The transaction is scheduled to close in 1995.
F-98
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Cablevision of Chicago:
We have audited the accompanying balance sheets of Cablevision of Chicago (a
limited partnership) as of December 31, 1993 and 1994, and the related
statements of operations and partners' deficiency and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cablevision of Chicago as of
December 31, 1993 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Jericho, New York
March 3, 1995
F-99
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents.................................. $ 339 $ 11
Accounts receivable-subscribers (less allowance for
doubtful accounts of $134 and $183)....................... 406 719
Other receivables.......................................... 492 335
Prepaid expenses........................................... 165 99
Property, plant and equipment, net......................... 21,440 21,678
Deferred acquisition and development costs (less
accumulated amortization of $1,304 and $1,422)............ 153 35
Deferred financing costs (less accumulated amortization of
$883 and $1,185).......................................... 1,888 1,789
Other intangibles (less accumulated amortization of $981
and $1,165)............................................... 307 123
Deposits and other assets.................................. 103 186
-------- --------
$ 25,293 $ 24,975
======== ========
LIABILITIES AND PARTNERS' DEFICIENCY
------------------------------------
Accounts payable........................................... $ 4,554 $ 4,992
Accounts payable to affiliates, net........................ 290 783
Subordinated amounts payable to affiliates................. 26,129 23,569
Accrued liabilities:
Interest................................................. 621 983
Franchise fees........................................... 800 763
Payroll and related benefits............................. 1,316 1,395
Other.................................................... 1,855 1,286
Debt:
Affiliates............................................... 12,314 12,314
Bank and other........................................... 65,575 71,771
-------- --------
Total liabilities...................................... 113,454 117,856
-------- --------
Commitments & contingencies
Partners' deficiency
General partners......................................... (1,149) (1,196)
Limited partners......................................... (87,012) (91,685)
-------- --------
Total partners' deficiency............................. (88,161) (92,881)
-------- --------
$ 25,293 $ 24,975
======== ========
</TABLE>
See accompanying notes to financial statements.
F-100
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Revenues--net.............................................. $ 34,562 $ 34,395
Technical expenses (including affiliate amounts of $1,482
and $1,184)............................................... 14,045 14,402
Selling, general and administrative expenses (including
affiliate amounts of $2,432 and $2,932)................... 9,054 9,092
Depreciation and amortization.............................. 5,593 5,288
-------- --------
Operating income....................................... 5,870 5,613
-------- --------
Other income (expense):
Interest income.......................................... 31 30
Interest expense (including affiliate amounts of $4,507
and $4,493)............................................. (9,760) (10,310)
Miscellaneous, net....................................... (12) (53)
-------- --------
(9,741) (10,333)
-------- --------
Net loss............................................... $ (3,871) $ (4,720)
======== ========
Partners' deficiency:
Beginning of year........................................ $(84,290) $(88,161)
Net loss allocated to general partners................... (39) (47)
Net loss allocated to limited partners................... (3,832) (4,673)
-------- --------
End of year.............................................. $(88,161) $(92,881)
======== ========
</TABLE>
See accompanying notes to financial statements.
F-101
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (3,871) $(4,720)
-------- -------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 5,593 5,288
Amortization of deferred financing costs................ 287 302
Gain on sale of equipment............................... (4) (39)
Changes in asset and liability accounts:
Accounts receivable--subscribers...................... 137 (313)
Other receivables..................................... (235) 157
Prepaid expenses...................................... 113 66
Deposits and other assets............................. (19) (83)
Accounts payable and accrued expenses................. 193 273
Accounts payable and subordinated amounts payable to
affiliates, net...................................... (4,320) (2,067)
-------- -------
Total adjustments................................... 1,745 3,584
-------- -------
Net cash used in operating activities............... (2,126) (1,136)
-------- -------
Cash flows from investing activities:
Capital expenditures...................................... (3,872) (5,278)
Proceeds from sale of equipment........................... 5 93
-------- -------
Net cash used in investing activities............... (3,867) (5,185)
-------- -------
Cash flows from financing activities:
Proceeds from bank debt................................... 70,750 10,971
Repayment of bank debt.................................... (53,511) (4,750)
Payment of debt to affiliates............................. (10,072) --
Payments of capital lease obligations..................... (79) (25)
Additions to deferred debt financing...................... (1,035) (203)
-------- -------
Net cash provided by financing activities........... 6,053 5,993
-------- -------
Net increase (decrease) in cash and cash equivalents........ 60 (328)
Cash and cash equivalents at beginning of year.............. 279 339
-------- -------
Cash and cash equivalents at end of year.................... $ 339 $ 11
======== =======
</TABLE>
See accompanying notes to financial statements.
F-102
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
1. THE COMPANY
Cablevision of Chicago (the "Company") is a limited partnership, organized in
January 1979, under the provisions of the Uniform Limited Partnership Act of
the State of Illinois, for the purpose of constructing and operating cable
television systems. The partnership will terminate December 31, 2020, unless
earlier termination occurs as provided in the partnership agreement.
The partnership consists of two general partners and three limited partners.
The general partners are one individual and Cablevision Systems Services
Corporation (CSSC), a corporation wholly-owned by the individual general
partner. The limited partners of the Company are Cablevision of Illinois (C of
I), Chicago Cablevision Investments (CCI) and Cablevision Headquarters
Investment (CHI) which are all limited partnerships. The individual general
partner of the Company is also a general partner in C of I, CCI and CHI while
CSSC is a general partner in C of I. In addition, a subsidiary of Cablevision
Systems Corporation (CSC), a corporation controlled by the individual general
partner of the Company, is a general partner in CHI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property, Plant and Equipment
Property, plant and equipment, including construction materials, are recorded
at cost, which includes all direct costs and certain indirect costs associated
with the construction of cable television transmission and distribution systems
and the costs of new subscriber installations. Property, plant and equipment is
depreciated on the straight-line method over the estimated useful life of the
asset. Leasehold improvements are amortized over the shorter of their useful
lives or the terms of the related leases.
Revenue Recognition
The Company recognizes revenues as cable television services are provided to
subscribers.
Deferred Acquisition, Development Costs and Intangible Assets
Costs incurred to acquire cable television franchises and expenses incurred
during the initial development period were deferred until the date the first
subscriber was connected. Such costs are being amortized on the straight-line
basis over the average lives of the franchises. Intangible assets are being
amortized over periods ranging from seven to fifteen years on the straight line
basis.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized on the straight-line
basis over the term to maturity of the related debt.
Income Taxes
The Company operates as a limited partnership; accordingly, its taxable
income or loss is includable in the tax returns of the individual partners and
no provision for income taxes is made on the books of the
F-103
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Company. The partners are required to report their share of income or loss in
their income tax returns. The Company's income or loss is allocated to the
partners in accordance with the terms of the partnership agreement. At December
31, 1994, the carrying amount of net assets for financial statement purposes
was less than their tax bases by approximately $3,186.
Cash Flows
For purposes of the statements of cash flows, the Company considers all short
term investments with a maturity at date of purchase of three months or less to
be cash equivalents. The Company paid cash interest of approximately $14,444
(of which approximately $8,500 in 1993 represents interest on the CSSC
subordinated demand note) and $11,904 during the years ended December 31, 1993
and 1994, respectively.
Reclassifications
Certain 1993 amounts have been reclassified to conform with the 1994
presentation.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items which are
depreciated in the straight line basis over the estimated useful lives shown
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- ESTIMATED
1993 1994 USEFUL LIVES
------- ------- -------------
<S> <C> <C> <C>
Cable television transmission and distribution
systems:
Converters.................................... $11,496 $12,441 5 years
Headends...................................... 4,294 4,420 9 years
Distribution systems.......................... 60,553 63,272 12 years
Program, service and test equipment........... 3,977 4,166 7 years
Microwave equipment and satellite receivers... 2,771 2,771 7 1/2 years
Construction materials and supplies........... 99 112
------- -------
83,190 87,182
Land............................................ 410 410
Building........................................ 3,186 3,186 25 years
Furniture and fixtures.......................... 622 639 28 years
Vehicles........................................ 2,169 2,218 4 years
Leasehold improvements.......................... 1,722 1,744 Term of Lease
------- -------
91,299 95,379
Less accumulated depreciation and amortization.. 69,859 73,701
------- -------
$21,440 $21,678
======= =======
</TABLE>
F-104
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. DEBT
Debt at December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Partners:
CSC subordinated demand note, bearing interest at 14%
(Note 6)................................................. $12,314 $12,314
======= =======
Other:
Bank debt................................................. $65,550 $71,771
Capital lease obligations................................. 25 --
------- -------
Total other............................................. $65,575 $71,771
======= =======
</TABLE>
On February 5, 1993, the Company entered into a third amended and restated
credit agreement (the "New Credit Agreement") with a group of banks led by Bank
of Montreal, as agent. On June 21, 1994 the Company executed the First
Amendment to the New Credit Agreement with the Bank of Montreal and several
other banks which modified certain restrictive covenants through December 31,
1995. The Company may borrow up to $80,306 under the New Credit Agreement, of
which $7,555 and $150 was restricted for certain letters of credit at December
31, 1993 and 1994 respectively. Undrawn funds available to the Company under
the New Credit Agreement as of December 31, 1993 and 1994 amount to
approximately $10,395 and $8,851 respectively.
The New Credit Agreement includes a $55,306 term loan, of which $58,000 and
$55,305 was outstanding at December 31, 1993 and 1994 respectively, and a
$25,000 revolving line of credit, of which $7,050 and $16,000 was outstanding
at December 31, 1993 and December 31, 1994, respectively. Repayment of the term
loan commenced March 31, 1993 with quarterly payments continuing through
December 31, 2000. The amount available under the revolving line of credit will
be reduced by $2,500 on each of December 31, 1996 and 1997, $3,125 on December
31, 1998, $5,625 on December 31, 1999, and the balance on December 31, 2000.
Based on the outstanding borrowings as of December 31, 1994, future payments
under the terms of the New Credit Agreement are as follows: 1995--$4,200;
1996--$7,800; 1997--$9,900; 1998--$11,100; 1999--$11,100; thereafter $11,205.
The Credit Agreement contains various restrictive covenants, among which are
limitations on various payments and the maintenance of various financial
ratios. The Company was in compliance with the covenants of its credit
agreement on December 31, 1994.
Borrowings bear interest at varying rates depending on the ratio of the
Company's debt to annualized cash flow, as defined in the new Credit Agreement.
The Company has the option of selecting either the bank's prime rate or the
London Interbank Offering Rate (LIBOR) as the borrowing base rate. At December
31, 1994, the weighted average interest rate on the bank debt was 7.96%. The
Company is obligated to pay fees to the banks of 3/8 of 1% per annum on the
unused portion of the loan commitment.
F-105
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The Company has entered into interest rate swap agreements with two banks on
a notional amount of $25,000 whereby the Company pays a fixed rate of interest
and receives a variable rate. Interest rates and terms vary in accordance with
each of the agreements. The lengths of the agreements range from one to two
years. As of December 31, 1994, the agreements have a weighted average
remaining life of two years. The Company is exposed to credit loss in the event
of nonperformance by the other parties to the interest rate swap agreements;
however, the Company does not anticipate nonperformance by the counterparties.
Substantially all of the assets of the Company have been pledged to secure
the borrowings under the Credit Agreement.
In September, 1994 the Company borrowed approximately $8,255, in accordance
with the terms of the New Credit Agreement, to repay $1,503 in accrued
management fees to Cablevision Systems Company and $6,753 in accrued interest
thereon.
In addition the Company has a $2,000 overdraft note with the Bank of
Montreal, of which $466 is outstanding at December 31, 1994.
5. LEASES
The Company leases certain office and production facilities under terms of
leases expiring at various dates through 1999. Rent expense for operating
leases amounted to approximately $457 in 1993 and $499 in 1994.
In addition, the Company rents space on utility poles in its operations. The
Company's pole rental agreements are for varying terms, and management
anticipates renewals as they expire. Rental expense under these agreements was
approximately $196 in 1993 and $205 in 1994.
Future minimum payments under all noncancelable operating leases, including
pole rentals through December 31, 1998, at rates currently in force as of
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1995................................................... $ 540
1996................................................... 512
1997................................................... 444
1998................................................... 446
1999................................................... 454
Thereafter............................................. 124
------
Total future minimum lease payments.................... $2,520
======
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has an agreement with Cablevision Systems Company to provide the
Company with management services. Cablevision Systems Company is owned by the
individual general partner of the Company and certain trusts established for
the benefit of his family members. The agreement can be renewed
F-106
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
indefinitely at the option of Cablevision Systems Company and generally
provides for the payment, in addition to expense reimbursement, of a fee equal
to 3 1/2% of the Company's gross revenues. The fees accrued for 1993 and 1994
were approximately $1,209 and $1,203, respectively. In addition, interest
accrues on the unpaid balance at prime plus two percent. For 1993 and 1994 the
Company accrued approximately $1,097 and $1,188, respectively, for interest on
unpaid management fees. Cumulative unpaid management fees and interest thereon
at December 31, 1993 and 1994 amounted to $15,458 and $9,593, respectively.
Unpaid management fees and interest are included in subordinated amounts
payable to affiliates in the accompanying balance sheets. The Company paid
approximately $730 and $6,753 of accrued interest outstanding on unpaid
management fees in 1993 and 1994, respectively through available bank debt.
Subsequent payments are subject to certain limitations and restrictions as
defined in the New Credit Agreement.
CSC has made advances to or incurred expenses on behalf of the Company.
Unpaid amounts bear interest at the rate of 14% per annum. A portion of this
amount was converted to a subordinated demand note (the "CSC Demand Note"). The
principal balance of the CSC Demand Note at December 31, 1993 and 1994 amounted
to $12,314 and accrued interest thereon approximated $10,089 and $13,394 at
December 31, 1993 and 1994, respectively. The CSC Demand Note is subordinated
to bank debt and is restricted in accordance with certain provisions of the New
Credit Agreement. The amounts of unpaid interest are included in subordinated
amounts payable to affiliates in the accompanying balance sheets.
CSC also has interests in several companies engaged in providing cable
television programming and other services to the cable television industry,
including the Company. During 1993 and 1994 the Company was charged
approximately $1,482 and $1,184, respectively, by these companies primarily for
programming services. One of these companies subleases space in the Company's
main studio production facility, for which the Company was paid approximately
$567 in 1993 and $541 in 1994. Amounts owed these companies at December 31,
1993 and 1994 were approximately $830 and $900, respectively of which
approximately $161 and $318, respectively are included in accounts payable to
affiliates and approximately $582 in each year is included in subordinated
amounts payable to affiliates in the accompanying balance sheets.
The Company is charged for certain selling, general and administrative
expenses by CSC. For the years ended December 31, 1993 and 1994, these expenses
amounted to approximately $1,223 and $1,729, respectively. Amounts owed CSC at
December 31, 1993 and 1994 were approximately $264 and $723, respectively, and
are included in accounts payable to affiliates in the accompanying balance
sheets.
7. PENSION PLAN
The Company is a participant, with other affiliates, in a defined
contribution pension plan covering substantially all employees. The Company
contributed 1 1/2% of each eligible employees' annual compensation, as defined,
to the defined contribution portion of the Pension Plan (the "Pension Plan")
and an equivalent amount to the Section 401(k) portion of the plan (the
"Savings Plan"). Employees may voluntarily contribute up to 15% of eligible
compensation, subject to certain restrictions, to the Savings Plan, with an
additional matching contribution by the Company of 1/4 of 1% for each 1%
contributed by the employee, up to a maximum contribution by the Company of 1/2
of 1% of eligible base pay. Employee contributions are fully vested as are
employer base contributions to the Savings Plan. Employer contributions to the
Pension Plan and matching contributions to the Savings Plan become vested in
years three through seven. At December 31, 1993 and 1994, the cost associated
with these plans was approximately $130 and $118, respectively. The Company
does not provide any postretirement benefits for any of its employees.
F-107
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. CONTINGENCY
The Company has obtained thirty one franchises authorizing it to construct
and operate cable television systems in the suburban areas of Chicago,
Illinois. Certain franchises contain provisions granting the municipalities an
option, at the expiration of the franchise, to purchase the cable television
system for $1 plus any outstanding debt attributable to the system.
9. FINANCING
Since its inception, the Company has incurred substantial losses. Not
withstanding such losses, the Company's cash flow from operations and available
borrowings under its New Credit Agreement (note 4) have been sufficient to meet
its current obligations as a result of the deferral of payment of management
fees and interest thereon and the deferral of interest payments on the
subordinated demand note (note 4 and 6). Payment of the subordinated demand
note, including interest thereon, is restricted in accordance with certain
provisions of the New Credit Agreement. The Company believes that internally
generated funds as well as borrowings under the revolving lines of credit are
sufficient through year end 1995 to fund its requirements for existing cable
operations and meet its debt service requirements.
10. RECENT CABLE TELEVISION REGULATIONS
In October, 1992, the Congress of the United States passed the Cable
Television Consumer Protection and Competition Act of 1992 (Cable Act) which
among other matters, provides for the regulation of basic and cable programming
services. In April 1993, the Federal Communications Commission ("FCC") adopted
regulations governing rates for basic and cable programming services which
became effective September 1, 1993. Under the provisions of these regulations,
certain revenues derived from cable television are determined under either a
"benchmark" or "cost of service" method. Effective September 1, 1993 the
Company's systems had set their rates using the benchmark method which compares
the Company's rates to those which are in effect at cable systems deemed to
face effective competition by the FCC.
In February 1994, the FCC significantly modified the September 1993 rate
regulations. These modifications were designed to further reduce subscriber
rates and most annual basic and cable programming service rate increases (other
than per-event and per-channel services). Management has implemented the rules
in a manner it believes to be consistent with the regulations promulgated by
the FCC.
As a result of the 1992 Cable Act, many of the cable television systems of
the Company are subject to regulation by local franchise authorities and/or the
FCC. Regulations imposed by the 1992 Cable Act, among other things, allow
regulators to limit and reduce the rates that cable operators can charge for
certain basic cable television services and equipment rental charges.
Further rules and regulations are being considered by the FCC, however, these
regulations have not yet been finalized. The ultimate impact on the operation
of the Company resulting from existing rules and regulations and proposed rules
and regulations, if any, cannot be determined.
11. SUBSEQUENT EVENTS
In January 1995, the Company entered into an agreement with Continental
Cablevision, Inc. to sell its cable systems for a sale price of $168,500,
subject to post closing adjustments. The sale is expected to close in 1995.
F-108
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
12. TAX INFORMATION (UNAUDITED)
The following represents a reconciliation of the losses allocated to the
partners for financial reporting purposes and that utilized for tax purposes.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Losses allocated to partners for financial reporting
purposes.................................................... $(3,871) $(4,720)
Depreciation and amortization adjustments for tax purposes... 2,347 1,564
Management fees and related interest......................... 1,576 (5,886)
Other........................................................ (385) 111
------- -------
Tax loss allocable to partners............................... $ (333) $(8,931)
======= =======
Tax loss allocable to general partners....................... $ (4) $ (89)
======= =======
Tax loss allocated to limited partners....................... $ (329) $(8,842)
======= =======
</TABLE>
F-109
<PAGE>
ANNEX I
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PROVIDENCE JOURNAL COMPANY,
THE PROVIDENCE JOURNAL COMPANY,
KING HOLDING CORP.,
KING BROADCASTING COMPANY,
AND
CONTINENTAL CABLEVISION, INC.
DATED AS OF
NOVEMBER 18, 1994
I-1
<PAGE>
TABLE OF CONTENTS
ARTICLE 1.
The Merger
<TABLE>
<C> <S> <C>
1.1 The Merger.......................................................... 6
1.2 Effect of the Merger on Capital Stock............................... 7
1.3 Dissenters' Rights.................................................. 8
1.4 Adjustment.......................................................... 9
1.5 Effective Time of the Merger........................................ 9
1.6 Exchange of Certificates............................................ 9
1.7 Distribution with Respect to Shares Represented by Unexchanged
Certificates........................................................ 10
1.8 No Fractional Shares................................................ 11
1.9 No Liability........................................................ 11
1.10 Lost Certificates................................................... 11
</TABLE>
ARTICLE 2.
Certain Pre-Merger Transactions
<TABLE>
<C> <S> <C>
2.1 New Indebtedness..................................................... 12
2.2 Kelso Acquisition.................................................... 12
2.3 Dissolution of Holding............................................... 12
2.4 Dissolution of the Company........................................... 12
2.5 Contribution of Assets to and Assumption of Liabilities by NPJ;
Distribution of NPJ Common Stock.................................... 13
2.6 Certain Other Actions................................................ 14
</TABLE>
ARTICLE 3.
Representations and Warranties Regarding the Company, NPJ, Holding and
Broadcasting
<TABLE>
<C> <S> <C>
3.1 Organization; Authority; Company/Kelso Agreement..................... 14
3.2 No Breach or Conflict................................................ 15
3.3 Consents and Approvals............................................... 15
3.4 Approval of the Boards; Fairness Opinions............................ 16
3.5 Vote Required........................................................ 16
3.6 Capitalization....................................................... 16
3.7 Financial Statements................................................. 17
3.8 Absence of Undisclosed Liabilities................................... 17
3.9 Absence of Certain Changes........................................... 17
3.10 Compliance With Laws................................................. 17
3.11 Tax Matters.......................................................... 18
3.12 Litigation........................................................... 18
3.13 Employee Benefits; ERISA Matters..................................... 18
3.14 Full Disclosure...................................................... 19
3.15 Brokers and Finders.................................................. 19
</TABLE>
I-2
<PAGE>
ARTICLE 4.
Representations and Warranties Regarding the Cable Subsidiaries
<TABLE>
<C> <S> <C>
4.1 Organization and Authority........................................... 20
4.2 No Breach or Conflict................................................ 20
4.3 Capitalization....................................................... 20
4.4 Financial Statements................................................. 20
4.5 Absence of Undisclosed Liabilities................................... 21
4.6 Absence of Certain Changes........................................... 21
4.7 Compliance with Laws................................................. 21
4.8 Franchises and Material Agreements................................... 21
4.9 Title to Properties; Encumbrances.................................... 23
4.10 Labor Matters........................................................ 23
4.11 Litigation........................................................... 23
4.12 Employee Benefits; ERISA Matters..................................... 24
</TABLE>
ARTICLE 5.
Representations and Warranties of Acquiror
<TABLE>
<C> <S> <C>
5.1 Organization and Authority........................................... 26
5.2 No Breach or Conflict................................................ 27
5.3 Consents and Approvals............................................... 27
5.4 Approval of the Board................................................ 27
5.5 Vote Required........................................................ 27
5.6 Capitalization....................................................... 28
5.7 Financial Statements................................................. 28
5.8 Absence of Undisclosed Liabilities................................... 28
5.9 Absence of Certain Changes........................................... 29
5.10 Compliance with Laws................................................. 29
5.11 Franchises and Material Agreements................................... 29
5.12 Tax Matters.......................................................... 30
5.13 Litigation........................................................... 31
5.14 Title to Properties; Encumbrances.................................... 31
5.15 Employee Benefits; ERISA Matters..................................... 31
5.16 Labor Matters........................................................ 34
5.17 Full Disclosure...................................................... 34
5.18 Brokers and Finders.................................................. 34
</TABLE>
ARTICLE 6.
Other Agreements
<TABLE>
<C> <S> <C>
6.1 No Solicitation....................................................... 34
6.2 Conduct of Business of the Company; Ownership of Cable Subsidiaries... 35
6.3 Conduct of Business of the Cable Subsidiaries......................... 36
6.4 Conduct of Business of Acquiror....................................... 38
6.5 Access to Information................................................. 38
6.6 SEC Filings........................................................... 38
6.7 Reasonable Best Efforts............................................... 41
</TABLE>
I-3
<PAGE>
<TABLE>
<C> <S> <C>
6.8 Public Announcements................................................. 41
6.9 Board Recommendation................................................. 41
6.10 Tax Matters.......................................................... 42
6.11 Notification......................................................... 44
6.12 Employee Benefits.................................................... 45
6.13 Meeting of Stockholders of the Company; Other Agreements............. 47
6.14 Meeting of Stockholders of Acquiror.................................. 47
6.15 Regulatory and Other Authorizations.................................. 48
6.16 Further Assurances................................................... 48
6.17 Internal Revenue Service Ruling...................................... 49
6.18 Records Retention.................................................... 49
6.19 No Related Party Agreements with NPJ................................. 49
6.20 Company Name......................................................... 49
6.21 Undertakings Relating to a Public Offering; Registration Rights...... 50
6.22 Matters Relating to Shareholders and Liquidity....................... 50
6.23 Acquiror Board of Directors.......................................... 51
6.24 Effect of Certain Events............................................. 51
6.25 Acquiror Schedules................................................... 52
6.26 Employee Stock Options............................................... 52
6.27 Rights Plan.......................................................... 52
</TABLE>
ARTICLE 7.
Closing and Closing Date; Conditions to Closing
<TABLE>
<C> <S> <C>
7.1 Closing and Closing Date............................................. 53
Conditions to the Obligations of the Company, NPJ, Holding,
7.2 Broadcasting and Acquiror............................................ 53
Conditions to the Obligations of the Company, NPJ, Holding and
7.3 Broadcasting......................................................... 54
7.4 Conditions to Obligations of Acquiror................................ 54
</TABLE>
ARTICLE 8.
Termination
<TABLE>
<C> <S> <C>
8.1 Termination........................................................... 56
8.2 Effect of Termination................................................. 57
8.3 Fees and Expenses..................................................... 57
</TABLE>
ARTICLE 9.
Survival; Indemnification
<TABLE>
<C> <S> <C>
9.1 Survival.............................................................. 58
9.2 Indemnification by NPJ................................................ 59
9.3 Indemnification by Acquiror........................................... 59
9.4 Indemnification by the Company........................................ 59
9.5 Additional Indemnification Relating to Certain Litigation and
Claims................................................................ 59
9.6 Notification of Claims................................................ 59
9.7 Indemnification Procedures............................................ 60
9.8 Working Capital Adjustment............................................ 60
</TABLE>
I-4
<PAGE>
ARTICLE 10.
Miscellaneous
<TABLE>
<C> <S> <C>
10.1 Entire Agreement.................................................... 61
10.2 Notices............................................................. 61
10.3 Governing Law....................................................... 62
10.4 Descriptive Headings................................................ 62
10.5 Parties in Interest................................................. 62
10.6 Counterparts........................................................ 62
10.7 Expenses............................................................ 62
10.8 Personal Liability.................................................. 63
10.9 Binding Effect; Assignment.......................................... 63
10.10 Amendment........................................................... 63
10.11 Extension; Waiver................................................... 63
10.12 Legal Fees; Costs................................................... 63
10.13 Specific Performance................................................ 63
10.14 Severability........................................................ 63
10.15 Further Agreements Relating to the Original Agreement............... 63
</TABLE>
ARTICLE 11.
Definitions
EXHIBITS
Exhibit A Certificate of Designation Relating to Acquiror Preferred Stock
Exhibit B Form of Contribution and Assumption Agreement
Exhibit C Voting Agreement
Exhibit D Non-Competition Agreement
I-5
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (this "Agreement"),
dated as of November 18, 1994, is made by and among Providence Journal Company,
a Rhode Island corporation (the "Company"), The Providence Journal Company, a
Delaware corporation and a wholly owned subsidiary of the Company ("NPJ"), King
Holding Corp., a Delaware corporation ("Holding"), King Broadcasting Company, a
Washington corporation ("Broadcasting"), and Continental Cablevision, Inc., a
Delaware corporation ("Acquiror").
RECITALS
WHEREAS, the Company, NPJ and Acquiror have entered into that certain
Agreement and Plan of Merger dated as of November 18, 1994 (the "Original
Agreement");
WHEREAS, as contemplated by the terms of the Original Agreement, the parties
have agreed to amend and restate the Original Agreement and to enter into this
Amended and Restated Agreement and Plan of Merger;
WHEREAS, the Boards of Directors of the Company, NPJ, Holding, Broadcasting
and Acquiror each have determined that it is in the best interests of their
respective stockholders for (i) Holding to contribute to Broadcasting all of
the assets of Holding and, in connection therewith, Broadcasting to assume all
of the obligations and liabilities of Holding in exchange for shares of the
common stock of Broadcasting (the "Holding Contribution"); (ii) Holding to be
dissolved under applicable Delaware law such that the sole remaining asset of
Holding, consisting of shares of Broadcasting common stock, becomes an asset of
the Company as Holding's sole stockholder (the "Holding Dissolution"); (iii)
the Company (following the Holding Dissolution) to contribute to Broadcasting
all of the assets of the Company and, in connection therewith, Broadcasting to
assume all of the obligations and liabilities of the Company in exchange for
shares of the common stock of Broadcasting; (iv) the Company to be dissolved
under applicable Rhode Island law, and the sole remaining asset of the Company,
consisting of shares of Broadcasting's common stock of the same class and
consisting of the same number of shares as that outstanding for the Company
immediately prior to such dissolution, to be distributed to holders of the
Company Common Stock in proportion to the class and number of shares of the
Company Common Stock so owned by such holders; (v) Broadcasting (following such
dissolution) to contribute to NPJ substantially all of the assets then held by
Broadcasting (other than those assets described in the Contribution Agreement
as being retained by Broadcasting) and to distribute to its stockholders the
outstanding shares of NPJ Common Stock so that the stockholders of Broadcasting
will become the stockholders of NPJ; and (vi) Broadcasting (immediately
following all of the events described above) to merge with and into Acquiror,
as a result of which the stockholders of Broadcasting immediately prior to such
merger will become stockholders of Acquiror; and
WHEREAS, for federal income tax purposes, it is intended that such
transactions will variously qualify as tax-free dissolutions, liquidations and
reorganizations as provided in the Code.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements set forth below, the parties hereto agree as follows:
ARTICLE 1.
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions hereof, at the Effective
Time, (i) Broadcasting shall be merged with and into Acquiror (the "Merger"),
and the separate existence of Broadcasting shall cease and Acquiror shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"),
I-6
<PAGE>
(ii) the Acquiror Restated Certificate, as in effect immediately prior to the
Effective Time, shall continue as the Certificate of Incorporation of the
Surviving Corporation, (iii) the Acquiror Restated By-Laws, as in effect
immediately prior to the Effective Time, shall continue as the By-Laws of the
Surviving Corporation, and (iv) the officers and directors of Acquiror
immediately prior to the Effective Time shall continue as the officers and
directors of the Surviving Corporation (except that the two persons listed on
Schedule 1.1 shall be appointed or elected as directors (of the Class of
directors specified on such Schedule) of the Surviving Corporation), each to
hold office in accordance with the Certificate of Incorporation and By-Laws of
the Surviving Corporation. From and after the Effective Time, the Merger will
have all the effects provided by applicable Law. Prior to the Closing Date, the
Company shall have the right to change the persons listed on Schedule 1.1 by
written notice to Acquiror, in which case said Schedule 1.1 shall be amended to
reflect the names of such persons, PROVIDED, that such persons shall be
reasonably satisfactory to Acquiror and its Board of Directors.
1.2 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
capital stock:
(a) Each share of Broadcasting Common Stock issued and outstanding
immediately prior to the Merger (subject to paragraph (g) of this Section
1.2 and Section 1.3 and except shares subject to Section 1.2(b)) shall be
converted into and shall become (i) that number equal to the Common Stock
Conversion Number of fully paid and nonassessable shares of Acquiror Class
A Common Stock, and (ii) if Acquiror elects to issue Acquiror Preferred
Stock pursuant to paragraph (f) of this Section 1.2, that number equal to
the Preferred Stock Conversion Number of fully paid and nonassessable
shares of Series B Cumulative Redeemable Preferred Stock of Acquiror, the
terms of which shall be substantially the same as those set forth in the
Certificate of Designation attached hereto as EXHIBIT A ("Acquiror
Preferred Stock").
(b) Each share of the capital stock of Broadcasting issued and
outstanding immediately prior to the Merger and owned directly or
indirectly by Broadcasting as treasury stock, by NPJ or by any of their
respective Subsidiaries shall be cancelled, and no consideration shall be
delivered in exchange therefor.
(c) Each share of the capital stock of Acquiror issued and outstanding
immediately prior to the Merger shall remain outstanding.
(d) "Common Stock Conversion Number" shall mean the quotient obtained by
dividing (i) the difference between the Maximum Common Stock Amount and the
Preferred Stock Amount by (ii) the product obtained by multiplying $485.00
times the number of shares of Company Common Stock issued and outstanding
immediately prior to the Dissolution (excluding shares of Company Common
Stock owned directly or indirectly by the Company as treasury stock or by
any of its Subsidiaries).
(e) "Preferred Stock Conversion Number" shall mean the quotient obtained
by dividing (i) the Preferred Stock Amount by (ii) the product obtained by
multiplying $485.00 times the number of shares of Company Common Stock
issued and outstanding immediately prior to the Dissolution (excluding
shares of Company Common Stock owned directly or indirectly by the Company
as treasury stock or by any of its Subsidiaries).
(f) "Preferred Stock Amount" shall mean the aggregate issue price of
shares of Acquiror Preferred Stock to be issued by Acquiror in connection
with the Merger, if any, and shall equal $0 if Acquiror, at its sole
option, determines not to issue any Acquiror Preferred Stock in connection
with the Merger, or $96,750,000 if Acquiror, at its sole option, determines
to issue Acquiror Preferred Stock in connection with the Merger; PROVIDED,
HOWEVER, that Acquiror shall notify the Company of its determination as to
whether or not it will issue Acquiror Preferred Stock in connection with
the Merger no later than thirty days prior to the mailing of the Joint
Proxy Statement/Prospectus to the stockholders of the Company.
(g) The parties hereto agree that, if Acquiror elects to issue Acquiror
Preferred Stock in connection with the Merger, the Joint Proxy
Statement/Prospectus may, at the Company's option, grant to the Company's
stockholders the right to elect, subject to the proviso in the immediately
following sentence (the "Preferred Stock Election"), between the percentage
of Acquiror Class A Common Stock and
I-7
<PAGE>
Acquiror Preferred Stock which such stockholder shall be entitled to
receive in respect of each share of Broadcasting Common Stock held by such
stockholder (for example, subject to the proviso in the immediately
following sentence, a stockholder may elect to receive all Acquiror Class A
Common Stock or all Acquiror Preferred Stock in respect of each share of
Company Common Stock owned by such stockholder on the date of the Preferred
Stock Election). Any holder of Company Common Stock who fails to make such
election will be deemed to have elected to receive all Acquiror Class A
Common Stock. Notwithstanding the provisions of paragraph (a) of this
Section 1.2, the amount of Acquiror Class A Common Stock and Acquiror
Preferred Stock (if any) issued in respect of a share of Broadcasting
Common Stock pursuant to paragraph (a) of this Section 1.2 shall be
adjusted to give effect to the election by the holder of each share of
Company Common Stock (which election shall be binding upon any and all
subsequent transferees of such share and the holder of shares of
Broadcasting Common Stock issued in respect of such share pursuant to the
Dissolution); PROVIDED, HOWEVER, (i) if the stockholders of the Company
elect to receive shares of Acquiror Preferred Stock having an aggregate
value of less than the Preferred Stock Amount (the difference between such
amounts being referred to herein as the "Shortfall Amount"), then, in
addition to any shares of Acquiror Preferred Stock issued to each such
stockholder as a result of such stockholder's election, shares of Acquiror
Preferred Stock having an aggregate value equal to the Shortfall Amount
shall be issued to all holders of the Broadcasting Common Stock, pro rata
in accordance with the percentage of Broadcasting Common Stock held by each
such holder at the Effective Time, and (ii) the maximum amount of Acquiror
Preferred Stock to be issued by Acquiror pursuant to the Merger shall in no
event exceed the Preferred Stock Amount, so that if the Company's
stockholders elect to receive shares of Acquiror Preferred Stock having an
aggregate value in excess of the Preferred Stock Amount, then the shares of
Acquiror Preferred Stock a stockholder shall receive in the Merger shall be
reduced proportionately (based upon the amount of Acquiror Preferred Stock
elected by such stockholder as compared to the amount of Acquiror Preferred
Stock elected by all stockholders) and the shares of Acquiror Class A
Common Stock such stockholder shall receive shall be correspondingly
increased.
1.3 DISSENTERS' RIGHTS. The holder of any shares of Company Common Stock
outstanding immediately prior to the Dissolution which has validly exercised
such holder's dissenter's rights, if any, under the Rhode Island Business
Corporations Act ("Dissenting Shares") shall not be entitled to receive, in
respect of the shares of Company Common Stock as to which such holder has
validly exercised dissenters' rights, shares of Broadcasting Common Stock or,
in turn, Acquiror Merger Securities and shall not be entitled to receive shares
of NPJ Common Stock pursuant to the Distribution unless and until such holder
shall have failed to perfect, or shall have effectively withdrawn or lost, such
holder's right to payment for such holder's shares of Company Common Stock
under the Rhode Island Business Corporations Act. In such event, such holder
shall be entitled to receive the Transaction Securities such holder would have
been entitled to had such holder not exercised dissenters' rights. The Company
shall give Acquiror prompt notice upon receipt by the Company (i) prior to or
at the meeting of stockholders at which the Merger Transactions is voted upon
of any written objection to the Merger Transactions (any stockholder duly
making such objection being hereinafter called a "Dissenting Stockholder") and
(ii) any other notices or communications made after such time by a Dissenting
Stockholder which pertains to dissenters' rights. The Company and Broadcasting
each agrees that prior to the Effective Time, except with the written consent
of Acquiror, it will not voluntarily make any payment with respect to, or
settle or offer to settle, any such demand. Each Dissenting Stockholder who
becomes entitled under the Rhode Island Business Corporations Act to payment
for such holder's shares of Company Common Stock shall receive payment therefor
after the Effective Time from the Surviving Corporation, and NPJ shall
reimburse the Surviving Corporation for all payments to Dissenting Stockholders
in respect of their shares of Company Common Stock, PROVIDED THAT the amounts
thereof shall have been agreed upon by the Surviving Corporation, NPJ and the
Dissenting Stockholders or finally determined pursuant to the Rhode Island
Business Corporations Act. Any Acquiror Merger Securities that would have been
issued to Dissenting Stockholders had they not exercised their dissenters'
rights shall be issued to NPJ after NPJ's reimbursement of all payments made by
the Surviving Corporation to such Dissenting Stockholders in respect of their
shares of Company Common Stock. In the event that, as a result of the
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Merger Transactions, the holders of Company Common Stock or Broadcasting Common
Stock become entitled to avail themselves of the Laws of any state other than
Rhode Island with respect to appraisal or dissenters' rights, the parties
hereto, to the extent permitted by applicable Law, agree to abide by the
provisions of this Section 1.3 in connection with any such holder claiming
dissenters' rights thereunder.
1.4 ADJUSTMENT.
(a) If between November 18, 1994 and the Effective Time the outstanding
shares of Acquiror Common Stock, Acquiror Series A Preferred Stock or Company
Common Stock shall have been changed into a different number of shares (other
than in the case of Company Common Stock) or a different class, by reason of
any stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, (i) the number of shares of Broadcasting
Common Stock to be converted into Acquiror Merger Securities or the number of
Acquiror Merger Securities into which Broadcasting Common Stock is to be
converted, as applicable, and (ii) the amounts set forth in Section 1.8 hereof
with respect to the calculation of cash payments in lieu of fractional shares
and Section 6.23(b) with respect to the determination whether a transaction
will be considered an "Extraordinary Transaction" as a result of the per share
price of Acquiror Class A Common Stock, shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
(b) If at the Effective Time any of the Cable Subsidiaries set forth below
are not wholly owned, directly or indirectly, by Broadcasting, the Maximum
Common Stock Amount shall be decreased as follows:
(i) if Copley/Colony, Inc. is not then wholly owned by Broadcasting, the
Maximum Common Stock Amount shall be reduced by $42,610,000;
(ii) if Vision Cable Company of Rhode Island, Inc. is not then wholly
owned by Broadcasting, the Maximum Common Stock Amount shall be reduced by
$2,430,000;
(iii) if Dynamic Cablevision of Florida, Ltd. is not then wholly owned by
Broadcasting, the Maximum Common Stock Amount shall be reduced by
$11,300,000; and
(iv) if California CATV Partners is not then wholly owned by
Broadcasting, the Maximum Common Stock Amount shall be reduced by
$1,490,000.
1.5 EFFECTIVE TIME OF THE MERGER. Subject to the terms and conditions set
forth in this Agreement, a certificate of merger shall be duly prepared,
executed and acknowledged by Acquiror and Broadcasting and thereafter delivered
to the Secretary of State of Delaware and articles of merger shall be duly
prepared, executed and acknowledged by Acquiror and Broadcasting and thereafter
delivered to the Secretary of State of Washington (together, the "Certificate
of Merger") for filing pursuant to the Delaware General Corporation Law and the
Washington Business Corporation Act, respectively, as soon as practicable after
the Closing Date. The Merger shall become effective upon the date (the
"Effective Date") and at the time of the filing of the Certificate of Merger
with such Secretaries of State or at such later time in accordance with the
provisions of applicable Law as specified in the Certificate of Merger (the
"Effective Time").
1.6 EXCHANGE OF CERTIFICATES.
(a) By no later than ten (10) days prior to the Closing Date, the Company
shall retain a bank or trust company reasonably acceptable to Acquiror to act
as exchange agent (the "Exchange Agent") in connection with the delivery of
shares of NPJ Common Stock pursuant to the Distribution and the surrender of
certificates evidencing, in accordance with Section 2.4(c) hereof, shares of
Broadcasting Common Stock converted into Acquiror Merger Securities pursuant to
the Merger. Prior to the Closing Date, (i) NPJ shall deposit with the Exchange
Agent the shares of NPJ Common Stock to be issued in the Distribution and (ii)
Acquiror shall deposit with the Exchange Agent the amount of Acquiror Merger
Securities to be issued in the Merger, all of which Acquiror Merger Securities
shall be deemed to be issued at the Effective Time. At and following the
Effective Time, the Surviving Corporation shall deliver to the Exchange Agent
such cash
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as may be required from time to time to make payment of cash in lieu of
fractional shares in accordance with Section 1.8 hereof.
(b) As soon as practicable after the Effective Time, NPJ and Acquiror shall
instruct the Exchange Agent to mail to each Person who was, at the Effective
Time, a holder of record of a certificate or certificates that, in accordance
with Section 2.4(c), immediately prior to the Effective Time evidenced
outstanding shares of Broadcasting Common Stock (the "Certificates") other than
Broadcasting, NPJ or any of their respective Subsidiaries, (i) a letter of
transmittal (which shall specify that delivery of the Certificates shall be
effective, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form
and shall have such other provisions as Acquiror and NPJ shall reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing the Transaction
Securities. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent(s) as may be appointed by NPJ and reasonably
acceptable to Acquiror, together with such letter of transmittal, duly executed
and such other documents as may be required by the Exchange Agent or such other
agent(s), the holder of such Certificate shall be entitled to receive in
exchange therefor the number of Transaction Securities that such holder has the
right to receive pursuant to the terms hereof (together with any cash paid in
lieu of fractional shares pursuant to Section 1.8), and the Certificate so
surrendered shall be cancelled. In the event of a transfer of ownership of
Company Common Stock that is not registered in the stock transfer records of
the Company, the proper number of Transaction Securities may be issued to a
transferee if the Certificate representing such Broadcasting Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence reasonably satisfactory to
NPJ and Acquiror that any applicable stock transfer tax has been paid.
(c) After the Effective Time, each outstanding Certificate which theretofore,
in accordance with Section 2.4(c), represented shares of Broadcasting Common
Stock shall, until surrendered for exchange in accordance with this Section
1.6, be deemed for all purposes to evidence solely the right to receive the
Merger Securities to which such Certificate is entitled pursuant to the Merger.
(d) Except as otherwise expressly provided herein, the Surviving Corporation
and NPJ shall share equally in the payment of all charges and expenses,
including those of the Exchange Agent, in connection with the exchange of
shares of Broadcasting Common Stock for Transaction Securities. Any Transaction
Securities deposited with the Exchange Agent that remain unclaimed by the
former stockholders of Broadcasting after six months following the Effective
Time shall be delivered to the Surviving Corporation or NPJ, as applicable (as
the context may require, the "Issuer") upon demand and any former stockholders
of Broadcasting who have not then complied with the instructions for exchanging
their Certificates shall thereafter look only to the Issuer for exchange of
Certificates.
(e) Effective upon the Closing Date, the stock transfer books of the Company
and Broadcasting shall be closed, and there shall be no further registration of
transfers of shares of Company Common Stock or Broadcasting Common Stock, as
the case may be, thereafter on the records of the Company and Broadcasting
(other than as a result of the Dissolution).
(f) All Acquiror Merger Securities issued upon conversion of shares of
Broadcasting Common Stock and NPJ Common Stock distributed pursuant to the
Distribution, each in accordance with the terms hereof, shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Broadcasting Common Stock.
1.7 DISTRIBUTION WITH RESPECT TO SHARES REPRESENTED BY UNEXCHANGED
CERTIFICATES. No dividend or other distribution declared or made (i) after the
Distribution by NPJ with respect to shares of NPJ Common Stock issued pursuant
to the Distribution with a record date after the Distribution or (ii) after the
Effective Time by the Surviving Corporation with respect to the Acquiror Merger
Securities with a record date after the
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Effective Time, shall be paid to the holder of any unsurrendered Certificate
with respect to any shares of NPJ Common Stock distributed pursuant to the
Distribution or any of the Acquiror Merger Securities issuable upon surrender
of a Certificate until the holder of such Certificate shall surrender such
Certificate in accordance with Section 1.6. Subject to the effect of applicable
Law, following surrender of any such Certificate there shall be paid, without
interest, by the Surviving Corporation or NPJ, as the case may be, to the
record holder of Transaction Securities issued in exchange therefor: (i) at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Distribution or the Effective Time, as the case may be,
theretofore paid by NPJ or the Surviving Corporation, as the case may be, with
respect to such Transaction Securities; and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
declared by NPJ or the Surviving Corporation, as the case may be, after the
Distribution or the Effective Time, as the case may be, but prior to surrender
of such Certificate and a payment date subsequent to such surrender payable
with respect to such Transaction Securities. No interest shall be paid on any
of the Transaction Securities.
1.8 NO FRACTIONAL SHARES.
(a) No fraction of a share of Acquiror Class A Common Stock or of Acquiror
Preferred Stock shall be issued upon surrender of Certificates pursuant to
Section 1.6. In lieu of any such fractional interests, each holder of
Broadcasting Common Stock entitled to receive Acquiror Merger Securities
pursuant to the Merger shall be entitled to receive an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying $485.00 by
the fractional interest in the share of Acquiror Class A Common Stock or
Acquiror Preferred Stock, as the case may be, to which such holder would
otherwise be entitled (after taking into account all shares of Acquiror Common
Stock and Acquiror Preferred Stock such holder is entitled to receive pursuant
to the Merger).
(b) Immediately prior to the Effective Time, Acquiror shall deposit with the
Exchange Agent cash in the required amounts and the Exchange Agent will pay
such amounts without interest to such holders; PROVIDED, HOWEVER, that no such
amount will be paid to any holder of Certificates prior to the surrender by
such holder of such holder's Certificates. Any such amounts that remain
unclaimed by the former stockholders of Broadcasting after six months following
the Effective Time shall be delivered to the Surviving Corporation by the
Exchange Agent upon demand and any former stockholders of Broadcasting who have
not then surrendered their Certificates shall thereafter look only to the
Surviving Corporation for payment in lieu of any fractional interests.
1.9 NO LIABILITY. None of Acquiror, NPJ, the Company, Holding or Broadcasting
will be liable to any holder of shares of Broadcasting Common Stock for any
shares of Transaction Securities, dividends or distributions with respect
thereto or cash payable in lieu of fractional shares delivered to a state
abandoned property administrator or other public official pursuant to any
applicable abandoned property, escheat or similar law.
1.10 LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the Transaction
Securities (and any dividend or distribution with respect thereto made after
the Distribution or the Effective Time and prior to such issuance and any cash
payable in lieu of fractional shares pursuant to Section 1.8) deliverable in
respect thereof as determined in accordance with the terms hereof. When
authorizing such payment in exchange for any lost, stolen or destroyed
Certificate, the Person to whom the Transaction Securities are to be issued, as
a condition precedent to the issuance thereof, shall give the Issuer a bond
satisfactory to the Issuer against any claim that may be made against the
Issuer with respect to the Certificate alleged to have been lost, stolen or
destroyed.
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ARTICLE 2.
CERTAIN PRE-MERGER TRANSACTIONS
The following transactions shall occur on or prior to the Effective Time:
2.1 NEW INDEBTEDNESS.
(a) Prior to the Holding Contribution, Acquiror and the Company shall use
their reasonable best efforts to cooperate in obtaining for the Company,
Broadcasting and/or one or more Cable Subsidiaries financing (the "New Company
Debt") in a minimum principal amount equal to Seven Hundred Fifty-Five Million
Dollars ($755,000,000). The New Company Debt shall be on terms which fall
within the parameters of those set forth on Schedule 2.1 attached hereto. After
the New Company Debt becomes available to the Company and such other borrowers
and immediately prior to the Holding Contribution, the Company or such other
borrowers shall draw down $755,000,000 of the New Company Debt in order to,
among other things, finance the acquisition described in Section 2.2, finance
the acquisition of interests not owned, directly or indirectly, by the Company
in the Persons identified in Section 1.4(b) hereof and repay the existing
indebtedness of the Company and Broadcasting.
(b) Prior to the Effective Time, the Company or NPJ shall obtain financing,
which shall be the sole obligation of NPJ and its Subsidiaries after the
Contribution (the "NPJ Debt"), in a minimum principal amount equal to Two
Hundred Million Dollars ($200,000,000). After the NPJ Debt becomes available to
the Company or NPJ and immediately prior to the Distribution, the Company or
NPJ, as the case may be, shall draw down at least $200,000,000 of the NPJ Debt
in order to, among other things, finance certain of the transactions described
in the last sentence of Section 2.1(a) as to which the New Company Debt is
insufficient to fund.
2.2 KELSO ACQUISITION. Prior to the Holding Contribution, the Company or
Holding shall acquire from Kelso Investment Associates IV, L.P., Kelso Partners
IV, L.P. and Kelso Equity Partners II, L.P., each a Delaware limited
partnership (collectively, the "Kelso Partnerships"), all shares of capital
stock and other interests owned of record or beneficially by the Kelso
Partnerships in Holding (the "Kelso Interests") in accordance with the terms of
the Company/Kelso Agreement. As a result of such acquisition, Holding will be a
wholly owned subsidiary of the Company.
2.3 DISSOLUTION OF HOLDING.
(a) Following the Holding Contribution, Holding shall contribute and transfer
to Broadcasting all of Holding's right, title and interest in and to any and
all assets then held by Holding, whether tangible or intangible and whether
fixed, contingent or otherwise, in exchange for one hundred (100) shares of
Broadcasting Class A Common Stock. In consideration for such contribution and
transfer and concurrently therewith, Broadcasting shall assume any and all
liabilities of Holding, whether fixed, contingent or otherwise.
(b) Immediately following the Holding Contribution and prior to the Holding
Dissolution, Holding shall cease to do business and shall be dissolved in
accordance with Sections 275 ET. SEQ. of the Delaware General Corporation Law.
As a result of the Holding Dissolution, the sole remaining asset of Holding,
consisting of one hundred (100) shares of Broadcasting Class A Common Stock,
shall become an asset of the Company as the sole shareholder of the capital
stock of Holding. The distribution of shares of Broadcasting Class A Common
Stock pursuant to the Holding Dissolution shall be in exchange solely for, and
in complete redemption and cancellation of, and in payment for, all outstanding
shares of capital stock of Holding.
2.4 DISSOLUTION OF THE COMPANY.
(a) Following the Holding Dissolution and prior to the Contribution, the
Company shall contribute and transfer to Broadcasting all of the Company's
right, title and interest in and to any and all assets then held by the
Company, whether tangible or intangible and whether fixed, contingent or
otherwise, including the
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stock of all Subsidiaries of the Company (including, without limitation, all of
the outstanding capital stock of Broadcasting), in exchange for shares of
Broadcasting Class A Common Stock and Broadcasting Class B Common Stock in
amounts equal to shares of such Broadcasting Common Stock the Company will
distribute to its stockholders in accordance with paragraph (b) below. In
consideration for such contribution and transfer and concurrently therewith,
Broadcasting shall assume any and all liabilities of the Company, whether
fixed, contingent or otherwise.
(b) Immediately following such contribution and transfer and prior to the
Contribution, the Company shall cease to do business and shall be dissolved in
accordance with Sections 7-1.1-77, ET. SEQ., of the Rhode Island Business
Corporations Act. The contribution, assumption and dissolution contemplated by
this Section 2.4 are hereinafter referred to as the "Dissolution". Subject to
Section 1.3 hereof, as a result of the Dissolution, the sole remaining asset of
the Company, consisting of shares of Broadcasting Common Stock of the same
class and consisting of the same number of shares of each such class as that
outstanding for the Company immediately prior to the Dissolution, shall be
distributed to the holders of Company Common Stock so that one fully paid and
nonassessable share of Broadcasting Class A Common Stock will be distributed to
the holder of each share of Company Class A Common Stock outstanding
immediately prior to the Dissolution and one fully paid and nonassessable share
of Broadcasting Class B Common Stock will be distributed to the holder of each
share of Company Class B Common Stock outstanding immediately prior to such
Dissolution. Subject to Section 1.3 hereof, the distribution of shares of
Broadcasting Common Stock pursuant to the Dissolution shall be in exchange
solely for, and in complete redemption and cancellation of, and in payment for,
all outstanding shares of capital stock of the Company. As a result of the
Dissolution, subject to Section 1.3 hereof, each holder of the Company Common
Stock immediately prior to the Dissolution will own the same number and class
of shares of Broadcasting Common Stock as such holder owned in the Company.
(c) In order to facilitate the exchange of certificates for Transaction
Securities and to avoid requiring that certificates representing shares of
Company Common Stock be exchanged for shares of Broadcasting Common Stock prior
to the Merger, for all purposes of this Agreement the certificates representing
shares of Company Class A Common Stock and Company Class B Common Stock
immediately prior to the Dissolution (other than any such certificate which
represents Dissenting Shares or shares owned directly or indirectly by the
Company or any of its Subsidiaries) shall be deemed to represent the equivalent
number of shares of Broadcasting Class A Common Stock and Broadcasting Class B
Common Stock issued in connection with the Dissolution.
2.5 CONTRIBUTION OF ASSETS TO AND ASSUMPTION OF LIABILITIES BY NPJ;
DISTRIBUTION OF NPJ COMMON STOCK.
(a) Prior to the Effective Time and pursuant to the terms of the Contribution
and Assumption Agreement to be entered into by Broadcasting and NPJ in the form
attached hereto as EXHIBIT B (the "Contribution Agreement"), Broadcasting shall
contribute and transfer (the "Contribution") to NPJ all of Broadcasting's
right, title and interest in and to any and all assets then held by
Broadcasting, whether tangible or intangible and whether fixed, contingent or
otherwise, including the stock of all Subsidiaries of Broadcasting; PROVIDED,
HOWEVER, that Broadcasting shall not contribute to NPJ (i) the issued and
outstanding capital stock of any Cable Subsidiary, (ii) Broadcasting's rights
created pursuant to the Contribution Agreement, (iii) cash sufficient to pay
all expenses relating to the transactions described in this Agreement that are
the responsibility of the Company, Holding or Broadcasting hereunder, and (iv)
the Palmer Systems, the Related Assets and the assets of Westerly or Colony, as
the case may be, to the extent the transactions contemplated by the last
sentence of Section 2.6 shall have been consummated.
(b) In partial consideration for the Contribution, concurrently therewith and
pursuant to the Contribution Agreement, NPJ shall assume any and all
liabilities of Broadcasting, whether fixed, contingent or otherwise; PROVIDED,
HOWEVER, that NPJ will not assume, and will have no liability with respect to,
(i) the New Company Debt, (ii) any liabilities associated with the business
operations of the Cable Subsidiaries or the cable operations of Broadcasting
except as provided in the Contribution Agreement, (iii) Broadcasting's
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obligations created pursuant to the Contribution Agreement, and (iv) the
liabilities set forth on Schedule 2.5(b) hereto. Concurrently with the
Contribution, NPJ will cause Broadcasting and its Subsidiaries (other than NPJ
and its Subsidiaries) to be released by all applicable third parties from any
liability (including, if applicable, the NPJ Debt) assumed by NPJ pursuant to
this Section 2.5(b) that is (A) debt for borrowed money and similar monetary
obligations evidenced by bonds, notes, debentures or other instruments, other
than trade accounts payable in the ordinary course of business and other than
as set forth on Schedule 2.5(b), or (B) guaranties, endorsements, and other
contingent obligations, whether direct or indirect, in respect of liabilities
of others of any of the types described in clause (A).
(c) Following the Contribution and prior to the Effective Time, Broadcasting
shall distribute (the "Distribution") one fully paid and nonassessable share of
NPJ Class A Common Stock to the holder of each share of Broadcasting Class A
Common Stock outstanding immediately prior to the Distribution and one fully
paid and nonassessable share of NPJ Class B Common Stock to the holder of each
share of Broadcasting Class B Common Stock outstanding immediately prior to the
Distribution. Each share of the capital stock of NPJ issued and outstanding
immediately prior to the Distribution and owned directly or indirectly by
Broadcasting or any of its Subsidiaries (other than those to be distributed in
accordance with the first sentence of this paragraph) shall be cancelled at the
time of the Distribution. Anything herein to the contrary notwithstanding, NPJ
shall have the right at any time to alter its capital structure; PROVIDED,
HOWEVER, that any such amendment shall not unreasonably delay the effective
time of the Registration Statements.
2.6 CERTAIN OTHER ACTIONS. If the private letter ruling contemplated by
Section 6.17 hereof is based upon or indicates its approval of the transactions
identified in this sentence, prior to the Contribution (i) the Palmer Systems,
together with all accounts receivable, inventory, supplies, machinery, plant
and equipment, tools, customer lists, contracts, goodwill and all other assets,
tangible or intangible, of Broadcasting used or usable in connection with
Broadcasting's ownership and operation (on and after the Dissolution) of the
Palmer Systems (the "Related Assets") and the stock of King Videocable shall be
contributed to Colony Communications, Inc., a Rhode Island corporation
("Colony"), and (ii) Westerly Cable Television, Inc., a Rhode Island
corporation ("Westerly"), will be merged with and into Colony. If such letter
ruling is not based upon or does not approve such transactions, prior to the
Contribution, Westerly will be merged with and into Colony and either (as the
Company and Acquiror may agree upon) the assets of Westerly will be distributed
to the Company or Broadcasting, as the case may be, or Colony will be merged
with and into the Company or Broadcasting, as the case may be.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY, NPJ, HOLDING AND
BROADCASTING
The Company and NPJ jointly and severally represent and warrant to Acquiror
(such representations and warranties to be effective as of November 18, 1994
and the schedules to the Original Agreement shall be the schedules to this
Agreement) as follows:
3.1 ORGANIZATION; AUTHORITY; COMPANY/KELSO AGREEMENT. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Rhode Island. Each of NPJ and Holding is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Broadcasting is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington. Each
of the Company, NPJ, Holding and Broadcasting has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All necessary action, corporate or otherwise,
required to have been taken by or on behalf of the Company, NPJ, Holding or
Broadcasting, as the case may be, by applicable Law, their respective charter
documents or otherwise to authorize (i) the approval, execution and delivery on
behalf of the Company, NPJ, Holding and Broadcasting of this Agreement, (ii)
the approval, execution and delivery on
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behalf of the Company of, and the performance by the Company of its obligations
under, the Company/Kelso Agreement, and (iii) the performance by the Company,
NPJ, Holding and Broadcasting of their respective obligations under this
Agreement, the Plan of Reorganization, the Contribution Agreement, the Non-
Competition Agreement, and all other documents and instruments contemplated
herein (each a "Transaction Document" and, collectively, the "Transaction
Documents") and the consummation of the transactions contemplated hereby and
thereby has been taken, except that the Merger Transactions must be approved by
the stockholders of the Company. Each Transaction Document to which the
Company, NPJ, Holding or Broadcasting, as the case may be, is or will be a
party constitutes or will constitute, as the case may be, a valid and binding
agreement of the Company, NPJ, Holding or Broadcasting, as the case may be,
enforceable against it in accordance with its terms, except (x) as the same may
be limited by applicable bankruptcy, insolvency, moratorium or similar laws of
general application relating to or affecting creditors' rights, including
without limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers, and (y) for the limitations imposed by
general principles of equity. The foregoing exceptions are hereinafter referred
to as the "Enforceability Exceptions." The Company has all requisite corporate
power and authority to execute and deliver the Company/Kelso Agreement and to
consummate the transactions contemplated thereby. The Company/Kelso Agreement
is the validly existing, legally enforceable obligation of the Company and, to
the knowledge of the Company, of the other parties thereto, subject to the
Enforceability Exceptions.
3.2 NO BREACH OR CONFLICT. The execution and delivery of the Company/Kelso
Agreement by the Company and the execution and delivery of each Transaction
Document to which it is or will be a party by each of the Company, NPJ, Holding
and Broadcasting, do not or will not, as the case may be, and the consummation
of the transactions contemplated hereby and thereby by each of the Company,
NPJ, Holding and Broadcasting will not, (i) violate or conflict with the
charter documents or By-Laws of the Company, NPJ, Holding or Broadcasting; (ii)
except as set forth on Schedule 3.2 hereto (which Schedule shall be delivered
by the Company to Acquiror not later than 45 days following the initial filing
of the Registration Statement with the SEC) and except for the approvals
described in Section 3.3 hereof, constitute a breach or default (or an event
that with notice or lapse of time or both would become a breach or default) of,
result in the creation or imposition of any Lien upon the property or assets of
the Company or its Subsidiaries or NPJ or its Subsidiaries, give rise to any
third party right of termination, cancellation, material modification or
acceleration under, or require any approval, waiver or consent under, any note,
bond, mortgage, pledge, indenture, deed of trust, lease, agreement, indemnity,
obligation, commitment or instrument to which the Company or any of its
Subsidiaries or NPJ or any of its Subsidiaries is a party or by which any of
them or their respective properties or assets are bound, except as would not
result in a Material Adverse Effect on the Company and its Subsidiaries taken
as a whole; or (iii) subject to obtaining the approvals and making the filings
described in Section 3.3 hereof, violate any Law, judgment, decree, order or
writ of any judicial, arbitral, public, or governmental authority having
jurisdiction over the Company or any of its Subsidiaries or NPJ or any of its
Subsidiaries or any of their respective properties or assets except as would
not result in a Material Adverse Effect on the Company and its Subsidiaries
taken as a whole.
3.3 CONSENTS AND APPROVALS. Neither the execution and delivery by the Company
of the Company/Kelso Agreement, the execution and delivery by the Company, NPJ,
Holding and Broadcasting of each Transaction Document to which it is, or will
be, a party nor the consummation of the transactions contemplated hereby or
thereby will require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
except for (i) filings required under the Securities Act, (ii) filings required
under the Exchange Act, (iii) filings under state securities or "blue sky"
laws, (iv) the filing of a premerger notification report pursuant to, and
expiration or termination of the waiting period under, the HSR Act, (v) the
filing of certificates or articles, as the case may be, of merger, statements
of intent to dissolve and articles of dissolution and other documents or
instruments which may be required to be filed with any Secretary of State in
connection with the Merger, the Holding Dissolution or the Dissolution, and
appropriate documents with the relevant authorities of other states in which
the Company and its Subsidiaries are qualified to do business, (vi) such
filings, authorizations, orders and approvals from the FCC
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(the "FCC Approvals") as may be required in connection with FCC Licenses of the
Cable Subsidiaries, (vii) such authorizations, consents, approvals and waivers
("Local Approvals") of state and local authorities, as may be required in
connection with the Franchises to operate the cable television systems of the
Cable Subsidiaries, and (viii) such other consents or filings as, if not
obtained or made, would not have a Material Adverse Effect on the Company and
its Subsidiaries taken as a whole or as would not prevent the Company, NPJ,
Holding or Broadcasting from performing their respective obligations under each
Transaction Document to which it is a party or consummating the transactions
contemplated hereby.
3.4 APPROVAL OF THE BOARDS; FAIRNESS OPINIONS. The Boards of Directors of the
Company, NPJ, Holding, Broadcasting and Westerly have each, by resolutions duly
adopted at meetings duly called and held, unanimously approved and adopted this
Agreement, the Merger Transactions and the other transactions contemplated
hereby on the terms and conditions set forth herein. The Company Board of
Directors has received the favorable opinion of Bear, Stearns & Co., Inc., as
financial advisor to the Board of Directors of the Company, with respect to
such transactions.
3.5 VOTE REQUIRED. The affirmative votes or actions by written consent of a
majority of the votes that holders of the outstanding shares of Company Common
Stock, voting together as a single class, are entitled to cast are the only
votes of any class or series of the capital stock of the Company necessary to
approve the Merger Transactions under applicable Law and the Company's Articles
of Organization and By-laws. The affirmative votes or actions by written
consent of a majority of the votes that holders of the outstanding shares of
each class of Company Common Stock, voting separately as a single class, are
entitled to cast are the only votes of the holders of any class of series of
the capital stock of the Company necessary to approve the Plan of
Reorganization under applicable Law and the Company's Articles of Organization
and By-laws.
3.6 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of (i) 600,000
shares of Company Class A Common Stock and (ii) 300,000 shares of Company Class
B Common Stock. As of November 18, 1994, there are issued and outstanding
37,728 shares of Company Class A Common Stock and 46,961 shares of Company
Class B Common Stock. The authorized capital stock of Holding consists of 200
shares of Class A Common Stock and 240,000 shares of Class B Common Stock. As
of November 18, 1994, there are issued and outstanding 200 shares of Class A
Common Stock, par value $.10 per share, of Holding and 209,998 shares of Class
B Common Stock, par value $.10 per share, of Holding. The authorized capital
stock of Broadcasting consists of 1,000 shares of Common Stock, par value $.01
per share. As of November 18, 1994, there are issued and outstanding 1,000
shares of Broadcasting's Common Stock. All shares referenced in the preceding
six sentences which are outstanding as of November 18, 1994, are duly
authorized, validly issued and fully paid and nonassessable. Other than as set
forth on Schedule 3.6(a) and in connection with the transactions contemplated
by this Agreement, there are no outstanding options, warrants, rights, puts,
calls, commitments, or other contracts, arrangements, or understandings issued
by or binding upon the Company, Holding or Broadcasting requiring or providing
for, and there are no outstanding debt or equity securities of the Company or
its Subsidiaries which upon the conversion, exchange or exercise thereof would
require or provide for the issuance by the Company, Holding or Broadcasting of
any new or additional equity interests in the Company, Holding or Broadcasting
(or any other securities of the Company, Holding or Broadcasting which, with
notice, lapse of time and/or payment of monies, are or would be convertible
into or exercisable or exchangeable for equity interests in the Company,
Holding or Broadcasting, as the case may be). Other than as set forth on
Schedule 3.6(a), there are no preemptive or other similar rights available to
the existing holders of the capital stock of the Company, Holding or
Broadcasting. Except as set forth on Schedule 3.6(a), there are no voting
trusts or other agreements or understandings to which the Company is a party
with respect to the voting of capital stock of the Company. The Company, on the
one hand, and the Kelso Partnerships, on the other hand, each own 50% of the
outstanding shares of each class of capital stock of Holding; Holding owns all
of the outstanding shares of capital stock of Broadcasting; and Broadcasting
owns all of the outstanding shares of capital stock of King Videocable.
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(b) Upon the filing of its Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware, the authorized capital stock of
NPJ will consist of (i) 600,000 shares of NPJ Class A Common Stock and (ii)
300,000 shares of NPJ Class B Common Stock. As of November 18, 1994, there is
issued and outstanding one share of NPJ Class A Common Stock which is held of
record and beneficially owned by the Company, and no shares of NPJ Class B
Common Stock.
(c) Upon the filing of its Restated Articles of Incorporation with the
Secretary of State of the State of Washington, the authorized capital stock of
Broadcasting will consist of (i) 50,000 shares of Broadcasting Class A Common
Stock and (ii) 40,000 shares of Broadcasting Class B Common Stock.
(d) The Company has delivered to Acquiror a full and complete copy of the
Rights Agreement. Neither a Rights Distribution Date nor a Stock Acquisition
Date has occurred under the Rights Agreement. Neither the execution and
delivery of this Agreement nor the consummation of the Merger Transactions
(including, without limitation, the Merger, the Dissolution and the
Distribution) are events which would (with notice or lapse of time or both) (i)
permit the holders of Rights to exercise such Rights to acquire shares of
Company Common Stock, (ii) require the Company, in accordance with Section
11(a)(ii) of the Rights Agreement, to exchange any or all of the outstanding
Rights for shares of Company Common Stock, or (iii) prevent, or limit in any
manner, the Company's right to amend the terms of the Rights Agreement in
accordance with the first sentence of Section 26 of the Rights Agreement
without the approval of its stockholders or the holders of the Rights. At the
Effective Time, after giving effect to the amendment required pursuant to
Section 6.27 hereof, (i) the holders of Rights shall not have any rights to
acquire shares of Broadcasting Common Stock or Acquiror Common Stock, and (ii)
neither Broadcasting nor Acquiror shall be liable for, or assume by virtue of
the Dissolution or the Merger, any obligation or duty of the Company pursuant
to the Rights Agreement.
3.7 FINANCIAL STATEMENTS. The financial statements of the Company included
herewith as Schedule 3.7 were prepared in accordance with GAAP and present
fairly as of their respective dates, in all material respects, the consolidated
financial position of the Company and its Subsidiaries as at the dates thereof
and the consolidated results of their operations and their consolidated cash
flows (PROVIDED, HOWEVER, that such consolidated cash flows do not include any
amounts relating to the operations of Holding or its Subsidiaries) for each of
the respective periods covered thereby, in conformity with GAAP.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on Schedule 3.8,
the Company does not have any indebtedness, liability or obligation of the type
required by GAAP to be reflected on a balance sheet, or in the notes, schedules
or exhibits thereto, that is not reflected or reserved against in the balance
sheet of the Company dated as of September 30, 1994 previously delivered to
Acquiror (the "Company Balance Sheet") and since the Balance Sheet Date, the
Company has not incurred any such liabilities or obligations other than in the
ordinary course of business. Schedule 3.8 also lists all outstanding letters of
credit and guarantees of the Company.
3.9 ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule 3.9, since
the Balance Sheet Date, the Company has conducted its business operations in
the ordinary course and there has not occurred (i) any Material Adverse Effect
on the Company and its Subsidiaries taken as a whole except for Material
Adverse Effects due to general economic or industry-wide conditions (including,
without limitation, determinations by the FCC or local franchising authorities
affecting or applicable to the offering or packaging of a la carte channels or
cost-of-service showings and any rate adjustments pursuant to such
determinations), or (ii) other events or conditions of any character that,
individually or in the aggregate, have or would reasonably be expected to have,
a Material Adverse Effect on the Company and its Subsidiaries taken as a whole
or on the ability of the Company, NPJ, Holding or Broadcasting to perform their
respective material obligations under the Transaction Documents to which they
are a party.
3.10 COMPLIANCE WITH LAWS. The Company holds all Franchises and Licenses
necessary for the lawful conduct of its business, except where the failure to
hold any such Franchise or License would not have a
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Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
To the Company's knowledge, it has not violated, and is not in violation of,
any such Franchises or Licenses or any applicable Law (including, without
limitation, any of the foregoing related to occupational safety, storage,
disposal, discharge into the environment of hazardous wastes, environmental
protection, conservation, unfair competition, labor practices or corrupt
practices), except where such violations do not, and insofar as reasonably can
be foreseen will not, have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole, and the Company has not received any notice from
a governmental or regulatory authority within three years of November 18, 1994
of any such violation.
3.11 TAX MATTERS.
(a) All Company Consolidated Income Tax Returns and Cable Tax Returns (as
defined in Section 6.10(h)), required to be filed on or before November 18,
1994 have been filed with the appropriate governmental agencies in all
jurisdictions in which such Tax Returns are required to be filed; all of the
foregoing Tax Returns are true, correct and complete in all material respects;
and all Taxes (as defined in Section 6.10(h)) required to have been paid in
connection with such Tax Returns have been paid. All material Taxes payable by
or with respect to the Company and its Subsidiaries but not reflected on any
Tax Return required to be filed prior to the Balance Sheet Date have been fully
paid or adequate provision therefor has been made and reflected on the Company
Balance Sheet.
(b) Except as set forth on Schedule 3.11 hereto, there is no claim or
investigation involving an amount greater than $250,000 pending or threatened
against the Company or any Cable Subsidiary for past Taxes, and adequate
provision for the claims or investigations set forth on Schedule 3.11 has been
made as reflected on the Company's financial statements. Except as set forth on
Schedule 3.11 hereto, the Company and its Cable Subsidiaries have not waived or
extended any applicable statute of limitations relating to the assessment of
federal, state or local Taxes relating to the Company or any Cable Subsidiary.
3.12 LITIGATION. Except as set forth on Schedule 3.12, there is no suit,
action, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company (other than in connection
with its cable operations) or any of its Subsidiaries (other than any Cable
Subsidiary) that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on NPJ and its Subsidiaries taken as
a whole or prevent, hinder, or materially delay the ability of the Company,
NPJ, Holding or Broadcasting to consummate the transactions contemplated by
this Agreement, nor is there any judgment, decree, inquiry, rule or order
outstanding against the Company (other than in connection with its cable
operations) or any of its Subsidiaries (other than any Cable Subsidiary) which,
insofar as can reasonably be foreseen, would have any such effect in the
future.
3.13 EMPLOYEE BENEFITS; ERISA MATTERS.
(a) COMPANY EMPLOYEE PLANS. Schedule 3.13(a) lists each Company Employee
Plan. The Company has made available to Acquiror true and complete copies of
(i) all written documents comprising such Company Employee Plans (including
amendments and individual agreements relating thereto); (ii) the most recent
Federal Form 5500 series (including all schedules thereto) filed with respect
to each Company Employee Plan; (iii) the most recent financial statements and
actuarial reports, if any, pertaining to the Company Employee Plans; and (iv)
the summary plan description currently in effect and all material modifications
thereto, if any, for each such Company Employee Plan.
(b) PENSION PLAN FUNDING AND TERMINATION. With respect to each Company
Employee Plan that is subject to Title IV of ERISA, within the six year period
preceding the Closing Date:
(i) No such Company Employee Plan has been terminated so as to subject,
directly or indirectly, any asset of the Company or NPJ to any liability,
contingent or otherwise, or the imposition of any Lien under Title IV of
ERISA;
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(ii) No proceeding has been initiated or threatened by any Person,
including the PBGC, nor, to the Company's knowledge, is any such proceeding
expected, to terminate any such Company Employee Plan;
(iii) No condition or event exists or is reasonably expected to occur
that could subject, directly or indirectly, any assets of the Company or
NPJ to any liability, contingent or otherwise, or the imposition of any
Lien under Title IV of ERISA, whether to the PBGC or to any other Person;
(iv) No Reportable Event has occurred and is continuing with respect to
any such Company Employee Plan;
(v) No such Company Employee Plan which is subject to Section 302 of
ERISA or Section 412 of the Code has incurred an Accumulated Funding
Deficiency, whether or not such deficiency has been waived;
(vi) Neither the Company, NPJ nor any ERISA Affiliate of either of them
has incurred any Withdrawal Liability or any liability based on the
withdrawal from any union-sponsored multiemployer welfare benefit fund; and
(vii) Neither the Company, NPJ nor any ERISA Affiliate of either of them
has been notified by the sponsor of a Multiemployer Plan to which the
Company, NPJ or any ERISA Affiliate of either of them is required to make
or accrue a contribution, or has within the six year period preceding the
Closing Date been required to make or accrue a contribution, that such
Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA.
(c) COBRA. The Company and NPJ have complied in all material respects with
the continuation coverage requirements of COBRA with respect to any Group
Health Plan sponsored by the Company or NPJ.
(d) CONTRIBUTION TO COMPANY EMPLOYEE PLANS. The Company, NPJ and their ERISA
Affiliates have made full and timely payment of all amounts required to be
contributed under the terms of each Company Employee Plan and applicable Law or
required to be paid as expenses under each Company Employee Plan.
3.14 FULL DISCLOSURE. All of the statements made by the Company, NPJ, Holding
and Broadcasting in this Agreement (including, without limitation, the
representations and warranties made by the Company and NPJ herein and in the
schedules and exhibits hereto which are incorporated by reference herein and
which constitute an integral part of this Agreement) do not (and on the Closing
Date shall not) include or contain any untrue statement of a material fact, and
do not (and on the Closing Date shall not) omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.15 BROKERS AND FINDERS. None of the Company, NPJ, Holding or Broadcasting
nor any officer, director, employee or Affiliate of the Company, NPJ, Holding
or Broadcasting has employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finder's fees in connection with the
transactions contemplated herein, except that the Company has employed Bear,
Stearns & Co., Inc. as its financial advisor and for whose fees and expenses
the Company is responsible.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES REGARDING THE CABLE SUBSIDIARIES
The Company and NPJ jointly and severally represent and warrant to Acquiror
(such representations and warranties to be effective as of November 18, 1994
and the schedules to the Original Agreement shall be the schedules to this
Agreement) as follows:
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4.1 ORGANIZATION AND AUTHORITY. Each Cable Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation. Each Cable Subsidiary has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, except where the failure to have such power or authority would not
have a Material Adverse Effect on the Cable Subsidiaries taken as a whole.
4.2 NO BREACH OR CONFLICT. The execution and delivery of the Company/Kelso
Agreement by the Company and the execution and delivery of each Transaction
Document to which it is or will be a party by each of the Company, NPJ, Holding
and Broadcasting do not or will not, as the case may be, and the consummation
of the transactions contemplated hereby or thereby by each of the Company, NPJ,
Holding and Broadcasting will not, (i) violate or conflict with any term or
provision of the certificate of incorporation, by-laws or other organizational
documents of any Cable Subsidiary; (ii) except as set forth on Schedule 4.2 and
except for the approvals described in Section 3.3 hereof, constitute a breach
or default (or an event that with notice or lapse of time or both would become
a breach or default) of, result in the creation or imposition of any Lien upon
the property or assets of any Cable Subsidiary, give rise to any third party
right of termination, cancellation, material modification or acceleration
under, or require any approval, waiver or consent under, any note, bond,
mortgage, pledge, indenture, deed of trust, lease, agreement, indemnity,
obligation, commitment or instrument to which any Cable Subsidiary is a party
or by which it or its properties is bound, except as would not result in a
Material Adverse Effect on the Cable Subsidiaries taken as a whole; or (iii)
subject to obtaining the approvals and making the filings described in Section
3.3 hereof, violate any Law, judgment, decree, order or writ of any judicial,
arbitral, public, or governmental authority having jurisdiction over any Cable
Subsidiary or any of its properties or assets except as would not result in a
Material Adverse Effect on the Cable Subsidiaries taken as a whole. Except as
set forth on Schedule 4.2 hereto, and except for the Non-Competition Agreement,
neither the Company nor any of the Cable Subsidiaries is a party to or bound by
any agreement that restricts or purports to restrict the ability of any of them
or any Affiliate of any of them to engage in any location in the business of
cable television or any other business engaged in by the Cable Subsidiaries or
by Acquiror and its Subsidiaries.
4.3 CAPITALIZATION. Schedule 4.3 sets forth the name, jurisdiction of
organization and the authorized and issued and outstanding capital stock,
partnership interests or other equity interests of each Cable Subsidiary and
the registered holders thereof. All such shares outstanding are duly
authorized, validly issued and fully paid and nonassessable. Other than in
connection with the transactions contemplated by this Agreement, there are no
outstanding options, warrants, rights, puts, calls, commitments, or other
contracts, arrangements, or understandings issued by or binding upon any Cable
Subsidiary requiring or providing for, and there are no outstanding debt or
equity securities of any Cable Subsidiary which upon the conversion, exchange
or exercise thereof would require or provide for, the issuance or transfer of
any shares of capital stock, partnership interests or other equity interests of
any Cable Subsidiary (or any other securities which, with notice, lapse of time
and/or payment of monies, are or would be convertible into or exercisable or
exchangeable for shares of capital stock, partnership interests or other equity
interests of any Cable Subsidiary). There are no voting trusts or other
agreements or understandings to which the Company or any Cable Subsidiary is a
party with respect to the voting of capital stock, partnership interests or
other equity interests of any Cable Subsidiary.
4.4 FINANCIAL STATEMENTS. The balance sheets and financial statements of the
Cable Subsidiaries and the notes thereto identified on Schedule 4.4, which
include the unaudited balance sheets of the Cable Subsidiaries as of the
Balance Sheet Date (the "Cable Balance Sheets"), are hereinafter defined as the
"Cable Financial Statements". The Cable Financial Statements which are audited
were prepared in accordance with GAAP and present fairly the financial position
of the Cable Subsidiaries as at the dates thereof and the results of their
operations and their cash flows for each of respective periods covered thereby
in accordance with GAAP. The Cable Financial Statements which are not audited,
in the opinion of management, present fairly the financial position of the
Cable Subsidiaries as at the dates thereof and the results of their operations
and their cash flows for each of the respective periods covered thereby. The
Cable Balance Sheets and the
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unaudited statements of income and cash flow for the period ended September 30,
1994 included in the Cable Financial Statements were prepared on a basis
consistent with prior interim periods and, except as set forth on Schedule 4.4
hereto, include all adjustments (consisting only of normal recurring accruals),
other than adjustments for corporate overhead and interest expense, that
management of the Company considers necessary for a fair presentation of the
results of operations for such periods. The Cable Subsidiaries alone generated
approximately $64,000,000 in operating cash flow (before expenses allocated to
corporate and divisional/regional overhead, management and similar fees,
MIS/cable billing and administration and unusual and non-recurring items) for
the six months ended June 30, 1994.
4.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.5,
no Cable Subsidiary has any indebtedness, liability or obligation of the type
required by GAAP to be reflected on a consolidated balance sheet of the Cable
Subsidiaries, or in the notes, schedules or exhibits thereto, that is not
reflected or reserved against in the Cable Balance Sheet, and since the Balance
Sheet Date, no Cable Subsidiary has incurred any such liabilities or
obligations other than in the ordinary course of business.
4.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 4.6, since
the Balance Sheet Date, the Cable Subsidiaries have conducted their business
operations in the ordinary course and there has not occurred (i) any Material
Adverse Effect on the Cable Subsidiaries taken as a whole except for Material
Adverse Effects due to general economic or industry-wide conditions (including,
without limitation, determinations by the FCC or local franchising authorities
affecting or applicable to the offering or packaging of a la carte channels or
cost-of-service showings and any rate adjustments pursuant to such
determinations), or (ii) other events or conditions of any character that,
individually or in the aggregate, have or would reasonably be expected to have,
a Material Adverse Effect on the Cable Subsidiaries taken as a whole.
4.7 COMPLIANCE WITH LAWS. (a) Each of the Cable Subsidiaries holds all
Franchises and Licenses necessary for the lawful conduct of its business,
except where the failure to hold any such Franchise or License would not have a
Material Adverse Effect on the Cable Subsidiaries taken as a whole. To the
Company's knowledge, none of the Cable Subsidiaries has violated, nor is any
Cable Subsidiary in violation of, any such Franchises or Licenses or any
applicable Law (including, without limitation, any of the foregoing related to
occupational safety, storage, disposal, discharge into the environment of
hazardous waste, environmental protection, conservation, unfair competition,
labor practices or corrupt practices), except where such violations do not, and
insofar as reasonably can be foreseen will not, have a Material Adverse Effect
on the Cable Subsidiaries taken as a whole. Except as otherwise set forth on
Schedule 4.7 hereto, no Cable Subsidiary has received any notice from a
governmental or regulatory authority within three years of November 18, 1994 of
any such violation.
(b) Each Cable Subsidiary has made all submissions (including, without
limitation, registration statements) required under the Communications Act, and
has, to the Company's knowledge, obtained all necessary FCC authorizations,
Licenses, registrations, permits and tower approvals. The cable television
systems of the Cable Subsidiaries have complied in all material respects with
the Communications Act.
4.8 FRANCHISES AND MATERIAL AGREEMENTS. (a) As of September 30, 1994, the
cable television systems owned by the Cable Subsidiaries (i) had approximately
753,153 Basic Subscribers and 506,148 premium subscriptions and (ii) passed
approximately 1,248,743 dwelling units. Each Franchise of the Cable
Subsidiaries and each other agreement, contract or arrangement which is
material to the ownership and operation of the business of the Cable
Subsidiaries to which any Cable Subsidiary is a party or by which any of its
properties or assets are bound (the "Material Cable Agreements") is the validly
existing, legally enforceable obligation of each Cable Subsidiary party thereto
and, to the knowledge of the Company, of the other parties thereto, subject to
the Enforceability Exceptions. Each Cable Subsidiary is validly and lawfully
operating under its Franchises and the Material Cable Agreements to which it is
a party, and each Cable Subsidiary has duly complied in all material respects
with all of the terms and conditions of each of its Franchises and each
Material Cable Agreement to which it is a party.
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(b) Except as previously disclosed to Acquiror in writing, no Person
(including any governmental authority) has any right to acquire any interest in
any cable television system or assets of the Company or the Cable Subsidiaries
(including any right of first refusal or similar right) upon an assignment or
transfer of control of a Franchise, other than rights of condemnation or
eminent domain afforded by Law and, to the knowledge of the Company, no other
Person (i) has been granted or has applied for the consent or approval of any
governmental authority for the installation, construction, development,
ownership, or operation of a cable television system (as defined in the Cable
Communications Policy Act of 1984, as amended) within all or part of the
geographic area served by any cable television system of the Cable Subsidiaries
or (ii) operates, or has commenced the construction, installation or
development of, any cable television system (as defined in the Cable
Communications Policy Act of 1984, as amended) within all or part of the
geographic area served by any cable television system of the Cable
Subsidiaries, regardless of whether the consent or approval of any governmental
authority is required or has been obtained.
(c) Neither the Company nor any of its Cable Subsidiaries has made any
material commitments in writing to any state, municipal, local or other
governmental commission, agency or body with respect to the operation and
construction of their respective systems which are not fully reflected in the
Franchises or any Material Cable Agreement. Neither the Company nor any of its
Cable Subsidiaries has entered into any written agreements with community
groups or similar third parties restricting or limiting the types of
programming that may be shown on such systems.
(d) No Franchising Authority has advised the Company or any Cable Subsidiary
in writing, or otherwise formally notified the Company or any Cable Subsidiary
in accordance with the terms of the applicable Franchise, of its intention to
deny renewal of an existing Franchise. The Company and the Cable Subsidiaries
have timely filed notices of renewal in accordance with the Communications Act
with all Franchising Authorities with respect to each Franchise expiring within
36 months after the date of this Agreement. Such notices of renewal have been
filed pursuant to the formal renewal procedures established by Section 626(a)
of the Communications Act. As of the Closing Date, (i) the Company will have
maintained a controlling ownership in each system in its entirety for at least
36 consecutive months following the initial construction or acquisition of each
such system by the Company or a Subsidiary, or (ii) the consummation of the
transactions contemplated by this Agreement will not violate the three-year
holding period requirement set forth in Section 617 of the Communications Act
and the FCC rules and regulations promulgated thereunder.
(e) The Company and the Cable Subsidiaries are operating the systems in
compliance in all material respects with the provisions of the Communications
Act and the rules and regulations of the FCC relating to carriage of signals,
syndicated exclusivity, network non-duplication, and retransmission consent
except where the failure to comply, individually or in the aggregate, would not
result in a Material Adverse Effect on the Cable Subsidiaries taken as a whole.
Except as previously disclosed to Acquiror in writing, no written notices or
demands have been received from any television station or from any other Person
claiming to have a right, or objecting to or challenging the right of the
systems, to carry any signal or deliver the same, or challenging the channel
position on which any television station is carried.
(f) Schedule 4.8(f) indicates which television signals carried by the systems
are carried without retransmission consent agreements (other than stations
which have elected must-carry status). The Company has delivered or made
available to Acquiror full and complete copies of all retransmission consent
agreements. For each commercial television signal on each system that has
elected must-carry status, but that is not being carried because of signal
quality problems or potential copyright liability, Schedule 4.8(f) lists the
signal and the reason for non-carriage.
(g) The Company has delivered or made available to Acquiror true, correct,
and complete specimen copies of (i) all FCC Forms 393, 1200, 1205, 1210, 1215
and 1220s that have been prepared with respect to the systems, (ii) all
material correspondence with any governmental body, subscriber, or other
interested party relating to rate regulation generally or specific rates
charged to subscribers of the systems, including, without
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limitation, any complaints filed with the FCC with respect to any rates charged
to subscribers of the systems, and (iii) any documentation supporting an
exemption from the rate regulation provisions of the Communications Act claimed
by the Company or a Cable Subsidiary with respect to the systems. Schedule
4.8(g) sets forth (i) a list of all rate complaints filed pursuant to the
Communications Act and received by the Company or any of its Cable Subsidiaries
which have not been deemed invalid by the FCC, and further sets forth those
Franchises that have been certified or, to the Company's knowledge, filed for
certification under the Communications Act with respect to rate regulation and
(ii) a list of all letters of inquiry from the FCC received by the Company or
any Cable Subsidiary since September 1, 1993 with regard to rate restructuring.
4.9 TITLE TO PROPERTIES; ENCUMBRANCES. Except as set forth on Schedule 4.9,
(a) the Cable Subsidiaries are the exclusive holders of all rights in or to all
real and personal, tangible and intangible, property and assets of the Company
or its Subsidiaries (other than any such assets held by the Company or its
Subsidiaries pursuant to leases or licenses with a Person other than the
Company or another of its Subsidiaries) used or useful in the ownership and
operation of the cable television systems owned or operated by the Company or
the Cable Subsidiaries, and (b) each Cable Subsidiary has good and valid title
to its respective assets, free and clear of all defects and Liens except: (i)
materialmen's, mechanics', carriers', workmen's, warehousemen's, repairmen's,
or other like Liens arising in the ordinary course of business, or deposits to
obtain the release of such Liens; (ii) Liens for current taxes not yet due and
payable; and (iii) Liens or minor imperfections of title that do not interfere
with the use or detract from the value of such property and taken in the
aggregate, have a Material Adverse Effect on the Cable Subsidiaries taken as a
whole. Except as would not result in any Material Adverse Effect on the Cable
Subsidiaries taken as a whole, each Cable Subsidiary owns or has the lawful
right to use all assets, properties, operating rights, easements, contracts,
leases, and other instruments necessary to operate its business lawfully and to
maintain the same as presently conducted.
4.10 LABOR MATTERS. (a) Except as set forth on Schedule 4.10(a), none of the
Cable Subsidiaries is party to any labor or collective bargaining agreement and
there are no labor or collective bargaining agreements which pertain to
employees of any of the Cable Subsidiaries.
(b) Except as set forth on Schedule 4.10(b), (i) no employees of any of the
Cable Subsidiaries are represented by any labor organization and (ii) as of
November 18, 1994, no labor organization or group of employees of any of the
Cable Subsidiaries has made a pending demand for recognition or certification,
and there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or, to the knowledge of
the Company, threatened to be brought or filed, with the NLRB or any other
labor relations tribunal or authority. To the knowledge of the Company, there
are no formal organizing activities involving a material number of employees of
the Cable Subsidiaries pending with, or threatened by, any labor organization.
(c) Except as would not result in a Material Adverse Effect on the Cable
Subsidiaries taken as a whole, (i) there are no strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material grievances or other
material labor disputes pending or, to the knowledge of the Company, threatened
against or involving any of the Cable Subsidiaries and (ii) there are no unfair
labor practice charges, grievances or complaints pending or, to the knowledge
of the Company, threatened by or on behalf of any employee or group of
employees of any of the Cable Subsidiaries.
4.11 LITIGATION. Except as set forth on Schedule 4.11, there is no suit,
action or proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting any Cable Subsidiary (except for
proceedings or investigations affecting the cable television industry
generally) that, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect on the Cable Subsidiaries taken as a whole or
prevent, hinder, or materially delay the consummation of the transactions
contemplated by this Agreement, nor is there any judgment, decree, inquiry,
rule or order outstanding against any Cable Subsidiary which, insofar as can
reasonably be foreseen, would have any such effect in the future.
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4.12 EMPLOYEE BENEFITS; ERISA MATTERS.
(a) CABLE PLANS AND COMPANY BENEFIT ARRANGEMENTS. Schedule 4.12(a) lists each
Cable Employee Plan, Cable Benefit Arrangement and Company Benefit Arrangement
covering Cable Employees. The Company has made available to Acquiror with
respect to each Cable Employee Plan, Cable Benefit Arrangement and Company
Benefit Arrangement covering Cable Employees true and complete copies of (i)
all written documents comprising such plans and arrangements (including
amendments and individual agreements relating thereto); (ii) the two most
recent Federal Form 5500 series (including all schedules thereto) filed with
respect to each Cable Employee Plan; (iii) the most recent financial statements
and actuarial reports, if any, pertaining to each such plan or arrangement; and
(iv) the summary plan description currently in effect and all material
modifications thereto, if any, for each Cable Employee Plan.
(b) MULTIEMPLOYER PLANS.
(i) Neither the Company, NPJ nor any ERISA Affiliate of either of them
has incurred any unsatisfied Withdrawal Liability with respect to any
Multiemployer Plan to which the Company, NPJ or any ERISA Affiliate of
either of them is required to make or accrue a contribution or has, within
the six year period preceding the Closing Date, been required to make or
accrue a contribution, nor, to the knowledge of the Company or NPJ, is the
Company, NPJ or any ERISA Affiliate of either of them reasonably expected
to incur any Withdrawal Liability with respect to any such Multiemployer
Plan.
(ii) Neither the Company, NPJ nor any ERISA Affiliate of either of them
has been notified by the sponsor of any Multiemployer Plan to which the
Company, NPJ or any ERISA Affiliate of either of them is required to make
or accrue a contribution or has, within the six year period preceding the
Closing Date, been required to make or accrue a contribution, that such
Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA, and to the knowledge of the Company and NPJ,
no such Multiemployer Plan is reasonably expected to be in reorganization
or to be terminated, within the meaning of Title IV of ERISA.
(c) UNION WELFARE FUNDS. Neither the Company, NPJ nor any ERISA Affiliate of
either of them has incurred any liability based on withdrawal from any union-
sponsored multiemployer welfare benefit fund maintained pursuant to any Welfare
Benefit Plan to which the Company, NPJ or any ERISA Affiliate of either of them
contributes pursuant to the terms of a collective bargaining agreement.
(d) WELFARE PLANS. Neither the Company, NPJ nor any ERISA Affiliate maintains
any plan which is funded through a "welfare benefit fund" as defined in Section
419(e) of the Code.
(e) RETIREE WELFARE BENEFITS PLANS. Except as set forth in Schedule 4.12(e)
and pursuant to the provisions of COBRA, neither the Company, NPJ nor any ERISA
Affiliate of either of them maintains any Cable Employee Plan or Company
Employee Plan that provides benefits described in Section 3(l) of ERISA to any
former employees or retirees of any Cable Subsidiary. Any disclosure in
Schedule 4.12(e) shall indicate the present value of accumulated plan
liabilities calculated in a manner consistent with FAS 106 and actual annual
expense for such benefits for each of the last two years.
(f) PENSION PLANS. All Cable Employee Plans that are Pension Plans intended
to be qualified under Section 401 of the Code maintained by the Company, NPJ or
any ERISA Affiliate of either of them have received favorable determinations
with respect to such qualified status from the IRS. To the knowledge of the
Company and NPJ, nothing has occurred since such determinations to affect
adversely such determinations, and true and correct copies of such
determination letters have been made available to Acquiror.
(g) PROHIBITED TRANSACTIONS AND FIDUCIARY RESPONSIBILITY. None of the Cable
Employee Plans has participated in, engaged in or been a party to any
Prohibited Transaction which could result in the imposition of a material
liability upon the Company, NPJ or any ERISA Affiliate of either of them. To
the knowledge of the Company and NPJ, no officer, director or employee of the
Company, NPJ or any of their ERISA
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Affiliates has committed a material breach of any responsibility or obligation
imposed upon fiduciaries by Title I of ERISA with respect to any Cable Employee
Plan.
(h) REPORTING AND DISCLOSURE. Except with respect to any violation relating
to any Multiemployer Plan where such violation could not result in any
liability to the Company, NPJ or any ERISA Affiliate of either of them, there
are no material violations of any reporting or disclosure requirements under
ERISA with respect to any Cable Employee Plan.
(i) ANNUAL REPORTS. The Company has made available to Acquiror a copy of (i)
the two (2) most recently filed Federal Form 5500 series and accountant's
opinion, if applicable, for each Cable Employee Plan other than Multiemployer
Plans and (ii) the two (2) most recent actuarial valuation reports for each
Cable Employee Plan that is a Pension Plan subject to Title IV of ERISA. To the
knowledge of the Company and NPJ, all information provided by the Company or
NPJ, as applicable, to any actuary in connection with the preparation of such
actuarial valuation report was true, correct and complete in all respects.
(j) FUNDING OBLIGATIONS. No Cable Employee Plan that is a Pension Plan
subject to Title IV of ERISA (other than any Multiemployer Plan) has (i)
incurred an Accumulated Funding Deficiency, whether or not waived, (ii) an
accrued benefit obligation that exceeds the assets of the plan by more than
$50,000, determined as of the last applicable annual valuation date, using the
actuarial methods, factors and assumptions used for the most recent actuarial
report with respect to such plan, (iii) been a plan with respect to which a
Reportable Event has occurred and is continuing, or (iv) to the knowledge of
the Company and NPJ, been a plan with respect to which any termination
liability to the PBGC has been or is expected to be incurred or with respect to
which there exist conditions or events which have occurred presenting a
significant risk of termination by the PBGC.
(k) LIENS AND PENALTIES. Neither the Company, NPJ nor any of their ERISA
Affiliates has any liability with respect to any Cable Employee Plan (i) for
the termination of any Cable Employee Plan that is a single employer plan under
ERISA Section 4062 or a multiple employer plan under ERISA Section 4063, (ii)
for any lien imposed under Section 302(f) of ERISA or Section 412(n) of the
Code, (iii) for any interest payments required under Section 302(e) of ERISA or
Section 412(m) of the Code, (iv) for any excise tax imposed by Sections 4971,
4972, 4974, 4975, 4976, 4977, 4978, 4978B, 4979, 4979A, 4980 or 4980B of the
Code, or (v) for any failure to make any minimum funding contributions under
Section 302(c)(11) of ERISA or Section 412(c)(11) of the Code.
(l) ACTS OR OMISSIONS. There have been no acts or omissions with respect to
any Cable Plan by the Company or any ERISA Affiliate which have given rise to
or may give rise to fines, penalties or related charges under Sections 502 or
4071 of ERISA or Chapter 43 of the Code for which the Company or any ERISA
Affiliate may be liable.
(m) COBRA. The Company, NPJ and their ERISA Affiliates have complied in all
material respects with the provisions of COBRA with respect to all Cable
Employee Plans that are Group Health Plans.
(n) ADDITIONAL BENEFITS. Except as set forth on Schedule 4.12(n), no Cable
Employee shall accrue or receive additional benefits, service or accelerated
rights to payments of benefits under any Cable Plan or Company Benefit
Arrangement, including the right to receive any parachute payment, as defined
in Section 280G of the Code, or become entitled to severance, termination
allowance or similar payments as a direct result of the transactions
contemplated by this Agreement.
(o) CLAIMS. Other than claims for benefits in the ordinary course, there is
no claim pending or, to the knowledge of the Company or NPJ, threatened
involving any Cable Plan by any Person against such plan or the Company, NPJ or
any of their ERISA Affiliates. There is no pending or, to the knowledge of the
Company or NPJ, threatened proceeding involving any Cable Employee Plan before
the IRS, the United States Department of Labor or any other governmental
authority.
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(p) COMPLIANCE WITH LAWS; CONTRIBUTIONS. Each Cable Plan has at all times
prior hereto been maintained in all material respects, by its terms and in
operation, in accordance with all applicable Law (including Section 1862(b)(1)
of the Social Security Act). The Company, NPJ and their ERISA Affiliates have
made full and timely payment of all amounts required to be contributed under
the terms of each Cable Plan and applicable Law or required to be paid as
expenses under such Cable Plan, and the Company, NPJ and their ERISA Affiliates
shall continue to do so through the Closing, except as the Company, NPJ and
Acquiror may otherwise agree.
(q) DEFINITIONS.
(i) "Benefit Arrangement" means any material benefit arrangement that is
not an Employee Benefit Plan, including (i) any employment or consulting
agreement, (ii) any arrangement providing for insurance coverage or
workers' compensation benefits, (iii) any incentive bonus or deferred bonus
arrangement, (iv) any arrangement providing termination allowance,
severance or similar benefits, (v) any equity compensation plan, (vi) any
deferred compensation plan and (vii) any compensation policy and practice.
(ii) "Cable Benefit Arrangement" means any Benefit Arrangement that
covers exclusively one or more of the employees, former employees,
directors and former directors of the Cable Subsidiaries and the
beneficiaries of any of them.
(iii) "Cable Employee" means any employee or former employee of any Cable
Subsidiary.
(iv) "Cable Employee Plan" means any Employee Benefit Plan that is
sponsored or contributed to by the Company, NPJ or any ERISA Affiliate of
either of them that covers any Cable Employees.
(v) "Cable Plan" means any Cable Employee Plan or Cable Benefit
Arrangement.
(vi) "Company Benefit Arrangement" means any Benefit Arrangement covering
any employees, former employees, directors or former directors of the
Company, NPJ or the ERISA Affiliates of either of them, and the
beneficiaries of any of them, other than any Cable Benefit Arrangement.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and NPJ as follows (such
representations and warranties to be effective as of November 18, 1994 and the
schedules to the Original Agreement shall be the schedules to this Agreement):
5.1 ORGANIZATION AND AUTHORITY. Acquiror and each of its corporate
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation. Acquiror and its
Subsidiaries have all requisite power and authority to own, lease and operate
their properties and to carry on their business as now being conducted, except
where the failure to have such power or authority would not have a Material
Adverse Effect on Acquiror and its Subsidiaries taken a whole. Acquiror has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. All necessary action,
corporate or otherwise, required to have been taken by or on behalf of Acquiror
by applicable Law, its charter documents or otherwise to authorize (i) the
approval, execution and delivery on behalf of Acquiror of this Agreement and
(ii) the performance by Acquiror of its obligations under the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby has been taken, except that the Merger Transactions and the
Recapitalization Amendment must be approved by the stockholders of Acquiror to
the extent described in Section 5.5. Each Transaction Document to which
Acquiror is or will be a party constitutes or will constitute, as the case may
be, a valid and binding agreement of Acquiror, enforceable against it in
accordance with its terms, subject to the Enforceability Exceptions.
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5.2 NO BREACH OR CONFLICT. The execution and delivery of each Transaction
Document to which it is or will be a party by Acquiror does not or will not, as
the case may be, and the consummation of the transactions contemplated hereby
and thereby by Acquiror will not, (i) violate or conflict with the Certificate
of Incorporation of Acquiror (as in effect on November 18, 1994 and after
giving effect to the Recapitalization Amendment) or the Acquiror Restated By-
Laws; (ii) except as set forth on Schedule 5.2 hereto and except for the
approvals described in Section 5.3 hereof, constitute a breach or default (or
an event that with notice or lapse of time or both would become a breach or
default) of, result in the creation or imposition of any Lien upon the property
or assets of Acquiror or its Subsidiaries, give rise to any third party right
of termination, cancellation, material modification or acceleration under, or
require any approval, waiver or consent under, any note, bond, mortgage,
pledge, indenture, deed of trust, lease, agreement, indemnity, obligation,
commitment or instrument to which Acquiror or any of its Subsidiaries is a
party or by which any of them or their respective properties or assets is
bound, except as would not result in a Material Adverse Effect on Acquiror and
its Subsidiaries taken as a whole; or (iii) subject to obtaining the approvals
and making the filings described in Section 5.3 hereof, violate any Law,
judgment, decree, order or writ of any judicial, arbitral, public, or
governmental authority having jurisdiction over Acquiror, any of its
Subsidiaries or any of their respective properties or assets except as would
not result in a Material Adverse Effect on Acquiror and its Subsidiaries taken
as a whole.
5.3 CONSENTS AND APPROVALS. Neither the execution and delivery by Acquiror of
each Transaction Document to which it is, or will be, a party nor the
consummation of the transactions contemplated hereby and thereby will require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except for (i)
filings required under the Securities Act, (ii) filings required under the
Exchange Act, (iii) filings under state securities or "blue sky" laws, (iv) the
filing of a premerger notification report pursuant to, and expiration or
termination of the waiting period under, the HSR Act, (v) the filing of the
Certificate of Merger with the Secretaries of State of Washington and Delaware,
the Recapitalization Amendment with the Secretary of State of Delaware and
appropriate documents with the relevant authorities of other states in which
Acquiror and its Subsidiaries are qualified to do business, (vi) such FCC
Approvals as may be required in connection with FCC Licenses of Acquiror and
its Subsidiaries, (vii) such Local Approvals as may be required in connection
with the Franchises to operate the cable television systems of Acquiror and its
Subsidiaries, and (viii) such other consents or filings as, if not obtained or
made, would not have a Material Adverse Effect on Acquiror and its Subsidiaries
taken as a whole or as would not prevent Acquiror from performing its
obligations under each Transaction Document to which it is a party.
5.4 APPROVAL OF THE BOARD. The Board of Directors of Acquiror has, by
resolutions duly adopted at a meeting duly called and held, unanimously
approved and adopted this Agreement, the Merger Transactions, the
Recapitalization Amendment and the other transactions contemplated hereby on
the terms and conditions set forth herein.
5.5 VOTE REQUIRED. The affirmative vote or action by written consent of a
majority of the votes that holders of the outstanding shares of Acquiror Common
Stock (treating the Acquiror Series A Preferred Stock as if it were converted
into Acquiror Class B Common Stock), voting together as a class, are entitled
to cast is the only vote of the holders of any class or series of the capital
stock of Acquiror necessary to approve the Merger Transactions under applicable
Law and the Certificate of Incorporation of Acquiror (as in effect on November
18, 1994 and after giving effect to the Recapitalization Amendment) or the
Acquiror Restated By-Laws. The affirmative vote or action by written consent of
Sixty-Six and Two-Thirds percent of the votes that holders of the outstanding
shares of Acquiror Common Stock (treating the Acquiror Series A Preferred Stock
as if it were converted into Acquiror Class B Common Stock), voting together as
a class, are entitled to cast is the only vote of the holders of any class or
series of the capital stock of Acquiror necessary to approve the
Recapitalization Amendment.
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5.6 CAPITALIZATION. (a) As of November 18, 1994, the authorized capital stock
of Acquiror consists of (i) 7,500,000 shares of Acquiror Class A Common Stock,
(ii) 7,500,000 shares of Acquiror Class B Common Stock, and (iii) 2,700,000
shares of Preferred Stock, 1,142,858 shares of which have been designated
Series A Participating Convertible Preferred Stock (the "Acquiror Series A
Preferred Stock"), the terms of which are set forth in the Certificate of
Designation filed by Acquiror with the Secretary of State of the State of
Delaware on June 16, 1992. As of November 18, 1994, there are 345,348 shares of
Acquiror Class A Common Stock, 4,277,092 shares of Acquiror Class B Common
Stock and 1,142,858 shares of Acquiror Series A Preferred Stock issued and
outstanding. As a result of the Recapitalization Amendment, the authorized
capitalization of Acquiror as of the Closing Date will consist of not less
than: 187,500,000 shares of Acquiror Class A Common Stock, 187,500,000 shares
of Acquiror Class B Common Stock, and 6,000,000 shares of Preferred Stock. All
such shares outstanding on November 18, 1994 are, and any shares that will be
issued under the Acquiror Restated Certificate, when issued, will be, duly
authorized, validly issued and fully paid and nonassessable. Other than in
connection with the transactions contemplated by this Agreement and except as
set forth in Schedule 5.6(a), there are no outstanding options, warrants,
rights, puts, calls, commitments, or other contracts, arrangements, or
understandings issued by or binding upon Acquiror or any of its Subsidiaries
requiring or providing for, and there are no outstanding debt or equity
securities of Acquiror or any of its Subsidiaries which upon the conversion,
exchange or exercise thereof would require or provide for the issuance by
Acquiror or any of its Subsidiaries of any new or additional equity interests
in Acquiror or any of its Subsidiaries (or any other securities of Acquiror
which, with notice, lapse of time and/or payment of monies, are or would be
convertible into or exercisable or exchangeable for equity interests in
Acquiror or any of its Subsidiaries). There are no preemptive or other similar
rights available to the existing holders of the capital stock of Acquiror.
Except as set forth on Schedule 5.6(a), there are no voting trusts or other
agreements or understandings to which Acquiror is a party with respect to the
voting of capital stock of Acquiror.
(b) Schedule 5.6(b) sets forth the name, jurisdiction of organization and the
percentage of each class of capital stock, partnership interests or other
equity interests of each of Acquiror's Subsidiaries owned by Acquiror or one of
its Subsidiaries. All outstanding shares of the capital stock of each
Subsidiary have been duly authorized, validly issued and are fully paid and
nonassessable.
(c) The shares of Acquiror Class A Common Stock and Acquiror Preferred Stock,
if any, to be issued in the Merger, upon their issuance in accordance with the
terms hereof, will be duly authorized, validly issued, fully paid and
nonassessable.
5.7 FINANCIAL STATEMENTS. The consolidated balance sheets of the Acquiror and
its Subsidiaries and the notes thereto as of December 31, 1993, 1992 and 1991
and consolidated statements of income, shareholder's equity and cash flows and
the notes thereto for the three fiscal years ended December 31, 1993, 1992 and
1991 certified by Deloitte & Touche LLP, whose reports thereon are included
therewith, and the unaudited condensed consolidated balance sheet of the
Acquiror and its Subsidiaries as of the Balance Sheet Date (the "Acquiror
Balance Sheet") and unaudited consolidated statements of income and cash flow
for the nine months then ended, were prepared in accordance with GAAP and
present fairly as of their respective dates, in all material respects, the
consolidated financial position of Acquiror and its Subsidiaries as at the
dates thereof and the consolidated results of their operations and their
consolidated cash flows for each of the respective periods covered thereby, in
conformity with GAAP.
5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on Schedule 5.8,
neither Acquiror nor any of its Subsidiaries has any indebtedness, liability or
obligation of the type required by GAAP to be reflected on a consolidated
balance sheet of Acquiror or in the notes, schedules or exhibits thereto, that
is not reflected or reserved against in the Acquiror Balance Sheet , and since
the Balance Sheet Date, neither Acquiror nor any of its Subsidiaries has
incurred any such liabilities or obligations other than in the ordinary course
of business.
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5.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule 5.9 or in
Acquiror's Annual Report on Form 10-K for the year ended December 31, 1993,
since the Balance Sheet Date, Acquiror and its Subsidiaries have conducted
their business operations in the ordinary course and there has not occurred
(i) any Material Adverse Effect on Acquiror and its Subsidiaries taken as a
whole except for Material Adverse Effects due to general economic or industry-
wide conditions (including, without limitation, determinations by the FCC or
local franchising authorities affecting or applicable to the offering or
packaging of a la carte channels or cost-of-service showings and any rate
adjustments pursuant to such determinations), or (ii) other events or
conditions of any character that, individually or in the aggregate, have or
would reasonably be expected to have, a Material Adverse Effect on Acquiror and
its Subsidiaries taken as a whole or on the ability of Acquiror to perform its
material obligations under the Transaction Documents to which it is a party.
5.10 COMPLIANCE WITH LAWS. (a) Each of Acquiror and its Subsidiaries holds
all Franchises and Licenses necessary for the lawful conduct of its business,
except where the failure to hold any such Franchise or License would not have a
Material Adverse Effect on Acquiror and its Subsidiaries taken as a whole. To
Acquiror's knowledge, none of Acquiror or any of its Subsidiaries has violated,
nor is Acquiror or are any of them in violation of, any such Franchises or
Licenses or any applicable Law (including, without limitation, any of the
foregoing related to occupational safety, storage, disposal, discharge into the
environment of hazardous wastes, environmental protection, conservation, unfair
competition, labor practices or corrupt practices), except where such
violations do not, and insofar as reasonably can be foreseen will not, have a
Material Adverse Effect on Acquiror and its Subsidiaries taken as a whole, and
neither Acquiror nor any of its Subsidiaries has received any notice from a
governmental or regulatory authority within three years of November 18, 1994 of
any such violation.
(b) Each Subsidiary of Acquiror has made all submissions (including, without
limitation, registration statements) required under the Communications Act, and
has, to Acquiror's knowledge, obtained all necessary FCC authorizations,
Licenses, registrations, permits and tower approvals. The cable television
systems of Acquiror's Subsidiaries have complied in all material respects with
the Communications Act.
5.11 FRANCHISES AND MATERIAL AGREEMENTS.
(a) As of September 30, 1994, the cable television systems owned by
Acquiror's Subsidiaries (i) had approximately 2,890,000 Basic Subscribers and
2,493,000 premium subscriptions and (ii) passed approximately 5,055,000
dwelling units. Each Franchise of Acquiror's Subsidiaries and each other
agreement, contract or arrangement which is material to the ownership and
operation of the cable systems of Acquiror's Subsidiaries to which any Acquiror
Subsidiary is a party or by which any of its properties or assets are bound
(the "Acquiror Material Cable Agreements") is the validly existing, legally
enforceable obligation of each Acquiror Subsidiary party thereto and, to the
knowledge of Acquiror, of the other parties thereto, subject to the
Enforceability Exceptions. Each Acquiror Subsidiary is validly and lawfully
operating under its Franchises and the Acquiror Material Cable Agreements to
which it is a party, and each Acquiror Subsidiary has duly complied in all
material respects with all of the terms and conditions of each of its
Franchises and each Acquiror Material Cable Agreement to which it is a party.
(b) Except as previously disclosed to the Company in writing, no Person
(including any governmental authority) has any right to acquire any interest in
any cable television system or assets of Acquiror or its Subsidiaries
(including any right of first refusal or similar right), other than rights of
condemnation or eminent domain afforded by Law and, to the knowledge of
Acquiror, no other Person (i) has been granted or has applied for the consent
or approval of any governmental authority for the installation, construction,
development, ownership, or operation of a cable television system (as defined
in the Cable Communications Policy Act of 1984, as amended) within all or part
of the geographic area served by any cable television system of Acquiror or its
Subsidiaries or (ii) operates, or has commenced the construction, installation
or development of, any cable television system (as defined in the Cable
Communications Policy Act of 1984, as amended) within all or part of the
geographic area served by any cable television system of Acquiror's
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Subsidiaries, regardless of whether the consent or approval of any governmental
authority is required or has been obtained.
(c) Neither Acquiror nor any of its Subsidiaries has made any material
commitments in writing to any state, municipal, local or other governmental
commission, agency or body with respect to the operation and construction of
their respective cable systems which are not fully reflected in the Franchises
or any Acquiror Material Cable Agreement. Neither Acquiror nor any of its
Subsidiaries has entered into any written agreements with community groups or
similar third parties restricting or limiting the types of programming that may
be shown on such systems.
(d) No Franchising Authority has advised Acquiror or any of its Subsidiaries
in writing, or otherwise formally notified Acquiror or any of its Subsidiaries
in accordance with the terms of the applicable Franchise, of its intention to
deny renewal of an existing Franchise. Acquiror and its Subsidiaries have
timely filed notices of renewal in accordance with the Communications Act with
all Franchising Authorities with respect to each Franchise expiring within 36
months after the date of this Agreement. Such notices of renewal have been
filed pursuant to the formal renewal procedures established by Section 626(a)
of the Communications Act. As of the Closing Date, (i) Acquiror will have
maintained a controlling ownership in each system in its entirety for at least
36 consecutive months following the initial construction or acquisition of each
such system by Acquiror or an Acquiror Subsidiary, or (ii) the consummation of
the transactions contemplated by this Agreement will not otherwise violate the
three-year holding period requirement set forth in Section 617 of the
Communications Act and the FCC rules and regulations promulgated thereunder.
(e) Acquiror and its Subsidiaries are operating the systems in compliance in
all material respects with the provisions of the Communications Act and the
rules and regulations of the FCC relating to carriage of signals, syndicated
exclusivity, network non-duplication, and retransmission consent except where
the failure to comply would not, individually or in the aggregate, result in a
Material Adverse Effect on Acquiror and its Subsidiaries taken as a whole. No
written notices or demands have been received from any television station or
from any other Person claiming to have a right, or objecting to or challenging
the right of the systems, to carry any signal or deliver the same, or
challenging the channel position on which any television station is carried.
(f) Schedule 5.11(f) indicates which television signals carried by the
systems are carried without retransmission consent agreements (other than
stations which have elected must-carry status). For each commercial television
signal on each system that has elected must-carry status, but that is not being
carried because of signal quality problems or potential copyright liability,
Schedule 5.11(f) lists the signal and the reason for non-carriage.
(g) Acquiror has made available to the Company true, correct, and complete
specimen copies of (i) all FCC Forms 393, 1200, 1205, 1210, 1215 and 1220s that
have been prepared with respect to the systems, (ii) all material
correspondence with any governmental body, subscriber, or other interested
party relating to rate regulation generally or specific rates charged to
subscribers of the systems, including, without limitation, any complaints filed
with the FCC with respect to any rates charged to subscribers of the systems,
and (iii) any documentation supporting an exemption from the rate regulation
provisions of the Communications Act claimed by Acquiror or a Subsidiary of
Acquiror with respect to the systems. Schedule 5.11(g) sets forth (i) a list of
all complaints filed pursuant to the Communications Act and received by
Acquiror or any of its Subsidiaries which have not been deemed invalid by the
FCC, and further sets forth those Franchises that have been certified or, to
Acquiror's knowledge, filed for certification under the Communications Act with
respect to rate regulation and (ii) a list of all letters of inquiry from the
FCC received by Acquiror or any Subsidiary of Acquiror since September 1, 1993
with regard to rate restructuring.
5.12 TAX MATTERS.
(a) All Tax Returns required to be filed by Acquiror or any of its
Subsidiaries on or before November 18, 1994 have been filed with the
appropriate governmental agencies in all jurisdictions in which such Tax
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Returns are required to be filed; all of the foregoing Tax Returns are true,
correct and complete in all material respects; and all Taxes required to have
been paid in connection with such Tax Returns have been paid. All material
Taxes payable by or with respect to Acquiror and its Subsidiaries but not
reflected on any Tax Return required to be filed prior to the Balance Sheet
Date have been fully paid or adequate provision therefor has been made and
reflected on the Acquiror Balance Sheet.
(b) Except as set forth on Schedule 5.12 hereto, there is no claim or
investigation involving an amount greater than $250,000 pending or threatened
against Acquiror or any of its Subsidiaries for past Taxes, and adequate
provision for the claims or investigations set forth on Schedule 5.12 has been
made as reflected on Acquiror's financial statements. Except as set forth on
Schedule 5.12, Acquiror and its Subsidiaries have not waived or extended any
applicable statute of limitations relating to the assessment of federal, state
or local Taxes relating to Acquiror.
5.13 LITIGATION. There is no suit, action, proceeding or investigation
pending or, to the knowledge of Acquiror, threatened against or affecting
Acquiror or any of its Subsidiaries (except for proceedings or investigations
affecting the cable television industry generally) that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Acquiror and its Subsidiaries taken as a whole, or prevent, hinder, or
materially delay the ability of Acquiror to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, inquiry,
rule or order outstanding against Acquiror or any of its Subsidiaries which,
insofar as can reasonably be foreseen, would have any such effect in the
future.
5.14 TITLE TO PROPERTIES; ENCUMBRANCES. Acquiror and its Subsidiaries are the
exclusive holders of all rights in or to all real and personal, tangible and
intangible, property and assets of Acquiror and its Subsidiaries (other than
any such assets held pursuant to leases or licenses) used or useful in the
ownership and operation of the cable television systems which are wholly owned
by Acquiror or any of its Subsidiaries. Except as set forth on Schedule 5.14,
each of Acquiror and its Subsidiaries has good and valid title to its
respective assets, free and clear of all defects and Liens except: (a)
materialmen's, mechanics', carriers', workmen's, warehousemen's, repairmen's,
or other like Liens arising in the ordinary course of business, or deposits to
obtain the release of such Liens; (b) Liens for current taxes not yet due and
payable; and (c) Liens or minor imperfections of title that do not interfere
with the use or detract from the value of such property and, taken in the
aggregate, would not have a Material Adverse Effect on Acquiror and its
Subsidiaries taken as a whole. Except as would not result in any Material
Adverse Effect on Acquiror and its Subsidiaries taken as a whole, each of
Acquiror and its Subsidiaries owns or has the lawful right to use all assets,
properties, operating rights, easements, contracts, leases, and other
instruments necessary to operate its business lawfully and to maintain the same
as presently conducted.
5.15 EMPLOYEE BENEFITS; ERISA MATTERS.
(a) ACQUIROR BENEFIT PLANS AND ACQUIROR BENEFIT ARRANGEMENTS. Schedule
5.15(a) lists each Acquiror Employee Plan and Acquiror Benefit Arrangement.
Acquiror has made available to the Company and NPJ with respect to each
Acquiror Employee Plan and Acquiror Benefit Arrangement true and complete
copies of (i) all written documents comprising such plans and arrangements
(including amendments and individual agreements relating thereto); (ii) the two
most recent Federal Form 5500 series (including all schedules thereto) filed
with respect to each Acquiror Employee Plan; (iii) the most recent financial
statements and actuarial reports, if any, pertaining to each such plan or
arrangement; and (iv) the summary plan description currently in effect and all
material modifications thereto, if any, for each Acquiror Employee Plan.
(b) MULTIEMPLOYER PLANS.
(i) Neither Acquiror nor any of its ERISA Affiliates has incurred any
unsatisfied Withdrawal Liability with respect to any Multiemployer Plan to
which the Acquiror or any of its ERISA Affiliates is required to make or
accrue a contribution or has, within the six year period preceding the
Closing Date, been required to make or accrue a contribution, nor, to the
knowledge of Acquiror, is Acquiror or
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any of its ERISA Affiliates reasonably expected to incur any Withdrawal
Liability with respect to any such Multiemployer Plan.
(ii) Neither Acquiror nor any of its ERISA Affiliates has been notified
by the sponsor of any Multiemployer Plan to which Acquiror or any of its
ERISA Affiliates is required to make or accrue a contribution or has,
within the six year period preceding the Closing Date, been required to
make or accrue a contribution, that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of
ERISA, and to the knowledge of Acquiror, no such Multiemployer Plan is
reasonably expected to be in reorganization or to be terminated, within the
meaning of the Title IV of ERISA.
(c) UNION WELFARE FUNDS. Neither Acquiror nor any of its ERISA Affiliates has
incurred any liability based on withdrawal from any union-sponsored
multiemployer welfare benefit fund maintained pursuant to any Welfare Benefit
Plan to which Acquiror or any of its ERISA Affiliates contributes pursuant to
the terms of a collective bargaining agreement.
(d) WELFARE PLANS. Neither Acquiror nor any of its ERISA Affiliates maintains
any plan which is funded through a "welfare benefit fund" as defined in Section
419(e) of the Code.
(e) RETIREE WELFARE BENEFITS PLANS. Except as set forth in Schedule 5.15(e)
and pursuant to the provisions of COBRA, neither Acquiror nor any of its ERISA
Affiliates maintains any Acquiror Employee Plan that provides benefits
described in Section 3(l) of ERISA to any former employees or retirees of
Acquiror. Any disclosure in Schedule 5.15(e) shall indicate the present value
of accumulated plan liabilities calculated in a manner consistent with FAS 106
and actual annual expense for such benefits for each of the last two years.
(f) PENSION PLANS. All Acquiror Employee Plans that are Pension Plans
intended to be qualified under Section 401 of the Code maintained by Acquiror
or any of its ERISA Affiliates have received favorable determinations with
respect to such qualified status from the IRS. To the knowledge of Acquiror,
nothing has occurred since such determinations to affect adversely such
determinations, and true and correct copies of such determination letters have
been made available to the Company and NPJ.
(g) PROHIBITED TRANSACTIONS AND FIDUCIARY RESPONSIBILITY. None of the
Acquiror Employee Plans has participated in, engaged in or been a party to any
Prohibited Transaction which could result in the imposition of a material
liability upon Acquiror or any of its ERISA Affiliates. To the knowledge of
Acquiror, no officer, director or employee of Acquiror or any of its ERISA
Affiliates has committed a material breach of any responsibility or obligation
imposed upon fiduciaries by Title I of ERISA with respect to any Acquiror
Employee Plan.
(h) REPORTING AND DISCLOSURE. Except with respect to any violation relating
to any Multiemployer Plan where such violation could not result in any
liability to Acquiror or any of its ERISA Affiliates, there are no material
violations of any reporting or disclosure requirements under ERISA with respect
to any Acquiror Employee Plan.
(i) ANNUAL REPORTS. Acquiror has made available to the Company and NPJ a copy
of (i) the two (2) most recently filed Federal Form 5500 series and
accountant's opinion, if applicable, for each Acquiror Employee Plan other than
Multiemployer Plans and (ii) the two (2) most recent actuarial valuation
reports for each Acquiror Employee Plan that is a Pension Plan subject to Title
IV of ERISA. To the knowledge of Acquiror, all information provided by Acquiror
to any actuary in connection with the preparation of such actuarial valuation
report was true, correct and complete in all respects.
(j) FUNDING OBLIGATIONS. No Acquiror Employee Plan that is a Pension Plan
subject to Title IV of ERISA (other than any Multiemployer Plan) has (i)
incurred an Accumulated Funding Deficiency, whether
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or not waived, (ii) an accrued benefit obligation that exceeds the assets of
the plan by more than $50,000, determined as of the last applicable annual
valuation date, using the actuarial methods, factors and assumptions used for
the most recent actuarial report with respect to such plan, (iii) been a plan
with respect to which a Reportable Event has occurred and is continuing, or
(iv) to the knowledge of Acquiror, been a plan with respect to which any
termination liability to the PBGC has been or is expected to be incurred or
with respect to which there exist conditions or events which have occurred
presenting a significant risk of termination by the PBGC.
(k) LIENS AND PENALTIES. Neither Acquiror nor any of its ERISA Affiliates has
any liability with respect to any Acquiror Employee Plan (i) for the
termination of any Acquiror Employee Plan that is a single employer plan under
ERISA Section 4062 or a multiple employer plan under ERISA Section 4063, (ii)
for any lien imposed under Section 302(f) of ERISA or Section 412(n) of the
Code, (iii) for any interest payments required under Section 302(e) of ERISA or
Section 412(m) of the Code, (iv) for any excise tax imposed by Sections 4971,
4972, 4974, 4975, 4976, 4977, 4978, 4978B, 4979, 4979A, 4980 or 4980B of the
Code, or (v) for any failure to make any minimum funding contributions under
Section 302(c)(11) of ERISA or Section 412(c)(11) of the Code.
(l) ACTS OR OMISSIONS. There have been no acts or omissions with respect to
any Acquiror Plan by Acquiror or any of its ERISA Affiliates which have given
rise to or may give rise to fines, penalties or related charges under Sections
502 or 4071 of ERISA or Chapter 43 of the Code for which the Acquiror or any of
its ERISA Affiliates may be liable.
(m) COBRA. The Acquiror and its ERISA Affiliates have complied in all
material respects with the provisions of COBRA with respect to all Acquiror
Employee Plans that are Group Health Plans.
(n) ADDITIONAL BENEFITS. Except as set forth on Schedule 5.15(n), no Acquiror
Employee shall accrue or receive additional benefits, service or accelerated
rights to payments of benefits under any Acquiror Plan or Acquiror Benefit
Arrangement, including the right to receive any parachute payment, as defined
in Section 280G of the Code, or become entitled to severance, termination
allowance or similar payments as a direct result of the transactions
contemplated by this Agreement.
(o) CLAIMS. Other than claims for benefits in the ordinary course, there is
no claim pending or, to the knowledge of Acquiror, threatened involving any
Acquiror Plan by any Person against such plan or Acquiror or any of its ERISA
Affiliates. There is no pending or, to the knowledge of Acquiror, threatened
proceeding involving any Acquiror Employee Plan before the IRS, the United
States Department of Labor or any other governmental authority.
(p) COMPLIANCE WITH LAWS; CONTRIBUTIONS. Each Acquiror Plan has at all times
prior hereto been maintained in all material respects, by its terms and in
operation, in accordance with all applicable Law (including Section 1862(b)(1)
of the Social Security Act). Acquiror and its ERISA Affiliates have made full
and timely payment of all amounts required to be contributed under the terms of
each Acquiror Plan and applicable Law or required to be paid as expenses under
such Acquiror Plan, and Acquiror and its ERISA Affiliates shall continue to do
so through the Closing, except as the Company, NPJ and Acquiror may otherwise
agree.
(q) DEFINITIONS.
(i) "Acquiror Benefit Arrangement" means any material benefit arrangement
that is not an Employee Benefit Plan, including (i) any employment or
consulting agreement, (ii) any arrangement providing for insurance coverage
or workers' compensation benefits, (iii) any incentive bonus or deferred
bonus arrangement, (iv) any arrangement providing termination allowance,
severance or similar benefits, (v) any equity compensation plan, (vi) any
deferred compensation plan and (vii) any compensation policy and practice
maintained by Acquiror or any of its ERISA Affiliates covering any
employees, former
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employees, directors or former directors of Acquiror or its ERISA
Affiliates, and the beneficiaries of any of them.
(ii) "Acquiror Employee" means any employee or former employee of
Acquiror or any of its Subsidiaries.
(iii) "Acquiror Employee Plan" means any Employee Benefit Plan that is
sponsored or contributed to by Acquiror or any of its ERISA Affiliates that
covers any employees or former employees of Acquiror or its ERISA
Affiliates.
(iv) "Acquiror Plan" means any Acquiror Employee Plan or Acquiror Benefit
Arrangement.
5.16 LABOR MATTERS. (a) Except as set forth on Schedule 5.16(a), neither
Acquiror nor any of its Subsidiaries is party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of Acquiror or any of its Subsidiaries.
(b) Except as set forth on Schedule 5.16(b), (i) no employees of Acquiror or
any of its Subsidiaries are represented by any labor organization and (ii) as
of November 18, 1994, no labor organization or group of employees of Acquiror
or any of its Subsidiaries has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or, to the
knowledge of Acquiror, threatened to be brought or filed, with the NLRB or any
other labor relations tribunal or authority. To the knowledge of Acquiror,
there are no formal organizing activities involving a material number of
employees of Acquiror or any of its Subsidiaries pending with, or threatened
by, any labor organization.
(c) Except as would not result in a Material Adverse Effect on Acquiror and
its Subsidiaries taken as a whole, (i) there are no strikes, work stoppages,
slowdowns, lockouts, material arbitrations or material grievances or other
material labor disputes pending or, to the knowledge of Acquiror, threatened
against or involving Acquiror or any of its Subsidiaries and (ii) there are no
unfair labor practice charges, grievances or complaints pending or, to the
knowledge of Acquiror, threatened by or on behalf of any employee or group of
employees of Acquiror or any of its Subsidiaries.
5.17 FULL DISCLOSURE. All of the statements made by Acquiror in this
Agreement (including, without limitation, the representations and warranties
made by Acquiror herein and in the schedules and exhibits hereto which are
incorporated by reference herein and which constitute an integral part of this
Agreement) do not (and on the Closing Date shall not) include or contain any
untrue statement of a material fact, and do not (and on the Closing Date shall
not) omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.18 BROKERS AND FINDERS. Neither Acquiror nor any of its officers,
directors, employees or Affiliates has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated herein, except that Acquiror has
employed Lazard Freres & Co. as its financial advisor and for whose fees and
expenses Acquiror is responsible.
ARTICLE 6.
OTHER AGREEMENTS
6.1 NO SOLICITATION. Neither the Company nor any of its Subsidiaries,
officers, directors, representatives and agents shall, directly or indirectly,
knowingly encourage, solicit, initiate or, except if the Company Board of
Directors determines, with the written advice of outside counsel, that it is
required to do so in the exercise of its fiduciary duties, participate in any
way in discussions or negotiations with, or knowingly provide any confidential
information to, any Person (other than Acquiror or any Affiliate or associate
of Acquiror and
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their respective directors, officers, employees, representatives and agents)
concerning any merger, consolidation, share exchange or similar transaction
involving the Company or any of the Cable Subsidiaries or any purchase of any
portion of the operating assets of (other than in the ordinary course of
business), or any equity interests in, the Cable Subsidiaries; PROVIDED,
HOWEVER, that nothing contained in this Section 6.1 shall prohibit the Company
Board of Directors from (i) taking and disclosing to the Company's stockholders
a position with respect to a tender offer for Company Common Stock by a third
party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act,
(ii) making such disclosure to the Company's stockholders as, in the judgment
of the Company Board of Directors, with the written advice of outside counsel,
may be required under applicable Law, or (iii) responding to any unsolicited
proposal or inquiry by advising the Person making such proposal or inquiry of
the terms of this Section 6.1. The Company will promptly communicate to
Acquiror the fact that it has received any proposal or inquiry in respect of
any such transaction, or of any such information requested from it or of any
such negotiations or discussions being sought to be initiated with the Company
and will furnish Acquiror with a true and complete copy of any proposal that
the Board of Directors of the Company has determined is a Superior Proposal (as
defined below). Notwithstanding anything to the contrary set forth herein, the
Board of Directors of the Company may respond to any Superior Proposal and may
provide information to, and negotiate with, any Person, group or entity in
connection therewith if the Board of Directors of the Company determines, with
the advice of outside counsel, that it is required to do so in the exercise of
its fiduciary duties. For purposes of this Section 6.1, a "Superior Proposal"
means a BONA FIDE, written, unsolicited proposal relating to a possible
transaction described in this Section 6.1 by any Person other than Acquiror
that, in the reasonable good faith judgment of the Board of Directors of the
Company, with the advice of outside financial advisers, is reasonably likely to
be consummated and is financially more favorable to the stockholders of the
Company than the terms of the transactions contemplated by this Agreement.
6.2 Conduct of Business of the Company; Ownership of Cable Subsidiaries.
(a) Except as contemplated by this Agreement and except for the Company's
operation of the Palmer Systems which shall be governed by the provisions of
Section 6.3, during the period from November 18, 1994 to the Effective Time,
none of the Company, Holding or Broadcasting shall, without the prior written
consent of Acquiror:
(i) amend its Articles of Incorporation or Certificate of Incorporation,
as the case may be, or By-laws or the Rights Agreement;
(ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any of its capital
stock, except (A) on the part of the Company, for dividends declared and
paid, or redemptions or other acquisitions made, consistent with the
principles and restrictions described on Schedule 6.2(a) or in connection
with the Units Plan, the Stock Plan, the Directors Option Plan and the
Option Plan and (B) that Holding and Broadcasting may from time to time
declare dividends to their respective stockholders; PROVIDED, HOWEVER, that
(I) if Acquiror elects to issue Acquiror Preferred Stock and (II) the
Company elects to grant to its stockholders the right to make a Preferred
Stock Election, no such redemption or acquisition of the Company's capital
stock may be made after the Preferred Stock Election;
(iii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution of any shares of its capital stock;
(iv) except to the extent transferred to NPJ pursuant to Section 2.5 and
the Contribution Agreement, make any acquisition of the assets of any
Person, except through a Subsidiary other than a Cable Subsidiary;
(v) except to the extent any of the following are transferred to or
assumed by NPJ pursuant to Section 2.5 and the Contribution Agreement, (i)
create, incur or assume any long-term debt not currently outstanding
(including obligations in respect of capital leases), (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations
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of any other Person, (iii) enter into any material agreement, commitment or
understanding, (iv) make any acquisition of the stock or other equity
interests, by means of merger, consolidation or otherwise, of any Person or
(v) make any loans, advances or capital contributions to, or investments
in, any Person other than a Subsidiary;
(vi) issue, sell, deliver or agree to commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any other equity securities or amend any of the terms of any
such securities or agreements outstanding on November 18, 1994, PROVIDED
THAT a maximum of one thousand (1,000) shares of Company Common Stock in
the aggregate may be issued with respect to the Stock Plan and the Units
Plan and a maximum of four thousand (4,000) shares of Company Common Stock
may be issued in connection with each of the Option Plan and the Directors
Option Plan;
(vii) terminate, amend, modify or waive compliance with any of the
provisions, terms or conditions of the Contribution Agreement directly or
indirectly respecting the Retained Assets or the Retained Liabilities or
affecting the rights or obligations of Broadcasting from and after the
Effective Time; or
(viii) take, or agree in writing or otherwise to take, any of the
foregoing actions or any actions that would (a) make any representation or
warranty of the Company or NPJ contained in this Agreement untrue or
incorrect as of the date when made or as of the Closing Date, (b) result in
any of the conditions to Closing in Article 7 of this Agreement not being
satisfied or (c) be inconsistent with the terms of this Agreement or the
transactions contemplated hereby.
(b) The Company covenants and agrees to use its best efforts to cause all of
the Cable Subsidiaries to be wholly owned, directly or indirectly, by the
Company on or prior to the Effective Date.
6.3 CONDUCT OF BUSINESS OF THE CABLE SUBSIDIARIES. Except as contemplated by
this Agreement, during the period from November 18, 1994 to the Effective Time,
the Company shall conduct its operation of the Palmer Systems, and shall cause
the Cable Subsidiaries to conduct their operations, according to their ordinary
and usual course of business consistent with past practices. Without limiting
the generality of the foregoing, except as otherwise contemplated by this
Agreement, without the prior written consent of Acquiror, the Company shall not
permit any Cable Subsidiary to:
(a) amend its charter or By-laws or alter through merger, liquidation,
dissolution, reorganization, restructuring or in any other fashion the
ownership of any Cable Subsidiary except as permitted by this Agreement;
(b) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any other equity securities or amend any of the terms of any
such securities or agreements outstanding on November 18, 1994;
(c) declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its
capital stock, or redeem or otherwise acquire any of its securities;
PROVIDED, HOWEVER, that (i) any Cable Subsidiary may declare and pay
dividends to any other Cable Subsidiary, and (ii) the Cable Subsidiaries
may declare and pay dividends to the Company in an aggregate amount not to
exceed the Cable Subsidiaries' consolidated adjusted net income for the
period from November 18, 1994 to the Closing Date; for purposes of this
paragraph, the Cable Subsidiaries' consolidated adjusted net income for
such period means the Cable Subsidiaries' consolidated net income,
determined in accordance with GAAP, (i) increased by the sum of the amount
of depreciation and amortization deductions taken during such period, and
the amount of accrued but unpaid Company Consolidated Income Taxes deducted
in calculating the Cable Subsidiaries' consolidated net income to the
extent not otherwise paid pursuant to tax sharing arrangements, and (ii)
decreased by the sum of (A) the greater of (x) the amount of capital
expenditures to be made during such period in accordance with the capital
expenditure budget attached as Schedule 6.3(g) or (y) the amount of capital
expenditures actually made by the Cable Subsidiaries during such period;
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(d)(i) create, incur or assume any long-term debt not currently
outstanding (including obligations in respect of capital leases), (ii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other Person, or (iii) make any loans, advances or capital contributions
to, or investments in, any Person other than a Cable Subsidiary;
(e) acquire, sell, lease or dispose of any assets material to such Cable
Subsidiary, other than sales of inventory and equipment in the ordinary and
usual course of business consistent with past practice;
(f) mortgage, pledge or subject to any Lien any of its properties or
assets, tangible or intangible, material to such Cable Subsidiary;
(g) fail to effect capital expenditures substantially in accordance with
the capital expenditure budget attached hereto as Schedule 6.3(g);
(h) without the consent of Acquiror, which shall not be withheld or
delayed unreasonably, (i) except as required by applicable Law or as
disclosed to Acquiror in writing prior to November 18, 1994, implement any
rate change, retiering or repackaging of cable television programming
offered by any of the Cable Subsidiaries, (ii) except as disclosed in
writing to Acquiror prior to November 18, 1994, make any cost-of-service or
hardship election under the rules and regulations adopted under the Cable
Television Consumer Protection and Competition Act of 1992, or (iii) amend
any Franchise or agree to make any payments or commitments, including
commitments to make future capital improvements or provide future services,
in connection with obtaining any authorization, consent, waiver, order or
approval of any governmental authority necessary for the transfer of
control of any Franchise;
(i) (i) grant any material increases in the compensation of any of its
directors, officers or key employees, except in the ordinary course of
business consistent with past practice, (ii) pay or agree to pay any
pension, retirement allowance or other material employee benefit not
required or contemplated by any of the existing benefit, severance, pension
or employment plans, agreements or arrangements as in effect on November
18, 1994 to any such director, officer or key employee, whether past or
present, (iii) enter into any new or materially amend any existing
employment agreement with any such director, officer or key employee,
except for employment agreements with new employees entered into in the
ordinary course of business consistent with past practice, (iv) enter into
any new or materially amend any existing severance agreement with any such
director, officer or key employee or (v) except as may be required to
comply with applicable Law, become obligated under any new pension plan or
arrangement, welfare plan or arrangement, multi-employer plan or
arrangement, employee benefit plan or arrangement, severance plan or
arrangement, benefit plan or arrangement, or similar plan or arrangement,
which was not in existence on November 18, 1994, or amend any such plan or
arrangement in existence on November 18, 1994, if such amendment would have
the effect of enhancing or accelerating any benefits thereunder;
(j) except as set forth on Schedule 6.3(j), enter into any contract,
arrangement or understanding requiring the purchase of equipment,
materials, supplies or services for the expenditure of greater than $1
million per year, which is not cancelable without penalty on 30 days or
less notice;
(k) except as set forth on Schedule 6.3(k), enter into any collective
bargaining agreement or any successor collective bargaining agreement to
any existing collective bargaining agreement;
(l) take, or agree in writing or otherwise to take, any of the foregoing
actions or any actions that would (i) make any representation or warranty
of the Company or NPJ contained in this Agreement untrue or incorrect as of
the date when made or as of the Closing Date, (ii) result in any of the
conditions of this Agreement not being satisfied or (iii) be inconsistent
with the terms of this Agreement or the transactions contemplated hereby.
The Company shall not be deemed to have breached clauses (ii), (iii) of (iv)
of Section 6.3(i) if any such payment, agreement or amendment prohibited by
such clauses is, in the case of a prohibited payment, paid in its entirety by
the Company prior to the Closing Date or, in the case of a prohibited agreement
or amendment, will not impose continuing obligations on Acquiror or any of the
Cable Subsidiaries after the
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Effective Time. The provisions of paragraphs (d) through and including (l) of
this Section 6.3 shall be applicable to and bind the Company with respect to
its operation of the Palmer Systems as if the Company were a Cable Subsidiary.
6.4 CONDUCT OF BUSINESS OF ACQUIROR. Except as contemplated by this
Agreement, during the period from November 18, 1994 to the Effective Time,
Acquiror and its Subsidiaries will conduct their operations according to their
ordinary and usual course of business consistent with past practices, keep
available the services of their current officers and employees and preserve
their relationship with customers, franchising authorities, suppliers and
others having business dealing with them with the objective that the goodwill
and on-going business of Acquiror and its Subsidiaries shall not be impaired in
any material respect at the Effective Time. Without limiting the generality of
the foregoing, except as otherwise contemplated by this Agreement, Acquiror
will not, without the prior written consent of the Company:
(a) amend the Acquiror Restated Certificate or the Acquiror Restated By-
Laws;
(b) declare, set aside or pay any dividend or other distribution (except
(i) in the form of shares of capital stock of Acquiror or (ii) any dividend
required to be paid by the terms of any preferred stock of the Company
which is not outstanding on November 18, 1994 in respect of its capital
stock, or redeem or otherwise acquire any of its equity securities other
than (i) repurchases of up to 667,366 shares of Acquiror Common Stock (as
such quantity shall be increased to give effect to the stock dividend,
split or other action contemplated by Section 6.22(b) hereof) which are
subject to Acquiror's 1998-1999 Share Repurchase Program, or (ii) other
repurchases of shares of Acquiror Common Stock for an aggregate amount not
to exceed $50,000,000; or
(c) take, or agree in writing or otherwise to take, any of the foregoing
actions or any actions that would (i) subject to the provisions of Section
6.25 hereof, make any representation or warranty of Acquiror contained in
this Agreement untrue or incorrect as of the date when made or as of the
Closing Date, (ii) result in any of the conditions to Closing in Article 7
of this Agreement not being satisfied or (iii) be inconsistent with the
terms of this Agreement or the transactions contemplated hereby.
6.5 ACCESS TO INFORMATION. Between the date of this Agreement and the
Effective Time, the Company and Acquiror will each (a) give the other party and
its authorized representatives reasonable access, during regular business hours
upon reasonable notice, to all offices, warehouses and other facilities of such
party and its Subsidiaries and to all books and records of such party and its
Subsidiaries, (b) permit the other party to make such reasonable inspections of
the offices, warehouses, facilities, books and records described in clause (a)
as it may require, and (c) cause its officers and those of its Subsidiaries to
furnish the other party with such financial and operating data and other
information with respect to the business and properties of the Company, the
Cable Subsidiaries, Holding and Broadcasting or Acquiror and its Subsidiaries,
as the case may be, as the other party may from time to time reasonably
request. All such access and information obtained by either the Company or
Acquiror and their respective authorized representatives shall be subject to
the terms and conditions of the Confidentiality Agreement. No investigation
pursuant to this Section 6.5 or otherwise shall affect any representations or
warranties of the parties hereto or the conditions to the obligations of the
parties hereto.
6.6 SEC FILINGS.
(a) As promptly as practicable after November 18, 1994, Acquiror and NPJ
(with all necessary assistance and cooperation of each other and the Company)
will prepare and file with the SEC registration statements (collectively, the
"Registration Statements") in connection with, in the case of Acquiror's
Registration Statement, the registration under the Securities Act of the
Acquiror Merger Securities to be issued pursuant to the Merger, and, in the
case of NPJ's Registration Statement, the registration under the Securities Act
of the NPJ Common Stock to be distributed pursuant to the Distribution, which
Registration Statements shall contain a preliminary joint proxy statement to be
mailed by the Company and Acquiror to their respective stockholders in
connection with the vote of such stockholders with respect to, in the case of
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the Company, the Merger Transactions, and, in the case of Acquiror, the Merger
and the Recapitalization Amendment and a preliminary prospectus of Acquiror and
NPJ in connection with such registration under the Securities Act (the "Joint
Proxy Statement/Prospectus").
(b) The Company, NPJ and Acquiror will thereafter use their respective best
efforts to respond to any comments of the SEC with respect to the Registration
Statements and to have the Registration Statements declared effective as
promptly as practicable, and also will take any other action required to be
taken under federal or state securities laws (including, without limitation,
the delivery to the Company and Acquiror, as appropriate, of a letter from each
party's independent auditors in form and substance reasonably satisfactory to
the Company or Acquiror, as the case may be, and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statements).
(c) As promptly as practicable after November 18, 1994, the Company, NPJ and
Acquiror shall prepare and file any other filings required to be filed by each
under the Securities Act, the Exchange Act or any other federal or state laws
relating to the Merger Transactions and the transactions contemplated hereby
(collectively "Other Filings") and will use their reasonable best efforts to
respond to any comments of the SEC or any other appropriate government official
with respect thereto.
(d) The Company, NPJ and Acquiror shall cooperate with each other and provide
to each other all information necessary in order to prepare the Registration
Statement, the Joint Proxy Statement/Prospectus and the Other Filings,
including, without limitation, a registration statement by Acquiror on Form 8-A
under the Exchange Act with respect to the Acquiror Merger Securities and the
registration statement of Acquiror under the Securities Act and the Exchange
Act in connection with any other registered public offering (collectively "SEC
Filings") and shall provide promptly to the other parties any information that
such party may obtain that could necessitate amending any such document.
(e) The Company, NPJ and Acquiror will notify the other parties promptly of
the receipt of any comments from the SEC or its staff or any other appropriate
government official and of any requests by the SEC or its staff or any other
appropriate government official for amendments or supplements to any of the SEC
Filings or for additional information and will supply the other parties with
copies of all correspondence between the Company or any of its representatives,
NPJ or any of its representatives, or Acquiror or any of its representatives,
as the case may be, on the one hand, and the SEC or its staff or any other
appropriate government official, on the other hand, with respect thereto. If at
any time prior to the Effective Time, any event shall occur that should be set
forth in an amendment of, or a supplement to, any of the SEC Filings, the
Company, NPJ and Acquiror agree promptly to prepare and file such amendment or
supplement and to distribute such amendment or supplement as required by
applicable Law, including, in the case of an amendment or supplement to the
Joint Proxy Statement/Prospectus, mailing such supplement or amendment to the
Company's stockholders and, if required, Acquiror's stockholders, as the case
may be.
(f) The information provided and to be provided by the Company, NPJ and
Acquiror for use in SEC Filings shall at all times prior to the Effective Time
be true and correct in all material respects and shall not omit to state any
material fact required to be stated therein or necessary in order to make such
information not false or misleading, and the Company, NPJ and Acquiror each
agree to correct any such information provided by it for use in the SEC Filings
that shall have become false or misleading. Each SEC Filing, when filed with
the SEC or any other appropriate government official, shall comply as to form
in all material respects with all applicable Law.
(g) Acquiror shall indemnify, defend and hold harmless the Company and NPJ,
each of their officers and directors and each other Person, if any, who
controls any of the foregoing within the meaning of the Exchange Act against
any Losses and Expenses, to which any of the foregoing may become subject under
the Securities Act or the Exchange Act or otherwise, insofar as such Losses and
Expenses arise out of or are
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based upon (i) an untrue statement or alleged untrue statement of a material
fact contained in any SEC Filing or (ii) the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, PROVIDED that Acquiror was responsible for such misstatement or
omission, and Acquiror shall reimburse, upon request from time to time, the
Company, NPJ and each such officer, director and controlling Person for any
legal or any other expenses reasonably incurred by any of them in connection
with investigating or defending any such Losses and Expenses.
(h) The Company and, from and after the Effective Time, NPJ (individually and
not jointly with the Company) shall indemnify, defend and hold harmless
Acquiror, each of its officers and directors and each other Person, if any, who
controls any of the foregoing within the meaning of the Exchange Act against
any Losses and Expenses to which any of the foregoing may become subject under
the Securities Act or the Exchange Act or otherwise, insofar as such Losses and
Expenses arise out of or are based upon (i) an untrue statement or alleged
untrue statement of a material fact contained in any SEC Filing or (ii) the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, PROVIDED that the
Company or NPJ was responsible for such misstatement or omission, and the
Company or NPJ (as the case may be), upon request from time to time, shall
reimburse Acquiror and each such officer, director and controlling Person for
any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such Losses and Expenses.
(i) For the purpose of this Section 6.6, the term "Indemnifying Party" shall
mean the party having an obligation hereunder to indemnify the other party
pursuant to this Section 6.6, and the term "Indemnified Party" shall mean the
party having the right to be indemnified pursuant to this Section 6.6. Whenever
any claim shall arise for indemnification under this Section 6.6, the
Indemnified Party shall promptly notify the Indemnifying Party in writing of
such claim and, when known, the facts constituting the basis for such claim (in
reasonable detail). Failure by the Indemnified Party to so notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
hereunder unless such failure materially prejudices the Indemnifying Party.
(j) After such notice, if the Indemnifying Party undertakes to defend any
such claim, it shall take control of the defense and investigation with respect
to such claim and employ and engage attorneys of its own choice to handle and
defend the same, at the Indemnifying Party's cost, risk and expense, upon
written notice to the Indemnified Party of such election, which notice
acknowledges the Indemnifying Party's obligation to provide indemnification
hereunder. The Indemnifying Party shall not settle any third-party claim that
is the subject of indemnification without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that the Indemnifying Party may settle a claim without the Indemnified
Party's consent if such settlement (i) makes no admission or acknowledgment of
liability or culpability with respect to the Indemnified Party, (ii) includes a
complete release of the Indemnified Party and (iii) does not require the
Indemnified Party to make any payment or forego or take any action. The
Indemnified Party shall cooperate in all reasonable respects with the
Indemnifying Party and its attorneys in the investigation, trial and defense of
any lawsuit or action with respect to such claim and any appeal arising
therefrom (including the filing in the Indemnified Party's name of appropriate
cross claims and counterclaims). The Indemnified Party may, at its own cost,
participate in any investigation, trial and defense of such lawsuit or action
controlled by the Indemnifying Party and any appeal arising therefrom. If,
after receipt of a claim notice pursuant to Section 6.6(i), the Indemnifying
Party does not undertake to defend any such claim the Indemnified Party may,
but shall have no obligation to, contest any lawsuit or action with respect to
such claim and the Indemnifying Party shall be bound by the result obtained
with respect thereto by the Indemnified Party (including, without limitation,
the settlement thereof without the consent of the Indemnifying Party). If there
are one or more legal defenses available to the Indemnified Party that conflict
with those available to the Indemnifying Party, the Indemnified Party shall
have the right, at the expense of
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the Indemnifying Party, to assume the defense of the lawsuit or action;
PROVIDED, HOWEVER, that the Indemnified Party may not settle such lawsuit or
action without the consent of the Indemnifying Party, which consent shall not
be unreasonably withheld. At any time after the commencement of defense of any
lawsuit or action, the Indemnifying Party may request the Indemnified Party to
agree in writing to the abandonment of such contest or to the payment or
compromise by the Indemnifying Party of such claim whereupon such action shall
be taken unless the Indemnified Party determines that the contest should be
continued and so notifies the Indemnifying Party in writing within 15 days of
such request from the Indemnifying Party. If the Indemnified Party determines
that the contest should be continued, the Indemnifying Party shall be liable
hereunder only to the extent of the lesser of (i) the amount which the other
party(ies) to the contested claim had agreed to accept in payment or compromise
as of the time the Indemnifying Party made its request therefor to the
Indemnified Party or (ii) such amount for which the Indemnifying Party may be
liable with respect to such claim by reason of the provisions hereof.
(k) If the indemnification provided for in this Section 6.6 shall for any
reason be unavailable to the Indemnified Party in respect of any loss, claim,
damage or liability, or action referred to herein, then the Indemnifying Party
shall, in lieu of indemnifying the Indemnified Party, contribute to the amount
paid or payable by the Indemnified Party as a result of such loss, claim,
damage or liability, or action in respect thereof, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and the Indemnified Party on the other with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to whether the untrue or
alleged untrue statement or omission of a material fact relates to information
supplied by the Indemnifying Party on the one hand or the Indemnified Party on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by the Indemnified Party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above in
this paragraph shall be deemed to include, for purposes of this paragraph, any
legal or other expenses reasonably incurred by the Indemnified Party in
connection with investigating or defending any such action or claim. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
6.7 REASONABLE BEST EFFORTS. Each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable Law to consummate and make effective the transactions contemplated
by this Agreement in the most expeditious manner practicable (including, but
not limited to, the consummation of all conditions to the Merger Transactions
and seeking to remove promptly any injunction or other legal barrier that may
prevent or delay such consummation). Each of the parties shall promptly notify
the other whenever a material consent is obtained and shall keep the other
informed as to the progress in obtaining such material consents.
6.8 PUBLIC ANNOUNCEMENTS. No party hereto shall make any public announcements
or otherwise communicate with any news media with respect to this Agreement or
any of the transactions contemplated hereby without prior consultation with the
other parties as to the timing and contents of any such announcement as may be
reasonable under the circumstances; PROVIDED, HOWEVER, that nothing contained
herein shall prevent any party from promptly making all filings with
governmental authorities as may, in its judgment, be required in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
6.9 BOARD RECOMMENDATION. The Joint Proxy Statement/Prospectus shall include
(i) the recommendation of the Company Board of Directors to the Company's
stockholders to vote in favor of the Merger Transactions and (ii) the
recommendation of Acquiror's Board of Directors to Acquiror's stockholders to
vote in favor of the Merger; PROVIDED, HOWEVER, that either the Company Board
of Directors
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or Acquiror's Board of Directors may modify or withdraw its recommendation if
it determines, with the written advice of outside counsel, to do so in the
exercise of its fiduciary duties.
6.10 TAX MATTERS.
(a) NPJ INDEMNIFICATION OBLIGATIONS.
(i) COMPANY CONSOLIDATED INCOME TAXES. NPJ shall be liable for, shall pay
and shall indemnify and hold Acquiror and its Subsidiaries harmless against
all Company Consolidated Income Taxes attributable to any taxable period
ending on or before the Closing Date, and any and all liabilities, losses,
damages, costs and expenses (including, without limitation, court costs and
reasonable professional fees incurred in the investigation, defense or
settlement of any claims covered by this indemnity) attributable to any
such Company Consolidated Income Taxes. For this purpose, any taxable
period for Company Consolidated Income Taxes that includes but does not end
on the Closing Date shall be treated as ending on the Closing Date, and the
income attributable to the period before and including the Closing Date
shall be determined based on the permanent books and records maintained for
federal income tax purposes. Except as specifically provided in this
Section 6.10, any tax sharing agreement or policy of the Company Group
shall be terminated at the Effective Time, and the Surviving Corporation
and the Cable Subsidiaries shall have no obligations under such agreements
after the Effective Time. Without limiting the foregoing, NPJ shall be
liable for any Company Consolidated Income Taxes resulting from the failure
of the Contribution and issuance of NPJ Common Stock to the Company's
stockholders to qualify as a tax-free reorganization within the meaning of
Sections 368(a)(1)(D) and 355 of the Internal Revenue Code, unless such
failure to qualify is the result of Acquiror's breach of Section 6.10(i).
(ii) REFUNDS AND CREDITS OF COMPANY CONSOLIDATED INCOME TAXES. NPJ shall
be entitled to (and shall indemnify and hold harmless Acquiror and its
Subsidiaries against any subsequent disallowance of) any credits or refunds
of Company Consolidated Income Taxes payable with respect to any taxable
period ending on or before the Closing Date.
(iii) CONTROL OF TAX PROCEEDINGS.
(A) Except as provided in Section 6.10(a)(iii)(C), the parties agree
that NPJ shall be designated as the agent for the Company Group
pursuant to Section 1.1502-77(d) of the Treasury Regulations and any
similar provisions of any state income or franchise tax laws, and NPJ
shall have the sole authority to deal with any matters relating to
Company Consolidated Income Taxes, including but not limited to the
filing of amended returns.
(B) Whenever any taxing authority asserts a claim, makes an
assessment, or otherwise disputes the amount of Company Consolidated
Income Taxes for which NPJ is or may be liable in whole or in part,
under this Agreement, Acquiror shall promptly inform NPJ. Except as
provided in Section 6.10(a)(iii)(C), NPJ, at its cost and expense,
shall have the right to control any resulting proceedings and to
determine whether and when to settle any such claim, assessment or
dispute; PROVIDED, HOWEVER, that NPJ shall not have the right to settle
any such claim, assessment or dispute without Acquiror's prior written
consent if such settlement would have a Material Adverse Effect on
Acquiror or any of its Subsidiaries.
(C) If a taxing authority asserts a claim, makes an assessment or
otherwise disputes the amount of the Company Consolidated Income Taxes
attributable to a Cable Subsidiary (a "Cable Dispute"), Acquiror and
NPJ shall immediately inform each other of the Cable Dispute. Acquiror,
at its cost and expense may, by written notice to NPJ, elect to control
any Cable Dispute and to determine whether and when to settle any such
Cable Dispute, which election shall be made within 15 days after the
later of (1) the date of the notice transmitted by the taxing authority
describing the Cable Dispute, or (2) in the case of a notice
transmitted by the taxing authority to NPJ, the date NPJ informs
Acquiror of such Cable Dispute. If Acquiror duly elects, as provided
herein, to contest a Cable Dispute, it shall have the sole
responsibility to conduct any resulting proceedings, and shall be
responsible for, and shall indemnify NPJ against, any Taxes ultimately
imposed with respect to such Cable Dispute.
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(b) OTHER TAXES. Except as otherwise provided in Section 6.10(a), all Taxes
shall be the responsibility of the taxpayer on which they are imposed, and any
refunds and credits of Taxes shall be for the account of the taxpayer
responsible for such Taxes.
(c) TAX RETURNS.
(i) NPJ shall be responsible for the preparation and filing of all
Company Consolidated Income Tax Returns for all taxable periods that end on
or before the Closing Date, including Tax Returns of the Company Group for
such periods that are due after the Closing Date, and of all Cable Tax
Returns required to be filed on or before the Closing Date, and NPJ shall
be responsible for the contents of such Tax Returns and the payment of all
Taxes shown to be due thereon. Within thirty days following the filing of
Company Consolidated Income Tax Returns, NPJ shall furnish Acquiror with
(i) copies of such Tax Returns as if prepared for the Cable Subsidiaries on
a separate company basis, and (ii) information concerning (a) the tax basis
of the assets of the Cable Subsidiaries as of the Closing Date; (b) the net
operating loss carryover, capital loss carryover and alternative minimum
tax credit carryover available, if any, to Acquiror and its Subsidiaries as
of the Closing Date; and (c) all elections with respect to Company
Consolidated Income Taxes in effect for the Cable Subsidiaries as of the
Closing Date.
(ii) Acquiror shall be responsible for the preparation and filing of all
Cable Tax Returns (other than Company Consolidated Income Tax Returns)
required to be filed after the Closing Date.
(d) COOPERATION. Acquiror and NPJ shall cooperate with each other in a timely
manner in the preparation and filing of any Tax Returns, payment of any Taxes
in accordance with this Agreement, and the conduct of any audit or other
proceeding. Each party shall execute and deliver such powers of attorney and
make available such other documents as are necessary to carry out the intent of
this Section 6.10. Each party agrees to notify the other party of any audit
adjustments that do not result in tax liability but can reasonably be expected
to affect Tax Returns of the other party.
(e) RETENTION OF RECORDS. Acquiror and NPJ shall (i) retain records,
documents, accounting data and other information (including computer data)
necessary for the preparation and filing of all Tax Returns or the completion
of the audit of such returns, and (ii) give to the other reasonable access to
such records, documents, accounting data and other information (including
computer data) and to its personnel (insuring their cooperation) and premises,
for the purpose of the review or audit of such returns to the extent relevant
to an obligation or liability of a party under this Agreement.
(f) PAYMENTS; DISPUTES. Except as otherwise provided in this Section 6.10,
any amounts owed by any party ("Indemnitor") to any other party ("Indemnitee")
under this Section 6.10 shall be paid within ten days of notice from the
Indemnitee; PROVIDED that if the Indemnitee has not paid such amounts and such
amounts are being contested before the appropriate governmental authorities in
good faith, the Indemnitor shall not be required to make payment until it is
determined finally by an appropriate governmental authority that payment is
due. If Acquiror and NPJ cannot agree on any calculation of any liabilities
under this Section 6.10, such calculation shall be made by any independent
public accounting firm acceptable to both such parties. The decision of such
firm shall be final and binding. The fees and expenses incurred in connection
with such calculation shall be borne equally by the disputing parties.
(g) TERMINATION OF LIABILITIES. Notwithstanding any other provision in this
Agreement, the liabilities of NPJ for any Tax under this Section 6.10 shall
apply only to Taxes assessed before the expiration of the applicable statute of
limitations for such Tax or any extension thereof.
(h) DEFINITIONS.
(i) "Company Group" means the affiliated group of corporations, within
the meaning of Section 1504(a) of the Internal Revenue Code, of which the
Company or, after the Dissolution, Broadcasting is
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the common parent and any member of such group determined as of the
Effective Date, which shall, in any event, include Copley/Colony, Inc. and
its Subsidiaries.
(ii) "Company Consolidated Income Taxes" means the federal and state
income taxes of the Company Group or any of its members, whether calculated
on a consolidated, combined, unitary or separate basis, including such
income taxes of a member of the Company Group before such member became
such a member, together with any interest and any penalty, addition to tax
or additional amount imposed by any governmental authority responsible for
the imposition of any such tax.
(iii) "Tax" (including with correlative meaning, the terms "Taxes" and
"Taxable") means any income, gross receipts, ad valorem, premium, excise,
value-added, sales, use, transfer, franchise, license, severance, stamp,
occupation, service, lease, withholding, employment, payroll, premium,
property or windfall profits tax, alternative or add-on-minimum tax, or
other tax, fee or assessment, together with any interest and any penalty,
addition to tax or additional amount imposed by any governmental authority
responsible for the imposition of any such tax.
(iv) "Tax Return" means any return, report, statement, information
statement and the like required to be filed with any authority with respect
to Taxes.
(v) "Company Consolidated Income Tax Returns" means any Tax Return of the
Company Group or any of its members with respect to Company Consolidated
Income Taxes.
(vi) "Cable Tax Returns" means any Tax Return of any Cable Subsidiary.
(i) ADDITIONAL COVENANTS. For a period of two years after the Closing Date,
without the prior written consent of NPJ:
(i) Acquiror shall not sell, transfer, distribute or otherwise dispose of
any assets of the Cable Subsidiaries or any shares of capital stock of any
corporation that was a Subsidiary of Broadcasting immediately prior to the
Merger, whether by merger or otherwise, unless such transferred assets and
stock in the aggregate constitute less than thirty percent (30%) by value
of the business and assets of the Cable Subsidiaries at the time of such
transfer;
(ii) Acquiror shall not cause or permit any corporation that was a
Subsidiary of Broadcasting immediately prior to the Merger to sell any
shares of capital stock of such Subsidiary to any Person;
(iii) Acquiror shall not adopt a plan of liquidation or enter into an
agreement of merger or other transaction pursuant to which the corporate
legal existence of Acquiror would terminate or the outstanding stock of
Acquiror would be converted into cash, other property or the stock or
securities of any other issuer;
(iv) Acquiror and its Affiliates shall not offer to purchase, make a
tender offer, or otherwise enter into any agreement to acquire any shares
of capital stock of Acquiror issued to any former shareholder of the
Company in connection with the Merger or any shares of capital stock of
NPJ; and
(v) Acquiror and its Affiliates shall not engage in any transaction if,
prior to the date on which Acquiror or any Affiliate of Acquiror enters
into a binding agreement to engage in such transaction, NPJ shall have
informed Acquiror that it has received an opinion of legal counsel that as
a result of any controlling legal or administrative precedent issued after
November 18, 1994, the consummation of a transaction such as the
contemplated transaction would create a material risk that the Contribution
and issuance of NPJ Common Stock to the Company's stockholders would not
qualify as a tax-free reorganization under Section 368 of the Internal
Revenue Code.
6.11 NOTIFICATION. Each party hereto shall, in the event of, or promptly
after obtaining knowledge of, the occurrence or threatened occurrence of, any
fact or circumstance that would cause or constitute a breach of any of its
representations and warranties set forth herein, give notice thereof to the
other parties and shall use its reasonable best efforts to prevent or promptly
to remedy such breach.
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6.12 EMPLOYEE BENEFITS.
(a) As part of the assumption of liabilities of Broadcasting by NPJ pursuant
to Section 2.5 and the Contribution Agreement, effective as of the Effective
Time, NPJ agrees to accept all past, present and future liabilities and
responsibilities as plan sponsor, within the meaning of Section 3(16)(B) of
ERISA, of any Company Employee Plan, and to accept all past, present and future
liabilities and responsibilities as employer under any other benefit
arrangement, including without limitation: (i) employment and consulting
agreements, (ii) arrangements providing for insurance coverage and workers'
compensation benefits, (iii) incentive bonus and deferred bonus arrangements,
(iv) arrangements providing for termination allowance, severance, and similar
benefits, (v) equity compensation plans, (vi) deferred compensation plans, and
(vii) compensation policies and practices maintained by the Company or any
ERISA Affiliate covering the Company Employees and their beneficiaries as of
the Effective Time ("Company Benefit Arrangement"), except as otherwise
provided in Section 6.12(c). NPJ agrees that Acquiror shall have no liability
for any period with respect to any such plans, except as otherwise provided in
Section 6.12(c).
(b) Acquiror acknowledges that, as a result of the transactions contemplated
by this Agreement, as of the Effective Time, Acquiror shall become the employer
of all employees of the Cable Subsidiaries as of the Effective Time, including
any such employee who is on an approved leave of absence or short-term
disability leave, as of the Effective Time other than any corporate, regional
or divisional employee which Acquiror has informed the Company not less than
thirty (30) days prior to the Effective Time it does not wish to employ
following the Effective Time, in which case said employee shall, at the option
of the Company, become an employee of NPJ or shall be discharged by the Company
("Cable Employees"); PROVIDED, HOWEVER, that this paragraph (b) shall in no way
obligate Acquiror to continue the employment of any person.
(c) Acquiror agrees that, upon succeeding as employer of the Cable Employees
effective upon the Effective Time, Acquiror shall be responsible for payments
under (i) the Employee Continuation Plans for Exempt and Non-Exempt Employees
designated as such on Schedule 4.12(n) respecting matters arising after the
Effective Time, to the extent such payments are owed to system level employees
formerly employed by a Cable Subsidiary, and (ii) those certain Agreements
dated as of October 11, 1993 with Eileen Martin and Peter Eliason (true,
correct and complete copies of which have been delivered to Acquiror) to the
extent payments under such Agreements do not exceed the severance payments
Acquiror would have been liable for in respect of such employees under the
Employee Continuation Plan (it being understood that NPJ shall be responsible
for all liabilities and responsibilities under such Agreements in excess of
what is provided for under the Employee Continuation Plans). NPJ agrees that it
shall be responsible for any benefits payable under any such Employee
Continuation Plan, or any other severance benefits or payments which may
otherwise be owed, to any corporate, regional and divisional personnel, or to
any other person not described in the preceding two sentences.
(d) Subject to the rules for qualification of plans under Section 401(a) of
the Code, Acquiror agrees to grant credit to the Cable Employees for service
accrued by such Cable Employees as employees of the Company and its ERISA
Affiliates for purposes of calculating eligibility and vesting service under
the "employee pension benefit plans" (within the meaning of Section 3(2) of
ERISA) of Acquiror and its Subsidiaries that are intended to be qualified under
Section 401(a) of the Code. NPJ agrees that each such Cable Employee shall, as
of the Effective Time, become fully vested in his accrued benefits (if any)
under each Company Employee Plan that is intended to be qualified under Code
Section 401(a).
(e) Acquiror shall, as soon as practicable after the Effective Time,
establish, to the extent it does not already maintain, a defined contribution
plan that is intended to meet the qualification requirements of Code Section
401(a), to provide for elective deferrals under the rules of Code Section
401(k) ("a 401(k) Plan"), and that covers the Cable Employees, subject to
minimum eligibility service requirements permitted under the Code. NPJ shall
cause each Cable Employee to be able to choose between a distribution to
himself of his account balance as of the Effective Time in any Company or NPJ
401(k) Plan or the direct transfer of such account balance to the Acquiror
401(k) Plan described in the preceding sentence. The Acquiror 401(k) Plan
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shall accept all such direct transfers, including any such direct transfer
subject to any loan to the Cable Employee who is a participant, which loan
shall thereafter be treated under Acquiror's 401(k) Plan, except to the extent
the terms of such loan are not compatible with applicable Law, including ERISA.
Prior to any such transfer, each party hereto shall furnish the other party
hereto with a copy of the most recent determination letter issued by the IRS
with respect to the qualification of each 401(k) Plan in which a Cable Employee
has an account as of the Effective Time or may have after the Effective Time.
(f) NPJ or the Company and Broadcasting, as applicable, agrees to continue
coverage of Cable Employees under existing group health plans through the
Effective Time and to reimburse covered Cable Employees for eligible health
care expenses and services incurred through the Effective Time in accordance
with the terms of any such plan.
(g) Subject to Section 6.12(j), effective from and after the Effective Time,
subject to reasonable eligibility requirements, Acquiror agrees to provide
coverage under a comprehensive group health care plan to all Cable Employees
(and their covered dependents), who are still employed by Broadcasting at the
Effective Time, taking into account for eligibility purposes under such plan
the service accrued by any such Cable Employee while an employee of the Company
or any of its ERISA Affiliates and PROVIDED, HOWEVER, that any Cable Employee
who was, as of the Effective Time, eligible under any Company or NPJ Group
Health Plan, shall not be subject to such eligibility requirements for initial
coverage. Any such comprehensive group health care plan shall provide medical,
hospitalization, prescription drug, mental health, substance abuse, employee
assistance program, dental and vision care benefits that are comparable, as
defined in Section 6.12(i) below, to those provided to such Cable Employee
under an existing group health plan prior to the Closing or comparable to
Acquiror's existing plans, and shall contain no exclusions or limitations for
preexisting conditions applicable to covered Cable Employees or the covered
dependents of such Cable Employees except to the extent such preexisting
condition exclusions or limitations apply to any such Cable Employee or covered
dependent under the applicable group health plan at the Effective Time
PROVIDED, HOWEVER, that the Cable Employees shall not be deemed to be third-
party beneficiaries of this Section 6.12(g). For the calendar year in which the
Effective Time occurs, any Acquiror group health plan which provides coverage
to Cable Employees shall give credit for deductibles, co-payments and similar
amounts which any such Cable Employee had paid or satisfied for such year under
a Company Group Health Plan.
(h) Subject to reasonable eligibility requirements, Acquiror agrees to
provide coverage under (a) retirement plans qualified under Code Section 401(a)
and (b) welfare benefit plans, within the meaning of Section 3(l) of ERISA,
providing other than health benefits, including life insurance, vacation,
accidental death and dismemberment insurance, short and long term disability
benefits, to all Cable Employees, taking into account for eligibility purposes
under such plans the service accrued by any such Cable Employee while an
employee of the Company or any of its ERISA Affiliates. Any such retirement or
welfare benefit plan shall provide benefits that are comparable, as defined in
Section 6.12(i) hereof, to those provided to Cable Employees prior to the
Effective Time or comparable to Acquiror's existing plans.
(i) "Comparable" shall mean benefits that are substantially similar in type,
scope, benefits coverage, eligibility requirements and employee cost sharing
requirements to the benefits as of the Effective Time under the plan or plans
which are being compared. Acquiror agrees to amend, and to use its best efforts
to cause its Subsidiaries to amend, the eligibility requirements of any welfare
benefit plan under which coverage is extended to Cable Employees pursuant to
the provisions of Sections 6.12(g) and (h), to provide for eligibility
effective from and after the Effective Time for such Cable Employees.
(j) NPJ shall assume and be solely responsible for: (i) payment of all
retiree medical benefits to Cable Employees who, as of the Effective Time, are
receiving or who are entitled to receive retiree medical or life insurance
benefits; (ii) the provision of benefits required under the provisions of COBRA
to any Cable Employees or other qualified beneficiaries, within the meaning of
Section 4980B(f)(3) of the Code, with respect to whom a qualifying event within
the meaning of Section 4980B(f)(3) of the Code, has occurred prior
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to the Effective Time; (iii) for the payment of all long-term disability income
benefits to all Cable Employees who, as of the Effective Time, are receiving
long-term disability benefits or are disabled as of the Effective Time and as a
result of such disability become eligible for long-term disability income
benefits as determined in accordance with long-term disability coverage
provisions that on or prior to the Effective Time are applicable to the Cable
Employees; and (iv) the provision and payment of: (A) medical and dental
benefits for the period after the Effective Date until such benefits are no
longer required to be made available under COBRA; (B) life and accidental death
benefits for a period of not more than six months following the Effective Date;
and (C) short- and long-term disability benefits for a period of not more than
three months following the Effective Date; for any Cable Employee who is on a
leave of absence or short-term disability leave as of the Effective Time until
such Cable Employee returns to active employment from such leave; PROVIDED,
that Acquiror shall from time to time, within 30 days of receipt by Acquiror of
invoices and other documentation reasonably satisfactory to Acquiror, reimburse
NPJ for the reasonable, direct costs incurred in providing the benefits
referred to in this subparagraph (iv).
(k) Acquiror agrees to cooperate, and agrees to use its best efforts to cause
its Subsidiaries to cooperate, in a complete, diligent and timely manner to
provide NPJ or its ERISA Affiliates with such compensation, service and other
pertinent census data as may be required by any of them for purposes of
calculating or effecting distribution of benefits to which any Cable Employees
may be entitled under any employee benefit plan, within the meaning of Section
3(3) of ERISA, established, maintained or contributed to by any of them.
(l) NPJ agrees to cooperate, and agrees to use its best efforts to cause its
Subsidiaries to cooperate, in a complete, diligent and timely manner to provide
Acquiror or its ERISA Affiliates with such compensation, service and other
pertinent census data as may be required by any of them for purposes of
calculating or effecting distribution of benefits to which any Cable Employees
may be entitled under any employee benefit plan, within the meaning of Section
3(3) of ERISA, established, maintained or contributed to by any of them.
6.13 MEETING OF STOCKHOLDERS OF THE COMPANY; OTHER AGREEMENTS. The Company
shall take all action necessary, in accordance with applicable Law and its
Articles of Incorporation and By-laws, to duly call, give notice of, convene
and hold a meeting of its stockholders as promptly as practicable to consider
and vote upon the adoption and approval of this Agreement and the Merger
Transactions. The only stockholder votes required for the adoption and approval
of the Merger Transactions by the Company are the votes required under Section
3.5. Subject to the fiduciary duty of the Company Board of Directors under
applicable Law, as advised in writing by outside counsel, the Company shall use
its reasonable best efforts to solicit from stockholders proxies in favor of
adoption and approval of the Merger Transactions and to take all other action
necessary to secure the vote of stockholders required by applicable Law and the
Company's Articles of Incorporation to effect the Merger Transactions. At any
such meeting, Acquiror shall vote, or cause to be voted, all of the shares (if
any) of Company Class A Common Stock and Company Class B Common Stock then
owned by Acquiror or any Subsidiary of Acquiror or subject to proxies held by
Acquiror in favor of the Merger Transactions.
6.14 MEETING OF STOCKHOLDERS OF ACQUIROR. Acquiror shall take all action
necessary, in accordance with applicable Law and Acquiror's Certificate of
Incorporation and Acquiror Restated By-Laws, to duly call, give notice of,
convene and hold a meeting of its stockholders as promptly as practicable to
consider and vote upon the adoption of this Agreement, the Merger Transaction
(to the extent necessary) and the Recapitalization Amendment. The only
stockholder vote required for the adoption and approval of the Merger
Transactions by Acquiror is the vote required under Section 5.5. Subject to the
fiduciary duty of the Acquiror Board of Directors under applicable Law, as
advised in writing by outside counsel, Acquiror shall use its reasonable best
efforts to solicit from stockholders proxies in favor of adoption and approval
of the Merger Transactions and the Recapitalization Amendment and to take all
other action necessary to secure the vote of stockholders required by
applicable Law and Acquiror's Certificate of Incorporation to effect the Merger
Transactions. At any such meeting, the Company shall vote, or cause to be
voted, all shares, if any, of Acquiror Common Stock then owned by the Company
or any Subsidiary of the Company or subject to
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proxies held by the Company in favor of the adoption and approval of the Merger
Transactions and the Recapitalization Amendment.
6.15 REGULATORY AND OTHER AUTHORIZATIONS. (a) Each of the parties hereto
agrees to use its best efforts to obtain all authorizations, consents, waivers,
orders and approvals of federal, state, local and foreign regulatory bodies and
officials and non-governmental third parties that may be or become necessary
for its execution and delivery of, and the performance of its obligations
pursuant to, this Agreement, and will cooperate fully with the other parties in
promptly seeking to obtain all such authorizations, consents, waivers, orders
and approvals. Without limitation, the Company and Acquiror shall each make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
promptly, and in any event by not later than February 10, 1995. Each such
filing shall request early termination of the waiting period imposed by the HSR
Act.
(b) Any application to any governmental authority for any authorization,
consent, waiver, order or approval necessary for the transfer of control of any
License or Franchise shall be mutually acceptable to the Company and Acquiror
and, if applicable, shall request that the relevant governmental authority
agree that no further consent, waiver or approval of such governmental
authority will be required if a security interest is granted in such License or
Franchise to any lender. Without limiting the obligations of the Company, NPJ,
Holding, Broadcasting and Acquiror under Section 6.15(a), each of the Company,
NPJ, Holding, Broadcasting and Acquiror agrees, upon reasonable prior notice,
to make appropriate representatives available for attendance at meetings and
hearings before applicable governmental authorities in connection with the
transfer of control of any License or Franchise.
(c) If any authorization, consent, waiver, order or approval of any
governmental authority necessary for the transfer of control of any License or
Franchise shall not have been obtained prior to the Effective Time, NPJ and
Acquiror shall cooperate with each other and use their respective best efforts
(i) to restructure the ownership and control of such License or Franchise from
and after the Effective Time in such a manner that, to the extent feasible,
prevents any violation of the terms of such License or Franchise that would
have a Material Adverse Effect on Acquiror and its Subsidiaries or on NPJ and
its Subsidiaries yet preserves the intent of the parties as set forth in this
Agreement with respect to the terms and conditions of the Merger, and (ii)
notwithstanding the Closing, to continue to seek any authorization, consent,
waiver, order or approval necessary for the transfer of control of such License
or Franchise.
(d) If any governmental authority acquires any interest in any cable
television system of the Company or the Cable Subsidiaries on or prior to the
Effective Date, (i) such governmental authority shall be deemed not to have
granted its consent to transfer the Franchise relating to such system and,
therefore, the Cable Franchise Area relating to such system shall not be
considered a Transferable Franchise Area, (ii) the proceeds (the "Proceeds")
received by the Company or a Cable Subsidiary, as the case may be, in
connection with such acquisition shall be held in escrow by the Company or such
Cable Subsidiary and, in the event the Company receives the Proceeds, shall not
be contributed to NPJ as part of the Contribution, and (iii) the Proceeds shall
not be counted as a current asset for purposes of the definition of Working
Capital. Notwithstanding the foregoing, the Company, NPJ and Acquiror agree to
use their respective best efforts to contest any attempt to so acquire a cable
television system or assets, including, without limitation, by commencing and
prosecuting such legal actions as may be necessary to prevent such acquisition
in circumstances where such action is appropriate.
6.16 FURTHER ASSURANCES. Each of the parties hereto shall execute such
documents and other instruments and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and
consummate and evidence the transactions contemplated hereby or, at and after
the Closing Date, to evidence the consummation of the transactions contemplated
by this Agreement. Upon the terms and subject to the conditions hereof, each of
the parties hereto shall take or cause to be taken all actions and to do or
cause to be done all other things necessary, proper or advisable to consummate
and make
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effective as promptly as practicable the transactions contemplated by this
Agreement and to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings.
6.17 INTERNAL REVENUE SERVICE RULING. As promptly as practicable after
November 18, 1994, the Company shall prepare and submit to the IRS a request
for a private letter ruling from the IRS that the transactions contemplated by
the Contribution Agreement will qualify as a tax-free reorganization within the
meaning of Sections 368(a)(1)(D) and 355 of the Code and that the transactions
contemplated by Sections 2.3 and 2.4 hereof will qualify as tax free
reorganizations, liquidations and dissolutions under the applicable sections of
the Code. Such request (and any subsequent submissions to the IRS) shall be
true and correct in all material respects and all facts material to the ruling
shall be disclosed in such request. The Company shall afford Acquiror with
reasonable opportunity to review and comment on such request prior to its
submission to the IRS, and such request as filed shall be reasonably acceptable
to Acquiror. The Company shall provide Acquiror with copies of all materials
submitted to the IRS. Acquiror shall participate in all meetings and
conferences with IRS personnel, whether telephonically or in person, as
requested by the Company. Acquiror shall reasonably cooperate in good faith
with the Company in seeking to obtain such ruling.
6.18 RECORDS RETENTION.
(a) For a period of five years after the Closing, NPJ shall retain all books
and records relating to the Cable Subsidiaries currently in the possession of
the Company or any of its Subsidiaries (or which come into the possession of
the Company or any of its Subsidiaries after November 18, 1994) for the period
from ten years prior to the Closing Date to the Closing Date, and Acquiror
shall have the right to inspect such books and records during normal business
hours, upon five days' prior notice, in connection with the preparation of
financial statements, reports and filings and any other reasonable purpose.
(b) For a period of five years after the Closing Date, Acquiror shall retain
all of its books and records relating to the Cable Subsidiaries for periods
subsequent to the Closing Date and NPJ shall have the right to inspect such
books and records during normal business hours, upon five days' prior notice,
in connection with the preparation of financial statements, reports and filings
and any other reasonable purpose.
6.19 NO RELATED PARTY AGREEMENTS WITH NPJ. Except for the Contribution
Agreement, neither NPJ nor any of its Subsidiaries will at the Effective Time
be a party to any material agreement, arrangement or understanding with the
Company, Broadcasting or any of the Cable Subsidiaries, including, without
limitation, any material contract providing for the furnishing of services or
rental of real or personal property to or from, or otherwise relating to the
business or operations of, the Company, Broadcasting or any of the Cable
Subsidiaries or pursuant to which the Company, Broadcasting or any of the Cable
Subsidiaries may have any obligation or liability. After the Effective Time,
none of the Company, Broadcasting or any of the Cable Subsidiaries will have
any liability whatsoever, direct or indirect, contingent or otherwise, in any
way relating to the business, operations, indebtedness, assets or liabilities
of NPJ or any of its Subsidiaries, except as contemplated by the Contribution
Agreement.
6.20 COMPANY NAME.
(a) Acquiror acknowledges that (i) the name "Providence Journal", whether
alone or in combination with one or more other words, is an asset of the
Company and, after the Dissolution, Broadcasting being transferred to NPJ in
the Contribution and (ii) the name "King", whether alone or in combination with
one or more other words, is an asset of Holding and its Subsidiaries being
transferred to NPJ in the Contribution. Promptly after the Closing Date,
Acquiror shall (i) cause all of its affected Subsidiaries to change their names
to delete any reference therein to "Providence Journal" or "King" and (ii)
reasonably cooperate in assisting NPJ to change its name to "The Providence
Journal Company".
(b) Between the consummation of the Contribution and the Closing (and for as
long thereafter as is required for Acquiror to comply with Section 6.20(a)),
the Company and all of the Cable Subsidiaries shall have a non-exclusive
license to use the names "Providence Journal" and "King".
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6.21 UNDERTAKINGS RELATING TO A PUBLIC OFFERING; REGISTRATION RIGHTS. (a)
Acquiror agrees to use best efforts to consummate a registered public offering
of shares of Acquiror Class A Common Stock (which, at Acquiror's option, may be
a primary offering and/or a secondary offering) prior to the first anniversary
of the Effective Date for aggregate consideration (before underwriting
discounts) of not less than $150,000,000 (the "Offering"); PROVIDED, HOWEVER,
that (i) Acquiror shall not be required to consummate the Offering if it has
issued, on or before the first anniversary of the Effective Date, shares of its
capital stock for an aggregate consideration of not less than $1,000,000,000
pursuant to a binding agreement or agreements (the "Stock Sale Agreement") and
(ii) if Acquiror has failed to enter into a Stock Sale Agreement by the 180th
day following the Effective Date and Acquiror has failed to commence the
Offering prior to such date, Acquiror shall file a registration statement with
respect to such Offering with the SEC within 60 days of receipt of the written
request of NPJ unless Acquiror's investment banker shall have advised Acquiror
in writing following receipt of such written request that because of then-
current market conditions it is not advisable for Acquiror to conduct the
Offering at that time, in which case Acquiror's obligation to use its best
efforts to conduct the Offering shall be extended until such time as such
investment banker, or such other investment banker as Acquiror shall select,
advises Acquiror in writing that market conditions no longer render it
inadvisable to conduct the Offering.
(b) On or prior to the Closing Date, subject to the receipt by Acquiror of
the consent of any stockholders of Acquiror which may be necessary to grant the
registration rights contemplated by this paragraph (b) (it being understood
that Acquiror shall use its best efforts to obtain such consents on or prior to
the Closing Date but that Acquiror shall be under no obligation to pay any fee
or grant any other accommodation to any such stockholder in connection with
obtaining such consent), Acquiror and NPJ hereby agree to enter into a mutually
acceptable registration rights agreement (the "Registration Rights Agreement")
relating to the Acquiror Class A Common Stock to be issued pursuant to the
Merger containing terms and conditions which are substantially similar to those
contained in the Registration Rights Agreement dated as of July 15, 1992 among
Acquiror, Boston Ventures Limited Partnership, III and certain other Purchasers
defined therein; PROVIDED, HOWEVER, that (i) the registration rights granted
under the Registration Rights Agreement shall not be available to any former
stockholder of the Company (collectively, the "Rights Holders") to the extent
that shares of Acquiror Class A Common Stock are then freely transferable by
the Rights Holder requesting such registration rights in the manner in which
such Rights Holders propose to sell such shares without violation of the
registration requirements of the Securities Act; (ii) the Registration Rights
Agreement will provide for two demand registrations and unlimited so-called
"piggyback" registrations with respect to primary public issuances by Acquiror
of Acquiror Class A Common Stock (provided that Acquiror shall only be required
to include shares of Acquiror Class A Common Stock then held by the Rights
Holders to the extent that, in Acquiror's reasonable judgment, such
registration would not interfere with such offering by Acquiror or violate or
conflict with any registration rights which may then be held by holders of
Acquiror's capital stock); and (iii) the Rights Holders shall not be entitled
to assign their rights under the Registration Rights Agreement.
6.22 MATTERS RELATING TO SHAREHOLDERS AND LIQUIDITY.
(a) Subject to applicable Law, Acquiror agrees to conduct a shareholder
relations program prior to the Closing, in form and substance reasonably
satisfactory to the parties hereto, informing potential investors about the
business and financial condition of the Surviving Corporation.
(b) Acquiror covenants and agrees that, prior to the Effective Time, it will
effect a stock dividend, split or other recapitalization of the Acquiror Common
Stock in such amount and in such form as Acquiror, with the advice of its
investment bankers, determines will improve the marketability and liquidity of
the Acquiror Class A Common Stock.
(c) By agreement dated the date hereof, a form of which is attached hereto as
EXHIBIT C, and pursuant to joinders to such agreement, certain stockholders of
the Company and Acquiror have agreed to vote, or cause to be voted, all of the
shares of capital stock, whether now owned or hereafter acquired, of the
Company
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or Acquiror, as the case may be, held by each such stockholder in favor of the
Merger Transactions (the "Voting Agreement"). The Company agrees to use its
best efforts to cause each director of the Company who is not a party to such
Voting Agreement (either as an original signatory thereto or pursuant to a
joinder thereto) to execute a joinder thereto as soon as practicable after
November 18, 1994.
6.23 ACQUIROR BOARD OF DIRECTORS. (a) From November 18, 1994 to the Effective
Time, the persons listed on Schedule 1.1 hereto or such other person designated
in accordance with Section 1.1 hereof (the "Company Nominees") shall be given
copies of all written consents circulated for approval to Acquiror's Board of
Directors, shall be entitled to notice of and to attend all meetings of
Acquiror's Board of Directors, and shall receive copies of all materials
prepared for and distributed at or prior to such meetings; PROVIDED, HOWEVER,
that each Company Nominee shall, as a condition to receiving certain of such
information and attending certain of such meetings, first enter into a
confidentiality agreement with Acquiror containing customary terms.
(b) If, at any such meeting, a resolution is submitted to Acquiror's Board of
Directors for voting thereon, then:
(i) if (A) such resolution is approved by Acquiror's Board of Directors
by a margin of only one vote, and (B) each Company Nominee states in
writing that such Company Nominee would have voted against such resolution
if such Company Nominee had been a member of Acquiror's Board of Directors,
Acquiror agrees to act upon such resolution as though it had not been
approved by its Board of Directors; and
(ii) if, with respect to an Extraordinary Transaction, (A) at least two
members of Acquiror's Board of Directors vote against such resolution and
(B) each Company Nominee states in writing that such Company Nominee would
have voted against such resolution if such Company Nominee had been a
member of Acquiror's Board of Directors, then Acquiror agrees to act upon
such resolution as though it had not been approved by its Board of
Directors. For purposes of this clause (ii), an "Extraordinary Transaction"
shall mean (x) any proposed issuance by Acquiror of Acquiror Class A Common
Stock (other than issuances in connection with the compensation of
Acquiror's employees, including, without limitation, issuances of stock
under Acquiror's restricted stock purchase plan) at a price per share less
than $485.00, or (y) any proposed acquisition or disposition by Acquiror or
any of its Subsidiaries of assets having a fair market value of more than
$500,000,000 which, in the reasonable judgment of the Company Nominees and
the Company's investment banker submitted to Acquiror in writing, is
reasonably likely to cause the per share value of the Acquiror Class A
Common Stock to be less than $485.00.
(c) At the expiration of the initial term of the Company Nominees as members
of Acquiror's Board of Directors, such Board (or any nominating committee of
such Board) will exercise all authority under applicable Law to nominate for
membership on such Board two persons designated by NPJ, for a term which (if
such persons are elected by Acquiror's stockholders) will commence and expire
together with other members of the Board of the same Class as that set forth on
Schedule 1.1 hereto; PROVIDED, HOWEVER, that (unless such designees are the
Company Nominees) such designees shall be reasonably satisfactory to Acquiror
and its Board of Directors. In the event that a Company Nominee or any other
person designated as a director by NPJ dies, resigns or ceases to serve as such
for any other reason, the vacancy resulting therefrom shall be filled by
Acquiror's Board of Directors with a substitute designated by NPJ who is
reasonably satisfactory to Acquiror and its Board of Directors.
6.24 EFFECT OF CERTAIN EVENTS. If at any time prior to the approval by the
Company's stockholders of the Merger Transactions (a) Acquiror has elected to
issue Acquiror Preferred Stock in connection with the Merger and (b) the Joint
Proxy Statement/Prospectus has been prepared, then the Company shall use its
best efforts to cause the holders of not less than 50.1% of the voting power of
each class of Company Common Stock (when aggregated with the voting power
represented by direct signatories to the Voting Agreement
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and Persons who have theretofore executed joinder agreements pursuant to which
they are bound by the Voting Agreement) to execute joinder agreements pursuant
to which such holders shall agree to be bound by the terms of the Voting
Agreement. At such time as (i) the Company delivers to Acquiror notification
that each of the foregoing events has occurred and executed originals of such
joinder agreements, and (ii) Acquiror has delivered to the Company an executed
joinder agreements as a result of which stockholders of Acquiror holding not
less than two-thirds of the combined voting power of Acquiror Common Stock and
Acquiror Series A Preferred Stock (when aggregated with the voting power
represented by direct signatories to the Voting Agreement) have agreed to be
bound by the terms of the Voting Agreement then, from and after such date,
Sections 8.1(e) and 8.3 of this Agreement shall be deemed null and void and of
no further force and effect, PROVIDED, HOWEVER, that if, at any time prior to
the approval by the Company's stockholders of the Merger Transactions, (x) the
enforceability of the obligations under the Voting Agreement of any of the
Company stockholders who are parties thereto, or the enforceability of any of
the joinder agreements executed by Company stockholders, is challenged in any
respect, (y) any provision of any such agreement is breached in any respect, or
(z) such agreements, taken in the aggregate, cease to represent the obligations
of the holders of at least 50.1% of the voting power of each class of Company
Common Stock, then the provisions of Sections 8.1(e) and 8.3 shall be
reinstated AB INITIO into this Agreement.
6.25 ACQUIROR SCHEDULES. Acquiror shall deliver to the Company from time to
time information supplementing or amending Schedules 5.6 and 5.8 hereto to
reflect changes with respect thereto occurring after November 18, 1994 and
prior to the Closing Date (it being understood by the parties that such changes
may not relate to matters which occurred or were in existence on or prior to
November 18, 1994). Any covenant, representation or warranty of Acquiror to
which any such supplemented or amended Schedule pertains shall be deemed to
have been so amended as of November 18, 1994.
6.26 EMPLOYEE STOCK OPTIONS. Effective upon the Distribution, (i) NPJ shall
assume in their entirety the Units Plan, the Stock Plan, the Option Plan and
the Directors Option Plan; (ii) each stock option outstanding under the Option
Plan and the Directors Option Plan and each unit outstanding under the Units
Plan that is not exercised for, or converted into, Company Common Stock shall
be assumed by NPJ, and all references in any such plan to the Company and to
Company Common Stock shall be deemed to refer to NPJ and NPJ Common Stock; and
(iii) each restricted stock award subject to vesting conditions under the Stock
Plan shall be assumed by NPJ and all references in any such restricted stock
award to the Company and to Company Common Stock shall be deemed to refer to
NPJ and NPJ Common Stock. The Company, Broadcasting and NPJ covenant that as of
the Distribution, there shall be no options or units (or rights with respect
thereto) outstanding under the Option Plan, the Directors Option Plan or the
Units Plan or any unvested stock awards outstanding under the Stock Plan.
6.27 RIGHTS PLAN. The Company agrees that as soon as practicable after the
date hereof it will enter into an amendment to the Rights Agreement in form and
substance reasonably satisfactory to the Company and Acquiror pursuant to
which, among other things, the Rights Agreement will be amended to provide for
the following: (i) that the execution and delivery of this Agreement, and the
consummation of the Merger Transactions (including, without limitation, the
Merger, the Dissolution and the Distribution) are not events which would (x)
permit the holders of Rights to exercise such Rights to acquire shares of the
Company Common Stock, or (y) require the Company, in accordance with Section
11(a)(ii) of the Rights Agreement, to exchange any or all of the outstanding
Rights for shares of the Company Common Stock; (ii) in no event will the
provisions of Sections 11(n) and 13 of the Rights Agreement apply to the Merger
Transactions (including, without limitation, if a Rights Distribution Date or
Stock Acquisition Date has occurred between the date of the Original Agreement
and the Holding Effective Time); (iii) that effective upon the Dissolution, the
Rights Agreement will terminate and be of no further force and effect; and (iv)
such other amendments to the Rights Agreement as Acquiror may reasonably
request. In addition, the Company will not take any action resulting in the
application of the Rights Agreement to the Merger Transactions.
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ARTICLE 7.
CLOSING AND CLOSING DATE; CONDITIONS TO CLOSING
7.1 CLOSING AND CLOSING DATE. As soon as practicable after the satisfaction
or waiver of the conditions set forth herein (but no later than ten Business
Days thereafter) and prior to the filing of the Certificate of Merger, a
closing of the transactions contemplated hereby (the "Closing") shall take
place at the offices of Sullivan & Worcester, One Post Office Square, Boston,
Massachusetts 02109, or on such other date and at such other location as the
parties may agree in writing. The date on which the Closing occurs is referred
to as the "Closing Date."
7.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY, NPJ, HOLDING, BROADCASTING
AND ACQUIROR. The respective obligations of the Company, NPJ, Holding and
Broadcasting, on the one hand, and Acquiror, on the other hand, to consummate
the transactions contemplated hereby are subject to the satisfaction, on or
prior to the Closing Date, of the following conditions:
(a) The Merger Transactions shall have been approved and adopted by the
stockholders of the Company as contemplated by Section 6.13;
(b) The Merger Transactions and the Recapitalization Amendment shall have
been approved and adopted by the stockholders of Acquiror as contemplated
by Section 6.14;
(c) The transactions contemplated by Article 2 hereof shall have been
consummated as contemplated herein and in accordance with applicable Law,
and each of the conveyancing instruments, liability assumption instruments
and other instruments, documents and agreements executed in connection with
such transactions shall be in a form reasonably satisfactory to Acquiror
and its counsel;
(d) Any waiting period applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated
and all notices to, or permits, consents, waivers, approvals,
authorizations and orders of, third parties which are material to the
conduct after the Effective Time of the business of the Surviving
Corporation and its Subsidiaries and governmental authorities required with
respect to the transactions contemplated hereby shall have been filed or
obtained (without any material modification to the Licenses, Franchises or
agreements to which they pertain as would dilute the benefits to Acquiror
of the transactions contemplated hereby) and be in full force and effect,
and all appeal periods for challenging any such permit, consent, waiver,
approval, authorization or order shall have expired and no such challenge
shall be pending, PROVIDED, HOWEVER, that this condition shall not apply
with respect to any authorization, consent, waiver, order or approval
necessary for the transfer of control of any Franchise if the condition in
Section 7.4(f) has been satisfied or waived by Acquiror;
(e) No federal, state or foreign governmental authority or other agency
or commission or court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any Law, injunction or other order
(whether temporary or preliminary or permanent) which remains in effect and
which has the effect of making the transactions contemplated hereby illegal
or otherwise prohibiting the transactions contemplated by the Transaction
Documents, or which questions the validity or the legality of the
transactions contemplated hereby and which could reasonably be expected to
have a Material Adverse Effect on the business of the Cable Subsidiaries or
Acquiror and its Subsidiaries taken as a whole;
(f) The Registration Statements shall have been declared effective under
the Securities Act and no stop orders with respect thereto shall have been
issued;
(g) The Company shall have received from (i) the IRS a private letter
ruling as contemplated by Section 6.17 hereof and (ii) an opinion of
Edwards & Angell to the effect that the Merger constitutes a tax-free
reorganization under Section 368 of the Code; and
(h) There shall not have occurred and be continuing (i) a nationwide
moratorium on commercial banking activities in the United States or (ii)
any general suspension of trading for more than one
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Business Day in securities on any United States national securities
exchange or in the over-the-counter market.
7.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY, NPJ, HOLDING AND
BROADCASTING. The obligations of the Company, NPJ, Holding and Broadcasting to
consummate the transactions contemplated hereby (other than the Company's
obligation to mail the Joint Proxy Statement/Prospectus, if required by
applicable Law or the Company's Articles of Incorporation) are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
(a) The representations and warranties of Acquiror contained in this
Agreement or in any other document delivered pursuant hereto shall be true
and correct in all material respects on and as of the Closing Date with the
same effect as if made on and as of the Closing Date and at the Closing
Acquiror shall have delivered to NPJ a certificate to that effect;
(b) Each of the obligations of Acquiror to be performed on or before the
Closing Date pursuant to the terms of this Agreement shall have been duly
performed in all material respects on or before the Closing Date and at the
Closing Acquiror shall have delivered to NPJ a certificate to that effect;
(c) The Company and NPJ shall have received an opinion of Sullivan &
Worcester, counsel for Acquiror, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company, NPJ and their counsel;
and
(d) The Acquiror Class A Common Stock and the Acquiror Preferred Stock
(if any is issued pursuant to the Merger) shall have been approved for
listing on the National Association of Securities Dealers Automated
Quotation National Market System or a national securities exchange, subject
to official notice of issuance.
Anything in this Section 7.3 to the contrary notwithstanding, the conditions
set forth in Section 7.3(a) to the obligation of the Company, NPJ, Holding and
Broadcasting to effect the transactions contemplated hereby shall be deemed
satisfied (a) notwithstanding any failure of any representation or warranty of
Acquiror to be true and correct as of the Closing Date, if (i) the aggregate
amount of Losses and Expenses which could reasonably be expected to arise as a
result of the failure of such representations and warranties to be true and
correct as of the Closing Date would not exceed $10,000,000 (the "Threshold
Amount") or (ii) in the event such Losses and Expenses exceed the Threshold
Amount but are less than $100,000,000, Acquiror agrees at or prior to the
Effective Time to indemnify and hold harmless NPJ immediately prior to the
Effective Time against any such Losses and Expenses in excess of the Threshold
Amount on terms and conditions reasonably satisfactory to NPJ and (b)
notwithstanding any failure of any representation or warranty of Acquiror as it
relates to any Subsidiary or cable television system of Acquiror or any of its
Subsidiaries acquired by Acquiror or any of its Subsidiaries after November 18,
1994 to be true and correct as of the Closing Date unless such failure,
individually or in the aggregate, would have a Material Adverse Effect on
Acquiror and its Subsidiaries taken as a whole.
7.4 CONDITIONS TO OBLIGATIONS OF ACQUIROR. The obligations of Acquiror to
effect the transactions contemplated hereby (other than the Acquiror's
obligation to mail the Joint Proxy Statement/Prospectus, if required by
applicable Law or the Acquiror Restated Certificate) are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
(a) The representations and warranties of the Company and NPJ contained
in this Agreement or in any other document delivered pursuant hereto shall
be true and correct in all material respects on and as of the Closing Date
with the same effect as if made on and as of the Closing Date and at the
Closing NPJ shall have delivered to Acquiror a certificate to that effect;
(b) Each of the obligations of the Company, NPJ, Holding and Broadcasting
to be performed on or before the Closing Date pursuant to the terms of this
Agreement shall have been duly performed in all material respects on or
before the Closing Date and at the Closing NPJ shall have delivered to
Acquiror a certificate to that effect;
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(c) Broadcasting shall have no assets except (i) all the capital stock of
the Cable Subsidiaries (either directly or indirectly), (ii) the contract
rights referred to in Section 2.5(a)(ii), (iii) the cash referred to in
Section 2.5(a)(iii) to the extent such cash has not previously been used to
pay other expenses of the Company, Holding or Broadcasting described
therein, (iv) the Palmer Systems, the Related Assets and the assets of
Westerly or Colony, as the case may be, to the extent the transactions
contemplated by the last sentence of Section 2.6 hereof shall have been
consummated, and (v) assets that in the aggregate are not material to
Broadcasting and its Subsidiaries (excluding the Cable Subsidiaries) taken
as a whole and are associated with the operation of the cable systems of
Broadcasting and its Subsidiaries;
(d) Immediately prior to the Effective Time (after giving effect to NPJ's
assumption of liabilities pursuant to the Contribution Agreement),
Broadcasting shall have no liabilities except (i) any liabilities
associated with the operations of the Cable Subsidiaries or the cable
operations of Broadcasting, (ii) the New Company Debt, (iii) the
contractual obligations referred to in Section 2.5(b)(iii), and (iv) the
liabilities set forth on Schedule 2.5(b) hereto;
(e) Acquiror shall have received an opinion of Edwards & Angell, counsel
for the Company and NPJ, dated as of the Closing Date, in form and
substance reasonably satisfactory to Acquiror and its counsel;
(f) The aggregate number of cable television subscribers in the Cable
Franchise Areas that are Transferable Franchise Areas (as defined below)
shall be ninety-five percent (the "Required Percentage") of the aggregate
number of cable television subscribers in all Cable Franchise Areas;
PROVIDED, HOWEVER, that the condition set forth in this Section 7.4(f)
shall not be deemed to be satisfied until the earlier to occur of (x)
thirty (30) days following the date on which the Required Percentage is
obtained, (y) the date on which the condition set forth in this Section
7.4(f) would be satisfied if the Required Percentage were one hundred
percent or (z) December 31, 1995. For purposes of this Section 7.4(f):
(i) A Cable Franchise Area means any of the geographic areas in which
the Company or the Cable Subsidiaries are authorized to provide cable
television service pursuant to a Franchise or provide cable television
service without a Franchise;
(ii) A Cable Franchise Area is a Transferable Franchise Area if (a)
any authorization, consent, waiver, order or approval of any
governmental authority necessary for the transfer of control of the
Franchise for such Cable Franchise Area in connection with the
consummation of the transactions contemplated by this Agreement shall
have been obtained; (b) no authorization, consent, waiver, order or
approval of any governmental authority is necessary for the transfer of
control of the Franchise for such Cable Franchise Area in connection
with the consummation of the transactions contemplated by this
Agreement; or (c) no Franchise is required for the provision of cable
television service in the Cable Franchise Area;
(iii) If, at any time prior to the Closing Date, any governmental
authority exercises any right reserved to it in a Franchise for any
Cable Franchise Area to acquire the Franchise upon the actual or
proposed transfer of control of such Franchise, then during the
pendency of any proceeding with respect to the acquisition of the
Franchise by such governmental authority, and notwithstanding any other
action taken by the governmental authority, (a) such Franchise shall be
deemed to be one with respect to which consent is required for the
transfer of control of such Franchise in connection with the
consummation of the transactions contemplated by this Agreement and (b)
the governmental authority shall be deemed not to have granted its
consent to the transfer of control of such Franchise; and
(iv) In calculating the number of cable television subscribers in a
Cable Franchise Area, the number of Basic Subscribers in such Cable
Franchise Area on September 30, 1994 shall be used.
(g) Broadcasting and NPJ shall have entered into a non-competition
agreement with Acquiror in substantially the form attached hereto as
EXHIBIT D;
(h) NPJ shall have delivered to Acquiror a certificate signed by the
chief executive officer and the chief financial officer of NPJ certifying
that there are no outstanding options to acquire any capital stock
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of the Company, Holding and Broadcasting and as to the number of shares of
capital stock of the Company, Holding and Broadcasting outstanding as of
the Closing Date, indicating the class and series of such shares; and
(i) Neither Broadcasting nor Acquiror shall, pursuant to the terms of the
Rights Agreement or otherwise, be liable for, or be required to assume, any
obligation or duty of the Company under the Rights Agreement and the
holders of Rights shall not have any right to acquire any shares of
Broadcasting Common Stock or Acquiror Common Stock pursuant to the exercise
of such Rights.
Anything in this Section 7.4 to the contrary notwithstanding, the conditions
set forth in Section 7.4(a) to the obligation of Acquiror to effect the
transactions contemplated hereby shall be deemed satisfied notwithstanding any
failure of any representation or warranty (other than the representations and
warranties set forth in Sections 3.6 and 4.3(a)) of the Company or NPJ to be
true and correct as of the Closing Date, if (i) the aggregate amount of Losses
and Expenses which could reasonably be expected to arise as a result of the
failure of such representations and warranties to be true and correct as of the
Closing Date would not exceed $5,000,000 (the "Threshold Amount") or (ii) in
the event such Losses and Expenses exceed the Threshold Amount but are less
than $50,000,000, NPJ agrees at or prior to the Effective Time to indemnify and
hold harmless Acquiror and its Subsidiaries against any such Losses and
Expenses in excess of the Threshold Amount on terms and conditions reasonably
satisfactory to Acquiror.
ARTICLE 8.
TERMINATION
8.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by mutual written consent duly authorized by the Boards of Directors
of the Company, NPJ and Acquiror;
(b) by either the Company or Acquiror, (i) if at the stockholders'
meeting of Acquiror referred to in Section 6.14 (including any postponement
or adjournment thereof), the Merger Transactions and the Recapitalization
Amendment shall fail to be approved and adopted by the affirmative vote
specified herein, (ii) if at the stockholders' meeting of the Company
referred to in Section 6.13 (including any postponement or adjournment
thereof), the Merger Transactions shall fail to be approved and adopted by
the affirmative vote specified herein, or (iii) so long as the terminating
party has not breached its obligations hereunder, after December 31, 1995
(the "Termination Date"), if the Merger or the transactions contemplated
hereby shall not have been consummated on or before such date;
(c) by the Company, provided it has not breached any of its obligations
hereunder, if either (A) Acquiror fails to perform any covenant in this
Agreement when performance thereof is due and does not cure the failure
within 20 Business Days after the Company delivers written notice thereof,
or (B) any condition in Sections 7.2 and 7.3 of this Agreement is not
satisfied or capable of being satisfied prior to the Termination Date;
(d) by Acquiror, provided it has not breached any of its obligations
hereunder, if either (i) the Company or NPJ fails to perform any covenant
in this Agreement when performance thereof is due, and does not cure the
failure within 20 Business Days after written notice by Acquiror thereof,
(ii) any condition in Sections 7.2 and 7.4 of this Agreement is not
satisfied or capable of being satisfied prior to the Termination Date, or
(iii) the Company Board of Directors materially modifies or withdraws the
approval, determination or recommendation referred to in Section 3.4 and
Section 6.9; or
(e) by the Company, whether or not the conditions set forth in Section
7.3 have been satisfied, if the Board of Directors of the Company
determines, with the written advice of counsel provided to Acquiror, that
it may be required to do so in the exercise of its fiduciary duties.
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8.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement
pursuant to Section 8.1 hereof, this Agreement, except for the provisions of
Section 6.6(e)--(g), Section 8.3 and Section 10.12, shall forthwith become null
and void and have no effect, without any liability on the part of any party or
its directors, officers or stockholders. Nothing in this Section 8.2 shall
relieve any party to this Agreement of liability for breach of this Agreement.
8.3 FEES AND EXPENSES.
(a) In order to induce Acquiror to, among other things, enter into this
Agreement, the Company agrees as follows: If this Agreement is terminated (A)
by Acquiror pursuant to Section 8.1(d)(iii) hereof, (B) by the Company pursuant
to Section 8.1(e) hereof, or (C) by the Company or Acquiror pursuant to Section
8.1(b)(ii) hereof and the Company Board of Directors shall have materially
modified or withdrawn the approval, determination or recommendation referred to
in Sections 3.4 and 6.9, then the Company shall promptly pay to Acquiror a fee
of $42,000,000, plus an amount equal to the actual reasonable fees and expenses
paid or payable by or on behalf of Acquiror to its attorneys, accountants,
environmental consultants, management consultants, and other consultants and
advisors in connection with the negotiation, execution and delivery of this
Agreement and the transactions contemplated hereby; PROVIDED, HOWEVER, that
such payment for fees and expenses shall in no event exceed $10,000,000. If
this Agreement is terminated by Acquiror pursuant to Section 8.1(d)(i) or
8.1(d)(ii) hereof, other than as a result of any condition in Section 7.2 or
the condition in Section 7.4(f) not being satisfied and not being capable of
being satisfied prior to the Termination Date (except if the failure of the
condition in Section 7.4(f) results from the refusal of one or more
governmental authorities to consent to the transfer of control of one or more
Franchises to Acquiror for reasons other than the qualifications or fitness of
Acquiror), then the Company shall promptly pay to Acquiror an amount equal to
the actual reasonable fees and expenses paid or payable by or on behalf of
Acquiror to its attorneys, accountants, environmental consultants, management
consultants, and other consultants and advisors in connection with the
negotiation, execution and delivery of this Agreement and the transactions
contemplated hereby; PROVIDED, HOWEVER, that the payment described in this
sentence shall in no event exceed $10,000,000. The $42,000,000 payment (the
"Break-Up Fee Payment") described in the first sentence of this Section 8.3(a)
shall be made in same day funds no later than five business days after the
termination of this Agreement. The payment for fees and expenses described in
the first and second sentences of this Section 8.3(a) shall be made in same day
funds no later than five business days after receipt by the Company of detailed
written statements describing the fees and expenses.
(b) In order to induce the Company and NPJ to, among other things, enter into
this Agreement, Acquiror agrees as follows: If this Agreement is terminated (i)
by the Company pursuant to Section 8.1(c), other than as a result of any
condition in Section 7.2 not being satisfied and not being capable of being
satisfied prior to the Termination Date, or (ii) by Acquiror pursuant to
Section 8.1(d)(ii) as a result of the condition in Section 7.4(f) not being
satisfied and not being capable of being satisfied prior to the Termination
Date (if the failure of the condition in Section 7.4(f) results from the
refusal of one or more governmental authorities to consent to the transfer of
control of one or more Franchises to Acquiror for reasons relating to the
qualifications or fitness of Acquiror), Acquiror shall pay promptly to the
Company an amount equal to the actual reasonable fees and expenses paid or
payable by or on behalf of the Company and NPJ to their attorneys, accountants,
environmental consultants, management consultants, and other consultants and
advisors in connection with the negotiation, execution and delivery of this
Agreement; PROVIDED, HOWEVER, that such payment shall in no event exceed the
sum of $10,000,000. Such payment shall be made in same day funds no later than
five business days after receipt by Acquiror of detailed written statements
describing the fees and expenses.
(c) (i) The Company hereby grants to Acquiror or any nominee designated by
Acquiror (in such capacity, "Buyer") an irrevocable option (the "Option"),
exercisable in accordance with clause (iii) below, to purchase and acquire, at
a purchase price of $68,500,000 (the "Option Purchase Price"), all of the
right, title and interest of the Company and the Cable Subsidiaries
(collectively, the "Seller") in and to the cable television system operated in
Palm Springs, California and the surrounding communities previously identified
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in writing by the Company to Acquiror as the "Palm Springs Cluster", together
with all accounts receivable, inventory, supplies, machinery, plant and
equipment, tools, customer lists, contracts, intangible assets, goodwill and
all other assets, tangible or intangible, used or usable in connection
therewith (the "Palm Springs System"), free and clear of all Liens.
(ii) Such transfer and assignment shall be free and clear of all liabilities
and obligations of Seller, and Buyer shall be under no obligation to assume or
perform, and shall not assume or perform, any obligation, liability or
indebtedness of Seller. All of the representations and warranties made by the
Company and NPJ herein which are applicable to the Palm Springs System shall be
deemed made by the Company and Seller in connection with Buyer's purchase of
the Palm Springs System, PROVIDED that such representations and warranties
shall not survive beyond the Option Closing (as defined below) except that the
representations and warranties in Section 4.9 which pertain to the Seller's
title to the Palm Springs System (the "Palm Springs Title Representation")
shall survive indefinitely. The Company hereby agrees to indemnify, defend and
hold harmless Acquiror and Buyer against any Losses and Expenses to the extent
such Losses and Expenses are based upon or arise out of any untruthful or
inaccurate representation made by the Company or NPJ in the Palm Springs Title
Representation. Any claim for indemnification in respect of the transfer and
assignment of the Palm Springs System shall be conducted in accordance with the
provisions of Sections 9.6 and 9.7 hereof.
(iii) Acquiror may exercise the Option at any time within 45 days following
the date on which Acquiror becomes entitled to a Break-Up Fee Payment by notice
in writing to the Company (the "Option Notice"). Such Option Notice shall
specify a date not less than 180 days from the date of the Option Notice for
the purchase of the Palm Springs System. The Company agrees to, and shall cause
Seller to, use its best efforts to obtain all authorizations, consents, orders,
waivers or approvals necessary or desirable for the transfer of the Palm
Springs System to Buyer and to make any filings required by any governmental
authority or applicable Law.
(iv) The closing of the exercise of the Option (the "Option Closing") shall
take place at the offices of Sullivan & Worcester at the address specified in
Section 7.1, on the date specified in the Option Notice, or on such other date
and at such other location as Acquiror and the Company may agree in writing. At
such closing, (A) Acquiror shall make payment of the Option Purchase Price to
the Company, (B) the Company and Seller shall deliver to Buyer evidence
reasonably satisfactory to Buyer and its counsel that all necessary
authorizations, consents, orders, waivers and approvals have been obtained to
vest in Buyer all of the right, title and interest of the Company and Seller in
and to the Palm Springs System, (C) the Company and Seller shall deliver to
Buyer such conveyancing instruments and documents reasonably necessary or
appropriate to vest in Buyer ownership of Seller as contemplated by this
paragraph (c), which instruments and documents shall be in a form reasonably
satisfactory to Buyer and its counsel, and (D) the Company and Seller shall
deliver to Acquiror all books and records regarding the operation of the Palm
Springs Systems and such other information and materials as shall ensure a
smooth transition of the operation of the Palm Springs System from the Seller
to Buyer.
(v) The Option shall terminate upon the earlier of the Effective Time or the
termination of this Agreement in accordance with Section 8.1 (other than a
termination pursuant to which Acquiror becomes entitled to a Break-Up Fee
Payment).
ARTICLE 9.
SURVIVAL; INDEMNIFICATION
9.1 SURVIVAL. All representations, warranties, covenants, agreements and
obligations in this Agreement or in any certificate required to be delivered by
this Agreement shall not survive beyond the Closing Date except that (i) any
covenant, agreement or obligation to be performed after the Closing Date shall
survive
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until such covenant, agreement or obligation has been fully performed, and (ii)
the provisions of this Article 9 and the representations and warranties
contained in Sections 3.6 and 4.3 of this Agreement shall survive indefinitely.
9.2 INDEMNIFICATION BY NPJ. NPJ hereby agrees to indemnify, defend and hold
harmless Acquiror, each of Acquiror's Subsidiaries, each of their respective
successors-in-interest and each of their respective past and present officers
and directors against any Losses and Expenses to the extent such Losses and
Expenses (i) arise out of or relate to the Assumed Liabilities or the
Contributed Assets (each as defined in the Contribution Agreement) or the
operations of any of the businesses contributed to NPJ pursuant to the
Contribution Agreement, (ii) are based upon or arise out of any untruthful or
inaccurate representation made by the Company and NPJ in Section 3.6 or 4.3
hereof, (iii) are based upon or arise out of any inaccurate information in the
certificate to be delivered by the Company, Holding and Broadcasting pursuant
to Section 7.4(h), or (iv) are based upon or arise out of the failure of the
Company to comply with the covenant set forth in Section 6.3(g) or 6.26.
9.3 INDEMNIFICATION BY ACQUIROR. Acquiror hereby agrees to indemnify and hold
harmless NPJ, each of NPJ's Subsidiaries and their respective successors-in-
interest and each of their respective past and present officers and directors
against any and all Losses and Expenses to the extent such Losses and Expenses
are based upon or arise out of any untruthful or inaccurate representation made
by Acquiror in Section 5.6 hereof.
9.4 INDEMNIFICATION BY THE COMPANY. The Company (and from and after the
Dissolution, Broadcasting) hereby agrees to indemnify, defend and hold harmless
NPJ, each of NPJ's Subsidiaries and their respective successors-in-interest and
each of their respective past and present officers and directors against any
Losses and Expenses, joint or several, arising out of or in connection with the
business operations of the Cable Subsidiaries, the Retained Liabilities or the
Retained Assets.
9.5 ADDITIONAL INDEMNIFICATION RELATING TO CERTAIN LITIGATION AND CLAIMS. (a)
The Company and, from and after the Effective Time, NPJ (individually and not
jointly with the Company) and Acquiror each agrees to indemnify and hold
harmless the other against any and all Losses and Expenses to the extent such
Losses and Expenses are based upon or arise out of any suit, action or
proceeding brought by the holders of the Indemnifying Party's (and, when NPJ is
the indemnifying party, the Company's, Holding's and Broadcasting's) debt or
equity securities as a result of, or in connection with, the execution and
delivery of this Agreement and the transactions contemplated hereby; PROVIDED,
HOWEVER, that the Company or Acquiror, as the case may be, shall not be
entitled to indemnification under this Section 9.5 to the extent (i) such
Losses and Expenses (or actions in respect thereof) arise out of or are based
upon (A) an untrue statement or alleged untrue statement of a material fact
contained in any SEC Filing or (B) the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) it was responsible for such misstatement or omission.
(b) The Company and, from and after the Effective Time, NPJ (individually and
not jointly with the Company) agrees to indemnify and hold harmless Acquiror
and its Subsidiaries against any and all Losses and Expenses to the extent such
Losses and Expenses are based upon or arise out of any action or claim of any
nature whatsoever asserted by (i) any holder listed on Schedule 4.3 of any of
the equity securities of any of the Cable Subsidiaries, or (ii) any holder
listed on Schedule 3.6 of any of the equity securities of Holding or
Broadcasting listed on Schedule 3.6, including, without limitation, any action
or claim asserted in connection with or relating to the purchase by any Cable
Subsidiary or the Company of the equity securities of any such holder.
9.6 NOTIFICATION OF CLAIMS. For the purpose of this Article 9, the term
"Indemnifying Party" shall mean the party having an obligation hereunder to
indemnify the other party or parties) pursuant to this Article 9, and the term
"Indemnified Party" shall mean the party having the right to be indemnified
pursuant to this Article 9. Whenever any claim shall arise for indemnification
under this Article 9, the Indemnified
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Party shall promptly notify the Indemnifying Party in writing of such claim
and, when known, the facts constituting the basis for such claim (in reasonable
detail). Failure by the Indemnified Party to so notify the Indemnifying Party
shall not relieve the Indemnifying Party of any liability hereunder unless such
failure materially prejudices the Indemnifying Party.
9.7 INDEMNIFICATION PROCEDURES.
(a) After the notice required by Section 9.6, if the Indemnifying Party
undertakes to defend any such claim, it shall be required to take control of
the defense and investigation with respect to such claim and to employ and
engage attorneys of its own choice to handle and defend the same, at the
Indemnifying Party's cost, risk and expense, upon written notice to the
Indemnified Party of such election, which notice acknowledges the Indemnifying
Party's obligation to provide indemnification hereunder. The Indemnifying Party
shall not settle any third-party claim that is the subject of indemnification
without the written consent of the Indemnified Party, which consent shall not
be unreasonably withheld; PROVIDED, HOWEVER, that the Indemnifying Party may
settle a claim without the Indemnified Party's consent if such settlement (i)
makes no admission or acknowledgment of liability or culpability with respect
to the Indemnified Party, (ii) includes a complete release of the Indemnified
Party and (iii) does not require the Indemnified Party to make any payment or
forego or take any action. The Indemnified Party shall cooperate in all
reasonable respects with the Indemnifying Party and its attorneys in the
investigation, trial and defense of any lawsuit or action with respect to such
claim and any appeal arising therefrom (including the filing in the Indemnified
Party's name of appropriate cross claims and counterclaims). The Indemnified
Party may, at its own cost, participate in any investigation, trial and defense
of such lawsuit or action controlled by the Indemnifying Party and any appeal
arising therefrom.
(b) If, after receipt of a claim notice pursuant to Section 9.6, the
Indemnifying Party does not undertake to defend any such claim, the Indemnified
Party may, but shall have no obligation to, contest any lawsuit or action with
respect to such claim and the Indemnifying Party shall be bound by the result
obtained with respect thereto by the Indemnified Party (including, without
limitation, the settlement thereof without the consent of the Indemnifying
Party). If there are one or more legal defenses available to the Indemnified
Party that conflict with those available to the Indemnifying Party, the
Indemnified Party shall have the right, at the expense of the Indemnifying
Party, to assume the defense of the lawsuit or action; PROVIDED, HOWEVER, that
the Indemnified Party may not settle such lawsuit or action without the consent
of the Indemnifying Party, which consent shall not be unreasonably withheld or
delayed.
(c) At any time after the commencement of defense of any lawsuit or action,
the Indemnifying Party may request the Indemnified Party to agree in writing to
the abandonment of such contest or to the payment or compromise by the
Indemnifying Party of such claim, whereupon such action shall be taken unless
the Indemnified Party determines that the contest should be continued and so
notifies the Indemnifying Party in writing within 15 days of such request from
the Indemnifying Party. If the Indemnified Party determines that the contest
should be continued, the Indemnifying Party shall be liable hereunder only to
the extent of the lesser of (i) the amount which the other party(ies) to the
contested claim had agreed to accept in payment or compromise as of the time
the Indemnifying Party made its request therefor to the Indemnified Party or
(ii) such amount for which the Indemnifying Party may be liable with respect to
such claim by reason of the provisions hereof.
9.8 WORKING CAPITAL ADJUSTMENT.
(a) Immediately prior to the Effective Time (and giving effect to the
Distribution), Broadcasting shall prepare and deliver to Acquiror a schedule
showing Broadcasting's best estimate of the Working Capital (the "Broadcasting
Working Capital Calculation"). If the Broadcasting Working Capital Calculation
is greater than zero, Acquiror shall pay the excess to NPJ in immediately
available funds on the Effective Time; if the Broadcasting Working Capital
Calculation is less than zero, NPJ shall pay the difference to Acquiror in
immediately available funds on the Effective Time.
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(b) As promptly as practicable after the Effective Time, but in any event
within 90 days thereafter, Acquiror shall prepare and deliver to NPJ a schedule
showing Acquiror's determination of the Working Capital as of the Effective
Time (and giving effect to the Distribution) (the "Acquiror Working Capital
Calculation"). If NPJ disagrees with the Acquiror Working Capital Calculation,
NPJ shall give notice thereof to Acquiror within 30 days after delivery of the
Acquiror Working Capital Calculation to NPJ.
(c) Acquiror and NPJ shall attempt to settle any such dispute; any such
settlement shall be final and binding upon Acquiror and NPJ. If, however,
Acquiror and NPJ are unable to settle such dispute within 30 days after receipt
of such notice of dispute by Acquiror, the dispute shall be submitted to an
independent certified public accounting firm mutually acceptable to Acquiror
and NPJ for resolution, and the decision of such independent certified public
accountants shall be final and binding upon Acquiror and NPJ. All costs
incurred in connection with the resolution of said dispute by such independent
public accountants, including expenses and fees for services rendered, shall be
paid one half by Acquiror and one half by NPJ. Acquiror and NPJ shall use
reasonable efforts to have the dispute resolved within 60 days after such
dispute is submitted to said independent public accountants, but neither
Acquiror or NPJ shall have any liability to any party hereto if such dispute is
not resolved within such 60-day period.
(d) Within 10 Business Days following a final determination of the Working
Capital (whether as a result of NPJ failing to give notice of NPJ's
disagreement with Acquiror's determination within the time period prescribed
above, a resolution by Acquiror and NPJ of any such disagreement, or a
determination by an accounting firm selected pursuant to clause (c) above to
resolve any disagreement among the parties), Acquiror shall pay to NPJ, or NPJ
will pay to Acquiror, as the case may be, in immediately available funds, any
additional payment to which such party would have been entitled on the
Effective Time under clause (a) of this Section based on the final
determination of the Working Capital.
ARTICLE 10.
MISCELLANEOUS
10.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
written and oral and all contemporaneous oral agreements and understandings
with respect to the subject matter hereof.
10.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person,
by telecopy with answerback, by express or overnight mail delivered by a
nationally recognized air courier (delivery charges prepaid) or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties as follows:
IF TO ACQUIROR:
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, MA 02110
Telecopy: (617) 742-0530
Attention: Amos B. Hostetter, Jr.
WITH A COPY TO:
Sullivan & Worcester
One Post Office Square
Boston, MA 02109
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
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IF TO THE COMPANY, HOLDING, BROADCASTING OR NPJ:
The Providence Journal Company
75 Fountain Street
Providence, RI 02902
Telecopy: (401) 277-7889
Attention: Stephen Hamblett and John L. Hammond, Esq.
WITH A COPY TO:
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 08903
Telecopy: (401) 276-6611
Attention: Walter G.D. Reed, Esq.
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy or by air courier shall
be deemed effective on the first Business Day at the place from which such
notice or communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth Business Day at the place
from which such notice or communication was mailed following the day in which
such notice or communication was mailed.
10.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under principles of conflicts of laws applicable hereto.
10.4 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
10.5 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement except
for Section 6.6 and Article 9 (which are intended to be for the benefit of the
Persons provided for therein, and may be enforced by such Persons.)
10.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
10.7 EXPENSES. Prior to the Closing Date, the Company, Holding and
Broadcasting shall pay, or make adequate provision for the payment of, all
costs and expenses required to be paid by them under this Agreement in
connection with the transactions contemplated by this Agreement. All costs and
expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses; PROVIDED,
HOWEVER, that the following fees, costs and expenses shall be borne one-half by
the Company and one-half by Acquiror: (A) filing fees under the HSR Act; (B)
closing fees (including, without limitation, facility fees, syndication fees
and other arrangement fees, if any) to be paid to the financial institutions
which will extend the New Company Debt (except that the expenses borne by the
Company pursuant to this clause (B) shall not exceed 40 basis points of the
aggregate principal amount of the New Company Debt); and (C) fees, costs and
expenses to be paid to third parties that the Company and Acquiror mutually
agree to make in connection with obtaining authorizations, consents, orders,
waivers or approvals of any governmental authority (including, without
limitation, the FCC) necessary for the transfer of control of any Franchise or
License (except that the Company shall be solely responsible for all costs and
expenses
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which result from the material violation of the terms of a Franchise by the
Company or a Cable Subsidiary and Acquiror shall be solely responsible for all
costs and expenses which result from material amendments to the terms of a
Franchise made solely at the request of Acquiror).
10.8 PERSONAL LIABILITY. This Agreement shall not create or be deemed to
create or permit any personal liability or obligation on the part of any direct
or indirect stockholder of any party hereto or any officer, director, employee,
agent, representative or investor of any party hereto.
10.9 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any party
hereto.
10.10 AMENDMENT. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties. Any amendment to this Agreement by
a party after the meeting of its stockholders referred to in Section 6.13 or
6.14, as the case may be, may be made without seeking the approval of such
stockholders to the extent permissible under applicable Law.
10.11 EXTENSION; WAIVER. Any party hereto may (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of
any other party contained herein or in any document, certificate or writing
delivered pursuant hereto by any other party, or (iii) waive compliance with
any of the agreements or conditions contained herein or any breach thereof. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. No failure or delay on the part of any party hereto in the exercise of
any right hereunder shall impair such right or be construed to be a waiver of,
or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
10.12 LEGAL FEES; COSTS. If any party hereto institutes any action or
proceeding to enforce any provision of this Agreement, the prevailing party
therein shall be entitled to receive from the losing party reasonable
attorneys' fees and costs incurred in such action or proceeding, whether or not
such action or proceeding is prosecuted to judgment.
10.13 SPECIFIC PERFORMANCE. The parties acknowledge that money damages are
not an adequate remedy for violations of this agreement and that any party may,
in its sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by applicable law, each party waives any objection to
the imposition of such relief.
10.14 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
10.15 FURTHER AGREEMENTS RELATING TO THE ORIGINAL AGREEMENT. In the event
that (i) the private letter ruling contemplated by Section 6.17 hereof is not
received from the IRS within 180 days of the Company's request therefor or (ii)
prior to the date specified in clause (i), the IRS formally notifies the
Company that it is not willing to issue such ruling, Acquiror, the Company and
NPJ agree promptly to amend and restate
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this Agreement so that it is in the form of the Original Agreement and to abide
by the provisions of that certain side letter among the Company, NPJ and
Acquiror dated as of even date with this Agreement.
ARTICLE 11.
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
indicated.
"Accumulated Funding Deficiency" means an accumulated funding deficiency, as
defined in Section 302 of ERISA and Section 412 of the Code.
"Acquiror" has the meaning set forth in the first paragraph of this
Agreement.
"Acquiror Balance Sheet" has the meaning set forth in Section 5.7.
"Acquiror Benefit Arrangement", "Acquiror Employees", "Acquiror Employee
Plan" and "Acquiror Plan" have the meanings set forth in Section 5.15.
"Acquiror Class A Common Stock" means Acquiror's Class A Common Stock, $.01
par value per share.
"Acquiror Class B Common Stock" means Acquiror's Class B Common Stock, $.01
par value per share.
"Acquiror Common Stock" means, collectively, the Acquiror Class A Common
Stock and the Acquiror Class B Common Stock.
"Acquiror Merger Securities" means the Acquiror Class A Common Stock and the
Acquiror Preferred Stock (if any) to be issued pursuant to the Merger.
"Acquiror Preferred Stock" has the meaning set forth in Section 1.2(a).
"Acquiror Restated By-Laws" means the By-Laws of Acquiror, as amended and
restated and in effect as of the Closing Date.
"Acquiror Restated Certificate" means the Certificate of Incorporation of
Acquiror, as amended and restated and in effect on the Closing Date.
"Acquiror's 1998-1999 Share Repurchase Program" means the Acquiror Common
Stock repurchase program of Acquiror under the Stock Liquidation Agreement
under which Acquiror will offer to purchase, and certain shareholders of
Acquiror will sell to Acquiror on December 15, 1998 (or January 15, 1999, at
the election of each such shareholder), at a price established pursuant to a
specified formula, up to 667,366 shares of Acquiror Common Stock.
"Acquiror Series A Preferred Stock" has the definition set forth in Section
5.6.
"Acquiror Working Capital Calculation" has the meaning set forth in Section
9.8(b).
"Affiliate" has the meaning set forth in Rule 12b-2 promulgated by the SEC
under the Exchange Act.
"Assumed Liabilities" has the meaning set forth in the Contribution
Agreement.
"Balance Sheet Date" means September 30, 1994.
"Basic Service" means the level of cable television service provided by the
Company, any Cable Subsidiary, Acquiror or any Subsidiary of Acquiror (as the
case may be) in any Franchise Area which has
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the largest number of subscribers (other than the service level of the Company,
any Cable Subsidiary, Acquiror or any Subsidiary of Acquiror (as the case may
be) which consists primarily of transmissions of local and distant broadcasting
stations).
"Basic Subscriber" means a Person (i) who subscribes to Basic Service, (ii)
who pays the full rate for such service charged by the Company, any Cable
Subsidiary, Acquiror or any Subsidiary of Acquiror (as the case may be) for
detached single family homes, and (iii) whose accounts receivable owed for such
service are not more than 60 days past due from the date of invoice; provided,
that a hotel, motel, or other multi-living unit customer which pays less per
living unit than the rates charged for detached single family homes shall be
considered to be that number of Basic Subscribers which is equal to revenues
from Basic Service provided to such hotel, motel, or other customer for the
month immediately preceding the month in which this Agreement is executed and
delivered (without regard to nonrecurring revenues from ancillary services such
as installation fees) divided by the full rate charged for detached single
family homes for such service.
"Benefit Arrangement" has the meaning set forth in Section 4.12(q).
"Break-Up Fee Payment" has the meaning set forth in Section 8.3(b).
"Broadcasting" has the meaning set forth in the preambles to this Agreement.
"Broadcasting Class A Common Stock" means Broadcasting's Class A Common
Stock, $1.00 par value per share.
"Broadcasting Class B Common Stock" means Broadcasting's Class B Common
Stock, $1.00 par value per share.
"Broadcasting Common Stock" means, collectively, the Broadcasting Class A
Common Stock and the Broadcasting Class B Common Stock.
"Broadcasting Working Capital Calculation" has the meaning set forth in
Section 9.8(a).
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in the City of New York are not open for the transaction of
business.
"Cable Balance Sheet" has the meaning set forth in Section 4.4.
"Cable Dispute" has the meaning set forth in Section 6.10(a).
"Cable Employees", "Cable Employee Plan", "Cable Plan" and "Cable Benefit
Arrangement" have the meanings set forth in Section 4.12(q).
"Cable Franchise Areas" has the meaning set forth in Section 7.4(f).
"Cable Subsidiaries" means Subsidiaries of the Company that directly or
indirectly own and operate cable television systems (including, without
limitation, Copley/Colony, Inc. and its Subsidiaries and King Videocable
Company and its Subsidiaries); PROVIDED, HOWEVER, that for purposes of Articles
3 and 4 of this Agreement, such term includes the Company with respect to its
operation of the Palmer Systems.
"Cable Tax Returns" has the meaning set forth in Section 6.10(h).
"Certificates" has the meaning set forth in Section 1.6(b).
"Certificate of Merger" has the meaning set forth in Section 1.5.
"Closing" and "Closing Date" have the meanings set forth in Section 7.1.
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"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, as set forth in Section 4980B of the Code and Part 6 of Title I of
ERISA.
"Code" means the Internal Revenue Code of 1986, as amended.
"Colony" has the meaning set forth in Section 2.6.
"Common Stock Conversion Number" has the meaning set forth in Section 1.2(d).
"Communications Act" means the Communications Act of 1934, the Cable
Communications Policy Act of 1984 and the Cable Television Consumer Protection
and Competition Act of 1992, all as amended to date, and the applicable rules
and regulations thereunder.
"Company" has the meaning set forth in the first paragraph of this Agreement.
"Company Balance Sheet" has the meaning set forth in Section 3.8.
"Company Benefit Arrangement" has the meaning set forth in Section 4.12(q).
"Company Board of Directors" means the Board of Directors of the Company.
"Company Class A Common Stock" means the Company's Class A Common Stock,
$2.50 par value per share.
"Company Class B Common Stock" means the Company's Class B Common Stock,
$2.50 par value per share.
"Company Common Stock" means, collectively, the Company Class A Common Stock
and the Company Class B Common Stock.
"Company Consolidated Income Taxes" and Company Consolidated Income Tax
Returns" have the meanings set forth in Section 6.10(h).
"Company Employee Plan" means any Employee Benefit Plan that is sponsored or
contributed to by the Company, NPJ or any ERISA Affiliate of either of them
covering the employees or former employees of the Company, NPJ, or any ERISA
Affiliate of either of them.
"Company Group" has the meaning set forth in Section 6.10(h).
"Company/Kelso Agreement" means that certain Stock Purchase Agreement dated
as of January 18, 1995 among the Company and the Kelso Partnerships pursuant to
which the Company has agreed to purchase from the Kelso Partnerships all of the
Kelso Interests.
"Company Nominee" has the meaning set forth in Section 6.23.
"Confidentiality Agreement" means the letter agreement between the Company
and Acquiror dated as of February 16, 1994.
"Contribution" and "Contribution Agreement" have the meanings set forth in
Section 2.5.
"Contributed Assets" has the meaning set forth in the Contribution Agreement.
"Controlled Group Liability" means any and all liabilities under (i) Title IV
of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code
and (iv) the continuation coverage requirements of Section 601 et seq. of ERISA
and Section 4980B of the Code.
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"Directors Option Plan" means the 1994 Directors Stock Option Plan described
on Schedule 3.6.
"Dissenting Shares" and "Dissenting Stockholders" have the meaning set forth
in Section 1.3.
"Dissolution" has the meaning set forth in Section 2.4(b).
"Distribution" has the meaning set forth in Section 2.5(c).
"Effective Date" has the meaning set forth in Section 1.5.
"Effective Time" has the meaning set forth in Section 1.5.
"Employee Benefit Plan" has the meaning given such term in Section 3(3) of
ERISA.
"Enforceability Exceptions" has the meaning set forth in Section 3.1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means a Person and/or such Person's Subsidiaries, or any
trade or business (whether or not incorporated) which is under common control
with such entity or such entity's Subsidiaries or which is treated as a single
employer with such Person or any Subsidiary of such Person under Section
414(b), (c), (m), or (o) of the Code or Section 4001(b)(1) of ERISA (it being
understood that Copley/Colony, Inc. and its Subsidiaries and Holding and its
Subsidiaries are ERISA Affiliates of the Company).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Exchange Agent" has the meaning set forth in Section 1.6(a).
"FCC" means the Federal Communications Commission.
"FCC Approvals" has the meaning set forth in Section 3.3.
"Franchises" means written "franchises" within the meaning of Section 602(8)
of the Cable Communications Policy Act of 1984 (47 U.S.C. (S)522(9)).
"GAAP" means United States generally accepted accounting principles.
"Group Health Plan" means any group health plan, as defined in Section
5000(b)(1) of the Code.
"Holding" has the meaning set forth in the preambles to this Agreement.
"Holding Contribution" has the meaning set forth in the preambles to this
Agreement.
"Holding Dissolution" has the meaning set forth in the preambles to this
Agreement.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
"Indemnifying Party" and "Indemnified Party" have the meanings set forth in
Sections 6.6 or 9.6, as the context requires.
"Indemnitor" and "Indemnitee" have the meanings set forth in Section 6.10(f).
"IRS" means the United States Internal Revenue Service.
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"Issuer" has the meaning set forth in Section 1.6(d).
"Joint Proxy Statement/Prospectus" has the meaning set forth in Section
6.6(a).
"Kelso Interests" and "Kelso Partnerships" have the meanings set forth in
Section 2.2.
"Law" means all federal, state, county and local laws, statutes, ordinances,
rules and regulations.
"Licenses" means approvals, consents, rights, certificates, orders,
franchises, determinations, permissions, licenses, authorities or grants
issued, declared, designated or adopted by any nation or government, any
federal, state, municipal or other political subdivision thereof or any
department, commission, board, bureau, agency or instrumentality exercising
executive, legislative, judicial, regulatory or administrative functions
pertaining to government; excluding, however, the Franchises.
"Liens" means any lien, claim, charge, restriction, pledge, mortgage,
security interest or other encumbrance.
"Local Approvals" has the meaning set forth in Section 3.3.
"Losses and Expenses" mean any and all damages, liabilities, obligations,
losses, deficiencies, demands, claims, penalties, assessments, judgements,
actions, proceedings and suits of whatever kind and nature and all costs and
expenses relating thereto (including reasonable attorney's fees and
disbursements).
"Material Adverse Effect" means a material adverse effect on the business,
condition (financial or otherwise) or assets of the named entity or the named
entities taken as a whole. In all references in this Agreement to a "Material
Adverse Effect on the Company and the Cable Subsidiaries taken as a whole", the
Company shall be deemed to have no assets other than the stock of the Cable
Subsidiaries and, to the extent appropriate given the context in which the
statement is made, the Palmer Systems and the Related Assets. In all references
in this Agreement to a "Material Adverse Effect on NPJ and its Subsidiaries
taken as a whole", NPJ shall be deemed to own all of the assets and
Subsidiaries of the Company other than the Retained Assets.
"Material Cable Agreements" has the meaning set forth in Section 4.8(a).
"Maximum Common Stock Amount" means $645,000,000 or such lesser amount as
shall be calculated in accordance with Section 1.4(b) hereof.
"Merger" has the meaning set forth in Section 1.1.
"Merger Transactions" means, collectively, the transactions contemplated by
(i) the Merger, (ii) this Agreement, (iii) the Plan of Reorganization, and (iv)
the Contribution Agreement.
"Multiemployer Plan" means a multiemployer plan, as defined in Sections 3(37)
and 4001(a)(3) of ERISA.
"New Company Debt" has the meaning set forth in Section 2.1.
"NPJ" has the meaning set forth in the first paragraph of this Agreement.
"NPJ Class A Common Stock" means NPJ's Class A Common Stock, $1.00 par value
per share.
"NPJ Class B Common Stock" means NPJ's Class B Common Stock, $1.00 par value
per share.
"NPJ Common Stock" means, collectively, the NPJ Class A Common Stock and the
NPJ Class B Common Stock.
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"Non-Competition Agreement" means the Non-Competition Agreement among
Broadcasting, NPJ and Acquiror in the form attached hereto as EXHIBIT D.
"NPJ Debt" has the meaning set forth in Section 2.1.
"NLRB" means the National Labor Relations Board.
"Option Plan" means the Company 1994 Employee Stock Option Plan described in
Schedule 3.6 hereto.
"Original Agreement" has the meaning set forth in the preambles to this
Agreement.
"Other Filings" has the meaning set forth in Section 6.6(c).
"Palmer Systems" means all cable television systems owned or operated by the
Company directly.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means any employer pension benefit plan, as defined in Section
3(2) of ERISA.
"Person" means any individual, general partnership, limited partnership,
corporation, limited-liability company, joint venture, trust, business trust,
cooperative or association, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such Person where the context so
requires.
"Plan of Reorganization" means that certain Plan of Reorganization and
Dissolution of the Company relating to the transactions contemplated by Section
2.3 and 2.4 hereof and in form and substance reasonably acceptable to Acquiror.
"Preferred Stock Amount" has the meaning set forth in Section 1.2(f).
"Preferred Stock Conversion Number" has the meaning set forth in Section
1.2(e).
"Preferred Stock Election" has the meaning set forth in Section 1.2(g).
"Proceeds" has the meaning set forth in Section 6.15(d).
"Prohibited Transaction" means a transaction that is prohibited under 4975 of
the Code or Section 406 and not exempt under Section 4975 of the Code or
Section 408 of ERISA respectively.
"Recapitalization Amendment" shall mean an amendment to the Acquiror Restated
Certificate increasing the number of authorized shares of capital stock of
Acquiror to no less than the amounts set forth in Section 5.6.
"Registration Statements" has the meaning set forth in Section 6.6(a).
"Related Assets" has the meaning set forth in Section 2.6.
"Reportable Event" means a "reportable event" as defined in Section 4043 of
ERISA to the extent that the reporting of such event to the PBGC has not been
waived.
"Retained Assets" has the meaning set forth in the Contribution Agreement.
"Retained Liabilities" has the meaning set forth in the Contribution
Agreement.
"Rights" has the meaning set forth in the Rights Agreement.
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"Rights Agreement" means that certain Rights Agreement dated as of September
26, 1990 between the Company and The First National Bank of Boston, a national
banking association, as Rights Agent.
"Rights Distribution Date" has the meaning ascribed to the term "Distribution
Date" in the Rights Agreement.
"SEC" means the Securities and Exchange Commission.
"SEC Filings" has the meaning set forth in Section 6.6(d).
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations thereunder.
"Stock Acquisition Date" has the meaning set forth in the Rights Agreement.
"Stock Plan" means the Company Restricted Stock Plan described in Schedule
3.6 hereto.
"Subsidiary" shall mean as to any Person (i) any corporation of which such
Person owns, either directly or through its Subsidiaries, 50% or more of the
total combined voting power of all classes of voting securities of such
corporation and (ii) any partnership, association, joint venture or other form
of business organization, whether or not it constitutes a legal entity, in
which such Person directly or indirectly through its Subsidiaries owns 50% or
more of the total equity interests.
"Superior Proposal" has the meaning set forth in Section 6.1.
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Tax Return" means all returns, declarations, reports, estimates, information
returns and statements required to be filed in respect of any Taxes.
"Termination Date" has the meaning set forth in Section 8.1(b).
"Threshold Amount" has the meaning set forth in Section 7.3 or 7.4, as the
context requires.
"Transaction Documents" shall have the meaning set forth in Section 3.1.
"Transaction Securities" means, collectively, NPJ Common Stock and Acquiror
Merger Securities.
"Transferable Franchise Area" has the meaning set forth in Section 7.4(f).
"Units Plan" means the Company Incentive Stock Units Plan described in
Schedule 3.6 hereto.
"Voting Agreement" has the meaning set forth in Section 6.22(c).
"Welfare Plans" means any employee welfare benefit plan, as defined in
Section 3(l) of ERISA.
"Westerly" has the meaning set forth in Section 2.6.
"Withdrawal Liability" has the meaning given such term in Section 4201 of
ERISA.
"Working Capital" means the consolidated current assets (other than the
Proceeds of any disposition of a cable television system by the Company or a
Cable Subsidiary contemplated by Section 6.15(d)) minus consolidated current
liabilities (including, without limitation, any and all accrued unpaid taxes)
determined in accordance with GAAP of Broadcasting and the Cable Subsidiaries
as of the Effective Time.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized on the day and
year first above written.
Providence Journal Company
/s/ Trygve E. Myhren
By: _________________________________
Name: Trygve E. Myhren
Title: President and Chief
Operating Officer
The Providence Journal Company
/s/ Stephen Hamblett
By: _________________________________
Name: Stephen Hamblett
Title: Chairman of the Board and
Chief Executive Officer
King Holding Corp.
/s/ Trygve E. Myhren
By: _________________________________
Name: Trygve E. Myhren
Title: President and Chief
Operating Officer
King Broadcasting Company
/s/ Trygve E. Myhren
By: _________________________________
Name: Trygve E. Myhren
Title: President and Chief
Operating Officer
Continental Cablevision, Inc.
/s/ Amos B. Hostetter, Jr.
By: _________________________________
Name: Amos B. Hostetter, Jr.
Title: Chairman of the Board and
Chief Executive Officer
Schedules which are referenced and briefly described in the document have
been omitted from this filing but will be made available upon request by the
Commission.
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Exhibit A to the MERGER AGREEMENT
CONTINENTAL CABLEVISION, INC.
CERTIFICATE OF DESIGNATION
OF SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF
SUCH SERIES OF PREFERRED STOCK
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Continental Cablevision, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DOES
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of the
Corporation by Article FOURTH of the Restated Certificate of Incorporation of
the Corporation (as in effect on the date hereof and as amended from time to
time in accordance with its terms, the "Restated Certificate of
Incorporation"), and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation on , 1995 adopted the following resolution creating a
series of Preferred Stock designated as Series B Cumulative Preferred Stock:
RESOLVED that, pursuant to the authority vested in the Board of Directors of
the Corporation in accordance with the provisions of the Restated Certificate
of Incorporation, a series of the class of authorized Preferred Stock, par
value $.01 per share, of the Corporation is hereby created and that the
designation and number of shares thereof and the voting powers, preferences
and relative, participating, optional and other special rights of the shares
of such series, and the qualifications, limitations and restrictions thereof
are as follows:
Section 1. DESIGNATION AND NUMBER. (a) The shares of such series shall be
designated as "Series B Cumulative Redeemable Preferred Stock" (the "Series B
Preferred Stock"). The number of shares initially constituting the Series B
Preferred Stock shall be /1/, which number may be increased or decreased by
the Board of Directors of the Corporation without a vote of stockholders;
PROVIDED, HOWEVER, that such number may not be decreased below the number of
then outstanding shares of Series B Preferred Stock.
(b) The Series B Preferred Stock shall, with respect to dividend rights and
rights on liquidation, dissolution or winding up, rank (i) pari passu with the
Series A Preferred Stock (this and other capitalized terms used herein and not
otherwise defined have the meanings given such terms in Section 10 hereof) and
(ii) prior to all classes of the Common Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of record of shares
of Series B Preferred Stock, in preference to the holders of shares of Common
Stock and of any shares of other capital stock of the Corporation ranking
junior to the Series B Preferred Stock as to payment of dividends, shall be
entitled to receive, when, as and if declared by the Board of Directors out of
assets of the Corporation legally available therefor, cash dividends at a rate
per annum equal to % of the Stated Amount per share./2/ Such dividends (i)
shall be payable semi-annually on the first day of June and December in each
year commencing on the first such date to occur after the Issue Date
(PROVIDED, THAT, if any such date is not a Business Day, such dividend shall
be payable on the next succeeding Business Day), and (ii) shall be cumulative
and will begin accruing on each share of Series B Preferred Stock from the
date of issue thereof, whether or not declared by
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/1/ In the Certificate of Designation to be filed with the Secretary of State
of Delaware, this number shall equal the shares of Series B Preferred Stock
to be issued by the Corporation.
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the Corporation's Board of Directors. Dividends payable on the Series B
Preferred Stock for any period less than a full six-month period shall be
computed on the basis of the actual number of days elapsed and a 365-day year.
(b) When dividends on shares of Series B Preferred Stock and on any other
series of Preferred Stock ranking on a parity as to dividends with the Series B
Preferred Stock at the time payable on such shares have not been paid in full,
all dividends declared upon shares of Series B Preferred Stock and shares of
such other Preferred Stock shall be allocated pro rata in proportion to the
total amount of unpaid dividends then due and payable on the Series B Preferred
Stock and such other series of Preferred Stock. The Board of Directors shall
fix a record date for the determination of holders of shares of Series B
Preferred Stock entitled to receive payment of a dividend declared thereon,
which record date shall be no more than sixty days prior to the date fixed for
the payment thereof.
(c) The holders of shares of Series B Preferred Stock shall not be entitled
to receive any dividends or other distributions except as provided herein.
Section 3. VOTING RIGHTS. In addition to any voting rights provided by law,
the holders of shares of Series B Preferred Stock shall have the following
voting rights:
(a) So long as the Series B Preferred Stock is outstanding, each share of
Series B Preferred Stock shall entitle the holder thereof to vote on all
matters voted on by holders of the Class A Common Stock of the Corporation,
voting together as a single class with the holders of the Class A Common Stock
and with the holders of any other class of capital stock which votes as a
single class with the Class A Common Stock, at all meetings of the stockholders
of the Corporation; PROVIDED, HOWEVER, that the holders of Series B Preferred
Stock shall not be entitled to vote on any increase or decrease in the number
of any authorized shares of any class or classes of the capital stock of the
Corporation.
(b) Each share of Series B Preferred Stock shall initially entitle the holder
thereof to cast one vote on all such matters. In the event the Corporation
shall at any time or from time to time after the Issue Date declare or pay any
dividend on the outstanding shares of Class A Common Stock in shares of Class A
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Class A Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Class A Common Stock) into a greater
or lesser number of shares of Class A Common Stock without making an identical
subdivision, combination or consolidation of the outstanding shares of Series B
Preferred Stock, then in each such case the number of votes to which each share
of Series B Preferred Stock will be entitled immediately after such event shall
be adjusted by multiplying the number of votes to which each such share was
entitled immediately prior to such event by a fraction, the numerator of which
is the number of shares of Class A Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Class A
Common Stock that were outstanding immediately prior to such event. An
adjustment made pursuant to this paragraph (b) shall become effective at the
close of business on the day upon which such corporate action becomes
effective. In each case of such an adjustment, the Corporation at its expense
will promptly compute the adjustment to be made in accordance with this
paragraph (b) to the voting rights of the Series B Preferred Stock and will
promptly mail to each holder of record of Series B Preferred Stock notice of
such adjustment, which notice shall set forth (i) the computation described
above, (ii) the number of vote(s) per share to which each share of Series B
Preferred Stock was entitled before giving effect to such adjustment, and (iii)
the number of vote(s) per share to which each share of Series B Preferred Stock
will be entitled after giving effect to such adjustment.
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/2/ In the Certificate of Designation to be filed with the Secretary of State of
Delaware, the annual rate shall equal 100 basis points over the average
yield on the Corporation's 8 7/8% Senior Debentures due 2005 for the ten
Trading Day period ending five Trading Days prior to the Effective Time (as
defined in the Merger Agreement); PROVIDED, HOWEVER, that such rate shall
equal 50 basis points over such average yield if, prior to the Effective
Time, the Corporation issues in excess of $1,000,000,000 of capital stock.
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(c) The affirmative vote of the holders of at least a majority of the
outstanding shares of Series B Preferred Stock, voting together as a class, in
person or by proxy, at a special or annual meeting of stockholders called for
the purpose, shall be necessary to authorize, adopt or approve an amendment to
the Restated Certificate of Incorporation of the Corporation which would alter
or change the powers, preferences or special rights of the shares of Series B
Preferred Stock so as to affect such shares of Series B Preferred Stock
adversely; PROVIDED, HOWEVER, if such amendment would also alter or change the
powers, preferences or special rights of any other series of Preferred Stock in
a similar fashion ("Affected Preferred Stock"), for purposes of this paragraph
(c), such amendment shall require the affirmative vote of the holders of a
majority of the voting power represented by the outstanding shares of Series B
Preferred Stock and the Affected Preferred Stock, voting together as a single
class.
(d) If on any date dividends or distributions payable on all series of
Preferred Stock shall have been in arrears and not paid in full for three
consecutive semi-annual periods, then the number of directors constituting the
Board of Directors of the Corporation shall, without further action, be
increased by two (PROVIDED, HOWEVER, that if such directors would represent
more than 25% of the total number of directors of the Corporation, then the
number of directors constituting the Board of Directors of the Corporation
shall, without further action, be increased by one) and the holders of shares
of Series B Preferred Stock shall have, in addition to the other voting rights
set forth herein, the exclusive right, voting separately as a single class or
as a class with the holders of shares of any Parity Stock, if such holders are
then entitled to elect additional directors pursuant to any provision of the
Certificate of Designation for such stock that is similar to this paragraph (d)
("Defaulted Preferred Stock"), to elect, by (i) the vote of the holders of a
majority of the voting power represented by the Series B Preferred Stock
present in person or represented by proxy and voting thereon, (ii) written
consent of the holders of at least a majority of the voting power represented
by the outstanding shares of Series B Preferred Stock, (iii) the vote of the
holders of a majority of the voting power represented by the Series B Preferred
Stock and Defaulted Preferred Stock present in person or represented by proxy
and voting thereon, or (iv) written consent of the holders of at least a
majority of the voting power represented by the outstanding shares of Series B
Preferred Stock and Defaulted Preferred Stock, as the case may be (and in the
manner set forth in paragraph (e) of this Section 3), the director(s) of the
Corporation to fill such newly created directorship(s), the remaining directors
to be elected by the other classes of stock entitled to vote therefor
(including the Series B Preferred Stock in accordance with paragraph (a) of
this Section 3), at each meeting of stockholders held for the purpose of
electing directors. Such additional director(s) shall continue as director(s)
and such additional voting right shall continue until such time as all
cumulative dividends payable on the Series B Preferred Stock and on all other
series of Defaulted Preferred Stock shall have been paid in full or declared
and set aside for payment, at which time such additional director(s) shall
cease to be director(s) and such additional voting right of the holders of
Series B Preferred Stock shall terminate subject to revesting in the event of
each and every subsequent event of the character indicated above.
(e) (i) The foregoing rights of holders of shares of Series B Preferred
Stock to take any actions as provided in paragraphs (c) and (d) of this Section
3 may be exercised at any annual or special meeting of stockholders or at a
special meeting of holders of Series B Preferred Stock held for such purpose as
hereinafter provided or at any adjournment thereof, or by the written consent,
delivered to the Secretary of the Corporation, of the holders of the minimum
number of shares of Preferred Stock required to take such action. So long as
such right to vote continues (and unless such right has been exercised by
written consent of the minimum number of shares required to take such action),
the Chairman of the Board of the Corporation may call, and upon the written
request of holders of record of 20% of the voting power represented by the
outstanding shares of Series B Preferred Stock, if the holders of Series B
Preferred Stock are to vote separately as a single class, or the holders of
record of 20% of the voting power represented by the outstanding shares of
Series B Preferred Stock and Affected Preferred Stock or Defaulted Preferred
Stock, as the case may be, if the holders of shares of Series B Preferred Stock
are to vote as a class with the holders of shares of any such other Preferred
Stock, addressed to the Secretary of the Corporation at the principal office of
the Corporation, shall call, a special meeting of the holders of shares
entitled to vote as provided herein. Such meeting shall be
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held within 30 days after delivery of such request to the Secretary, at the
place and upon the notice provided by law and in the by-laws of the Corporation
for the holding of meetings of stockholders.
(ii) At each meeting of stockholders at which the holders of shares of Series
B Preferred Stock shall have the right, voting separately as a single class or
as a class with the holders of shares of any such other Preferred Stock, to
elect directors of the Corporation as provided in this Section 3 or to take any
other action, the presence in person or by proxy of the holders of record of
one-third of the voting power represented by the total number of shares of
Series B Preferred Stock, if the holders of shares of Series B Preferred Stock
are to vote separately as a single class, or the holders of record of one-third
of the voting power represented by the total number of shares of Series B
Preferred Stock and Affected Preferred Stock or Defaulted Preferred Stock, as
the case may be, if the holders of shares of Series B Preferred Stock are to
vote as a class with the holders of shares of any such other Preferred Stock,
then outstanding and entitled to vote on the matter shall be necessary and
sufficient to constitute a quorum. At any such meeting or at any adjournment
thereof:
(A) the absence of a quorum of the holders of shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, or the holders of shares of Series B
Preferred Stock and Affected Preferred Stock or Defaulted Preferred Stock,
as the case may be, if the holders of shares of Series B Preferred Stock
are to vote as a class with the holders of shares of any such other
Preferred Stock, shall not prevent the election of directors other than
those to be elected by the holders of shares of Series B Preferred Stock or
the holders of shares of Series B Preferred Stock and Defaulted Preferred
Stock, as the case may be, and the absence of a quorum of the holders of
shares of any other class or series of capital stock shall not prevent the
election of directors to be elected by the holders of shares of Series B
Preferred Stock or the holders of shares of Series B Preferred Stock and
Affected Preferred Stock or Defaulted Preferred Stock, as the case may be,
or the taking of any action as provided in this Section 3; and
(B) in the absence of a quorum of the holders of shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, or the holders of shares of Series B
Preferred Stock and Affected Preferred Stock or Defaulted Preferred Stock,
as the case may be, if the holders of Series B Preferred Stock are to vote
as a class with the holders of shares of any such other Preferred Stock,
the holders of a majority of the voting power represented by such shares
present in person or by proxy shall have the power to adjourn the meeting
as to the actions to be taken by the holders of shares of Series B
Preferred Stock or the holders of shares of Series B Preferred Stock and
Affected Preferred Stock or Defaulted Preferred Stock, as the case may be,
from time to time and place to place without notice other than announcement
at the meeting until a quorum shall be present.
For the taking of any action as provided in paragraphs (c) and (d) of this
Section 3 by the holders of shares of Series B Preferred Stock or the holders
of shares of Series B Preferred Stock and Affected Preferred Stock or Defaulted
Preferred Stock, as the case may be, (i) each holder of Series B Preferred
Stock and each holder of shares of any other series of Affected Preferred Stock
or Defaulted Preferred Stock which is not convertible into Common Stock shall
have the right to cast one vote per share and (ii) each other holder of
Affected Preferred Stock or Defaulted Preferred Stock shall have the right to
cast such number of votes as may be cast by the holder of the number of shares
of Common Stock into which such Affected Preferred Stock or Defaulted Preferred
Stock, as the case may be, is then convertible as of any record date fixed for
such purpose or, if no such date be fixed, at the close of business on the
Business Day next preceding the day on which notice is given, or if notice is
waived, at the close of business on the Business Day next preceding the day on
which the meeting is held.
Each director elected by the holders of shares of Series B Preferred Stock or
the holders of shares of Series B Preferred Stock and Defaulted Preferred
Stock, as the case may be, as provided in paragraph (d) of this Section 3
shall, unless such director's term shall expire earlier or be terminated in
accordance with paragraph (d) of this Section 3, hold office until the annual
meeting of stockholders next succeeding such director's election or until such
director's successor, if any, is elected and qualified.
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In case any vacancy shall occur among the directors elected by the holders
of shares of Series B Preferred Stock or the holders of shares of Series B
Preferred Stock and Defaulted Preferred Stock, as the case may be, as provided
in paragraph (d) of this Section 3, such vacancy may be filled for the
unexpired portion of the term by vote of the remaining director theretofore
elected by such holders (if there is a remaining director), or such director's
successor in office. If any such vacancy is not so filled within 20 days after
the creation thereof, or (if applicable) if both directors so elected by the
holders of Series B Preferred Stock or the holders of Series B Preferred Stock
and Defaulted Preferred Stock, as the case may be, shall cease to serve as
directors before their terms shall expire, the holders of the Series B
Preferred Stock or the holders of Series B Preferred Stock and Defaulted
Preferred Stock, as the case may be, then outstanding and entitled to vote for
such directors may, by written consent as herein provided, or at a special
meeting of such holders called as provided herein, elect successors to hold
office for the unexpired terms of the directors whose places shall be vacant.
Any director elected by the holders of shares of Series B Preferred Stock
voting separately as a single class or the holders of shares of Series B
Preferred Stock voting as a class with the holders of shares of Defaulted
Preferred Stock may be removed from office with or without cause by the vote
or written consent of the holders of at least a majority of the voting power
represented by the outstanding shares of Series B Preferred Stock or a
majority of the voting power represented by the outstanding shares of Series B
Preferred Stock and Defaulted Preferred Stock, as the case may be. A special
meeting of the holders of shares of Series B Preferred Stock or the holders of
shares of Series B Preferred Stock and Defaulted Preferred Stock, as the case
may be, may be called in accordance with the procedures set forth in
subparagraph (e)(i) of this Section 3.
Section 4. CERTAIN RESTRICTIONS. (a) Whenever dividends or distributions
payable on shares of Series B Preferred Stock as provided in Section 2 are not
paid in full, thereafter and until all such unpaid dividends or distributions,
whether or not declared, on the outstanding shares of Series B Preferred Stock
shall have been paid in full or declared and set apart for payment, the
Corporation shall not, without the consent of (i) the holders of not less than
a majority of the shares of Series B Preferred Stock outstanding or (ii) (A)
if dividends or distributions payable on shares of any other series of
Preferred Stock are not then paid in full and (B) the consent of the holders
of shares of such Preferred Stock is required for the Corporation to take the
actions contemplated by this Section 4, the holders of shares representing a
majority of the voting power represented by outstanding shares of Series B
Preferred Stock and such other Preferred Stock: (I) declare or pay dividends,
or make any other distributions, on any shares of Junior Stock or Parity
Stock, other than dividends or distributions (x) payable in respect of Parity
Stock in accordance with Section 2(b) hereof or (y) payable in Common Stock or
in other capital stock of the Corporation ranking junior (both as to dividends
and upon liquidation, dissolution or winding up) to the Series B Preferred
Stock; or (II) redeem, purchase or otherwise acquire for consideration any
shares of Junior Stock or Parity Stock pursuant to any mandatory redemption,
put, sinking fund or other similar obligation, PROVIDED, THAT, the Corporation
may at any time (x) redeem, purchase or otherwise acquire shares of Junior
Stock or Parity Stock in exchange for any shares of Common Stock or for other
capital stock of the Corporation ranking junior (both as to dividends and upon
liquidation, dissolution or winding up) to the Series B Preferred Stock, and
(y) accept shares of any Parity Stock or Junior Stock for conversion.
(b) The Corporation shall not permit any Subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of capital stock of
the Corporation unless the Corporation could, pursuant to paragraph (a) of
this Section 4, purchase such shares at such time and in such manner.
Section 5. REDEMPTION. (a) (i) At any time after the fifth anniversary of
the Issue Date, by written notification delivered to the record holders of the
Series B Preferred Stock in accordance with the procedures set forth in
subparagraph (d) of this Section 5, the Corporation, at its sole option, may
elect to redeem, in whole or from time to time in part, the shares of Series B
Preferred Stock held by such holders at a price per share equal to the
Redemption Price plus, if applicable, the Optional Redemption Premium. If at
any time less than all of the shares of Series B Preferred Stock then
outstanding are to be redeemed, the shares so to be
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redeemed may be selected (A) by lot, (B) on a PRO RATA basis among the holders
of all such shares, or (C) in such other manner as the Board of Directors of
the Corporation in its sole discretion may determine to be fair and equitable.
(ii) Not more than 60 nor less than 30 Trading Days prior to (A) the tenth
anniversary of the Issue Date and (B) each anniversary of the Issue Date
thereafter so long as any shares of Series B Preferred Stock are outstanding,
the Corporation shall give notice to each record holder of shares of Series B
Preferred Stock, at such holder's address as it appears on the transfer books
of the Corporation, that each holder has the right to require the Corporation
to redeem any or all shares of Series B Preferred Stock held by such holder at
a price per share equal to the Redemption Price. The notice shall also specify
the redemption date (which date shall be not more than 60, nor less than 45,
days from the date of such notice) and the procedures to be followed by such
holder in exercising his right to cause such redemption and to receive payment
of the Redemption Price (if such holder elects to cause such redemption).
Failure by the Corporation to give the notice prescribed by the preceding
sentences, or the formal insufficiency of any such notice, shall not prejudice
the rights of any holder of shares of Series B Preferred Stock to cause the
Corporation to redeem any such shares held by such holder. If a record holder
of shares of Series B Preferred Stock shall elect to require the Corporation to
redeem any or all such shares of Series B Preferred Stock in the manner
provided in this subparagraph (ii), such holder shall deliver, within 30 days
of the mailing to such holder of the Corporation's notice described in this
subparagraph (a)(ii), or, if no notice is given, within 30 days following the
last day the Corporation was required to give notice in accordance with this
subparagraph (a)(ii) (in which case the date of redemption shall be the date
which is 45 Business Days following the last day the Corporation was required
to give notice in accordance with this subparagraph (a)(ii)), a written notice,
in the form specified by the Corporation (if the Corporation did in fact give
the notice required by this subparagraph (a)(ii)), to the Corporation stating
such election and specifying the number of shares to be redeemed pursuant to
this paragraph (a). The Corporation shall redeem the number of shares so
specified on the date fixed for redemption in accordance with the provisions of
this Certificate of Designation.
(iii) The Corporation may satisfy its obligation under subparagraphs (a)(i)
and (a)(ii) to pay the Redemption Price and, if applicable, the Optional
Redemption Premium, by paying, at the option of the Corporation, cash and/or
shares of Class A Common Stock as provided in paragraph (b) of this Section 5.
(b) The Corporation, at its sole option, may elect to satisfy its obligation
to pay all or any portion of the Redemption Price and, if applicable, the
Optional Redemption Premium in respect of each share of Series B Preferred
Stock to be redeemed pursuant to paragraph (a) of this Section 5 by making an
election on or prior to the date set for redemption to issue shares of Class A
Common Stock in respect of all or any portion of the Redemption Price and, if
applicable, the Optional Redemption Premium. Such election shall be set forth
in a certificate signed on behalf of the Corporation by the Chairman of the
Board, the Vice Chairman of the Board, the President or any Vice President of
the Corporation and delivered to the Secretary of the Corporation and shall be
deemed to have been made on the date such certificate is delivered to the
Secretary. Notice of such election and of the portion of the Redemption Price
and, if applicable, the Optional Redemption Premium, as to which such election
was made shall be given to the holders of the Series B Preferred Stock by the
Corporation promptly upon making such election. The number of shares of Class A
Common Stock to be issued pursuant to this paragraph (b) shall be determined by
dividing the Redemption Price and, if applicable, the Optional Redemption
Premium, per share of Series B Preferred Stock through the date of redemption
(or portion thereof to be paid in shares of Class A Common Stock) by the Base
Price of a share of Class A Common Stock.
In connection with any such redemption, unless, in the reasonable
determination of the Corporation, the exchange of shares of Class A Common
Stock for Series B Preferred Stock is exempt from the registration requirements
of the Securities Act, the Corporation shall register such exchange under such
Act, and such exchange shall not be completed until such registration is
effective.
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(c) (i) If shares of Class A Common Stock to be issued in exchange for any
shares of Series B Preferred Stock pursuant to paragraph (b) of this Section 5
are to be issued in a name or names other than that of the holder of record of
such shares of Series B Preferred Stock, no such issuance shall be made (A)
until the holder requesting such issuance has paid to the Corporation all
issue, stamp, transfer and documentation taxes payable upon the issuance of
shares of Class A Common Stock in such name or names and (B) unless such
issuance is registered under the Securities Act and all applicable state
securities laws, the holder of the applicable shares of Series B Preferred
Stock which are to be exchanged for Class A Common Stock hereunder shall have
furnished to the Corporation evidence satisfactory to it that such issuance is
exempt from registration under the Securities Act and all applicable state
securities laws. Other than the taxes specified in clause (A) above, the
Corporation will pay any and all issue, stamp, transfer, documentation and
other taxes (other than taxes based on gross or net income) that may be payable
in respect of any issue or delivery of shares of Class A Common Stock in
exchange for shares of Series B Preferred Stock pursuant hereto.
(ii) No fractions of shares of Class A Common Stock shall be issued upon any
exchange of shares of Series B Preferred Stock pursuant to paragraph (b) of
this Section 5. In lieu thereof, the Corporation shall pay a cash adjustment
equal to such fractional interest multiplied by the Base Price. If more than
one share of Series B Preferred Stock shall be surrendered for exchange by the
same holder, the number of full shares of Common Stock issuable on exchange
thereof shall be computed on the basis of the total number of shares of Series
B Preferred Stock so surrendered.
(iii) In case the Corporation shall at any time or from time to time after
the Issue Date effect a capital reorganization, reclassification, subdivision,
combination or consolidation of outstanding shares of Common Stock (other than
by payment of a dividend in shares of Common Stock) so that, after giving
effect to such capital reorganization, reclassification, subdivision,
combination or consolidation, the Corporation shall no longer have authorized
shares of Class A Common Stock, the Corporation shall be entitled, at its sole
option and in lieu of shares of Class A Common Stock, to issue shares of voting
Common Stock of the Corporation which, at such time, have the fewest votes per
share as compared to other classes of the Corporation's voting Common Stock in
payment of all or any portion of the Redemption Price and, if applicable, the
Optional Redemption Premium. In any such event, the remaining provisions of
this Section 5 which pertain to the Class A Common Stock (including, without
limitation, those provisions relating to the registration of such shares under
the Securities Act, the calculation of the Base Price and the giving of
notices) shall continue to be applicable to such replacement class of Common
Stock.
(d) Notice of the redemption of shares of Series B Preferred Stock pursuant
to subparagraph (a)(i) of this Section 5 shall be mailed at least 30, but not
more than 60, Trading Days prior to the date fixed for redemption to each
record holder of shares of Series B Preferred Stock to be redeemed, at such
holder's address as it appears on the transfer books of the Corporation.
(e) On the date of any redemption being made pursuant to this Section 5, the
Corporation shall, and at any time before the date of redemption, may: (i)
deposit for the benefit of the holders of shares of Series B Preferred Stock to
be redeemed the funds and/or shares of Class A Common Stock, as applicable,
necessary for such redemption with a bank or trust company in the Borough of
Manhattan, The City of New York, or in the City of Boston, in either case
having a capital and surplus of at least $50,000,000; or (ii) if the
Corporation so elects, segregate and hold in trust for the benefit of the
holders of shares of Series B Preferred Stock to be redeemed the funds and/or
shares of Class A Common Stock, as applicable, necessary for such redemption.
Any moneys and/or shares so deposited or segregated and held in trust by the
Corporation and unclaimed at the end of two years from the date designated for
such redemption shall be released from any such deposit or trust and revert to
the general funds of the Corporation. After such reversion, any such bank or
trust company shall, upon demand, pay over to the Corporation such unclaimed
amounts and thereupon such bank or trust company shall be relieved of all
responsibility in respect thereof and any holder of shares of Series B
Preferred Stock to be redeemed shall look only to the Corporation for the
payment of the Redemption Price (and, if applicable, the Optional Redemption
Premium). Any interest and/or shares
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accrued on funds and/or shares deposited pursuant to this paragraph (e) shall
be paid from time to time to the Corporation for its own account.
(f) Upon the deposit or segregation in trust of funds and/or shares pursuant
to paragraph (e) in respect of shares of Series B Preferred Stock to be
redeemed pursuant to this Section 5, notwithstanding that any certificates for
such shares shall not have been surrendered for cancellation, from and after
the date of redemption designated in the notice of redemption (or, if no such
notice is given pursuant to subparagraph (a)(ii) of this Section 5, the date of
redemption determined pursuant to the provisions of such subparagraph) (i) the
shares represented thereby shall no longer be deemed outstanding, (ii) the
rights to receive dividends thereon shall cease to accrue and (iii) all rights
of the holders of shares of Series B Preferred Stock to be redeemed shall cease
and terminate, excepting only the right to receive the Redemption Price (and,
if applicable, the Optional Redemption Premium) therefor.
Section 6. REACQUIRED SHARES. Any shares of Series B Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares of Series B Preferred Stock shall upon their
cancellation, and upon the filing of an appropriate certificate with the
Secretary of State of the State of Delaware, become authorized but unissued
shares of Preferred Stock and may be reissued as part of another series of
Preferred Stock subject to the conditions or restrictions on issuance set forth
herein.
Section 7. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (i)
to the holders of shares of Junior Stock upon liquidation, dissolution or
winding up unless, prior thereto, the holders of shares of Series B Preferred
Stock shall have received the Liquidation Preference with respect to each
share, or (ii) to the holders of shares of Parity Stock, except distributions
made ratably on all such Parity Stock and the Series B Preferred Stock in
proportion to the total amounts to which the holders of all shares of such
Parity Stock and the Series B Preferred Stock are entitled upon such
liquidation, dissolution or winding up. Upon any such liquidation, dissolution
or winding up of the Corporation, after the holders of the Series B Preferred
Stock shall have been paid in full the amounts to which they shall be entitled,
the remaining net assets of the Corporation shall be distributed to the holders
of Junior Stock, and the holders of Series B Preferred Stock shall not be
entitled to participate in such distribution.
(b) Neither the consolidation, merger or other business combination of the
Corporation with or into any other Person or Persons nor the sale of all or
substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 7.
Section 8. CERTAIN COVENANTS. Any registered holder of Series B Preferred
Stock may proceed to protect and enforce its rights and the rights of such
holders by any available remedy by proceeding at law or in equity to protect
and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designation or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
Section 9. MERGER OR SALE OF THE CORPORATION. If at any time there shall be
(a) a merger or consolidation of the Corporation with or into another Person,
such that the Corporation is not the surviving corporation upon consummation
thereof, or (b) a sale of all or substantially all of the Corporation's assets
to any other Person (either, an "Extraordinary Transaction"), then, as part of
such Extraordinary Transaction, provision shall be made so that, at the
election of the Corporation, either:
(i) the successor Person resulting from such Extraordinary Transaction
shall, contemporaneously with the consummation of, and as part of the
consideration for, such Extraordinary Transaction, either (A) issue to each
holder of Series B Preferred Stock in exchange for such holder's
certificates representing the Series B Preferred Stock, certificates
representing shares of preferred stock of the successor Person of a class
or series having substantially similar terms to those set forth herein; or
(B) issue or deliver to such holders such shares of stock, securities or
other assets of the successor Person to which such holders
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would have been entitled pursuant to the Extraordinary Transaction if,
immediately prior thereto, each such holder's shares of Series B Preferred
Stock had been redeemed in the manner provided in subparagraph (a)(i) of
Section 5 hereof and shares of Class A Common Stock had been issued in
consideration therefor in the manner set forth in paragraph (b) of Section
5 hereof; or
(ii) immediately prior to the consummation of such Extraordinary
Transaction, the Corporation shall redeem all, but not less than all, of
the shares of Series B Preferred Stock then outstanding in the manner
provided in subparagraph (a)(i) of Section 5 hereof.
Section 10. DEFINITIONS. For the purposes of this Certificate of Designation
of Series B Preferred Stock, the following terms shall have the meanings
indicated:
"Affected Preferred Stock" shall have the meaning given such term in
paragraph (b) of Section 3 hereof.
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
"Base Price", when used with reference to shares of Class A Common Stock,
shall mean the Current Market Price valued, if the Class A Common Stock is not
publicly traded, on the date of redemption or, if the Class A Common Stock is
publicly traded, for the period of 15 Trading Days ending two Trading Days
prior to the date of redemption.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in The Commonwealth of Massachusetts are authorized
or obligated by law or executive order to close.
"Class A Common Stock" and "Common Stock" each shall have the meaning
assigned to such term in the Corporation's Restated Certificate of
Incorporation.
"Current Market Price", when used with reference to shares of Class A Common
Stock or other securities on any date, shall mean the closing price per share
of Class A Common Stock or such other securities on such date and, when used
with reference to shares of Class A Common Stock or other securities for any
period shall mean the average of the daily closing prices per share of Class A
Common Stock or such other securities for such period. The closing price for
each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Class A Common Stock or such
other securities are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Class A Common Stock or such other securities are listed
or admitted to trading or, if the Class A Common Stock or such other securities
are not listed or admitted to trading on any national securities exchange, the
last quoted sale price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or such
other system then in use, or, if on any such date the Class A Common Stock or
such other securities are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by the primary professional
market maker making a market in the Class A Common Stock or such other
securities selected by the Board of Directors of the Corporation. If the Class
A Common Stock is not publicly held or so listed or publicly traded, "Current
Market Price", shall mean the amount as determined by investment bankers
mutually agreeable to the Corporation and the holders of a majority of the
voting power represented by the outstanding shares of Series B Preferred Stock
(the fees and expenses of which shall be paid by the Corporation) equal to the
net proceeds that would be expected to be received by a stockholder of the
Corporation from the sale of such shares of Class A Common Stock in an
underwritten public offering after being reduced by pro forma expenses and
underwriting discounts. If
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securities other than Class A Common Stock are not publicly held or so listed
or publicly traded, "Current Market Price" shall mean the Fair Market Value per
share of such other securities as determined by an independent investment
banking firm mutually agreeable to the Corporation and the holders of a
majority of the voting power represented by the outstanding shares of Series B
Preferred Stock (the fees and expenses of which shall be paid by the
Corporation).
"Defaulted Preferred Stock" shall have the meaning given such term in
paragraph (c) of Section 3 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Issue Date" shall mean the date on which shares of Series B Preferred Stock
are issued in accordance with the terms and conditions of the Merger Agreement.
"Junior Stock" shall mean any capital stock of the Corporation ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series B Preferred Stock, including, without limitation, the Common Stock.
"Liquidation Preference" with respect to a share of Series B Preferred Stock
shall mean the Stated Amount, plus an amount per share equal to all unpaid
dividends thereon, whether or not declared, to the date of such liquidation,
dissolution or winding up.
"Merger Agreement" shall mean that certain Amended and Restated Agreement and
Plan of Merger by and among Providence Journal Company, The Providence Journal
Company, King Holding Corp., King Broadcasting Company and the Corporation
dated as of November 18, 1994, as the same may from time to time be amended,
modified or supplemented.
"Optional Redemption Premium" shall mean a premium, expressed as a percentage
of the Stated Amount, equal to (i) 2% if any shares of Series B Preferred Stock
are redeemed prior to the sixth anniversary of the Issue Date; (ii) 1% if
redeemed on or after the sixth anniversary of the Issue Date and prior to the
seventh anniversary date of the Issue Date; and (iii) 0% on or after the
seventh anniversary of the Issue Date.
"Parity Stock" shall mean any capital stock of the Corporation ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series B Preferred Stock, including, without limitation, the Series A
Preferred Stock.
"Person" shall mean any individual, firm, corporation or other entity, and
shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" shall have the meaning assigned to such term in the
Corporation's Restated Certificate of Incorporation and shall include, without
limitation, the Series A Preferred Stock and the Series B Preferred Stock.
"Redemption Price" in respect of a share of Series B Preferred Stock shall
mean the Stated Amount per share as of the date of redemption, plus an amount
per share equal to all unpaid dividends thereon, whether or not declared, to
the date of redemption.
"Securities Act" shall mean the Securities Act of 1933.
"Series A Preferred Stock" shall have the meaning assigned to such term in
the Corporation's Certificate of Designation relating thereto and filed with
the Secretary of State of the State of Delaware on April 27, 1992.
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"Stated Amount" with respect to a share of Series B Preferred Stock shall
mean $ ./3/
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
"Trading Day" means a day on which the principal national securities
exchange on which the Class A Common Stock is listed or admitted to trading is
open for the transaction of business or, if the Class A Common Stock is not
listed or admitted to trading on any national securities exchange, a Business
Day.
IN WITNESS WHEREOF, Continental Cablevision, Inc. has caused this
Certificate to be duly executed in its corporate name as of this day of
, 1995.
Continental Cablevision, Inc.
By: _________________________________
Attest:
_____________________________________
- --------
/3/ In the Certificate of Designation to be filed with the Secretary of State of
Delaware, the Stated Amount shall be the quotient obtained by dividing (a)
$96,750,000 by (b) the shares of Series B Preferred Stock to be issued.
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Exhibit B to the MERGER AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
This Contribution and Assumption Agreement (this "Agreement"), dated as of
, 1995, is made by and between King Broadcasting Company, a Washington
corporation ("KBC"), and The Providence Journal Company, a Delaware corporation
and a wholly owned subsidiary of KBC ("NPJ").
RECITALS
WHEREAS, KBC, NPJ and Continental Cablevision, Inc., a Delaware corporation
("Acquiror") (together with Providence Journal Company, a Rhode Island
corporation (the "Company"), and King Holding Corp., a Delaware corporation),
are parties to that certain Amended and Restated Agreement and Plan of Merger
dated as of November 18, 1994 (the "Merger Agreement") pursuant to which, among
other things, KBC has agreed to contribute to NPJ all of the assets of KBC
(except as otherwise set forth herein or in the Merger Agreement) as one step
in a series of transactions as a result of which (i) Acquiror will acquire the
cable television businesses of the KBC and its Cable Subsidiaries (this and
other capitalized terms used and not defined herein shall have the meanings
given to such terms in the Merger Agreement) by merging KBC with and into
Acquiror, and (ii) NPJ will conduct the business conducted by KBC and its
Subsidiaries prior to giving effect to the Contribution (as defined in Section
1.1 hereof) other than their cable television operations; and
WHEREAS, in accordance with Section 2.4 of the Merger Agreement, the Company
has heretofore contributed to KBC all of the Company's businesses and assets in
exchange for shares of common stock of KBC and the assumption by KBC of all of
the obligations and liabilities of the Company.
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth below, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 11.
CONTRIBUTION AND ASSUMPTION
A. CONTRIBUTION OF ASSETS.
(1) Subject to Section 1.1(b), KBC hereby contributes, grants, conveys,
assigns, transfers and delivers to NPJ without recourse (the "Contribution")
all of KBC's right, title and interest in and to any and all assets of KBC,
whether tangible or intangible and whether fixed, contingent or otherwise,
including, without limitation, the capital stock of all Subsidiaries of KBC,
the real property more particularly described on Schedule 1.1(a) hereto and any
and all furniture, fixtures, equipment, tools, vehicles, supplies, buildings,
improvements, accounts receivable, notes, prepaid expenses, securities,
trademarks, trade names, leases and contract rights, wherever located
(collectively, the "Contributed Assets").
(2) Notwithstanding Section 1.1(a), KBC hereby retains and does not
contribute, grant, convey, assign, transfer or deliver to NPJ (i) the issued
and outstanding capital stock of each Cable Subsidiary, (ii) KBC's rights
created pursuant to this Agreement, (iii) cash in the amount of $ , and (iv)
the Palmer Systems, the Related Assets and the assets of Westerly or Colony, as
the case may be, to the extent the transactions contemplated by the last
sentence of Section 2.6 of the Merger Agreement shall have been consummated
(collectively, the "Retained Assets").
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(3) Notwithstanding anything contained in this Agreement or in the Merger
Agreement to the contrary, NPJ acknowledges and agrees that KBC makes and has
made no warranty, either express or implied, including without limitation
warranties of merchantability or fitness for a particular purpose, with respect
to any Contributed Assets.
B. ASSUMPTION OF LIABILITIES.
(1) Subject to Sections 1.2(b) and 1.5 hereof, NPJ, in partial consideration
for the Contribution, hereby unconditionally assumes and agrees to pay, satisfy
and discharge, any and all liabilities of KBC, whether contingent or otherwise,
including, without limitation (if applicable), the NPJ Debt (the "Assumed
Liabilities").
(2) Notwithstanding Section 1.2(a), KBC hereby retains, and NPJ does not
assume and will have no liability with respect to, (i) the New Company Debt,
(ii) the debts, liabilities and obligations associated with the business
operations of the Cable Subsidiaries and the cable operations of KBC, (iii)
KBC's obligations created pursuant to this Agreement, and (iv) the liabilities
set forth on Schedule 2.5(b) to the Merger Agreement (collectively, the
"Retained Liabilities").
(c) It is expressly agreed by the parties hereto that all of the obligations
of NPJ under the Merger Agreement shall be treated as Assumed Liabilities and
not as Retained Liabilities under this Agreement.
C. EMPLOYEE BENEFITS. All plans and arrangements for the benefit of KBC's
employees (including stock option plans) in place as of the Effective Time are
subject to the terms of Sections 6.12 and 6.26 of the Merger Agreement.
Obligations of NPJ under such Sections shall be treated as Assumed Liabilities
and not as Retained Liabilities under this Agreement.
D. FURTHER ASSURANCES. Each of the parties hereto promptly shall execute such
documents and other instruments and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and to
consummate the transactions contemplated hereby.
E. TAX MATTERS. Notwithstanding anything to the contrary in this Agreement,
liabilities of the parties for Taxes that are associated with the business
operations of the Cable Subsidiaries are subject to the terms of Section 6.10
of the Merger Agreement, and all obligations of NPJ under Section 6.10 of the
Merger Agreement shall be treated as Assumed Liabilities and not as Retained
Liabilities under this Agreement. The transactions contemplated by the Merger
Agreement are intended to qualify as tax-free reorganizations, liquidations and
dissolutions under the applicable sections of the Code.
F. REMEDIES. Except as otherwise expressly set forth herein, all remedies of
the parties hereunder shall be governed exclusively by Article 9 of the Merger
Agreement.
G. COOPERATION. The parties agree to cooperate with each other in all
reasonable respects to ensure the smooth transfer of the Contributed Assets,
the Assumed Liabilities and the business related thereto, including, without
limitation, entering into any service or other sharing agreements that may be
necessary.
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ARTICLE 12.
MISCELLANEOUS
A. ENTIRE AGREEMENT. This Agreement, together with the Merger Agreement,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior written and oral and all contemporaneous
oral agreements and understandings with respect to the subject matter hereof.
B. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of conflict of
law principles.
C. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
D. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person,
by telecopy with answerback, by express or overnight mail delivered by a
nationally recognized air courier (delivery charges prepaid) or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties as follows:
if to KBC:
c/o Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, MA 02110
Telecopy: (617) 742-0530
Attention: Amos B. Hostetter, Jr.
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, MA 02109
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
if to NPJ:
The Providence Journal Company
75 Fountain Street
Providence, RI 02902
Telecopy: (401) 277-7889
Attention: Stephen Hamblett and
John L. Hammond, Esq.
with a copy to:
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 08903
Telecopy: (401) 276-6611
Attention: Walter G.D. Reed, Esq.
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy or by air courier shall
be deemed effective on the first business day at the place at which such notice
or communication is received following the day on
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which such notice or communication was sent. Any notice or communication sent
by registered or certified mail shall be deemed effective on the fifth business
day at the place from which such notice or communication was mailed following
the day in which such notice or communication was mailed.
E. PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely
to the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement except as provided
in Sections 2.7 and 2.8 (which are intended to be for the benefit of the
Persons provided for therein, and may be enforced by such Persons).
F. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
G. PERSONAL LIABILITY. This Agreement shall not create or be deemed to create
or permit any personal liability or obligation on the part of any direct or
indirect stockholder of any party hereto or any officer, director, employee,
agent, representative or investor of any party hereto.
H. BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives and successors, including Acquiror as the surviving corporation
in the Merger. This Agreement may not be assigned by any party hereto.
I. CERTAIN TRANSFERS OF ASSETS BY NPJ. For a period of four years from the
date hereof, NPJ agrees that it will not (i) sell, transfer, assign or
otherwise dispose of any material assets or (ii) declare, set aside or pay any
dividend or other distribution (other than a dividend or distribution payable
in capital stock) in respect of its capital stock, or redeem or otherwise
acquire any of its capital stock, if, as a result of and after giving effect to
any such transaction and the application of any proceeds received therefrom,
NPJ would have a fair market value (determined as a sale on a private market
going concern basis, free and clear of all liabilities) of less than: (x) for
the period from the date hereof to the first anniversary of the Effective Date,
$200,000,000, (y) for the period from such first anniversary to the second
anniversary of the Effective Date, $150,000,000 and (z) for the period from
such second anniversary to the fourth anniversary of the Effective Date,
$50,000,000, PROVIDED, HOWEVER, Acquiror agrees that NPJ may proceed with and
consummate any transaction which would otherwise be prohibited by this Section
2.9 if NPJ provides security in form and amount reasonably acceptable to
Acquiror.
J. AMENDMENT. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties.
K. LEGAL FEES; COSTS. If any party hereto institutes any action or proceeding
to enforce any provision of this Agreement, the prevailing party therein shall
be entitled to receive from the losing party reasonable attorneys' fees and
costs incurred in such action or proceeding, whether or not such action or
proceeding is prosecuted to judgment.
L. JURISDICTION. The parties accept, generally and unconditionally, the
exclusive jurisdiction of the State of Rhode Island or the Commonwealth of
Massachusetts in any action, suit or proceeding of any kind which arises out of
or by reason of this Agreement or any agreements contemplated hereby.
M. SEVERABILITY. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the fullest extent
possible.
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N. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay
on the part of any party hereto in the exercise of any right hereunder shall
impair such right or be construed to be a waiver of, or acquiescence in, any
breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
King Broadcasting Company
By: _________________________________
Name:
Title:
The Providence Journal Company
By: _________________________________
Name:
Title:
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Exhibit C to the MERGER AGREEMENT
VOTING AGREEMENT
This Voting Agreement, dated as of November 18, 1994 (this "Agreement"), is
by and among Continental Cablevision, Inc., a Delaware corporation
("Acquiror"), Providence Journal Company, a Rhode Island corporation (the
"Company"), each person or entity listed as an "Acquiror Stockholder" on the
signature pages hereof (each, an "Acquiror Stockholder") and each person or
entity listed as a "Providence Journal Company Stockholder" on the signature
pages hereof (each, a "PJC Stockholder").
WHEREAS, each Acquiror Stockholder owns the number of shares of (i) Class A
Common Stock, par value $.01 per share, of Acquiror ("Acquiror Class A Common
Stock"), (ii) Class B Common Stock, par value $.01 per share, of Acquiror
("Acquiror Class B Common Stock") and (iii) Series A Convertible Preferred
Stock, par value $.01 per share, of Acquiror ("Acquiror Preferred Stock") set
forth opposite such Acquiror Stockholder's name on EXHIBIT A hereto (all shares
of Acquiror Class A Common Stock, Acquiror Class B Common Stock and Acquiror
Preferred Stock now owned and which may hereafter be acquired by the Acquiror
Stockholders prior to the termination of this Agreement shall be referred to
herein as the "Acquiror Shares");
WHEREAS, each PJC Stockholder owns the number of shares of (i) Class A Common
Stock, par value $2.50 per share, of the Company ("Providence Journal Class A
Common Stock") and (ii) Class B Common Stock, par value $2.50 per share, of the
Company ("Providence Journal Class B Common Stock") set forth opposite such PJC
Stockholder's name on EXHIBIT B hereto (all shares of Providence Journal Class
A Common Stock and Providence Journal Class B Common Stock now owned and which
may hereafter be acquired by the PJC Stockholders prior to the termination of
this Agreement, shall be referred to herein as the "Providence Journal
Shares");
WHEREAS, the Company and Acquiror propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides, among other things, that the Company will merge with Acquiror
pursuant to the Merger (this and other capitalized terms used and not defined
herein shall have the meanings given to such terms in the Merger Agreement)
contemplated by the Merger Agreement;
WHEREAS, it is a condition to the willingness of Acquiror to enter into the
Merger Agreement that each PJC Stockholder agree, and in order to induce
Acquiror to enter into the Merger Agreement, each PJC Stockholder has agreed,
to enter into this Agreement; and
WHEREAS, it is a condition to the willingness of the Company to enter into
the Merger Agreement that each Acquiror Stockholder agree, and in order to
induce the Company to enter into the Merger Agreement, each Acquiror
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE 1
VOTING OF PROVIDENCE JOURNAL SHARES AND ACQUIROR SHARES
SECTION 1.1. VOTING AGREEMENT. (a) Each PJC Stockholder hereby agrees that
during the time this Agreement is in effect, at any meeting of the stockholders
of the Company, however called, and in any action by consent of the
stockholders of the Company, such PJC Stockholder shall vote his, her or its
Providence Journal Shares: (i) in favor of the Merger, the Merger Agreement (as
amended from time to time) and the other transactions contemplated by the
Merger Agreement, the Preemptive Rights Waiver Amendment and,
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if applicable, the Alternate Merger Agreement (as amended from time to time),
and the transactions contemplated by the Alternate Merger Agreement, (ii)
against any proposal for any recapitalization, merger, sale of assets or other
business combination between the Company or any of its Cable Subsidiaries and
any person or entity other than Acquiror, or any other action or agreement,
that would result in a breach of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Merger Agreement or
the Alternate Merger Agreement, as the case may be, or that would result in any
of the conditions to the obligations of the Company under the Merger Agreement
or the Alternate Merger Agreement, as the case may be, not being fulfilled, and
(iii) in favor of any other matter relating to the consummation of the
transactions contemplated by the Merger Agreement or the Alternate Merger
Agreement, as the case may be. Each PJC Stockholder acknowledges receipt and
review of a copy of the Merger Agreement (which contains a copy of the
Alternate Merger Agreement).
(b) Each Acquiror Stockholder hereby agrees that during the time this
Agreement is in effect, at any meeting of the stockholders of Acquiror, however
called, and in any action by consent of the stockholders of Acquiror, such
Acquiror Stockholder shall vote his, her or its Acquiror Shares: (i) in favor
of the Merger, the Recapitalization Amendment, the Merger Agreement (as amended
from time to time) and the transactions contemplated by the Merger Agreement,
and, if applicable, the Alternate Merger Agreement and the other transactions
contemplated by the Alternate Merger Agreement, (ii) against any action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Acquiror under the Merger
Agreement or the Alternate Merger Agreement, as the case may be, or that would
result in any of the conditions to the obligations of Acquiror under the Merger
Agreement or the Alternate Merger Agreement, as the case may be, not being
fulfilled and (iii) in favor of any other matter relating to the consummation
of the transactions contemplated by the Merger Agreement and the Alternate
Merger Agreement, as the case may be. Each Acquiror Stockholder acknowledges
receipt and review of a copy of the Merger Agreement (which contains a copy of
the Alternate Merger Agreement).
(c) Anything herein to the contrary notwithstanding, the parties hereto
acknowledge and agree that nothing contained in this Agreement shall be deemed
to require an Acquiror Stockholder who is a director of Acquiror or a PJC
Stockholder who is a director of the Company to take any action or refrain from
taking any action in his or her capacity as such.
ARTICLE 2
REPRESENTATION AND WARRANTIES OF THE PJC STOCKHOLDERS
Each PJC Stockholder hereby represents and warrants to Acquiror as follows:
SECTION 2.1. AUTHORITY RELATIVE TO THIS AGREEMENT. Such PJC Stockholder has
all necessary power and authority to execute and deliver this Agreement, to
perform his, her or its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by such PJC Stockholder and the consummation by such PJC Stockholder of the
transactions contemplated hereby have been duly and validly authorized by such
PJC Stockholder, and no other proceedings on the part of such PJC Stockholder
are necessary to authorize the execution and delivery of this Agreement or to
consummate such transactions. This Agreement has been duly and validly executed
and delivered by such PJC Stockholder and, assuming the due authorization,
execution and delivery hereof by each other party hereto, constitutes a legal,
valid and binding obligation of such PJC Stockholder, enforceable against such
PJC Stockholder in accordance with its terms.
SECTION 2.2. NO CONFLICT.
(a) The execution and delivery of this Agreement by such PJC Stockholder do
not, and the performance of this Agreement by such PJC Stockholder shall not,
(i) conflict with or violate any trust agreement, charter, by-laws or other
instrument or organizational document of such PJC Stockholder (if any), (ii)
conflict with
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or violate any law, rule, regulation, order, judgment or decree applicable to
such PJC Stockholder or by which such PJC Stockholder's Providence Journal
Shares are bound or affected or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of such PJC Stockholder's Providence Journal Shares pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which such PJC
Stockholder is a party or by which such PJC Stockholder or such PJC
Stockholder's Providence Journal Shares are bound or affected, except, in the
case of clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay the performance
by such Stockholder of such PJC Stockholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by such PJC Stockholder do
not, and the performance of this Agreement by such PJC Stockholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any federal, state, local or foreign regulatory body, except
where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
the performance by such PJC Stockholder of such PJC Stockholder's obligations
under this Agreement.
SECTION 2.3. TITLE TO THE PROVIDENCE JOURNAL SHARES. Such PJC Stockholder is
the owner of the Providence Journal Shares set forth opposite his, her or its
name on EXHIBIT B free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on voting
rights, charges and other encumbrances of any nature whatsoever. Such PJC
Stockholder has not appointed or granted any proxy, which appointment or grant
is still effective, with respect to such Providence Journal Shares. Such PJC
Stockholder has sole voting power with respect to such Providence Journal
Shares, and the person(s) executing this Agreement have the power to direct the
voting of such Providence Journal Shares.
ARTICLE 3
REPRESENTATION AND WARRANTIES OF THE ACQUIROR STOCKHOLDERS
Each Acquiror Stockholder hereby represents and warrants to the Company as
follows:
SECTION 3.1. AUTHORITY RELATIVE TO THIS AGREEMENT. Such Acquiror Stockholder
has all necessary power and authority to execute and deliver this Agreement, to
perform his, her or its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by such Acquiror Stockholder and the consummation by such Acquiror Stockholder
of the transactions contemplated hereby have been duly and validly authorized
by such Acquiror Stockholder, and no other proceedings on the part of such
Acquiror Stockholder are necessary to authorize the execution and delivery of
this Agreement or to consummate such transactions. This Agreement has been duly
and validly executed and delivered by such Acquiror Stockholder and, assuming
the due authorization, execution and delivery hereof by each other party
hereto, constitutes a legal, valid and binding obligation of such Acquiror
Stockholder enforceable against such Acquiror Stockholder in accordance with
its terms.
SECTION 3.2. NO CONFLICT.
(a) The execution and delivery of this Agreement by such Acquiror Stockholder
do not, and the performance of this Agreement by such Acquiror Stockholder
shall not, (i) conflict with or violate any trust agreement, charter, by-laws
or other instrument or organizational document of such Acquiror Stockholder (if
any), (ii) conflict with or violate any law, rule, regulation, order, judgment
or decree applicable to such Acquiror Stockholder or by which such Acquiror
Stockholder's Acquiror Shares are bound or affected or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of such Acquiror Stockholder's
Acquiror Shares
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pursuant to, any note, bond, mortgage, indenture contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which such
Acquiror Stockholder is a party or by which such Acquiror Stockholder or by
which such Acquiror Stockholder's Acquiror Shares are bound or affected,
except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay the performance by such Acquiror Stockholder of such Acquiror
Stockholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Acquiror Stockholder
do not, and the performance of this Agreement by such Acquiror Stockholder
shall not, require any consent, approval, authorization or permit of, or filing
with or notification to, any federal, state, local or foreign regulatory body,
except where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
the performance by such Acquiror Stockholder of such Acquiror Stockholder's
obligations under this Agreement.
SECTION 3.3. TITLE TO THE ACQUIROR SHARES. Such Acquiror Stockholder is the
owner of the Acquiror Shares set forth opposite his, her or its name on EXHIBIT
A. Such Acquiror Stockholder has sole voting power with respect to such
Acquiror Shares or has the power to direct the voting of such Acquiror Shares.
ARTICLE 4
COVENANTS OF THE PJC STOCKHOLDERS
SECTION 4.1. NO INCONSISTENT AGREEMENT. Each PJC Stockholder hereby covenants
and agrees that, except as contemplated by this Agreement, such PJC Stockholder
shall not enter into any voting agreement or grant a proxy or power of attorney
with respect to such PJC Stockholder's Providence Journal Shares which is
inconsistent with this Agreement.
SECTION 4.2. TRANSFER OF TITLE. Each PJC Stockholder hereby covenants and
agrees that such PJC Stockholder shall not transfer ownership of any of its
Providence Journal Shares unless the transferee agrees in writing to be bound
by the terms and conditions of this Agreement.
ARTICLE 5
COVENANTS OF THE ACQUIROR STOCKHOLDERS
SECTION 5.1. NO INCONSISTENT AGREEMENT. Each Acquiror Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement, such
Acquiror Stockholder shall not enter into any voting agreement or grant a proxy
or power of attorney with respect to such Acquiror Stockholder's Acquiror
Shares which is inconsistent with this Agreement.
SECTION 5.2. TRANSFER OF TITLE. Each Acquiror Stockholder hereby covenants
and agrees that such Acquiror Stockholder shall not transfer ownership of more
than 10% of such Acquiror Stockholder's Acquiror Shares unless the transferee
agrees in writing to be bound by the terms and conditions of this Agreement;
PROVIDED, HOWEVER, from and after the date on which the holders of at least
50.1% (the "Required Percentage") of the combined voting power of the Acquiror
Common Stock and the Acquiror Series A Preferred Stock have become parties to
this Agreement, no Acquiror Stockholder shall transfer ownership of any of such
Acquiror Stockholder's Acquiror Shares if, after giving effect to such
transfer, the Required Percentage of Acquiror Stockholders would no longer be
bound by the terms of this Agreement.
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<PAGE>
ARTICLE 6
MISCELLANEOUS
SECTION 6.1. TERMINATION. This Agreement shall terminate on the earlier to
occur of (i) the consummation of the Merger Transactions, (ii) December 31,
1995 and (iii) the termination of the Merger Agreement (or, if applicable, the
Alternate Merger Agreement).
SECTION 6.2. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 6.3. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.
SECTION 6.4. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by all of the parties hereto.
SECTION 6.5. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable or being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.
SECTION 6.6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware regardless of the laws
that might otherwise govern under principles of conflicts of law applicable
hereto.
SECTION 6.7. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 6.8. JURISDICTION. The parties accept, generally and unconditionally,
the exclusive jurisdiction of the State of Rhode Island or the Commonwealth of
Massachusetts in any action, suit or proceeding of any kind which arises out of
or by reason of this Agreement or any agreements contemplated hereby.
SECTION 6.9. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
SECTION 6.10 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in
person, by telecopy with answerback, by express or overnight mail delivered by
a nationally recognized air courier (delivery charges prepaid) or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties as follows: (a) if to any PJC Stockholder or Acquiror Stockholder, to
him, her or it at the location listed below such PJC Stockholder's or Acquiror
Stockholder's name on the signature pages hereof, (ii) if to Acquiror, to it at
The Pilot House, Lewis Wharf, Boston, MA 02110, telecopy (617) 742-0530,
attention: Amos B. Hostetter, Jr., and (iii) if to the Company, to it at 75
Fountain Street, Providence, RI 02902, telecopy (401) 277-7889, attention:
Stephen Hamblett and John L. Hammond, Esq., or to such other address as the
party to whom notice is given may have previously furnished to the others in
writing in the manner set forth above. Any notice or
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communication delivered in person shall be deemed effective on delivery. Any
notice or communication sent by telecopy or by air courier shall be deemed
effective on the first business day at the place at which such notice or
communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day in which
such notice or communication was mailed.
SECTION 6.11 ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise.
SECTION 6.12 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
any right, benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
Continental Cablevision, Inc.
By: _________________________________
Name:
Title:
Providence Journal Company
By: _________________________________
Name:
Title:
Acquiror Stockholders:
_____________________________________
Amos B. Hostetter, Jr., not in his
individual capacity but solely in
his capacity as Trustee of the Amos
B. Hostetter, Jr. 1989 Trust
Address for notices:
The Pilot House, Lewis Wharf
Boston, MA 02110
Attn: Amos B. Hostetter, Jr.
_____________________________________
Timothy P. Neher, not in his
individual capacity but solely in
his capacity as Trustee of the Amos
B. Hostetter, Jr. 1989 Trust
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<PAGE>
Address for notices:
The Pilot House, Lewis Wharf
Boston, MA 02110
Attn: Amos B. Hostetter, Jr.
Providence Journal Company
Stockholders:
_____________________________________
John A. Bowers
Address for notices:
2 Maryland Drive
West Warwick, RI 02893
_____________________________________
Harry Dyson
Address for notices:
24 Metcalf Drive
Cumberland, RI 02864
_____________________________________
Stephen Hamblett
Address for notices:
35 Benefit Street
Providence, RI 02906
_____________________________________
Trygve E. Myrhen
Address for notices:
30 Apple Tree Lane
Barrington, RI 02806
_____________________________________
James F. Stack
Address for notices:
5 Highridge Drive
Lincoln, RI 02865
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<PAGE>
_____________________________________
Joel N. Stark
Address for notices:
137 Briarcliff Avenue
Warwick, RI 02889
_____________________________________
James V. Wyman
Address for notices:
6 Barway Lane
Cumberland, RI 02864
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<PAGE>
EXHIBIT A TO VOTING AGREEMENT
<TABLE>
<CAPTION>
ACQUIROR ACQUIROR ACQUIROR
CLASS A CLASS B PREFERRED
COMMON STOCK COMMON STOCK STOCK
------------ ------------ ---------
<S> <C> <C> <C>
Amos B. Hostetter, Jr., not in his
individual capacity but solely in his
capacity as Trustee of the Amos B.
Hostetter, Jr. 1989 Trust................ 1,713,742
</TABLE>
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<PAGE>
EXHIBIT B TO VOTING AGREEMENT
<TABLE>
<CAPTION>
PROVIDENCE PROVIDENCE
JOURNAL JOURNAL
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
John A. Bowers........................................ 1
Harry Dyson........................................... 4
Stephen Hamblett...................................... 156 148
Trygve Myhren......................................... 3
James Stack........................................... 2
Joel Stark............................................ 3
James Wyman........................................... 6
</TABLE>
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Exhibit D to the MERGER AGREEMENT
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement"), dated as of , 1995, is
made by and among King Broadcasting Company, a Washington corporation ("KBC"),
The Providence Journal Company, a Delaware corporation ("NPJ"), and Continental
Cablevision, Inc., a Delaware corporation ("Acquiror").
RECITALS
WHEREAS, KBC, NPJ and Acquiror (together with Providence Journal Company, a
Rhode Island corporation ("PJC"), and King Holding Corp., a Delaware
corporation) are parties to that certain Amended and Restated Agreement and
Plan of Merger dated as of November 18, 1994 (the "Merger Agreement") pursuant
to which, among other things, PJC has agreed to contribute all of its assets to
KBC in exchange for shares of common stock of KBC and the assumption by KBC of
all of the liabilities of PJC, and KBC, in turn, has agreed to contribute to
NPJ all of the assets of KBC (except as otherwise set forth in the Merger
Agreement) pursuant to the terms of the Contribution Agreement (this and other
capitalized terms used and not defined herein shall have the meanings given to
such terms in the Merger Agreement); and
WHEREAS, the Contribution is one step in a series of transactions as a result
of which (i) Acquiror will acquire the cable businesses of KBC and its Cable
Subsidiaries (a portion of which was transferred to KBC as a result of the
Dissolution) by merging KBC with and into Acquiror, and (ii) NPJ will acquire
and conduct the business previously conducted by KBC and its Subsidiaries
(other than their cable television operations).
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth below, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 7
NONCOMPETITION COVENANTS
7.1 NONCOMPETITION COVENANTS. NPJ acknowledges that (i) it, on its own and
through its Subsidiaries and their respective officers, employees and other
representatives, has specialized knowledge and experience in the operation of
cable television systems (as defined in the Cable Communications Policy Act of
1984, as amended) providing the services provided by KBC or PJC, as the case
may be, and the Cable Subsidiaries on the date prior to the date the
Contribution is effected (the "Restricted Business"; provided that the term
"Restricted Business" shall not be construed to include the business of
developing or creating programming), (ii) its reputation and contacts within
the Restricted Business and those of its Subsidiaries are considered of great
value to KBC and Acquiror and (iii) if such knowledge, experience, reputation
or contacts were used to compete with Acquiror, serious harm to Acquiror could
result. Thus, NPJ agrees that, for a period of three (3) years after the
Closing Date, neither it nor any of its Subsidiaries shall, directly or
indirectly, on its own behalf or in the service or on behalf of others:
7.1.1 actively solicit for employment (including as an independent
contractor), interfere with or endeavor to entice away (or attempt to do any of
the foregoing) (x) any of the directors, officers, employees or agents of
Acquiror or any of its Subsidiaries, whether holding such position prior to or
after the Closing Date, or (y) any person who at any time on or after January
1, 1994, was an officer or employee of PJC, KBC or any of their Subsidiaries
engaged on behalf of either of them in the Restricted Business and whom
Acquiror employs effective upon the Closing;
7.1.2 own, manage, operate, finance, join, control or participate in the
ownership, management, operation, financing or control of, or be connected as a
stockholder, partner, principal, agent, representative,
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consultant or otherwise with any business or enterprise engaged in the
Restricted Business in the franchise areas served by KBC or Acquiror, or any of
their respective Subsidiaries, at the date hereof (the "Restricted Area"); or
7.1.3 use or permit PJC's, KBC's or NPJ's name to be used in connection with
any business or enterprise engaged in the Restricted Business in the Restricted
Area; PROVIDED, HOWEVER, that the provisions of this Section 1.1 shall not be
construed to prohibit the ownership by NPJ or any Subsidiary of NPJ, as a
passive investor, of not more than 5% of any class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of any corporation which is engaged in the Restricted Business, or
passive investments in partnerships or joint ventures representing not more
than 5% of any class of any equity interests therein.
7.2 REASONABLENESS OF COVENANTS, ETC. In the event that the provisions of
Section 1.1 should ever be adjudicated to exceed the time, geographic or
service limitations permitted by applicable Law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic or service limitations permitted by applicable Law. NPJ agrees that
its covenants set forth in Section 1.1 (the "Noncompetition Covenants") are
appropriate and reasonable when considered in light of the nature and extent of
the Restricted Business and the transactions contemplated by the Merger
Agreement, including, without limitation, the assets being contributed to NPJ
by KBC pursuant to the Contribution Agreement. Without limiting the generality
of the foregoing, NPJ specifically agrees that prohibitions on the active
solicitation, interference or enticement of officers, directors, employees or
agents of Acquiror or any of its Subsidiaries, as set forth in Section 1.1, are
appropriate and reasonable in all respects. NPJ agrees that the Noncompetition
Covenants are of the essence of this Agreement and the Merger Agreement; that
each such Noncompetition Covenant is reasonable and necessary to protect and
preserve the interests and properties of Acquiror and its Subsidiaries and the
Restricted Business of Acquiror and its Subsidiaries; that irreparable loss and
damage will be suffered by Acquiror should NPJ or any of its Subsidiaries
breach any such Noncompetition Covenant; that each of such covenants is
separate, distinct and severable not only from the other of such covenants but
also from the other and remaining provisions of this Agreement and the Merger
Agreement; that the unenforceability of all or any of the Noncompetition
Covenants shall not affect the validity or enforceability of any other such
covenants; that, in addition to other remedies available to it, Acquiror shall
be entitled to both temporary and permanent injunctions to prevent a breach or
contemplated breach by NPJ of any of the Noncompetition Covenants; and that NPJ
hereby waives any requirements for the posting of a bond or any other security
by Acquiror in connection therewith.
7.3 SPECIFIC PERFORMANCE; OTHER REMEDIES. NPJ recognizes that the
Noncompetition Covenants are unique and, accordingly, Acquiror shall, in
addition to such other remedies as may be available to it at law or in equity,
have the right to enforce its rights under Section 1.1 by actions for
injunctive relief and specific performance to the extent permitted by law.
ARTICLE 8
MISCELLANEOUS
8.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among
the parties with respect to the specific subject matter hereof and supersedes
all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the specific subject matter hereof.
8.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware regardless of conflict of law
principles.
8.3 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
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8.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person,
by telecopy with answerback, by express or overnight mail delivered by a
nationally recognized air courier (delivery charges prepaid) or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties as follows:
if to NPJ:
The Providence Journal Company
75 Fountain Street
Providence, RI 02902
Telecopy: (401) 277-7889
Attention: Stephen B. Hamblett and
John L. Hammond, Esq.
with a copy to:
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903
Telecopy: (401) 276-6611
Attention: Walter G.D. Reed, Esq.
if to KBC or Acquiror:
Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, MA 02109
Telecopy: (617) 742-0530
Attention: Amos B. Hostetter, Jr.
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, MA 02109
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy or by air courier shall
be deemed effective on the first business day at the place at which such notice
or communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day in which
such notice or communication was mailed.
8.5 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement except
for Sections 2.7 and 2.8 (which are intended to be for the benefit of the
Persons provided for therein, and may be enforced by such Persons).
8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
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8.7 PERSONAL LIABILITY. This Agreement shall not create or be deemed to
create or permit any personal liability or obligation on the part of any direct
or indirect stockholder of any party hereto or any officer, director, employee,
agent, representative or investor of any party hereto.
8.8 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives and successors, including Acquiror as the surviving corporation
in the Merger. This Agreement may not be assigned by any party hereto.
8.9 AMENDMENT. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties.
8.10 LEGAL FEES; COSTS. If any party hereto institutes any action or
proceeding to enforce any provision of this Agreement, the prevailing party
therein shall be entitled to receive from the losing party reasonable
attorneys' fees and costs incurred in such action or proceeding, whether or not
such action or proceeding is prosecuted to judgment.
8.11 JURISDICTION. The parties accept, generally and unconditionally, the
exclusive jurisdiction of the State of Rhode Island or the Commonwealth of
Massachusetts in any action, suit, or proceeding of any kind which arises out
of or by reason of this Agreement or any agreements contemplated hereby.
8.12 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
King Broadcasting Company
By: _________________________________
Name:
Title:
The Providence Journal Company
By: _________________________________
Name:
Title:
Continental Cablevision, Inc.
By: _________________________________
Name:
Title:
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ANNEX II
PROVIDENCE JOURNAL COMPANY
Plan of Reorganization
This Plan of Reorganization of Providence Journal Company, a Rhode Island
Corporation (the "Company"), has been approved and adopted by the Company's
Board of Directors.
RECITALS
A. The Company is engaged in three principal lines of business: cable
television, newspaper publishing and television broadcasting and related
electronic media enterprises. After due deliberation and consultation, the
Board of Directors has determined that the overall business and operating goals
of the Company, and the Company's future business prospects, would be best
served if the cable television business were to be combined with a
significantly larger cable television operator.
B. After extensive negotiations, Continental Cablevision, Inc., a Delaware
corporation ("Continental"), pursuant to the terms of an Amended and Restated
Agreement and Plan of Merger dated as of November 18, 1994 (the "Merger
Agreement"), has agreed to acquire the Company's cable television business in a
tax-free merger transaction (the "Continental Merger"), in exchange for capital
stock of Continental, on condition, inter alia, that (i) Continental acquire in
that transaction only cable television businesses and properties; (ii) that
prior to the Continental Merger, the Company or its wholly-owned subsidiary
become the 100% owner of King Holding Corp., which is now 50%-owned; and (iii)
the shares to be issued by Continental as a result of the Continental Merger be
delivered to and held by the Company's shareholders and not the Company.
C. In order to carry out the conditions imposed by Continental in respect of
the Continental Merger, and to best achieve the Company's business objectives
as aforesaid, the Board of Directors has decided to structure this Plan of
Reorganization herein set forth (the "Plan of Reorganization") which will
conclude with (i) a spin-off distribution transaction qualifying as a
reorganization under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code
of l986 (as amended), structured as hereafter provided, followed by (ii) the
Continental Merger.
PLAN OF REORGANIZATION
I. PARTIES; DATES.
1. AFFILIATED PARTIES. The affiliated entities which are involved in and
shall be parties to the Plan of Reorganization are:
The Company;
The Providence Journal Company, a Delaware corporation and a wholly-owned
subsidiary of the Company ("New Providence Journal");
Colony Communications, Inc., a Rhode Island corporation and a wholly-
owned subsidiary of the Company ("Colony");
Westerly Cable Television, Inc., a Rhode Island corporation and a wholly-
owned subsidiary of Colony ("Westerly Cable");
King Holding Corp., a Delaware corporation which is 50%-owned by the
Company ("King Holding");
King Broadcasting Company, a Washington corporation and a wholly-owned
subsidiary of King Holding ("King Broadcasting"); and
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King Videocable Company, a Washington corporation and a wholly-owned
subsidiary of King Broadcasting ("King Videocable").
2. INDEPENDENT PARTIES. The following independent entities are involved in,
but are not parties to, this Plan of Reorganization:
Continental; and
Kelso Investment Associates IV, L.P., Kelso Partners IV, L.P. and Kelso
Equity Partners II, L.P., each a Delaware limited partnership
(collectively, the "Kelso Partnerships").
3. TIMES OF EVENTS. The following terms have the meaning noted:
The "Time of Reorganization" is the time at which the "King Holding
Dissolution", the "Company Dissolution", the "Contribution" and the "Spin-Off
Distribution" (all as hereafter defined) shall take place, in that order.
The "Merger Time" is the time at which the Continental Merger shall be
effective.
II. REORGANIZATION TRANSACTIONS.
The Plan of Reorganization shall be carried out through the following steps
and transactions.
1. DISSOLUTION OF KING HOLDING. At the Time of Reorganization, King Holding
will be liquidated and dissolved (the "King Holding Dissolution") in the
following manner and in accordance with the provisions of Section 275, et seq.
of the Delaware General Corporation Law ("DGCL"):
(a) King Holding will transfer all of its assets (consisting solely of
all of the outstanding stock of King Broadcasting), subject to all of its
liabilities, to King Broadcasting in exchange for the issuance to King
Holding of 100 shares of King Broadcasting Class A Common Stock;
(b) King Holding will distribute those 100 shares of King Broadcasting
Class A Common Stock to the Company in exchange for the shares of King
Holding Common Stock owned and held by the Company, which shall be
surrendered to King Holding for redemption and cancellation; and
(c) King Holding will thereafter be dissolved pursuant to the provisions
of the DGCL. As a result of the King Holding Dissolution, King Broadcasting
will become a wholly-owned subsidiary of the Company.
The Company will cause King Holding to adopt a separate plan of liquidation
conforming in all material respects to the terms of this paragraph 1 to the
extent required by the DGCL.
2. LIQUIDATION AND DISSOLUTION OF THE COMPANY.
(a) Following the King Holding Dissolution and prior to the Contribution, in
order to effect the liquidation and dissolution of the Company in accordance
with the Rhode Island Business Corporations Act ("RIBCA"), the Company shall
contribute and transfer to King Broadcasting all of the Company's right, title
and interest in and to any and all assets then held by the Company, whether
tangible or intangible and whether fixed, contingent or otherwise, including
the stock of all subsidiaries of the Company (including, without limitation,
all of the outstanding capital stock of King Broadcasting), in exchange for a
number of shares of King Broadcasting Class A Common Stock and King
Broadcasting Class B Common Stock equal to the number of shares of such King
Broadcasting Common Stock the Company will distribute to its stockholders in
accordance with paragraph (b) below. In partial consideration for such
contribution and transfer, and concurrently therewith, King Broadcasting shall
assume any and all liabilities of the Company, whether fixed, contingent or
otherwise.
(b) Immediately following such contribution and transfer and prior to the
Contribution, the Company shall cease to do business and shall be thereafter
dissolved in accordance with Section 7-1.1-77 of the RIBCA
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(the "Company Dissolution"). As a result of the Company Dissolution, the sole
remaining asset of the Company, consisting of shares of the King Broadcasting
Common Stock of the same class and consisting of the same number of shares of
each such class as that outstanding for the Company immediately prior to the
Company Dissolution, shall be distributed to the shareholders of the Company so
that one fully paid and nonassessable share of King Broadcasting Class A Common
Stock will be distributed to the holder of each share of Company Class A Common
Stock outstanding immediately prior to the Company Dissolution and one fully
paid and nonassessable share of King Broadcasting Class B Common Stock will be
distributed to the holder of each share of Company Class B Common Stock
outstanding immediately prior to the Company Dissolution. The distribution of
shares of King Broadcasting Common Stock pursuant hereto shall be in exchange
solely for, and in complete redemption and cancellation of, and in payment for,
all outstanding shares of capital stock of the Company. As a result of the
Company Dissolution, each holder of the Company's Common Stock immediately
prior to the Company Dissolution will own the same number and class of shares
of King Broadcasting Common Stock as such holder owned in the Company. The
foregoing is subject to the exercise of dissenter's rights under the RIBCA as
described in the Merger Agreement.
(c) In order to facilitate the exchange of certificates and to avoid
requiring that certificates representing shares of Company Common Stock be
exchanged for shares of King Broadcasting Common Stock prior to the Spin-Off
Distribution and the Continental Merger, the Merger Agreement provides that the
certificates representing shares of Company Class A Common Stock and Company
Class B Common Stock immediately prior to the Company Dissolution (other than
any such certificate which represents Dissenting Shares as defined therein or
shares owned directly or indirectly by the Company or any of its Subsidiaries)
shall be deemed to represent the equivalent number of shares of King
Broadcasting Class A Common Stock and King Broadcasting Class B Common Stock
issued in connection with the Company Dissolution.
(d) This Section II, (2) of the Plan of Reorganization shall constitute the
Plan of Liquidation and Dissolution of the Company; the resolution of the Board
of Directors of the Company approving and adopting this Plan of Reorganization
shall constitute the approval by the Board of said Plan of Liquidation and
Dissolution of the Company; and that resolution shall constitute the
recommending action to the Company's shareholders that the Company be dissolved
and the direction that the question of the Company's dissolution be presented
to the shareholders as contemplated by Section 7-1.1-77 of the RIBCA. The
approval of the Plan of Reorganization by the requisite vote of the Company's
shareholders as provided in Section IV(2) of this Plan of Reorganization, shall
constitute the required shareholder approval for the dissolution of the Company
in accordance with Section 7-1.1-77 of the RIBCA, including approval of the
manner in which shares of King Broadcasting are to be distributed to
shareholders in exchange for their shares of the Company's Class A and Class B
Common Stock.
3. CONTRIBUTION TO NEW PROVIDENCE JOURNAL.
(a) After the Company Dissolution and prior to the Spin-Off Distribution and
the Merger Time and pursuant to the terms of the Contribution and Assumption
Agreement to be entered into by King Broadcasting and New Providence Journal in
the form attached to the Merger Agreement (the "Contribution Agreement"), King
Broadcasting shall contribute and transfer (the "Contribution") to New
Providence Journal all of King Broadcasting's right, title and interest in and
to any and all assets then held by King Broadcasting, whether tangible or
intangible and whether fixed, contingent or otherwise, including the stock of
all subsidiaries of King Broadcasting, provided, however, that King
Broadcasting shall not contribute to New Providence Journal (i) the issued and
outstanding capital stock of Colony or any other Cable Subsidiary (as defined
in the Merger Agreement); (ii) King Broadcasting's rights created pursuant to
the Contribution Agreement; (iii) cash sufficient to pay all expenses relating
to the transactions described in the Merger Agreement that are the
responsibility of the Company, King Holding or King Broadcasting thereunder;
and (iv) the Palmer Systems (as defined in the Merger Agreement), the Related
Assets (as defined in the Merger Agreement) and the assets of Westerly or
Colony, as the case may be, to the extent the transactions contemplated by the
last sentence of Section 2.6 of the Merger Agreement shall have been
consummated.
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(b) In partial consideration for the Contribution, concurrently therewith and
pursuant to the Contribution Agreement, New Providence Journal shall assume any
and all liabilities of King Broadcasting, whether fixed, contingent or
otherwise; provided, however, that New Providence Journal will not assume, and
will have no liability with respect to, (i) the "New Company Debt" (as defined
in the Merger Agreement), (ii) any liabilities associated with the business
operations of Colony or the cable operations of King Broadcasting except as
provided in the Contribution Agreement, (iii) King Broadcasting's obligations
created pursuant to the Contribution Agreement, and (iv) as otherwise provided
in the Merger Agreement.
(c) In partial consideration for the Contribution, New Providence Journal
will issue to King Broadcasting, in its name, a number of its shares of Class A
Common Stock and Class B Common Stock will be exactly equal to the number of
shares of King Broadcasting Class A Common Stock and Class B Common Stock
shares outstanding. When issued, these shares will be fully paid and non-
assessable.
(d) As a result of the Contribution and after the issuance of shares under
the preceding paragraph (c), New Providence Journal will directly own the
following assets:
(a) All of the assets, subject to all of the liabilities, of THE
PROVIDENCE JOURNAL-BULLETIN newspaper publishing business and the assets
constituting the Company's electronic transmission facilities.
(b) The assets used in the Company's present "corporate function".
(c) The five television stations heretofore owned and operated by King
Broadcasting.
(d) All of the outstanding capital stock of the following corporations
(in each case representing l00% of the issued and outstanding capital stock
of such corporations, which corporations in some cases own and hold shares
of other corporations and/or partnership interests in other entities):
(i) Providence Journal Broadcasting Corp.;
(ii) Fountain Street Corporation;
(iii) M/I Acquisition Corp.;
(iv) Mathewson Street Parking Corp.;
(v) Washington Street Garage Corporation;
(vi) PJ Programming, Inc.;
(vii) Colony/Linkatel Networks, Inc.;
(viii) Colony/PCS, Inc.;
(ix) Colony Cable Networks, Inc.; and
(x) any subsidiary corporation formed or acquired between the date of
this Plan of Reorganization and the Time of Reorganization for the
purpose of holding assets, or conducting operations, unrelated to the
cable television business.
4. DISTRIBUTION OF NEW PROVIDENCE JOURNAL SHARES. Immediately after the
Contribution and before the Merger Time, King Broadcasting will distribute to
its shareholders, as a dividend in respect of its issued and outstanding
shares, shares of New Providence Journal held by it on the following basis:
One fully paid and non-assessable share of New Providence Journal Class A
Common Stock for each share of King Broadcasting Class A Common Stock held;
and
One fully paid and non-assessable share of New Providence Journal Class B
Common Stock for each share of King Broadcasting Class B Common Stock held.
This transaction is herein referred to as the "Spin-Off Distribution". The
Spin-Off Distribution will be effected by delivery of share certificates
registered in the names of the respective shareholders as shown on the records
of the Company immediately prior to the Spin-Off Distribution.
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III. CONTINENTAL MERGER.
Upon completion of the Distribution, King Broadcasting shall be merged with
and into Continental pursuant to the provisions of the Merger Agreement.
IV. SHAREHOLDER APPROVAL; OTHER ACTIONS; APPRAISAL RIGHTS.
1. SPECIAL MEETING OF SHAREHOLDERS. The steps and transactions set forth in
Section II of this Plan of Reorganization (the "Section II Steps") SHALL BE
SUBMITTED to the shareholders of the Company for approval at a Special Meeting
to be called and held as soon as possible, recognizing the necessity of
compliance with applicable securities laws and other regulatory requirements.
The Merger Agreement with Continental will be submitted for approval by the
Company's shareholders at the same Special Meeting in a separate vote.
2. REQUIRED VOTE. To be adopted by the Company's shareholders, the Section II
Steps must be approved by the affirmative vote of a majority of the holders of
both the Company's Class A Common Stock and the Company's Class B Common Stock,
with the holders of each class voting separately as a class.
3. NEW PROVIDENCE JOURNAL AS AGENT. In the event (i) the Section II Steps and
the Merger Agreement are duly adopted by the shareholders of the Company and
(ii) the Section II Steps, the Continental Merger and the other transactions
contemplated by the Merger Agreement are consummated, each shareholder of the
Company entitled to receive shares of Continental Class A Common Stock as a
result of the Section II Steps and the Continental Merger shall be conclusively
deemed (A) to have duly constituted and appointed New Providence Journal,
acting by or through any authorized officer or officers, with full power of
substitution, as his or her lawful agent and attorney-in-fact with authority to
execute and deliver for him or her and in his or her behalf (I) the
Registration Rights Agreement (as defined in the Merger Agreement),
substantially in the form heretofore negotiated with Continental and approved
by the Company, with such additions, deletions and changes as the officer or
officers of New Providence Journal executing the same may in his, her or their
sole discretion determine to be advisable, each such determination and the
approval thereof by each shareholder of the Company to be conclusively
evidenced by the execution and delivery of the Registration Rights Agreement by
such officer or officers, and (II) such other documents, instruments and
certificates considered necessary or appropriate by the officer or officers of
New Providence Journal executing the Registration Rights Agreement to carry out
the provisions of the same, and (B) to approve and consent to New Providence
Journal acting as the Representative (as defined in the Registration Rights
Agreement) on and pursuant to the terms and conditions of the Registration
Rights Agreement. This agency relationship shall be deemed coupled with an
interest and irrevocable so long as the Registration Rights Agreement shall
remain in force and effect. The Company shall mail to each of its shareholders
a summary of the Registration Rights Agreement concurrently with any notice of
the Special Meeting of the Company's shareholders referred to in Section IV.1
of this Plan of Reorganization, and shall furnish a true and complete copy of
the Registration Rights Agreement to each of its shareholders who requests the
same.
4. OTHER BOARD AND SHAREHOLDER ACTION. If under applicable state law the
actions contemplated by this Plan of Reorganization reasonably require
additional actions by shareholders and/or directors of subsidiary companies,
the adoption of additional plans of liquidation or dissolution or otherwise or
any other agreements, instruments or actions, then the Company shall cause
those actions to be taken, those approvals to be obtained and any such
agreements or instruments to be put in place and carried out.
5. DISSENTING SHAREHOLDERS. Shareholders of the Company shall have dissenting
shareholders rights under the RIBCA as described in the Merger Agreement.
V. CONDITIONS TO COMPLETION.
The completion of the transactions contemplated by this Plan of
Reorganization shall be required only if, at or prior to the Time of
Reorganization:
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(a) CONDITIONS TO MERGER AGREEMENT. The conditions to consummation of the
Continental Merger, as set forth in the Merger Agreement, (including without
limitation (i) obtaining the "NPJ Debt", and (ii) closing the acqusition
contemplated by the "Company/Kelso Agreement" (as such terms are defined in the
Merger Agreement) shall have been satisfied or waived, and the parties thereto
shall be unconditionally prepared to proceed to consummate the Continental
Merger.
(b) RESTRUCTURING OF KING BROADCASTING. Prior to the Time of Reorganization,
the Articles of Incorporation of King Broadcasting will be amended by proper
filing with the Secretary of State of Washington in this manner:
(a) The authorized capital shall be 50,000 shares of Class A Common Stock
and 40,000 shares of Class B Common Stock;
(b) Distributions to shareholders of King Broadcasting may be made in
such a manner as to accommodate the Spin-Off Distribution as contemplated
by Section II(4) above;
(c) The capital stock sections of the Articles of Incorporation shall be
identical to the comparable sections of the Charter of the Company, except
as provided in the preceding paragraphs (a) and (b).
(c) NEW PROVIDENCE JOURNAL. New Providence Journal shall have been organized
under the laws of the State of Delaware and the Certificate of Incorporation of
New Providence Journal in the form attached hereto as Exhibit I shall have been
duly filed with the Delaware Secretary of State.
(d) OTHER ACTIONS. The Company and the other parties to this Plan of
Reorganization shall have complied with the provisions of Section 2.6 of the
Merger Agreement with respect to certain additional transfers of operating
assets and mergers of operating companies.
VI. AMENDMENT OF PLAN.
This Plan of Reorganization may be amended by resolution of the Company's
Board of Directors at any time prior to the Time of Reorganization.
As adopted by the Board of Directors of Providence Journal Company. A true
copy, ATTEST
- ----------------------
Harry Dyson, Secretary
Date:
----------------
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EXHIBIT I
CERTIFICATE OF INCORPORATION
OF
THE PROVIDENCE JOURNAL COMPANY
SECTION 1
NAME
The name of the corporation (hereinafter called the "Company") is: The
Providence Journal Company.
SECTION 2
DELAWARE OFFICE AND REGISTERED AGENT
The registered office of the Company in the State of Delaware is located at
32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent 19904.
The name of the registered agent of the Company at said address is The
Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100,
Dover, Delaware 19904.
SECTION 3
PURPOSES
The nature of the business of the Company and the objects and purposes to be
transacted, promoted or carried on by it are as follows:
(1) To publish an independent newspaper which is devoted to the
dissemination of local, state, national and international news to residents
of Rhode Island and adjoining communities and which is dedicated to the
welfare of the community, in keeping with the principles of free press;
(2) To own and operate other media, communications and broadcasting
businesses; and
(3) To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
SECTION 4
CAPITAL STRUCTURE
4.1 AUTHORIZED SHARES. The total number of shares of capital stock which the
Company shall have authority to issue is Nine Hundred Thousand (900,000)
shares, consisting of two classes of capital stock:
(a) Six Hundred Thousand (600,000) shares of Class A Common Stock, par
value $1.00 per share (the "Class A Stock"); PROVIDED, HOWEVER, that Four
Hundred Fifty Thousand (450,000) of such shares of Class A Stock authorized
hereby but not outstanding as of the date of original issuance may be
issued by the Company only upon the exercise of rights issued pursuant to
the Rights Agreement to be effective as of December 1, 1994, between the
Company and the Rights Agent named therein (the "Rights Agreement") or
pursuant to another agreement which the Board of Directors of the Company
determines to be substantially similar to the Rights Agreement; and
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(b) Three Hundred Thousand (300,000) shares of Class B Common Stock, par
value $1.00 per share (the "Class B Stock"); PROVIDED, HOWEVER, that Two
Hundred Twenty-Five Thousand (225,000) shares of Class B Stock authorized
hereby but not outstanding as of the original issuance thereof may be
issued by the Company only upon the exercise of rights issued pursuant to
the Rights Agreement or pursuant to another agreement which the Board of
Directors of the Company determines to be substantially similar to the
Rights Agreement.
The Class A Stock and the Class B Stock are hereinafter collectively called
the "Common Stock".
The designations, powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, of each class of Common Stock of the
Company are as set forth in the following subsections of this Section 4.
4.2 VOTING RIGHTS. At every meeting of stockholders of the Company, every
holder of Class A Stock shall be entitled to one (1) vote in person or by proxy
for each share of Class A Stock outstanding in his name on the transfer records
of the Company, and every holder of Class B Stock shall be entitled to four (4)
votes in person or by proxy for each share of Class B Stock outstanding in his
name on the transfer records of the Company. Except as may otherwise be
required by law, the holders of Class A Stock and Class B Stock shall vote
together as a single class. Every reference in this Certificate of
Incorporation to a majority or other proportion of shares of stock shall be
deemed to refer to such majority or other proportion of the votes entitled to
be cast by such shares of stock. The holders of Class A Stock and Class B Stock
are not entitled to cumulative votes in the election of any directors.
4.3 DIVIDENDS. When and as dividends are declared, whether payable in cash,
in property or in shares of stock of the Company (except as hereinafter
provided in this subsection 4.3), the holders of Class B Stock and the holders
of Class A Stock shall be entitled to share equally, share for share, in such
dividends. A dividend payable in shares of Class B Stock to the holders of
Class B Stock and in shares of Class A Stock to the holder of Class A Stock
shall be deemed to be shared equally among both classes. No dividends shall be
declared or paid in shares of Class B Stock except to holders of Class B Stock,
but dividends may be declared and paid, as determined by the Board of
Directors, in shares of Class A Stock to all holders of Common Stock.
4.4 LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, the holders of
Class A Stock and the holders of Class B Stock shall have the right to share,
ratably according to the number of shares of Common Stock held by them, in all
remaining assets of the Company available for distribution to its stockholders.
4.5 CONVERSION RIGHTS.
(a) At any time each share of Class B Stock may be converted into one
fully paid and nonassessable share of Class A Stock. Such right shall be
exercised by the surrender to the Company of the certificate representing
such share of Class B Stock to be converted at any time during normal
business hours at the principal executive offices of the Company, or if an
agent for the registration of transfer of shares of Common Stock is then
duly appointed and acting (said agent being hereinafter referred to as the
"Transfer Agent"), then at the office of the Transfer Agent, accompanied by
a written notice of the election by the holder thereof to convert and (as
so required by the Company or the Transfer Agent) by instruments of
transfer, in form satisfactory to the Company and the Transfer Agent, duly
executed by such holder or his duly authorized attorney, and by transfer
tax stamps or funds therefor, if required pursuant to paragraph (d) below.
(b) As promptly as practicable after the surrender for conversion of a
certificate representing shares of Class B Stock in the manner provided for
in paragraph (a) above and the payment of any amount required by the
provisions of paragraphs (a) and (d), the Company will deliver, or cause to
be
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delivered, a certificate or certificates representing the number of full
shares of Class A Stock issuable upon such conversion, issued in such name
or names as such holder may direct. Such conversion shall be deemed to have
been made at the close of business on the date of the surrender of the
certificate representing shares of Class B Stock, and all rights of the
holder of such shares as such holder shall cease at such time and the
person or persons whose name or names the certificate or certificates
representing the shares of Class A Stock are to be issued shall be treated
for all purposes as having become the record holder or holders of such
shares of Class A Stock at such time.
(c) The Company covenants that it will at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Class B Stock, such number of shares of Class A Stock
as shall be issuable upon the conversion of all such outstanding shares,
provided that nothing contained herein shall be construed to preclude the
Company from satisfying its obligation in respect of the conversion of the
outstanding shares of Class B Stock by delivery of purchased shares of
Class A Stock which are held in the treasury of the Company.
(d) The issuance of certificates for shares of Class A Stock upon
conversion of shares of Class B Stock shall be made without charge for any
stamp or other similar tax in respect of such issuance. However, if any
such certificate is to be issued in a name other than that of the holder of
the share or shares of Class B Stock converted, the person or persons
requesting the issuance thereof shall pay to the Company the amount of any
tax which may be payable in respect of any transfer involved in such
issuance or shall establish to the satisfaction of the Company that such
tax has been paid.
4.6 TRANSFER OF CLASS B STOCK. No person holding shares of Class B Stock (a
"Class B Holder") may transfer, and the Company shall not register the transfer
of, such shares of Class B Stock, whether by sale, assignment, gift, devise,
bequest, appointment or otherwise, except to a "Permitted Transferee" of such
Class B Holder; PROVIDED, HOWEVER, that a Class B Holder may sell, and the
Company may purchase from such person, shares of Class B Stock to be held in
the treasury of the Company. The term "Permitted Transferee" shall have the
following meaning:
(a) In the case of a Class B Holder who is a natural person holding
record and beneficial ownership of the shares of Class B Stock in question,
"Permitted Transferee" means: (i) the spouse of such Class B Holder, (ii) a
parent of such Class B Holder, (iii) a lineal descendant of a parent of
such Class B Holder (said lineal descendants, together with the Class B
Holder and his or her parents and spouse, are hereinafter referred to as
such Class B Holder's "Family Members"), (iv) the trustee of a trust solely
for the benefit of one or more of such Class B Holder's Family Members, and
(v) a corporation, all the outstanding capital stock of which is owned by,
a limited liability company, all of the members of which are, or a
partnership, all of the partners of which are, one or more of such Class B
Holder's Family Members, provided that if any share of capital stock of
such corporation (or any survivor of a merger or a consolidation of such a
corporation), or any membership or partnership interest in such a limited
liability company or partnership, is acquired by any person who is not a
Class B Holder's Family Member, all shares of Class B Stock then held by
such corporation, limited liability company or partnership, as the case may
be, shall be deemed without further act on anyone's part to be converted
into shares of Class A Stock and shall thereupon and thereafter be deemed
to represent a like number of shares of Class A Stock.
(b) In the case of a Class B Holder holding the shares of Class B Stock
in question as trustee pursuant to a trust other than a trust described in
paragraph (c) below, "Permitted Transferee" means (i) the person who
established such trust; and (ii) a Permitted Transferee of the person who
established such trust determined pursuant to paragraph (a) above.
(c) In the case of a Class B Holder holding shares of Class B Stock in
question as trustee pursuant to a trust which was irrevocable on the record
date for determining the persons to whom Class B Stock is first distributed
by the Company (the "Record Date"), "Permitted Transferee" means any person
to whom or for whose benefit principal may be distributed either during or
at the end of the term of such trust whether by power of appointment or
otherwise.
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(d) In the case of a Class B Holder holding record (but not beneficial)
ownership of the shares of Class B Stock in question as nominee for the
person who was the beneficial owner thereof on the Record Date, "Permitted
Transferee" means such beneficial owner and a Permitted Transferee of such
beneficial owner determined pursuant hereto.
(e) In the case of a Class B Holder which is a partnership or a limited
liability company holding record and beneficial ownership of the shares of
Class B Stock in question, "Permitted Transferee" means any partner of such
a partnership or any member of such a limited liability company.
(f) In the case of a Class B Holder which is a corporation holding record
and beneficial ownership of the shares of Class B Stock in question,
"Permitted Transferee" means any stockholder of such corporation receiving
shares of Class B Stock through a dividend or through a distribution made
upon liquidation of such corporation and a survivor of a merger or
consolidation of such corporation.
(g) In the case of a Class B Holder which is the estate (or
representative thereof) of a deceased Class B Holder or which is the estate
of a bankrupt or insolvent Class B Holder and provided such deceased,
bankrupt or insolvent Class B Holder, as the case may be, held record or
beneficial ownership of the shares of Class B Stock in question, "Permitted
Transferee" means a Permitted Transferee of such deceased, bankrupt or
insolvent Class B Holder as determined pursuant to paragraphs (a), (b) and
(c) above, as the case may be.
4.7 PLEDGE OF CLASS B STOCK. Notwithstanding anything to the contrary set
forth herein, any Class B Holder may pledge such Holder's shares of Class B
Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the pledgee, provided that such shares shall
not be transferred to or registered in the name of the pledgee and shall remain
subject to the provisions of this Section 4. In the event of foreclosure or
other similar action by the pledgee, such pledged shares of Class B Stock may
only be transferred to a Permitted Transferee of the pledgor or converted into
shares of Class A Stock, as the pledgee may elect.
4.8 EFFECT OF PURPORTED TRANSFER. Any purported transfer of shares of Class B
Stock, other than to a Permitted Transferee, shall be null and void and of no
effect and the purported transfer by a holder of Class B Stock, other than to a
Permitted Transferee, will result in the immediate and automatic conversion of
the shares of Class B Stock of such holder into shares of Class A Stock. The
purported transferee shall have no rights as a stockholder of the Company and
other rights against, or with respect to, the Company except the right to
receive shares of Class A Stock.
4.9 "STREET" OR "NOMINEE" REGISTRATION. Shares of Class B Stock shall be
registered in the name(s) of the beneficial owner(s) thereof (as hereafter
defined) and not in "street" or "nominee" names; PROVIDED, HOWEVER, that
certificates representing shares of Class B Stock may be registered in "street"
or "nominee" name if such shares are being held in such manner only for the
benefit of a Class B Holder(s) who is the beneficial owner(s) of such shares.
For the purposes of this subsection 4.9, the term "beneficial owner(s)" of any
shares of Class B Stock shall mean the person or persons who possess the power
to dispose of, or to direct the disposition of, such shares. Any shares of
Class B Stock registered in "street" or "nominee" name may be transferred to
the beneficial owner of such shares upon proof satisfactory to the Company that
such person is, in fact, the beneficial owner of such shares. Any shares of
Class B Stock to be registered in "street" or "nominee" name may be so
registered only upon proof satisfactory to the Company that such shares are to
be held only for the benefit of a Class B Holder(s) who is the beneficial
owner(s) of such shares.
4.10 LEGENDS; CONDITIONS OF TRANSFER. The Company shall note on the
certificates representing the shares of Class B Stock the restrictions on
transfer and registration of transfer imposed by this Section 4. The Company
may, as a condition to the transfer of or the registration of transfer of
shares of Class B Stock to a purported Permitted Transferee, require the
furnishing of such affidavits or other proof as it deems necessary to establish
that such transferee is a Permitted Transferee.
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4.11 INTERPRETIVE PROVISIONS. For purposes of subsections 4.6, 4.7, 4.8, 4.9
and 4.10 of this Section 4:
(i) Each joint owner of shares of Class B Stock shall be considered a
Class B Holder of such shares.
(ii) A minor for whom shares of Class B Stock are held pursuant to a
Uniform Gifts to Minors Act or similar laws shall be considered a Class B
Holder of such shares.
(iii) The relationship of any person that is derived by or through legal
adoption shall be considered a natural one.
(iv) Unless otherwise specified, the term "person" includes natural
person, corporation, partnership, unincorporated association, limited
liability company, firm, joint venture, trust or other entity.
4.12 RESTRICTIONS APPLICABLE TO OTHER SECURITIES. Any securities of the
Company which are convertible into shares of Class B Stock or carry a right to
subscribe to or acquire shares of Class B Stock shall be subject to the
restrictions on transfer applicable to Class B Stock as set forth in this
Section 4.
4.13 ISSUANCE OF STOCK; PREEMPTIVE RIGHTS.
(a) Except as provided herein, without the affirmative vote or written
consent of the holders of a majority of the outstanding shares of Class B
Stock, the Company shall not issue or sell any shares of Class B Stock or any
obligation or security that shall be convertible into, or exchangeable for, or
entitle the holder thereof to subscribe for or purchase, any shares of Class B
Stock; PROVIDED, HOWEVER, nothing contained herein shall preclude the Company
from reissuing purchased shares of Class B Common Stock which are held in the
treasury of the Company.
(b) Holders of Class A Stock shall have preemptive rights to acquire
authorized but unissued shares or treasury shares or securities convertible
into shares or carrying a right to subscribe to or acquire shares of Class A
Stock, and holders of Class B Stock shall have preemptive rights to acquire
authorized but unissued shares, or treasury shares or securities convertible
into shares, of both Class A Stock and Class B Stock; PROVIDED, HOWEVER, in no
event shall holders of Common Stock have any preemptive right to acquire (i)
Class A Stock issued upon conversion of Class B Stock under this Section 4,
(ii) shares which are issued pursuant to any employee stock purchase plan,
employee stock option plan or comparable plan pursuant to which employees of
the Company or its subsidiaries may acquire shares as part of their incentive
compensation benefits, as long as such stock option plan, stock purchase plan
or other comparable plan is approved by the stockholders of the Company, (iii)
shares sold other than for money, or (iv) shares which are contrary to the
provisions of the Rights Agreement or another agreement which the Board of
Directors of the Company determines to be substantially similar to the Rights
Agreement.
4.14 RIGHTS OR OPTIONS. Subject to subsection 4.13 of this Section 4, the
Company shall have the power to create and issue, whether or not in connection
with the issue and sale of any shares of stock or other securities of the
Company, rights or options entitling the holders thereof to purchase from the
Company any shares of its capital stock of any class or classes at the time
authorized, such rights or options to be evidenced by or in such instrument or
instruments as shall be approved by the Board of Directors. The terms upon
which, the time or times, which may be limited or unlimited in duration, at or
within which, and the price or prices at which any such rights or options may
be issued and any such shares may be purchased from the Company upon the
exercise of any such right or option shall be such as shall be fixed and stated
in a resolution or resolutions adopted by the Board of Directors providing for
the creation and issuance of such rights or options, and, in every case, set
forth or incorporated by reference in the instrument or instruments evidencing
such rights or options. In the absence of actual fraud in the transaction, the
judgment of the Board of Directors as to the consideration for the issuance of
such rights or options and the sufficiency thereof shall be conclusive.
4.15 RIGHT OF FIRST REFUSAL.
(a) The Company shall have the right, in case of a proposed sale of shares of
Common Stock of the Company by any holder thereof, to purchase said shares at
the lowest price at which said holder is willing to
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sell before the same shall be sold by such holder to any other party; provided,
however, that the Company shall exercise its right to purchase within fifteen
(15) days after receipt of written notice of said holder's desire to sell said
shares and the price at which the holder is willing to sell and other pertinent
terms of the sale. If the Company shall decide to purchase said shares on such
terms and conditions, said holder shall, upon tender of the purchase price
thereof, transfer to the Company the shares so sold. If the Company shall not
accept said offer within said period of fifteen (15) days, said holder may at
any time within thirty (30) days after the expiration of said fifteen (15) day
period, sell said shares (and no more) at a price not lower than that at which
it was offered to the Company and on terms no more favorable than as offered to
the Company without re-offering it to the Company. For the purposes of this
subsection 4.15 all references to shares of Common Stock shall be deemed to
refer not only to such shares but also to all securities of the Company which
are convertible into, or carry a right to subscribe to or acquire, shares of
Common Stock of the Company.
(b) Notwithstanding any other provision of this Certificate of Incorporation
or the By-Laws of the Company (and notwithstanding the fact that some lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-Laws of the Company), the affirmative vote of the holders of at least 80% of
the combined voting power of the then outstanding shares of stock of all
classes entitled to vote generally in the election of directors cast at a
meeting called for the purpose of amending, altering, changing, repealing or
adopting any provisions inconsistent with this subsection 4.15 shall be
required to amend, alter, change, repeal, or adopt any provisions inconsistent
with this subsection 4.15; PROVIDED, HOWEVER, that this paragraph (b) shall not
apply to, and such vote shall not be required for, any amendment, alteration,
change, repeal or adoption of any inconsistent provision that is recommended to
the stockholders by the vote of not less than two-thirds of the whole Board of
Directors, and any such amendment, alteration, change, repeal or adoption of
any inconsistent provision recommended shall require only the vote, if any,
required under the applicable provisions of Delaware law.
4.16. UNCLAIMED DIVIDENDS. Any and all right, title, interest and claim in or
to any dividends declared, or other distributions made, by the Company, whether
in cash, stock or otherwise, which are unclaimed by the stockholder entitled
thereto for a period of three years after the close of business on the payment
date, shall be and be deemed to be extinguished and abandoned; and such
unclaimed dividends or other distributions in the possession of the Company,
its transfer agents or other agents or depositaries shall at such time become
the absolute property of the Company, free and clear of any and all claims of
any persons or other entities whatsoever.
SECTION 5
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Benjamin P. Harris, III
c/o Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02903
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SECTION 6
DURATION OF EXISTENCE
The Company is to have perpetual existence.
SECTION 7
BOARD OF DIRECTORS
7.1. NUMBER OF DIRECTORS. The business and affairs of the Company shall be
managed by or under the direction the Board of Directors. Except as provided in
subsection 7.3 with regard to the period prior to March, 1995, the number of
directors of the Company which shall constitute the Board of Directors shall be
twelve (12) unless otherwise determined from time to time by resolution adopted
by the affirmative vote of a majority of the whole Board of Directors. As used
in this Certificate of Incorporation, the term "whole Board of Directors" means
the total number of Directors which the Company would have if there were no
vacancies.
7.2. POWERS OF THE BOARD. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors, subject
to the provisions of this Certificate of Incorporation, is expressly authorized
and empowered:
(a) To make, alter, amend or repeal the By-Laws of the Company in any
manner not inconsistent with the laws of the State of Delaware or this
Certificate of Incorporation, subject to the power of the stockholders to
amend, alter or repeal the by-laws made by the Board of Directors or to
limit or restrict the power of the Board of Directors so to make, alter,
amend or repeal the by-laws.
(b) Subject to the applicable provisions of the By-Laws, to determine,
from time to time, whether and to what extent and at what times and places
and under what conditions and regulations the accounts and books and
documents of the Company, or any of them, shall be open to the inspection
of the stockholders, and no stockholder shall have any right to inspect any
account or book or document of the Company, except as conferred by the laws
of the State of Delaware, unless and until authorized so to do by
resolution adopted by the Board of Directors or the stockholders of the
Company entitled to vote in respect thereof.
(c) Without the assent or vote of the stockholders, to authorize and
issue obligations of the Company, secured or unsecured, to include therein
such provisions as to redeemability, convertibility or otherwise, as the
Board of Directors in its sole discretion may determine, and to authorize
the mortgaging or pledging, as security therefor, of any property of the
Company, real or personal, including after-acquired property.
(d) To fix and determine, and to vary the amount of, the working capital
of the Company; to determine whether any, and if any, what part of any,
accumulated profits shall be declared in dividends and paid to the
stockholders; to determine the time or times for the declaration and
payment of dividends; to direct and to determine the use and disposition of
any surplus or net profits over and above the capital stock paid in; and in
its discretion the Board of Directors may use or apply any such surplus or
accumulated profits in the purchase or acquiring of bonds or other
pecuniary obligations of the Company to such extent, in such manner and
upon such terms as the Board of Directors may deem expedient.
(e) To sell, lease or otherwise dispose of, from time to time, any part
or parts of the properties of the Company and to cease to conduct the
business connected therewith or again to resume the same, as it may deem
best.
In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon it, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done
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by the Company, subject, nevertheless, to the provisions of the laws of the
State of Delaware, of this Certificate of Incorporation and of the By-Laws of
the Company.
7.3. BOARD TERMS. Prior to March 1, 1995, the Board of Directors shall
consist of three (3) members. Thereafter, the Board of Directors shall consist
of twelve (12) members (until such time as the Board of Directors acting
pursuant to subsection 7.1 above shall amend such number) and shall be divided
into three (3) classes, each class to be equal in number. The term of office of
directors of the first class shall expire at the annual meeting of stockholders
to be held in 1996; the term of office of directors of the second class shall
expire at the annual meeting of stockholders to be held in 1997; and the term
of office of directors of the third class shall expire at the annual meeting of
stockholders to be held 1998. At each annual meeting of stockholders following
the annual meeting for 1995, the number of directors equal to the number of the
class whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding annual meeting of stockholders.
7.4. CHANGE IN SIZE OF BOARD; VACANCIES. In the event of any change in the
authorized number of directors, the Board of Directors shall apportion any
newly created directorships to, or reduce the number of directorships in, such
class or classes as shall, so far as possible, equalize the number of directors
in each class. At all times all classes of directors shall be as nearly equal
in number as possible. If, consistent with the concept that the three classes
shall be as nearly equal in number as possible, any newly created directorship
may be allocated to more than one class, the Board of Directors shall allocate
it to the available class whose term of office is due to expire at the earliest
date following such allocation. Vacancies in the Board of Directors, however
caused, and newly created directorships shall be filled solely by a majority
vote of the directors then in office, whether or not a quorum, and any director
so chosen shall hold office for a term expiring at the annual meeting of
stockholders which the term of the class to which the director has been chosen
expires and when the director's successor is elected and qualified, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. No decrease in the number of directors shall shorten the term of
an incumbent director.
7.5. REMOVAL. Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Company (and notwithstanding the fact that
some lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Company), any director or the entire Board
of Directors of the Company may be removed at any time, without cause AND only
by the affirmative vote of the holders of at least 80% of the combined voting
power of the then outstanding shares of stock of all classes entitled to vote
generally in the election of directors cast at a meeting of stockholders called
for the purpose of such removal; PROVIDED, HOWEVER, that such 80% vote shall
not be required for any such removal recommended to the stockholders by the
vote of not less than two-thirds of the whole Board of Directors.
7.6. AMENDMENT OF THIS SECTION. Notwithstanding any other provision of this
Certificate of Incorporation or the By-Laws of the Company (and notwithstanding
the fact that some lesser percentage may be specified by law, this Certificate
of Incorporation or the By-Laws of the Company), the affirmative vote of the
holders of at least 80% of the combined voting power of the then outstanding
shares of stock of all classes entitled to vote generally in the election of
directors, cast at a meeting of the stockholders called for the purpose of
amending, altering, changing, repealing or adopting any provisions inconsistent
with this Section 7, shall be required to amend, alter, change, repeal, or
adopt any provisions inconsistent with, this Section 7; PROVIDED, HOWEVER, that
this subsection 7.6 shall not apply to, and such 80% vote shall not be required
for, any amendment, alteration, change, repeal or adoption of any inconsistent
provision that is recommended to the stockholders by the vote of not less than
two-thirds of the whole Board of Directors, and any such amendment, alteration,
change, repeal or adoption of any inconsistent provision so recommended shall
require only the vote, if any, required by the applicable provisions of
Delaware Law.
7.7. APPLICATION OF BY-LAWS. In all other regards, the powers, terms,
qualifications, election, manner of acting, compensation and conduct of
meetings of, and other matters relating to, directors shall be governed by By-
Laws not inconsistent with this Certificate of Incorporation.
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<PAGE>
SECTION 8
BUSINESS COMBINATIONS
8.1. DEFINITIONS. For purposes of this Section 8 the following terms shall
have these meanings:
(a) "Business Combination" means:
(i) The sale, exchange, lease, transfer or other disposition by the
Company or any of its Subsidiaries (in a single transaction or a series
of related transactions) of all or substantially all of the
consolidated assets or business of the Company;
(ii) Any merger or consolidation of the Company or any subsidiary
thereof into or with a corporation, irrespective of which corporation
is the surviving entity in such merger or consolidation;
(iii) Any reclassification of securities, recapitalization or other
transaction which has the effect, directly or indirectly, of any
partial or complete liquidation, spin-off, split-off or split-up of the
Company.
As used in this definition, a "series of related transactions" shall be
deemed to include not only a series of transactions with the same Participant
but also a series of separate transactions with a Participant or any affiliate
or associate of such Participant.
Anything in this definition to the contrary notwithstanding, this definition
shall not be deemed to include any transaction of the type set forth in
subsection (i) through (iii) above between or among (A) any two or more
Subsidiaries of the Company, (B) or the Company and one or more Subsidiaries of
the Company where (1) the Company is the surviving or continuing entity, (2)
the Company's Certificate of Incorporation and By-Laws will remain the
Certificate of Incorporation and By-Laws of such surviving or continuing
entity, and (3) the stockholders of the Company prior to such transaction
retain the same percentage ownership in such surviving or continuing entity
after such transaction.
(b) "Participant" shall mean any individual, partnership, corporation,
group or other entity (other than the Company, any Subsidiary of the
Company or a trustee holding stock for the benefit of employees of the
Company or its Subsidiaries, or any one of them, pursuant to one or more
employee benefit plans or arrangements) participating in the Business
Combination. When two or more Participants act as a partnership, limited
partnership, syndicate, association or other group for the purpose of
acquiring, holding or disposing of shares of stock, such partnership,
syndicate, association or group shall be deemed a "Participant."
(c) "Subsidiary" shall mean any company, corporation or entity of which
the Company owns not less than 50% of any class of equity securities,
directly or indirectly.
8.2. DETERMINATIONS BY THE BOARD. The directors shall have the exclusive
power and authority to determine, for the purposes of this Section 8, on the
basis of information known to them: (a) whether two or more transactions
constitute a "series of related transactions" as hereinabove defined, and (b)
such other matters with respect to which a determination is required under this
Section 8. Any such determination shall be final and binding for all purposes
hereunder.
8.3. APPROVAL OF BUSINESS COMBINATIONS. Whether or not a vote of the
stockholders is otherwise required in connection with the transaction, neither
the Company nor any of its Subsidiaries shall become a party to any Business
Combination without prior compliance with the provisions of this subsection
8.3.
(a) Such Business Combination shall be approved by the Board of Directors
of the Company by the affirmative vote of not less than two-thirds of the
whole Board of Directors of the Company; OR
(b) If there is not full compliance with the provisions of paragraph (a)
of this subsection 8.3, such Business Combination shall be approved by the
affirmative vote of the holders of at least 80% of the combined voting
power of the then outstanding shares of stock of all classes entitled to
vote generally in
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the election of directors; if there is full compliance with the provisions
of said paragraph (a), such vote shall be as required by law. In addition,
any proxy statement used in connection with the solicitation of such vote
shall contain at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the Business
Combination which the directors, or any of them, may have furnished in
writing and, if deemed advisable by majority of the directors, an opinion
of a reputable investment banking firm as to the fairness (or lack of
fairness) of the terms of such Business Combination from the point of view
of the holders of capital stock (such investment banking firm to be
selected by majority of the directors), which investment banking firm will
have been furnished with all information it reasonably requests, and will
be paid a reasonable fee by the Company for its services upon receipt of
the Company of such opinion; AND
(c) (i) The aggregate amount of the cash and the fair market value of
other consideration to be received per share of capital stock in such
Business Combination by holders of capital stock, other than any
Participant, shall be not less than the highest per share price (including
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by
any Participant in the last 24 months in acquiring any of its holdings of
capital stock, and not less than the book value of a share of the capital
stock, as reflected in the balance sheet of the Company as of the last day
of the last fiscal quarter of the Company preceding such Business
Combination; and
(ii) The consideration (if any) to be received in such Business
Combination by holders of capital stock other than any Participant shall,
except to the extent that a stockholder agrees otherwise as to all or part
of the shares which such stockholder owns, be in the same form and of the
same kind as the consideration paid by any Participant in acquiring capital
stock already owned by it during the last 12 months.
For purposes of paragraphs (i) and (ii) of this subsection 8.3(c), in the
event of a Business Combination upon the consummation of which the Company
would be the surviving corporation or company or would continue to exist
(unless it is provided, contemplated or intended that as part of such
Business Combination or within one year after consummation thereof a plan
of liquidation or dissolution of the Company will be effected), the term
"other consideration to be received" shall include, without limitation,
capital stock retained by stockholders of the Company other than any
Participant.
8.4. FACTORS TO BE CONSIDERED BY THE BOARD. Prior to voting with regard to
any Business Combination, the directors shall, consistent with their overall
responsibilities to the stockholders of the Company, consider the impact of the
proposed Business Combination on the following:
(a) The working conditions, job security or compensation of the employees
of the Company and its Subsidiaries;
(b) The management of the Company;
(c) The short-term and long-term financial stability of the Company;
(d) The ability of the Company to publish an independent, high-quality,
comprehensive newspaper and to freely conduct its other operations and
those of its Subsidiaries to the advantage of the customers and markets
served;
(e) The economic strength, business reputation, managerial ability and
recognized integrity of any Participant (or the principals thereof)
proposing a Business Combination with the Company; and
(f) The effect on the communities served by the Company's newspapers and
by its other operations and Subsidiaries in light of any change which might
occur as a result of the factors outlined in paragraph (a) through (e)
above, considered together or singly.
8.5. AMENDMENT OF THIS SECTION. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-Laws of the Company (and notwithstanding
the fact that some lesser percentage may be specified by law, this Certificate
of Incorporation or the By-Laws of the Company), the affirmative vote of the
holders of at least 80% of the combined voting power of the then outstanding
shares of stock of
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all classes entitled to vote generally in the election of directors, cast at a
meeting of the stockholders called for the purpose of amending, altering,
changing, repealing or adopting any provisions inconsistent with this Section
8, shall be required to amend, alter, change, repeal or adopt any provisions
inconsistent with, this Section 8; PROVIDED, HOWEVER, that this subsection 8.5
shall not apply to any amendment, alteration, change, repeal or adoption of any
inconsistent provision that is recommended to the stockholders by the vote of
not less than two-thirds of the whole Board of Directors, and any such
amendment, alteration, change, repeal or adoption of any inconsistent provision
so recommended shall require only the vote, if any, required under the
applicable provisions of Delaware law.
8.6. BUSINESS COMBINATION ACT. The Company shall be subject to the provisions
of Title 8, Section 203 of the General Corporation Law of the State of Delaware
as in effect or as hereafter amended.
SECTION 9
CONFLICT OF INTEREST
No contract or transaction between the Company and one or more of its
directors or officers, or between the Company and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for such reason, or solely because such
director or officer is present at or participates in the meeting of the Board
of Directors or committee thereof which authorizes such contract or
transaction, or solely because such director is counted in determining the
presence of a quorum at such meeting and votes upon the authorization of such
contract or transaction, if (a) the material facts as to such director's or
officer's relationship or interest as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or the committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested members
thereof, even though such disinterested members be less than a quorum, or (b)
the material facts as to such director's or officer's relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of such stockholders, or (c) the
contract or transaction is fair as to the Company as of the time it is
authorized, approved or ratified by the Board of Directors, a committee
thereof, or the stockholders. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
SECTION 10
LIMITATION OF LIABILITY; INDEMNIFICATION
10.1. LIMITATION OF DIRECTORS' LIABILITY. To the fullest extent that the
General Corporation Law of the State of Delaware, as it exists on the date
hereof or as it may hereafter be amended, permits the limitation or elimination
of the liability of directors, no director of the Company shall be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. No amendment to or repeal of this Section 10 shall apply to
or have any effect on the liability or alleged liability of any director of the
Company for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.
10.2. RIGHT TO INDEMNIFICATION. The Company shall, to the fullest extent
permitted by applicable law as then in effect, indemnify any person (the
"Indemnitee") who was or is involved in any manner (including, without
limitation, as a party or witness) or is threatened to be made so involved in
any threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action, suit or proceeding by or in the
right of the Company to procure a judgment in its favor) (a "Proceeding") by
reason of the fact that he is or was a director, officer,
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employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including, without
limitation, any employee benefit plan) against all expenses (including
attorneys' fee), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such Proceeding. Such
indemnification shall be a contract right and shall include the right to
receive payment in advance of any expenses incurred by the Indemnitee in
connection with such Proceeding, consistent with the provisions of applicable
law as then in effect.
10.3. INSURANCE, CONTRACTS AND FUNDING. The Company may purchase and maintain
insurance to protect itself and any Indemnitee against any expenses, judgments,
fines and amounts paid in settlement as specified in subsection 10.1 of this
Section or incurred by any Indemnitee in connection with any Proceeding
referred to in subsection 10.2 of this Section, to the fullest extent permitted
by applicable law as then in effect. The Company may enter into contracts with
any director, officer, employee or agent of the Company in furtherance of the
provisions of this Section and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section.
10.4. INDEMNIFICATION NOT EXCLUSIVE RIGHT. The right of indemnification
provided in this Section shall not be exclusive of any other rights to which
those seeking indemnification may otherwise be entitled, and the provisions of
this Section shall inure to the benefit of the heirs and legal representatives
of any person entitled to indemnity under the Section and shall be applicable
to proceedings commenced or continuing after the adoption of this Section,
whether arising from acts or omissions occurring before or after or after such
adoption.
10.5. ADVANCEMENT OF EXPENSES; PROCEDURES; PRESUMPTIONS AND EFFECTS OF
CERTAIN PROCEEDINGS; REMEDIES. In furtherance but not in limitation of the
foregoing provisions, the following procedures, presumptions and remedies shall
apply with respect to advancement of expenses and the right to indemnification
under this Section:
(a) ADVANCEMENT OF EXPENSES. All reasonable expenses incurred by or on
behalf of an Indemnitee in connection with any Proceeding shall be advanced
to the Indemnitee by the Company within 20 days after the receipt by the
Company of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall
reasonably evidence the expenses incurred by the Indemnitee and, if
required by law at the time of such advance, shall include or be
accompanied by an undertaking by or on behalf of the Indemnitee to repay
the amounts advanced if it should ultimately be determined that the
Indemnitee is not entitled to be indemnified against such expenses pursuant
to this Section.
(b) PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. (i) To
obtain indemnification under this Section, an Indemnitee shall submit to
the Secretary of the Company a written request, including such
documentation as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee is
entitled to indemnification (the "Supporting Documentation"). The
determination of the Indemnitee's entitlement to indemnification shall be
made not later than 60 days after receipt by the Company of the written
request for indemnification together with the Supporting Documentation. The
Secretary of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that the
Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under this Section
shall be determined in one of the following ways: (A) by a majority vote of
the Disinterested Directors (as hereinafter defined), if they constitute a
quorum of the Board of Directors; (B) by a written opinion of Independent
Counsel (as hereinafter defined) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if
obtainable, a majority of such Disinterested Directors so directs; (C) by
the stockholders of the Company entitled to vote (but only if a majority of
the Disinterested Directors, if
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they constitute a quorum of the Board of Directors, presents the issue of
entitlement to indemnification to such stockholders for their
determination); or (D) as provided in subsection 10.5(c) of this Section.
(iii) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to subsection 11.5(b)(ii) of
this Section, a majority of the Disinterested Directors shall select the
Independent Counsel, but only an Independent Counsel to which the
Indemnitee does not reasonably object.
(c) PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. Except as otherwise
expressly provided in this Section, the Indemnitee shall be presumed to be
entitled to indemnification under this Section upon submission of a request
for indemnification together with the Supporting Documentation in
accordance with subsection 10.5(b)(i), and thereafter the Company shall
have the burden of proof to overcome that presumption in reaching a
contrary determination. In any event, if the person or persons empowered
under subsection 10.5(b) of this Section to determine entitlement to
indemnification shall not have been appointed or shall not have made a
determination within 60 days after the receipt by the Company of the
request therefor together with the Supporting Documentation, the Indemnitee
shall be entitled to indemnification unless (i) the Indemnitee
misrepresented or failed to disclose a material fact in making the request
for indemnification or in the Supporting Documentation or (ii) such
indemnification is prohibited by law. The termination of any Proceeding
described in subsection 10.2, or of any claim, issue or matter therein, by
judgment, order, settlement or conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, adversely affect the
right of the Indemnitee to indemnification or create a presumption that the
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or,
with respect to any criminal Proceeding, that the Indemnitee had reasonable
cause to believe that his conduct was lawful.
(d) REMEDIES OF INDEMNITEE. (i) In the event that a determination is made
pursuant to subsection 10.5(b) of this Section that the Indemnitee is not
entitled to indemnification under this Section, (A) the Indemnitee shall be
entitled to seek an adjudication of his entitlement to such indemnification
in an appropriate court of the State of Delaware; (B) any such judicial
proceeding shall be de novo and the Indemnitee shall not be prejudiced by
reason of such adverse determination; and (C) in any such judicial
proceeding the Company shall have the burden of proving that the Indemnitee
is not entitled to indemnification under this Section.
(ii) If a determination shall have been made or deemed to have been made,
pursuant to subsection 10.5(b) or (c), that the Indemnitee is entitled to
indemnification, the Company shall be obligated to pay the amounts
constituting such indemnification within five days after such determination
has been made or deemed to have been made and shall be conclusively bound
by such determination unless (A) the Indemnitee misrepresented or failed to
disclose a material fact in making the request for indemnification or in
the Supporting Documentation or (B) such indemnification in prohibited by
law. In the event that (C) advancement of expenses is not timely made
pursuant to subsection 10.5 (a) or (D) payment of indemnification is not
made within five days after a determination of entitlement to
indemnification has been made or deemed have been made pursuant to
subsection 10.5(b) or (c), the Indemnitee shall be entitled to seek
judicial enforcement of the Company's obligation to pay to the indemnitee
such advancement of expenses or indemnification. Notwithstanding the
foregoing, the Company may bring an action, in an appropriate court of the
State of Delaware or the State of Rhode Island contesting the right of the
Indemnitee to receive indemnification hereunder due to the occurrence of an
event described in subparagraph (A) or (B) of this paragraph (ii) (a
"Disqualifying Event"); PROVIDED, HOWEVER, that in any such action the
Company shall have the burden or proving the occurrence of such
Disqualifying Event.
(iii) The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this subsection 10.5(d) that the
procedures and presumptions of this Section are not valid, binding and
enforceable and shall stipulate in any such court that the Company is bound
by all the provisions of this Section.
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<PAGE>
(iv) In the event that the Indemnitee, pursuant to this subsection
10.5(d), seeks a judicial adjudication of his rights under, or to recover
damages for breach of, this Section, the Indemnitee shall be entitled to
recover from the Company, and shall be indemnified by the Company against,
any expenses actually and reasonably incurred by him if the Indemnitee
prevails in such judicial adjudication. If it shall be determined in such
judicial adjudication that the Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the
expenses incurred by the Indemnitor in connection with such judicial
adjudication shall be prorated accordingly.
(e) Definitions. For purposes of this subsection 10.5:
(i) "Disinterested Director" means a director of the Company who is
not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(ii) "Independent Counsel" means a law firm or a member of a law firm
that neither presently is, nor in the past five years has been,
retained to represent (A) the Company or the Indemnitee in any matter
material to either such party or (B) any other party to the Proceeding
giving rise to a claim for indemnification under this Section.
Notwithstanding the foregoing, the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing under the law of the State of Delaware, would
have a conflict of interest in representing either the Company or the
Indemnitee in an action to determine the Indemnitee's rights under this
Section.
10.6. SEVERABILITY. If any provision or provisions of this Section shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Section (including, without limitation, all portions of any paragraph of this
Section containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected in impaired thereby; and (b) to the fullest extent
possible, the provisions of this Section 10 (including, without limitation, all
portions of any subsection or paragraph of this Section containing any such
provision held to be invalid, illegal or unenforceable that are not themselves
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
10.7 AMENDMENT OF THIS SECTION. Notwithstanding any other provision of this
Certificate of Incorporation or the By-Laws of the Company (and notwithstanding
the fact that some lesser percentage may be specified by law, this Certificate
of Incorporation or the By-Laws of the Company), any amendment, alteration or
repeal of this Section 10 shall require the affirmative vote of the holders of
at least 80% of the combined voting power of the then outstanding shares of
stock of all classes entitled to vote generally in the election of directors.
SECTION 11
BY-LAWS
To the extent deemed necessary or appropriate by the Board of Directors to
enable the Company to engage in any business or activity directly or indirectly
conducted by it in compliance with the laws of the United States of America as
now in effect or as they may hereafter from time to time be amended, the
Company may adopt such by-laws as may be necessary or advisable to comply with
the provisions and avoid the prohibitions of any such law. Without limiting the
generality of the foregoing, such by-laws may restrict or prohibit the transfer
of shares of capital stock of the Company to, and the voting of such stock by,
aliens or their representatives, or corporations organized under the laws of
any foreign country or their representatives, or corporations directly or
indirectly controlled by aliens or by any such corporation or representative.
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<PAGE>
SECTION 12
MEETINGS
Meetings of stockholders may be held within or without the State of Delaware,
as the By-Laws may provide. The books of the Company may be kept (subject to
any provisions contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Company.
SECTION 13
PARTICIPATION OF NON-CITIZENS; REGULATORY COMPLIANCE
13.1. PARTICIPATION OF NON-CITIZENS. The following provisions are included
for the purpose of ensuring that control and management of the Company remains
with loyal citizens of the United States and/or corporations formed under the
laws of the United States or any of the states of the United States, as
required by the Communications Act of 1934, as the same may be amended from
time to time.
(a) The Company shall not issue to "Aliens" (which term shall include (i)
a person who is a citizen of a country other than the United States; (ii)
any entity organized under the laws of a government other than the
government of the United States or any state, territory, or possession of
the United States; (iii) a government other than the government of the
United States or of any state, territory, or possession of the United
States; and (iv) a representative of, or an individual or entity controlled
by, any of the foregoing, either individually or in the aggregate, in
excess of twenty-five percent (25%) of the total number of shares of
capital stock of the Company outstanding at any time and shall seek not to
permit the transfer on the books of the Company of any capital stock to any
Alien that would result in the total number of shares of such capital stock
held by Aliens exceeding such twenty-five percent (25%) limit.
(b) No Alien or Aliens shall be entitled to vote or direct or control the
vote of more than twenty-five percent (25%) of (i) the total number of
shares of capital stock of the Company outstanding and entitled to vote at
any time and from time to time, or (ii) the total voting power of all
shares of capital stock of the Company outstanding and entitled to vote at
any time and from time to time.
(c) No Alien shall be qualified to act as an officer of the Company, and
no more than one-fourth of the total number of directors of the Company at
any time and from time to time may be Aliens.
(d) The Board of Directors of the Company shall have all powers necessary
to implement the provisions of this Section 13.
13.2. REGULATORY COMPLIANCE. The Company shall not do, nor shall it cause any
act to be done, that would cause it to be in violation of the Communications
Act of 1934 or of the rules and regulations promulgated thereunder, as the same
may be amended from time to time.
SECTION 14
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Company reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in this Certificate or
Incorporation in the manner now or hereafter prescribed by law or the specific
provisions of this Certificate of Incorporation, and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form, or as hereinafter amended, are granted
subject to the right reserved in this Section 14.
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<PAGE>
IN WITNESS WHEREOF, I, the undersigned, being the incorporator hereinabove
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make and file this certificate,
hereby declaring and certifying that the facts herein stated are true, and
accordingly have hereunto set my hand this 11th day of November, 1994.
_____________________________________
Benjamin P. Harris, III
++
+
State of Rhode Island ++ ss.:
County of Providence +
++
BE IT REMEMBERED that on the 11th day of November, 1994 personally appeared
before me, Lauren E. Marandola, a notary public for the State of Rhode Island,
Benjamin P. Harris, III, the party to the foregoing Certificate of
Incorporation, known to me personally to be such, and acknowledged the said
Certificate to be his act and deed and that the facts therein stated are true.
GIVEN under my hand and seal of office the day and year aforesaid.
_____________________________________
Notary Public
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<PAGE>
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF INCORPORATION
OF
THE PROVIDENCE JOURNAL COMPANY
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is The
Providence Journal Company.
2. The Certificate of Incorporation of the corporation, which was filed by
the Secretary of State of Delaware on November 15, 1994, is hereby corrected.
3. The inaccuracies to be corrected in said instrument and the corrected form
are as follows:
a. On Page 4, paragraph (b) in the thirteenth line, the language should
be changed from "ii" to "in" to read as follows:
"(b) As promptly as practicable after the surrender for conversion of
a certificate representing shares of Class B Stock in the manner
provided for in paragraph (a) above and the payment of any amount
required by the provisions of paragraphs (a) and (d), the Company will
deliver, or cause to be delivered, a certificate or certificates
representing the number of full shares of Class A Stock issuable upon
such conversion, issued in such name or names as such holder may
direct. Such conversion shall be deemed to have been made at the close
of business on the date of the surrender of the certificate
representing shares of Class B Stock, and all rights of the holder of
such shares as such holder shall cease at such time and the person or
persons in whose name or names the certificate or certificates
representing the shares of Class A Stock are to be issued shall be
treated for all purposes as having become the record holder or holders
of such shares of Class A Stock at such time."
b. On page 12, Section 7.3 in the 13th line, the word "in" was omitted
before the "1998"; Section 7.3 should now read as follows:
"7.3. BOARD TERMS. Prior to March 1, 1995, the Board of Directors
shall consist of three (3) members. Thereafter, the Board of Directors
shall consist of twelve (12) members (until such time as the Board of
Directors acting pursuant to subsection 7.1 above shall amend such
number) and shall be divided into three (3) classes, each class to be
equal in number. The term of office of directors of the first class
shall expire at the annual meeting of stockholders to be held in 1996;
the term of office of directors of the second class shall expire at the
annual meeting of stockholders to be held in 1997; and the term of
office of directors of the third class shall expire at the annual
meeting of stockholders to be held in 1998. At each annual meeting of
stockholders following the annual meeting for 1995, the number of
directors equal to the number of the class whose term expires at the
time of such meeting shall be elected to hold office until the third
succeeding annual meeting of stockholders."
IN WITNESS WHEREOF, I, the undersigned, being the incorporator for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make and file this certificate of correction, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this 12th day of January, 1995.
/s/ Benjamin P. Harris III
_____________________________________
Benjamin P. Harris, III
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<PAGE>
++
+
State of Rhode Island ++ ss.:
County of Providence +
++
BE IT REMEMBERED that on the 12th day of January, 1995 personally appeared
before me, Lauren E. Marandola, a notary public for the State of Rhode Island,
Benjamin P. Harris, III, the party to the foregoing Certificate of
Incorporation, known to me personally to be such, and acknowledged the said
Certificate to be his act and deed and that the facts therein stated are true.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/
_____________________________________
Notary Public
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<PAGE>
ANNEX III
[ FORM OF BEAR STEARNS' OPINION ]
, 1995
Board of Directors
Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Ladies and Gentlemen:
We understand that Providence Journal Company ("Providence Journal") has
entered into (i) an Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement") with various parties including Continental Cablevision,
Inc. ("Continental"); (ii) a Contribution and Assumption Agreement, a
Registration Rights Agreement and a Noncompetition Agreement with Continental;
(iii) a Stock Purchase Agreement ("Kelso Stock Purchase Agreement") with Kelso
& Company, Inc. ("Kelso"); and (iv) separate letters of intent or stock
purchase agreements (the "Minority Interest Purchase Agreements") with each of
Copley Press Electronics Company, Brown University and Telesat Cablevision of
South Florida, Inc. and Telesat Cablevision, Inc. (collectively, the "Minority
Interests"). The Merger Agreement, the Contribution and Assumption Agreement,
the Registration Rights Agreement, the Noncompetition Agreement, the Kelso
Stock Purchase Agreement and the Minority Interest Purchase Agreements are
collectively referred to herein as the "Agreements."
We further understand that, pursuant to the Agreements: (i) Providence
Journal will acquire Kelso's interest in King Holding Corp. ("KHC") and the
Minority Interests; (ii) Providence Journal will contribute, to a newly-formed
wholly-owned subsidiary, The Providence Journal Company ("New Providence
Journal"), substantially all of the assets of Providence Journal other than the
capital stock of the Cable Subsidiaries (as such term is defined in the Merger
Agreement and the Contribution and Assumption Agreement) and certain other
cable television assets (collectively, "PJC Cable Business") and, Providence
Journal will then distribute all of New Providence Journal's common stock to
Providence Journal's shareholders on a pro rata basis; (iii) Continental will
assume or incur $755 million of New Cable Indebtedness (as such term is defined
in the Merger Agreement); and (iv) Providence Journal will then merge with and
into Continental as a result of which each share of Providence Journal Common
Stock held by shareholders will be converted into shares of newly issued
Continental Merger Stock, comprised of 28,260,309 shares of Continental Class A
Common Stock and 4,987,113 shares of Continental Series B Preferred Stock (or
33,247,422 shares of Continental Class A Common Stock if no shares of
Continental Series B Preferred Stock are issued) representing approximately
16.4% of Continental's fully diluted equity securities outstanding after the
merger (or 18.9% of Continental's fully diluted equity securities outstanding
if no shares of Continental Series B Preferred Stock are issued). The
aforementioned transactions and related transactions described in the
Agreements are collectively referred to herein as the "Providence Journal
Transactions." You have provided us with the joint proxy statement-prospectus
in substantially the form to be sent to the stockholders of Providence Journal
(the "Joint Proxy Statement-Prospectus").
You have asked us to render our opinion as to whether the Providence Journal
Transactions in the aggregate are fair, from a financial point of view, to the
stockholders of Providence Journal.
In the course of our analyses for rendering this opinion, we have, among
other things:
1. reviewed the Joint Proxy Statement-Prospectus;
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<PAGE>
2. reviewed the Merger Agreement (including the terms of the Continental
Merger Stock), the Contribution and Assumption Agreement, the
Registration Rights Agreement, the Noncompetition Agreement, the Kelso
Stock Purchase Agreement, the Minority Interest Purchase Agreements
and the related schedules of such agreements;
3. reviewed (i) the audited consolidated financial statements of
Providence Journal, Colony Communications, Inc. and Copley/Colony,
Inc. for the years ended December 31, 1990 through December 31, 1994;
(ii) KHC's audited consolidated financial statements for the years
ended December 31, 1992 through December 31, 1994; (iii) the Colony
Cablevision divisions internally prepared unaudited income statements
for the years ended December 31, 1991 through December 31, 1994; (iv)
internally prepared consolidating pro forma financial statements for
the year ended December 31, 1994 for the PJC Cable Business; and (v)
internally prepared consolidated pro forma balance sheets as of [June
30, 1994] for New Providence Journal and consolidated pro forma
statement of operations for the year ended December 31, [1993] for New
Providence Journal;
4. reviewed certain operating and financial information of Providence
Journal, the PJC Cable Business, and KHC, including projections for
the PJC Cable Business and King Broadcasting Company ("KBC"), provided
to us by the managements of Providence Journal, the PJC Cable Business
and KBC;
5. reviewed Continental's audited financial statements for the years
ended December 31, 1991 through 1994;
6. reviewed certain operating and financial information of Continental,
including projections, provided to us by Continental's management;
7. met with certain members of the senior managements of Providence
Journal, the PJC Cable Business, KBC and Continental to discuss each
company's or division's respective operations, historical financial
statements and prospects, recent actions taken by the Federal
Communications Commission and the impact thereof on the PJC Cable
Business and Continental, and the amount and timing of potential
synergies and/or costs savings to Continental realizable as a result
of the Merger;
8. reviewed the historical prices and volume of Continental's privately-
held common stock issued or traded in negotiated transactions as
furnished to us by Continental;
9. reviewed publicly available financial data and stock market
performance of publicly traded companies engaged in businesses that we
deemed generally comparable to the PJC Cable Business, Continental and
KBC, respectively;
10. reviewed the financial terms of recent acquisitions of companies we
deemed generally comparable to PJC Cable Business and KBC; and
11. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by
Providence Journal, the PJC Cable Business and Continental, among others, and
the reasonableness of the assumptions made with respect to their respective
projected financial results. We have not assumed any responsibility for such
information and we have further relied upon the assurances of the managements
of Providence Journal, the PJC Cable Business and Continental that they are
unaware of any facts that would make the information provided to us incomplete
or misleading. With respect to the projected financial results of the PJC Cable
Business, KBC and Continental which were furnished to us, we have assumed that
such financial projections have been reasonably prepared by Providence Journal,
the PJC Cable Business and Continental, respectively, on bases reflecting the
best currently available estimates and good faith judgments of the future
competitive, operating and regulatory environments and related financial
performance. We also relied, without independent verification, upon the
assessment of the senior managements of Providence Journal, the PJC Cable
Business and Continental regarding the impact on the PJC Cable Business and
Continental, respectively, of recent actions taken by the
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<PAGE>
Federal Communications Commission and the amount and timing of potential
synergies and/or cost savings to Continental realizable as a result of the
Merger. We have, with your approval, assumed that the PJC Spin-Off and the
Merger will qualify as tax-free reorganizations as contemplated by the Merger
Agreement. In arriving at our opinion, we have not performed, nor were we
furnished with, any independent appraisal of the assets of Providence Journal,
the PJC Cable Business or Continental. We express no opinion as to the price or
range of prices at which the shares of Continental Merger Stock will trade
subsequent to the consummation of the Merger. Our opinion is necessarily based
on economic, market and other conditions, and the information made available to
us, as of the date of the opinion.
We have acted as financial advisor to Providence Journal in connection with
the Providence Journal Transactions and will receive a fee for such services,
payment of a significant portion of which is contingent upon the consummation
of the Providence Journal Transactions. As part of our engagement, we assisted
Providence Journal in identifying and contacting various knowledgeable and
qualified buyers which were given the opportunity to make a thorough evaluation
of the PJC Cable Business in preparation for the submission of a proposal to
acquire the PJC Cable Business. As a result of these efforts, Providence
Journal received various indications of interest regarding possible business
transactions involving the PJC Cable Business, which we have assessed and
reviewed with the senior management and the Board of Directors of Providence
Journal.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Providence Journal Transactions in the aggregate are fair,
from a financial point of view, to the stockholders of Providence Journal.
Very truly yours,
Bear, Stearns & Co. Inc.
By: _________________________________
Managing Director
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<PAGE>
ANNEX IV
DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership interest of a member of a nonstock corporation; and
the words "depositary receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any share of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation or depository receipts in
respect thereof which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts of the corporations described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
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(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or 253
or this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be
sent by certified or registered mail, return receipt requested, addressed
to the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders
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shown on the list at the addresses therein stated. Such notice shall also be
given by 1 or more publications at least 1 week before the day of the hearing,
in a newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the Court, and the
costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall
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be dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 61, L.
'93, eff. 7-1-93.)
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ANNEX V
RHODE ISLAND BUSINESS CORPORATIONS ACT
Sections 7-1.1-73 and 7-1.1-74
7-1.1-73. RIGHT OF SHAREHOLDERS TO DISSENT.--(a) Any shareholder of a
corporation shall have the right to dissent from any of the following actions:
(1) Any plan of merger or consolidation to which the corporation is a
party, unless the corporation is the surviving corporation in a merger and
the approval of its stockholders was not required by virtue of the
provisions of either (S)7-1.1-67 or 7-1.1-68.1; or
(2) Any acquisition which requires the approval of the shareholders under
(S)7-1.1-70.1; or
(3) Any sale or exchange of all or substantially all of the property and
assets of a corporation which requires the approval of the shareholders
under (S)7-1.1-72.
(b) A shareholder may not dissent as to less than all of the shares
registered in his or her name which are owned beneficially by him or her. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of the owner registered in the name of the nominee
or fiduciary.
(c) Notwithstanding the foregoing, unless otherwise provided in the articles
of incorporation of the issuing corporation, there shall be no right to dissent
for the holders of the shares of any class or series of stock which, as of the
date fixed to determine the stockholders entitled to receive notice of the
proposed transaction (or a copy of the agreement of merger under (S)7-1.1-
68.1), were:
(1) Registered on a national securities exchange or included as national
market securities in the national association of securities dealers
automated quotations system or any successor national market system; or
(2) Held of record by not less than two thousand (2,000) stockholders.
7-1.1-74. RIGHTS OF DISSENTING SHAREHOLDERS.--(a) Any shareholder electing to
exercise the right of dissent shall file with the corporation, prior to or at
the meeting of shareholders at which the proposed corporate action is submitted
to a vote, a written objection to the proposed corporate action. If the
proposed corporate action be approved by the required vote and the shareholder
shall not have voted in favor thereof, the shareholder may, within ten (10)
days after the date on which the vote was taken, or if a corporation is to be
merged without a vote of its shareholders into another corporation, any of its
shareholders may, within fifteen (15) days after the plan of the merger shall
have been mailed to the shareholders, make written demand on the corporation,
or, in the case of a merger of consolidation, on the surviving or new
corporation, domestic or foreign, for payment of the fair value of the
shareholder's shares, and, if the proposed corporate action is effected, the
corporation shall pay to the shareholder, upon surrender of the certificate or
certificates representing the shares, the fair value thereof as of the day
prior to the date on which the vote was taken approving the proposed corporate
action, excluding any appreciation or depreciation in anticipation of the
corporate action. Any shareholder failing to make demand within such ten (10)
day period or such fifteen (15) day period, as the case may be, shall be bound
by the terms of the proposed corporate action. Any shareholder making the
demand shall thereafter be entitled only to payment as in this section provided
and shall not be entitled to vote or to exercise any other rights of a
shareholder.
(b) No demand may be withdrawn unless the corporation shall consent thereto.
If, however, the demand shall be withdrawn upon consent, or if the proposed
corporate action shall be abandoned or rescinded or the shareholders shall
revoke the authority to effect the action, or if, in the case of a merger, on
the date of the filing of the articles of merger the surviving corporation is
the owner of all the outstanding shares of the other corporations, domestic and
foreign, that are parties to the merger, or if no demand or petition for the
determination of fair value by a court shall have been made or filed within the
time provided in this section,
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or if a court of competent jurisdiction shall determine that the shareholder is
not entitled to the relief provided by this section, then the right of the
shareholder to be paid the fair value of his or her shares shall cease and his
or her status as a shareholder shall be restored, without prejudice to any
corporate proceedings which may have been taken during the interim.
(c) Within ten (10) days after the corporate action is effected, the
corporation, or, in the case of a merger or consolidation, the surviving or new
corporation, domestic or foreign, shall give written notice thereof to each
dissenting shareholder who has made demand as herein provided, and shall make a
written offer to each shareholder to pay for the shares at a specified price
deemed by the corporation to be the fair value thereof. The notice and offer
shall be accompanied by a balance sheet of the corporation the shares of which
the dissenting shareholder holds, as of the latest available date and not more
than twelve (12) months prior to the making of the offer, and a profit and loss
statement of the corporation for the twelve (12) months' period ended on the
date of the balance sheet.
(d) If within thirty (30) days after the date on which the corporate action
was effected the fair value of the shares is agreed upon between any dissenting
shareholder and the corporation, payment therefor shall be made within ninety
(90) days after the date on which the corporate action was effected, upon
surrender of the certificate or certificates representing the shares. Upon
payment of the agreed value, the dissenting shareholder shall cease to have any
interest in the shares.
(e) If within the period of thirty (30) days a dissenting shareholder and the
corporation do not so agree, then the corporation, within thirty (30) days
after receipt of written request for the filing from any dissenting shareholder
given within sixty (60) days after the date on which the corporate action was
effected, shall, or at its election at any time within the period of sixty (60)
days may, file a petition in any court of competent jurisdiction in the county
in this state where the registered office of the corporation is located praying
that the fair value of the shares be found and determined. If, in the case of a
merger or consolidation, the surviving or new corporation is a foreign
corporation without a registered office in this state, the petition shall be
filed in the county where the registered office of the domestic corporation was
last located. If the corporation shall fail to institute the proceeding as
herein provided, any dissenting shareholder may do so in the name of the
corporation. All dissenting shareholders, wherever residing, shall be made
parties to the proceeding as an action against their shares quasi in rem. A
copy of the petition shall be served on each dissenting shareholder who is a
resident of this state and shall be served by registered or certified mail on
each dissenting shareholder who is a nonresident. Service on nonresidents shall
also be made by publication as provided by law. The jurisdiction of the court
shall be plenary and exclusive. All shareholders who are parties to the
proceeding shall be entitled to judgment against the corporation for the amount
of the fair value of their shares. The court may, if it so elects, appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers shall have such power and authority
as shall be specified in the order of their appointment or an amendment
thereof. The judgment shall be payable only upon and concurrently with the
surrender to the corporation of the certificate or certificates representing
the shares. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in the shares.
(f) The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable in all circumstances, from the date on
which the vote was taken on the proposed corporate action to the date of
payment.
(g) The costs and expenses of any proceeding shall be determined by the court
and shall be assessed against the corporation, but all or any part of the costs
and expenses may be apportioned and assessed as the court may deem equitable
against any or all of the dissenting shareholders who are parties to the
proceeding to whom the corporation shall have made an offer to pay for the
shares if the court shall find that the action of the shareholders in failing
to accept the offer was arbitrary or vexatious or not in good faith. The
expenses shall include reasonable compensation for and reasonable expenses of
the appraisers, but shall exclude the fees and expenses of counsel for and
experts employed by any party; but if the fair value of the shares as
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determined materially exceeds the amount which the corporation offered to pay
therefor, or if no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court may
determine to be reasonable compensation to any expert or experts employed by
the shareholder in the proceeding.
(h) Within twenty (20) days after demanding payment for his or her shares,
each shareholder demanding payment shall submit the certificate or certificates
representing his or her shares to the corporation for notation thereon that the
demand has been made. His or her failure to do so shall, at the option of the
corporation, terminate his or her rights under this section unless a court of
competent jurisdiction, for good and sufficient cause shown, shall otherwise
direct. If shares represented by a certificate on which notation has been so
made shall be transferred, each new certificate issues therefor shall bear
similar notation, together with the name of the original dissenting holder of
the shares, and a transferee of the shares shall acquired by the transfer no
rights in the corporation other than those for which the original dissenting
shareholder had after making demand for payment of the fair value thereof.
(i) Shares acquired by a corporation pursuant to payment of the agreed value
therefor or to payment of the judgment entered therefor, as in this section
provided, may be held and disposed of by the corporation as in the case of
other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
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ANNEX VI
PROVIDENCE JOURNAL COMPANY
CABLE DIVISION SALE BONUS PLAN
1. PURPOSE. The purpose of the Providence Journal Company Cable Division Sale
Bonus Plan (the "Plan") is to maximize the cash flow of the Cable Division (the
"Cable Division") of the Providence Journal Company (the "Company") by
providing an opportunity for its key Cable management to participate in
significant incentives that will contribute to the enhancement of the Company's
shareholder value and financial performance.
2. ADMINISTRATION. The Plan will be administered by the Vice President of
Human Resources of the Company (the "Administrator"), who shall not be a
Participant in the Plan. The Administrator shall have authority to interpret
the provisions of the Plan and to decide all questions of fact arising in its
application, to provide all necessary information to the Executive Committee of
the Board of Directors of the Company (the "Executive Committee"), and to
communicate to Plan Participants concerning the administration of the Plan. The
Administrator, with the concurrence of the Chief Executive Officer, shall make
recommendations for awards under the Plan to the Executive Committee.
3. REVIEW AND AUTHORIZATION. All recommendations for awards to be made by the
Administrator pursuant to the provisions of this Plan are subject to the review
and approval by the Executive Committee.
4. ELIGIBILITY TO RECEIVE AWARDS. Persons eligible to receive awards under
the Plan shall be limited to those officers and other key executive employees
of the Cable Division who are in positions in which their decisions, actions
and counsel significantly affect the operation of the Cable Division. Employees
eligible to receive awards under the Plan are referred to herein as
"Participants". Participants will share in the Bonus Pool based upon a weighing
of salary and years of service. A list of eligible Participants is attached
hereto as Exhibit A.
5. BONUS POOL. A bonus pool of $2,100,000 will be established based upon the
fourteen (14) Participants who are listed in Exhibit A as of December 31, 1994.
The bonus opportunity is based upon performance in relation to the 1994 cash
flow objective for the Cable Division of $123,600,000 (the "1994 Objective").
The size of the Bonus Pool shall be increased by 50% of the amount in excess of
the 1994 Objective that is achieved.
6. CONDITIONS. Any bonus award earned out of the Bonus Pool will be
distributed to the Participants only upon all of the following conditions
having been satisfied:
(a) The closing of the sale, merger or other distribution of the Cable
Division (the "Closing").
(b) The Participant remaining in the employment of the Cable Division or
the Company through the date of the Closing.
Up to 20% of the bonus awared for 1994 performance is subject to forfeiture
should the 1995 cash flow objective not be attained prior to the closing.
7. GENERAL RESTRICTIONS.
(a) This Plan supersedes any other award that the Participant may be
eligible for pursuant to any other long-term incentive plan of the Company
or the Cable Division.
(b) Unforeseen changes, such as new statutes or regulations that
positively or negatively affect the cash flow of the Cable Division, will
be excluded from the calculation of the 1994 Objective or the 1995
Objective.
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(c) Nothing in the Plan nor in any agreement entered into pursuant to the
Plan shall confer upon any person the right to continue in the employment
of the Company or the Cable Division or shall affect any right which the
Company or the Cable Division may have to terminate the employment of such
person.
8. AMENDMENT. The Board may terminate or amend the Plan at any time. The
termination or any modification or amendment of the Plan shall not, without the
consent of a Participant, adversely affect the Participant's rights under an
award previously granted.
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EXHIBIT A
CABLE DIVISION SALE BONUS PLAN
<TABLE>
<CAPTION>
PARTICIPANT POSITION
----------- --------
<S> <C>
Bruce Clark President
Paul Silva VP Operations
Dan Donohue VP Human Resources
Mike Angi VP Technology
Dodie Tschirch VP Government Affairs
John VanLuling VP Finance
Jeff Wayne VP Sales/Marketing
Chuck Goy Director--Construction
Lorraine Cole Director--Marketing
Paul Redman Director--MIS
Ken Weichert Director/Ad Sales
Richard Wadman Division General Manager
Jim Petro Division Manager
Glen Schein Division Manager
</TABLE>
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<PAGE>
PRELIMINARY COPY
CONTINENTAL CABLEVISION, INC.
PROXY FOR SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
The undersigned, revoking all prior proxies, hereby constitutes and appoints
AMOS B. HOSTETTER, JR., TIMOTHY P. NEHER and WILLIAM T. SCHLEYER, and each of
them, as the true and lawful attorneys and proxies for the undersigned, with
full power of substitution, to vote all shares of Class A Common Stock, Class B
Common Stock and Series A Cumulative Redeemable Preferred Stock that the
undersigned is entitled to vote at the Special Meeting in Lieu of Annual
Meeting of Stockholders of Continental Cablevision, Inc. (the "Company") to be
held at on , 1995 at , local time, or at any adjournment
thereof, upon such business as may properly come before the meeting or any
adjournment including, without limiting such general authorization, the
following proposals described in the accompanying Joint Proxy Statement-
Prospectus:
1. FOR [_] AGAINST [_] ABSTAIN [_] Approval of the Amended and
Restated Agreement and Plan of
Merger, pursuant to which King
Broadcasting Company (which will
hold all of Providence Journal
Company's cable television
businesses and assets) will merge
with and into the Company.
2. FOR [_] AGAINST [_] ABSTAIN [_] Approval of an amendment to the
Company's Restated Certificate of
Incorporation to increase the
total number of authorized shares
of the Company's capital stock
from 17,700,000 to 825,000,000,
including an increase in (a) the
number of authorized shares of
Common Stock from 15,000,000 to
625,000,000, of which 425,000,000
will be shares of Class A Common
Stock and 200,000,000 will be
shares of Class B Common Stock and
(b) the number of authorized
shares of Preferred Stock from
2,700,000 to 200,000,000.
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
3. FOR [_] AGAINST [_] ABSTAIN [_] To elect Amos B. Hostetter, Jr.,
Henry F. McCance, Lester Pollack
and Roy F. Coppedge III as the
Company's Class C Directors, each
to serve as a Director for a three
year term expiring at the 1998
Annual Meeting of Stockholders of
the Company.
To withhold authority to elect any Director nominee, write that person's name
in the space provided below:
4. FOR [_] AGAINST [_] ABSTAIN [_] To appoint Deloitte & Touche LLP
as the Company's independent
public accountants for the fiscal
year ending December 31, 1995.
UNLESS OTHERWISE SPECIFIED ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR
THE DIRECTORS SPECIFIED ABOVE IN PROPOSAL 3 AND FOR PROPOSALS 1, 2 AND 4. THE
PERSONS WHO HAVE BEEN NAMED PROXIES HAVE AUTHORITY, WHICH THEY INTEND TO
EXERCISE, TO VOTE IN FAVOR OF THE PROPOSALS REFERRED TO AND ANY OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
This Proxy should be
dated, signed by the
shareholder exactly as
printed at the left and
returned promptly in the
enclosed envelope. Persons
signing in a fiduciary
capacity should so
indicate.
Dated: , 1995
___________________________
(Signature)
___________________________
(Signature)
<PAGE>
PRELIMINARY COPY
CONTINENTAL CABLEVISION, INC.
IRREVOCABLE PROXY FOR
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
The undersigned, revoking all prior proxies, hereby constitutes and appoints
AMOS B. HOSTETTER, JR., TIMOTHY P. NEHER and WILLIAM T. SCHLEYER, and each of
them, as the true and lawful attorneys and proxies for the undersigned, with
full power of substitution, to vote all shares of Series A Cumulative
Redeemable Preferred Stock that the undersigned is entitled to vote in any vote
to be taken by the Series A Cumulative Redeemable Preferred Stock voting
separately as a class at the Special Meeting In Lieu of Annual Meeting of
Stockholders of Continental Cablevision, Inc. (the "Company") to be held at
on , 1995 at , local time, or at any adjournment thereof,
upon the proposal to approve an amendment to the Company's Restated Certificate
of Incorporation to increase the total number of authorized shares of the
Company's capital stock from 17,700,000 to 825,000,000, including an increase
in (a) the number of authorized shares of Common Stock from 15,000,000 to
625,000,000, of which 425,000,000 will be shares of Class A Common Stock and
200,000,000 will be shares of Class B Common Stock and (b) the number of
authorized shares of Preferred Stock from 2,700,000 to 200,000,000, as
described in the accompanying Joint Proxy Statement-Prospectus. This proxy
shall be considered coupled with an interest in the Company's securities and
shall be irrevocable.
This Proxy should be
dated, signed by the
shareholder exactly as
printed at the left and
returned promptly in the
enclosed envelope. Persons
signing in a fiduciary
capacity should so
indicate.
Dated: , 1995
___________________________
(Signature)
___________________________
(Signature)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides, in effect, that any person made a party to
any action by reason of the fact that he is or was a Director, officer,
employee or agent of Continental may and, in certain cases, must be indemnified
by Continental against, in the case of a non-derivative action, judgments,
fines, amounts paid in settlement and reasonable expenses (including attorney's
fees) incurred by him as a result of such action, and in the case of a
derivative action, against expenses (including attorney's fees), if in either
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of Continental. This indemnification
does not apply, in a derivative action, to matters as to which it is adjudged
that the Director, officer, employee or agent is liable to Continental, unless
upon court order it is determined that, despite such adjudication of liability,
but in view of all the circumstances of the case, he is fairly and reasonably
entitled to indemnity for expenses, and, in a non-derivative action, to any
criminal proceeding in which such person had reasonable cause to believe his
conduct was unlawful.
Article VII of the Continental By-Laws in effect provides that Continental
shall indemnify each person who is or was an officer or Director of Continental
to the fullest extent permitted by Section 145 of the DGCL.
Article Sixth of the Continental Restated Certificate provides that no
Director of Continental shall be personally liable to Continental or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except (i) for any breach of the duty of loyalty to Continental or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) for any transaction
from which the Director derived an improper personal benefit and (iv) for
liability under Section 174 of the DGCL relating to certain unlawful dividends
and stock repurchases.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Listed below are the exhibits which are filed as part of this registration
statement (according to the number assigned to them in Item 601 of Regulation
S-K). Each exhibit marked by an asterisk (*) is incorporated by reference to
Continental's Registration Statement No. 33-46510 (as amended), declared
effective by the Securities and Exchange Commission on June 15, 1992, each
exhibit marked by two asterisks (**) is incorporated by reference to
Continental's Registration Statement No. 33-59806, declared effective by the
Securities and Exchange Commission on May 27, 1993, and each exhibit marked by
three asterisks (***) is incorporated by reference to Continental's
Registration Statement No. 33-65798, declared effective by the Securities and
Exchange Commission on August 6, 1993. Exhibit numbers in parenthesis refer to
the exhibit numbers in Registration Statements. Each exhibit marked by a pound
sign (#) is a management contract or compensatory plan.
2.1 Amended and Restated Merger Agreement dated as of November 18, 1994 by
and among Continental, Providence Journal Company, The Providence
Journal Company, King Holding Corp. and King Broadcasting Company
. . . Included as Annex I to the Joint Proxy Statement -Prospectus.
3.1 Restated Certificate of Incorporation of Continental./1/
3.1A Certificate of Designation of Continental relating to the Continental
Series A Preferred Stock./1/
3.1B Form of Certificate of Designation of Continental relating to the
Continental Series B Preferred Stock. . . . Filed as Exhibit A to
Annex I.
3.1C Form of Amendment to Continental's Restated Certificate of
Incorporation increasing the number of authorized shares. . . . Filed
herewith as Exhibit 3.1C.
II-1
<PAGE>
3.2 By-Laws of Continental.* (3.2)
4.1 Indenture dated as of June 22, 1992 between Continental and Morgan
Guaranty Trust Company of New York as Trustee, pertaining to
Continental's 10 5/8% Senior Subordinated Notes due 2002.* (4.1)
4.2 Indenture, dated as of June 22, 1992 between Continental and Morgan
Guaranty Trust Company of New York as Trustee, pertaining to
Continental's 11% Senior Subordinated Debentures due 2007.* (4.2)
4.3 Indenture dated as of November 1, 1989 between Continental and The
Connecticut National Bank as successor trustee, pertaining to
Continental's Senior Subordinated Floating Rate Debentures due
November 1, 2004.* (4.6)
4.4 Amended and Restated Credit Agreement dated as of October 1, 1994
among Continental and certain of its direct and indirect Subsidiaries
as Guarantors and The First National Bank of Boston, for itself and as
Administrative and Managing Agent, and certain financial institutions
named therein./1/
4.5 Amended and Restated Note Agreement dated as of October 17, 1994 by
and among Continental and certain of its direct and indirect
Subsidiaries as Guarantors and The Prudential Insurance Company of
America./1/
4.6 Indenture dated as of June 1, 1993 between Continental and The First
National Bank of Chicago, as Trustee, pertaining to Continental's 8
5/8% Senior Notes due 2003.** (4.10)
4.7 Indenture dated as of June 1, 1993 between Continental and The First
National Bank of Chicago, as Trustee, pertaining to Continental's 9%
Senior Debentures due 2008.** (4.11)
4.8 Indenture dated as of August 1, 1993 between Continental and the Bank
of New York, as Trustee, pertaining to Continental's 8 5/8% Senior
Debentures due 2005.*** (4.11)
4.9 Indenture dated as of August 1, 1993 between Continental and the Bank
of New York, as Trustee, pertaining to Continental's 9 1/2% Senior
Debentures due 2013.*** (4.12)
4.10 Indenture dated as of August 1, 1993 between Continental and the Bank
of New York, as Trustee, pertaining to Continental's 8 1/2% Senior
Notes due 2001.*** (4.13)
5 Opinion of Sullivan & Worcester. . . . To be filed by amendment.
7 Opinion regarding liquidation preference for Continental Preferred
Stock. . . . To be filed by amendment.
10.1 Stock Liquidation Agreement dated as of March 6, 1989, as amended as
of September 28, 1990, replacing and restating the Stock Acquisition
Agreement made as of December 19, 1988 by and among Continental, H.
Irving Grousbeck, MD Co., Burr, Egan, Deleage & Co., Roderick A.
MacLeod and Amos B. Hostetter, Jr.* (10.2)
10.2 Second Amendment to Stock Liquidation Agreement dated as of July 7,
1992 by and among Continental, Amos B. Hostetter, Jr., H. Irving
Grousbeck, MD Co., Burr, Egan, Deleage & Co. and Roderick A.
MacLeod.** (10.2)
10.3 Form of Restricted Stock Purchase Agreement.*# (10.3)
10.4 Stock Purchase Agreement dated April 27, 1992 among Continental,
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The State
Board of Administration of Florida, Chemical Equity Associates, Mellon
Bank, N.A. as Trustee for First Plaza Group Trust, Vencap Holdings
(1992) Pte Ltd and Corporate Advisors, L.P.* (10.4)
II-2
<PAGE>
10.5 Registration Rights Agreement dated June 22, 1992 among Continental,
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The State
Board of Administration of Florida, Chemical Equity Associates, Mellon
Bank, N.A. as Trustee for First Plaza Group Trust, Vencap Holdings
(1992) Pte Ltd and Corporate Advisors, L.P.* (10.5)
10.6 Amendment to Registration Rights Agreement dated July 15, 1992 among
Continental and Corporate Advisors, L.P. on behalf of Corporate
Partners, L.P., Corporate Offshore Partners, L.P., The State Board of
Administration of Florida, ContCable Continental Preferred Stock
Investors, L.P., Mellon Bank, N.A., as Trustee for First Plaza Group
Trust, and Vencap Holdings (1992) Pte Ltd.** (10.6)
10.7 Stock Purchase Agreement dated July 15, 1992, as amended on November
17, 1992, among Continental, Boston Ventures Limited Partnership III,
Boston Ventures Limited Partnership IIIA, Boston Ventures Limited
Partnership IV and Boston Ventures Limited Partnership IVA.** (10.7)
10.8 Stock Purchase Agreement dated July 15, 1992 among Continental, Thomas
H. Lee Equity Partners, L.P., THL-CCI Continental Preferred Stock
Investors Limited Partnership, Providence Media Partners L.P., Alta V
Limited Partnership, Customs House Partners and Ontario Teachers'
Pension Plan Board.** (10.8)
10.9 Registration Rights Agreement dated July 15, 1992 among Continental,
Boston Ventures Limited Partnership III, Boston Ventures Limited
Partnership IIIA, Boston Ventures Limited Partnership IV, Boston
Ventures Limited Partnership IVA, Thomas H. Lee Equity Partners, L.P.,
THL-CCI Continental Preferred Stock Investors Limited Partnership,
Providence Media Partners L.P., Alta V Limited Partnership, Customs
House Partners and Ontario Teachers' Pension Plan Board.** (10.9)
10.10 Liquidation Rights Agreement dated as of July 7, 1992 by and between
Continental and MD Co.** (10.10)
10.11 Stock Purchase Agreement dated as of December 17, 1992 by and among
Teleport Communications Group Inc., Comcast Corporation, Comcast
Teleport, Inc., Continental and Continental Teleport, Inc.** (10.11)
10.13 Management Incentive Plan #/1/
10.14 Purchase Agreement dated as of November 1, 1994 by and among Columbia
Associates, L.P., Columbia Cable of Michigan, Inc., and Continental
Cablevision of Manchester, Inc./1/
10.15 Supplemental Executive Retirement Plan. #/1/
10.16 Form of Registration Rights Agreement with New Providence Journal. .
. . Filed herewith as Exhibit 10.16.
10.17 Form of Restricted Stock Purchase Agreements for 1995. #/1/
10.18 Form of Voting Agreement by and among Continental, Providence Journal
and certain stockholders of Continental and Providence Journal. . . .
Filed as Exhibit C to Annex I.
10.19 Amendment Number 1 to the Purchase Agreement dated March 24, 1995 by
and among Columbia Associates, L.P., Columbia Cable of Michigan,
Inc., and Continental Cablevision of Manchester, Inc. . . . Filed
herewith as Exhibit 10.19.
10.20 Purchase Agreement dated January 6, 1995 by and between Continental
Cablevision, Inc. and Cablevision of Chicago. . . Filed herewith as
Exhibit 10.20.
10.21 Purchase Agreement dated March 29, 1995 between N-COM Limited
Partnership II and Continental Cablevision Investments,
Inc. . . . Filed herewith as Exhibit 10.21.
11.1 Schedule of computation of earnings per share. . . . Filed herewith as
Exhibit 11.1.
II-3
<PAGE>
11.2 Schedule of computation of pro forma loss per share. . . . Filed
herewith as Exhibit 11.2.
12.1 Computation of ratio of earnings to combined fixed charges and
preferred dividends. . . . Filed herewith as Exhibit 12.1.
12.2 Pro Forma computation of ratio of earnings to combined fixed charges
and preferred dividends. . . . Filed herewith as Exhibit 12.2.
21 Subsidiaries of Continental./1/
23.1 Consent of Sullivan & Worcester. . . . To be contained in the opinion
of Sullivan & Worcester to be filed by amendment.
23.2 Independent Auditors' Consent of Deloitte & Touche LLP. . . . Filed
herewith as Exhibit 23.2.
23.3 Independent Auditors' Consent of Arthur Andersen LLP. . . . Filed
herewith as Exhibit 23.3.
23.4 Independent Auditors' Consent of Price Waterhouse LLP. . . . Filed
herewith as Exhibit 23.4.
23.5 Independent Auditors' Consent of Ernst & Young LLP. . . . Filed
herewith as Exhibit 23.5.
23.6 Independent Auditors' Consent of KPMG Peat Marwick LLP. . . . Filed
herewith as Exhibit 23.6.
23.7 Independent Auditors' Consent of Counselor Buchan & Mitchell P.C./1/
23.8 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C./1/
24 Power of Attorney./1/
27 Financial Data Schedules. . . . Filed herewith as Exhibit 27.
99 Schedule II--Valuation and Qualifying Accounts and Reserves. . . .
Filed herewith as Exhibit 99.
- --------
/1/Previously.filed as part of this Registration Statement.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, officers and controlling persons of
Continental pursuant to the foregoing provisions, or otherwise, Continental has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Continental of expenses incurred or
paid by a Director, officer or controlling person of Continental in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, Continental will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement, relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering therein.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRANT'S REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON THE 5TH
DAY OF APRIL, 1995.
Continental Cablevision, Inc.
By: /s/ Amos B. Hostetter, Jr.
---------------------------------
Amos B. Hostetter, Jr.
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO THE REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Amos B. Hostetter, Jr. Director and April 5, 1995
- ------------------------------------- Chairman of the
AMOS B. HOSTETTER, JR. Board (principal
executive officer)
Timothy P. Neher* Director and Vice April 5, 1995
- ------------------------------------- Chairman of the
TIMOTHY P. NEHER Board
Nancy Hawthorne* Chief Financial April 5, 1995
- ------------------------------------- Officer and Senior
NANCY HAWTHORNE Vice President
(principal
financial officer)
Richard A. Hoffstein* Senior Vice April 5, 1995
- ------------------------------------- President and
RICHARD A. HOFFSTEIN Corporate
Controller
(principal
accounting officer)
Roy F. Coppedge III* Director April 5, 1995
- -------------------------------------
ROY F. COPPEDGE III
Jonathan H. Kagan* Director April 5, 1995
- -------------------------------------
JONATHAN H. KAGAN
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Robert B. Luick* Director April 5, 1995
- -------------------------------------
ROBERT B. LUICK
Henry F. McCance* Director April 5, 1995
- -------------------------------------
HENRY F. MCCANCE
Lester Pollack* Director April 5, 1995
- -------------------------------------
LESTER POLLACK
Vincent J. Ryan* Director April 5, 1995
- -------------------------------------
VINCENT J. RYAN
*By /s/ Amos B. Hostetter, Jr.
-----------------------------
Amos B. Hostetter, Jr. (Attorney-in-Fact)
</TABLE>
II-6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONTINENTAL CABLEVISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
2.1 Amended and Restated Merger Agreement dated as of November 18,
1994 by and among Continental, Providence Journal Company, The
Providence Journal Company, King Holding Corp. and King
Broadcasting Company . . . Included as Annex I to the Joint Proxy
Statement-Prospectus.
3.1 Restated Certificate of Incorporation of Continental./1/
3.1A Certificate of Designation of Continental relating to the
Continental Series A Preferred Stock./1/
3.1B Form of Certificate of Designation of Continental relating to the
Continental Series B Preferred Stock. . . . Filed as Exhibit A to
Annex I.
3.1C Form of Amendment to Continental's Restated Certificate of
Incorporation increasing the number of authorized shares. . . .
Filed herewith as Exhibit 3.1C.
3.2 By-Laws of Continental.* (3.2)
4.1 Indenture dated as of June 22, 1992 between Continental and
Morgan Guaranty Trust Company of New York as Trustee, pertaining
to Continental's 10 5/8% Senior Subordinated Notes due 2002.*(4.1)
4.2 Indenture, dated as of June 22, 1992 between Continental and
Morgan Guaranty Trust Company of New York as Trustee, pertaining
to Continental's 11% Senior Subordinated Debentures due 2007.*(4.2)
4.3 Indenture dated as of November 1, 1989 between Continental and
The Connecticut National Bank as successor trustee, pertaining to
Continental's Senior Subordinated Floating Rate Debentures due
November 1, 2004.* (4.6)
4.4 Amended and Restated Credit Agreement dated as of October 1, 1994
among Continental and certain of its direct and indirect
Subsidiaries as Guarantors and The First National Bank of Boston,
for itself and as Administrative and Managing Agent, and certain
financial institutions named therein./1/
4.5 Amended and Restated Note Agreement dated as of October 17, 1994
by and among Continental and certain of its direct and indirect
Subsidiaries as Guarantors and The Prudential Insurance Company
of America./1/
4.6 Indenture dated as of June 1, 1993 between Continental and The
First National Bank of Chicago, as Trustee, pertaining to
Continental's 8 5/8% Senior Notes due 2003.** (4.10)
4.7 Indenture dated as of June 1, 1993 between Continental and The
First National Bank of Chicago, as Trustee, pertaining to
Continental's 9% Senior Debentures due 2008.** (4.11)
4.8 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 8 5/8%
Senior Debentures due 2005.*** (4.11)
4.9 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 9 1/2%
Senior Debentures due 2013.*** (4.12)
4.10 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 8 1/2%
Senior Notes due 2001.*** (4.13)
5 Opinion of Sullivan & Worcester. . . . To be filed by amendment.
7 Opinion regarding liquidation preference for Continental
Preferred Stock. . . . To be filed by amendment.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.1 Stock Liquidation Agreement dated as of March 6, 1989, as amended
as of September 28, 1990, replacing and restating the Stock
Acquisition Agreement made as of December 19, 1988 by and among
Continental, H. Irving Grousbeck, MD Co., Burr, Egan, Deleage &
Co., Roderick A. MacLeod and Amos B. Hostetter, Jr.* (10.2)
10.2 Second Amendment to Stock Liquidation Agreement dated as of July
7, 1992 by and among Continental, Amos B. Hostetter, Jr., H.
Irving Grousbeck, MD Co., Burr, Egan, Deleage & Co. and Roderick
A. MacLeod.** (10.2)
10.3 Form of Restricted Stock Purchase Agreement.*# (10.3)
10.4 Stock Purchase Agreement dated April 27, 1992 among Continental,
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The
State Board of Administration of Florida, Chemical Equity
Associates, Mellon Bank, N.A. as Trustee for First Plaza Group
Trust, Vencap Holdings (1992) Pte Ltd and Corporate Advisors,
L.P.* (10.4)
10.5 Registration Rights Agreement dated June 22, 1992 among
Continental, Corporate Partners, L.P., Corporate Offshore
Partners, L.P., The State Board of Administration of Florida,
Chemical Equity Associates, Mellon Bank, N.A. as Trustee for
First Plaza Group Trust, Vencap Holdings (1992) Pte Ltd and
Corporate Advisors, L.P.* (10.5)
10.6 Amendment to Registration Rights Agreement dated July 15, 1992
among Continental and Corporate Advisors, L.P. on behalf of
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The
State Board of Administration of Florida, ContCable Continental
Preferred Stock Investors, L.P., Mellon Bank, N.A., as Trustee
for First Plaza Group Trust, and Vencap Holdings (1992) Pte
Ltd.** (10.6)
10.7 Stock Purchase Agreement dated July 15, 1992, as amended on
November 17, 1992, among Continental, Boston Ventures Limited
Partnership III, Boston Ventures Limited Partnership IIIA, Boston
Ventures Limited Partnership IV and Boston Ventures Limited
Partnership IVA.** (10.7)
10.8 Stock Purchase Agreement dated July 15, 1992 among Continental,
Thomas H. Lee Equity Partners, L.P., THL-CCI Continental
Preferred Stock Investors Limited Partnership, Providence Media
Partners L.P., Alta V Limited Partnership, Customs House Partners
and Ontario Teachers' Pension Plan Board.** (10.8)
10.9 Registration Rights Agreement dated July 15, 1992 among
Continental, Boston Ventures Limited Partnership III, Boston
Ventures Limited Partnership IIIA, Boston Ventures Limited
Partnership IV, Boston Ventures Limited Partnership IVA, Thomas
H. Lee Equity Partners, L.P., THL-CCI Continental Preferred Stock
Investors Limited Partnership, Providence Media Partners L.P.,
Alta V Limited Partnership, Customs House Partners and Ontario
Teachers' Pension Plan Board.** (10.9)
10.10 Liquidation Rights Agreement dated as of July 7, 1992 by and
between Continental and MD Co.** (10.10)
10.11 Stock Purchase Agreement dated as of December 17, 1992 by and
among Teleport Communications Group Inc., Comcast Corporation,
Comcast Teleport, Inc., Continental and Continental Teleport,
Inc.** (10.11)
10.13 Management Incentive Plan./1/#
10.14 Purchase Agreement dated as of November 1, 1994 by and among
Columbia Associates, L.P., Columbia Cable of Michigan, Inc., and
Continental Cablevision of Manchester, Inc./1/
10.15 Supplemental Executive Retirement Plan./1/#
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.16 Form of Registration Rights Agreement with New Providence
Journal. . . . Filed herewith as Exhibit 10.16.
10.17 Form of Restricted Stock Purchase Agreements for 1995./1/#
10.18 Form of Voting Agreement by and among Continental, Providence
Journal and certain stockholders of Continental and Providence
Journal. . . . Filed as Exhibit C to Annex I.
10.19 Amendment Number 1 to the Purchase Agreement dated March 24, 1995
by and among Columbia Associates, L.P., Columbia Cable of
Michigan, Inc. and Continental Cablevision of Manchester, Inc. . . .
Filed herewith as Exhibit 10.19.
10.20 Purchase Agreement dated January 6, 1995 by and between
Continental Cablevision, Inc. and Cablevision of Chicago. . . .
Filed herewith as Exhibit 10.20.
10.21 Purchase Agreement dated March 29, 1995 between N-COM Limited
Partnership II and Continental Cablevision Investments, Inc. . . . .
Filed herewith as Exhibit 10.21.
11.1 Schedule of computation of earnings per share. . . . Filed
herewith as Exhibit 11.1.
11.2 Schedule of computation of pro forma loss per share. . . . Filed
herewith as Exhibit 11.2.
12.1 Computation of ratio of earnings to combined fixed charges and
preferred dividends. . . . Filed herewith as Exhibit 12.1.
12.2 Pro Forma computation of ratio of earnings to combined fixed
charges and preferred dividends. . . . Filed herewith as
Exhibit 12.2.
21 Subsidiaries of Continental./1/
23.1 Consent of Sullivan & Worcester. . . . To be contained in the
opinion of Sullivan & Worcester to be filed by amendment.
23.2 Independent Auditors' Consent of Deloitte & Touche LLP. . . .
Filed herewith as Exhibit 23.2.
23.3 Independent Auditors' Consent of Arthur Andersen LLP. . . . Filed
herewith as Exhibit 23.3.
23.4 Independent Auditors' Consent of Price Waterhouse LLP. . . . Filed
herewith as Exhibit 23.4.
23.5 Independent Auditors' Consent of Ernst & Young LLP. . . . Filed
herewith as Exhibit 23.5.
23.6 Independent Auditors' Consent of KPMG Peat Marwick LLP. . . . Filed
herewith as Exhibit 23.6.
23.7 Independent Auditors' Consent of Counselor Buchan & Mitchell P.C. ./1/
23.8 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C./1/
24 Power of Attorney./1/
27 Financial Data Schedules. . . . Filed herewith as Exhibit 27.
99 Schedule II--Valuation and Qualifying Accounts and Reserves. . . .
Filed herewith as Exhibit 99.
</TABLE>
- --------
(1) Previously filed as part of this Registration Statement.
(2) Each exhibit marked by an asterisk (*) is incorporated by reference to
Continental's Registration Statement No. 33-46510 (as amended), declared
effective by the Securities and Exchange Commission on June 15, 1992.
(3) Each exhibit marked by two asterisks (**) is incorporated by reference to
Continental's Registration Statement No. 33-59806, declared effective by
the Securities and Exchange Commission on May 27, 1993.
(4) Each exhibit marked by three asterisks (***) is incorporated by reference
to Continental's Registration Statement No. 33-65798, declared effective by
the Securities and Exchange Commission on August 6, 1993.
(5) Each exhibit marked by a pound sign (#) is a management contract or
compensatory plan.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CONTINENTAL CABLEVISION, INC.
Continental Cablevision, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, at a meeting duly
called and held on November 17, 1994, in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware, duly
adopted resolutions setting forth a proposed amendment to the Restated
Certificate of Incorporation of the Corporation. The resolutions setting forth
the proposed amendment are as follows:
RESOLVED: That Article FOURTH of the Corporation's Restated Certificate of
--------
Incorporation be amended to increase the total number of
authorized shares of capital stock of the Corporation from
17,700,000 to 825,000,000, to increase the number of authorized
shares of Common Stock, $.01 par value, of the Corporation from
15,000,000 to 625,000,000, of which 425,000,000 shall be shares
of Class A Common Stock and 200,000,000 shall be shares of Class
B Common Stock, and to increase the number of authorized shares
of Preferred Stock, $.01 par value, of the Corporation from
2,700,000 to 200,000,000.
RESOLVED: That the foregoing amendment to the Restated Certificate of
--------
Incorporation of the Corporation is recommended to the
stockholders for approval as being in the best interest of the
Corporation and that said amendment be presented to the
stockholders for their adoption and that a special meeting of the
stockholders duly be called for that purpose.
SECOND: The stockholders of the Corporation (including the holders of the
Class A Common Stock, the Class B Common Stock,
<PAGE>
and the Series A Convertible Preferred Stock voting together as a single class
and the holders of the Series A Convertible Preferred Stock, voting as a
separate class) approved said proposed amendment at a Special Meeting in Lieu of
the Annual Meeting of Stockholders for which written notice was given pursuant
to Section 222 of the General Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with Section 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by William T. Schleyer, its President, and attested to by its Assistant
Secretary, this ___ day of April, 1995.
CONTINENTAL CABLEVISION, INC.
By:____________________________
Name: William T. Schleyer
Title: President
Attest:
___________________________
Name:
Title: Assistant Secretary
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of _________ __, 1995 among CONTINENTAL CABLEVISION, INC., a Delaware
corporation (the "Company"), the holders of Registrable Securities named in
Schedule A hereto (collectively, the "Holders" and singly, a "Holder"), and The
- ----------
Providence Journal Company, a Delaware corporation, as the representative
hereunder (the "Representative") for the Holders of Registrable Securities.
RECITALS
--------
A. This Agreement is being entered into in connection with, and pursuant
to section 6.21(b) of, the Amended and Restated Agreement and Plan of Merger,
dated as of November 18, 1994, among Providence Journal Company, The Providence
Journal Company, King Holding Corp., King Broadcasting Company and the Company
(the "Merger Agreement").
B. The Company has heretofore entered into (i) a Registration Rights
Agreement dated as of June 22, 1992 with Corporate Partners, L.P. and certain
other signatories thereto (collectively, the "CP Purchasers") and (ii) an
amendment thereto dated as of July 15, 1992 (said Registration Rights Agreement
and amendment are hereinafter referred to as the "CP Agreement").
C. The Company has heretofore entered into a Registration Rights Agreement
dated as of July 15, 1992 with Boston Ventures Limited Partnership III and
certain other signatories thereto (collectively, the "BV Purchasers") (said
Registration Rights Agreement is hereinafter referred to as the "BV Agreement").
D. It is intended by the Company and the Representative that this
Agreement shall become effective immediately upon the issuance of the securities
to be issued pursuant to Article 1 of the Merger Agreement (the "Merger
Securities").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, the
Holders of Registrable Securities and the Representative, intending to be
legally bound, each hereby agrees as follows:
<PAGE>
ARTICLE 1.
REGISTRATION UNDER SECURITIES ACT
---------------------------------
Section 1.01 Registration Upon Request. (a) Request. Subject to
------------------------- -------
the provisions of this Agreement (including Section 4.13 hereof), at any time
and from time to time after the obligation of the Company under section 6.21(a)
of the Merger Agreement to effect a registered public offering of shares of
Class A Common Stock shall have either been satisfied or terminated, upon the
written request of the Representative on behalf of one or more Holders (the
"Initiating Holders") of at least fifteen percent (15%) of Registrable
Securities requesting that the Company effect the registration under the
Securities Act of Registrable Securities (which request shall specify the number
of Registrable Securities to be registered and the intended method of
distribution thereof), the Company shall provide prompt written notice of such
request for registration to the Representative (and the Representative shall be
responsible for relaying such notice to the Holders of Registrable Securities
other than the Initiating Holders) and to all record holders of CP/BV
Registrable Securities (or to any representative(s) of such holders to the
extent, provided for under section 1.02 of the CP Agreement or the BV Agreement,
as the case may be), and shall use its best efforts to register under the
Securities Act (a "Demand Registration"), including by means of a shelf
registration pursuant to Rule 415 under the Securities Act if so requested in
such request and if the Company is then eligible to use such a registration, as
expeditiously as may be practicable, the Registrable Securities which the
Company has been requested to register by the Initiating Holders, together with
all other Registrable Securities and CP/BV Registrable Securities whose record
holders (having received the aforementioned written notice) shall have requested
in writing to be included in such Demand Registration within fifteen (15) days
after the receipt of such written notice (such holders together with the
Initiating Holders are hereinafter referred to as the "Selling Holders"), all to
the extent requisite to permit the disposition of such Registrable Securities
and CP/BV Registrable Securities in accordance with the plan of distribution set
forth in the applicable registration statement. In the case of any Demand
Registration, the Initiating Holders must request registration of Registrable
Securities representing not less than such number of Registrable Securities the
Expected Proceeds of which, on the date of the aforementioned written request,
would equal at least $25 million. Notwithstanding anything herein to the
contrary, the rights of Holders of Registrable Securities shall be subject to
the provisions of the penultimate sentence of Section 1.02(a) hereof.
(b) Registration of Other Securities. Whenever the Company shall
--------------------------------
effect a registration pursuant to this Section 1.01 in connection with an
underwritten offering by one or more Selling Holders of Registrable Securities,
no securities other than Registrable Securities and CP/BV Registrable Securities
-2-
<PAGE>
shall be included among the securities covered by such registration unless the
managing underwriter, if any, of such offering shall have advised the
Representative in writing that the inclusion of such other securities would not
adversely affect such offering.
(c) Registration Statement Form. Registrations under this Section
---------------------------
1.01 shall be on such appropriate registration form of the Commission as shall
be selected by the Company and available to it under the Securities Act. The
Company agrees to include in any such registration statement all information
which, in the opinion of counsel to the Selling Holders of Registrable
Securities so to be registered and counsel to the Company, is reasonably
required to be included therein under the Securities Act.
(d) Limitations on Registration; Expenses. The Company will not be
-------------------------------------
required to effect more than two (2) Demand Registrations pursuant to this
Section 1.01. Subject to the provisions of Sections 1.01(h) and 1.02(b) hereof,
the Company shall pay the Registration Expenses in connection with such Demand
Registrations provided, however, that holders of CP/BV Registrable Securities
-------- -------
(but not Holders of Registrable Securities) shall be responsible for paying to
the Company a portion of such Registration Expenses as and to the extent
provided in section 1.02(b) of the CP Agreement and the BV Agreement,
respectively.
(e) Effective Registration Statement. Subject to the provisions of
--------------------------------
Section 1.01(i) hereof, a registration requested pursuant to this Section 1.01
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective, (ii) if after it has become
effective, such registration is materially interfered with by any stop order,
injunction or similar order or requirement of the Commission or other
governmental agency or court for any reason not attributable to any of the
Selling Holders and has not thereafter become effective, or (iii) if the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied or waived, other
than by reason of a failure on the part of any of the Selling Holders.
(f) Selection of Underwriters. In the case of any Demand
-------------------------
Registration, (i) the selection of any managing underwriter(s) shall be made by
the Company (with the consent of the Representative, which consent shall not be
unreasonably withheld), provided, however, that, in the case of any Demand
-------- -------
Registration where the Expected Proceeds of the sale of all Registrable
Securities and CP/BV Registrable Securities to be included among the securities
covered by such registration pursuant to this Section 1.01 would exceed $75
million, the Representative shall be entitled to select (with the consent of the
Company, which consent shall not be unreasonably withheld) one (1) managing
underwriter other than the lead managing underwriter, and (ii) the selection of
the underwriters (other
-3-
<PAGE>
than the managing underwriter(s)) shall be made by the mutual agreement of the
Company and the Representative.
(g) Certain Requirements in Connection with Registration Rights. In
--------------------------------------- -------------------
the case of a Demand Registration, if the Initiating Holders requesting such
Demand Registration have determined to enter into one or more underwriting
agreements in connection therewith, all shares constituting Registrable
Securities and CP/BV Registrable Securities to be included in such Demand
Registration shall be subject to such underwriting agreements and no Person may
participate in such Demand Registration unless such Person agrees to sell his or
its securities on the basis provided in the underwriting arrangements and
completes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents which are reasonable and customary under the
circumstances.
(h) Priority in Demand Registration. If the managing underwriter of
-------------------------------
any underwritten offering shall advise the Company in writing (with a copy to
the Representative (and the Representative shall be responsible for relaying
such copy to the Holders of Registrable Securities) and each Selling Holder of
CP/BV Registrable Securities) that, in its opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering within a price range acceptable to the Selling Holders of
66-2/3% of the Registrable Securities requested to be included in such
registration, the Company will reduce to the number which the Company is so
advised can be sold in such offering within such price range (the "Actual Number
of Securities to be Registered"), the Registrable Securities and CP/BV
Registrable Securities requested to be included in such registration. Subject
to the provisions of Section 4.13 hereof, in such registration, each Selling
Holder shall be entitled to register up to such number of Registrable Securities
or CP/BV Registrable Securities, as the case may be, obtained by multiplying the
Actual Number of Securities to be Registered by a fraction, the numerator of
which is the number of Registrable Securities or CP/BV Registrable Securities
beneficially owned by such Selling Holder and the denominator of which is the
aggregate number of Registrable Securities and CP/BV Registrable Securities
beneficially owned by all Selling Holders. If one or more Selling Holders do
not request the registration of the maximum number of Registrable Securities or
CP/BV Registrable Securities to which they are entitled in accordance with the
preceding sentence (such maximum number minus the number of Registrable
Securities or CP/BV Registrable Securities requested by such Selling Holder(s)
being referred to as the "Shortfall"), the other Selling Holders (the
"Participating Holders") shall be entitled to register securities in addition to
those to which they are entitled under the preceding sentence up to the amount
equal to the result obtained by multiplying the Shortfall by a fraction, the
numerator of which is the number of Registrable Securities or CP/BV Registrable
Securities, as the case may be, beneficially owned by such Participating Holder
and the denominator of which is the
-4-
<PAGE>
aggregate number of Registrable Securities and CP/BV Registrable Securities
beneficially owned by all Participating Holders. The procedure set forth in the
immediately preceding sentence shall be applied until the Actual Number of
Securities to be Registered is apportioned among the Selling Holders in
accordance with the preceding two sentences. If, as a result of any such
reduction in the number of securities requested to be registered, the number of
securities requested to be included in such registration by the Holders of the
Registrable Securities is reduced by twenty percent (20%) or more because of the
inclusion in such registration of CP/BV Registrable Securities pursuant to the
provisions of this Section 1.01, then notwithstanding anything to the contrary
contained in this Agreement or in any other agreement or interpretation of any
agreement between the Company and the Holders of Registrable Securities, a
Demand Registration in connection with such registration will not be deemed to
have been effected under Section 1.01(e) hereof.
In the case of a registration which would have been deemed to be a
Demand Registration under Section 1.01(e) hereof but for the application of the
immediately preceding sentence of this Section 1.01(h) (a "Restricted
Registration"), the Company shall pay the Registration Expenses of the Holders
of the Registrable Securities in connection with one such Restricted
Registration (the "Paid Restricted Registration") and the Selling Holders shall
pay the Registration Expenses of any other Restricted Registration to the extent
provided for and in accordance with Section 1.02(b) hereof and of the CP
Agreement and the BV Agreement, provided, however, that the Initiating Holders
-------- -------
may elect by written notice to the Company (with a copy to the Representative,
and the Representative shall be responsible for relaying such notice to the
Holders of Registrable Securities other than the Initiating Holders), after the
Paid Restricted Registration, to have the Company pay the Registration Expenses
of the Holders of Registrable Securities in one (1) subsequent Restricted
Registration, in which case the number of Demand Registrations available to the
Holders of Registrable Securities under Section 1.01(d) hereof shall remain
unchanged but the number of Demand Registrations the expenses of which will be
paid by the Company shall be reduced from two to one.
In connection with any such registration to which this paragraph (h)
is applicable, no securities other than Registrable Securities and CP/BV
Registrable Securities shall be covered by such registration.
(i) Certain Other Matters. For purposes of Section 1.01(e)(i) hereof,
---------------------
should a Demand Registration not become effective due to the failure of the
Representative or any of the Selling Holders to perform their respective
obligations under this Agreement or the inability of the Selling Holders to
reach agreement with the underwriters on price or other customary terms for such
transaction, or in the event the Selling Holders withdraw or do not pursue the
request for the Demand Registration
-5-
<PAGE>
(in each of the foregoing cases, provided that at such time the Company is in
compliance in all material respects with its obligations under this Agreement),
then such Demand Registration shall be deemed to have been effected.
Under the circumstances in which a Demand Registration otherwise would
be deemed to have been effected under Section 1.01(e) hereof (including as
contemplated by this Section 1.01(i)), if the Selling Holders pay the
Registration Expenses (other than the Registration Expenses referred to in
clause (a) of the definition of Registration Expenses) incurred by the Company
through the date of abandonment of the registration, the Demand Registration
shall not be deemed to have been effected for purposes of Section 1.01(e) of
this Agreement, provided, however, that if on the date of abandonment of the
-------- -------
registration a preliminary prospectus related to the Demand Registration has not
been filed with the Commission, the Selling Holders shall be required to pay on
the date that is six (6) months following the date of such abandonment only one-
half (1/2) of the Company's out-of-pocket legal and accounting expenses incurred
specifically in connection with such registration. At any time during such 6-
month period, the Initiating Holders shall be entitled to reactivate the
abandoned registration, in which case the reactivated registration and abandoned
registration shall be deemed to be one registration, and the Selling Holders
shall not be required to pay any Registration Expenses.
(j) CP and BV Agreements. The Representative and the Holders of
--------------------
Registrable Securities acknowledge that the Holders of Registrable Securities
have no rights under this Agreement or otherwise to participate in a demand
registration initiated by any holder of CP/BV Registrable Securities under
Section 1.01 of the CP Agreement or the BV Agreement, respectively.
Section 1.02 Incidental Registration. (a) Rights to Include.
----------------------- -----------------
Subject to the provisions of this Agreement (including Section 4.13 hereof), if,
at any time after the obligation of the Company under section 6.21(a) of the
Merger Agreement to effect a registered public offering of shares of Class A
Common Stock shall have either been satisfied or terminated, the Company
proposes to register the offering of any shares of Class A Common Stock under
the Securities Act on Form S-1, S-2 or S-3 (or any successor or similar form
thereto) in connection with a primary public offering of Class A Common Stock
being offered for the account of the Company, the Company shall furnish prompt
written notice to the Representative of its intention to effect such
registration and the intended method of distribution in connection therewith.
The Representative shall be responsible for relaying such notice to the Holders
of Registrable Securities. Upon the written request of any Holder of
Registrable Securities made to the Company within fifteen (15) days after the
delivery of the aforementioned notice by the Company to the Representative (five
(5) days if the Company is registering on Form S-3 and a shorter time is
necessary because of a planned filing date of such Form S-3), which request
shall
-6-
<PAGE>
specify the number of shares of Registrable Securities intended to be
registered, the Company shall include such Registrable Securities in such
registration, subject however to the following sentence of this Section 1.02(a)
and to the provisions of Section 1.02(c) hereof. If the Company shall
thereafter determine in its sole discretion not to register or to delay the
registration of such securities, the Company may, at its election, provide
written notice of such determination to the Representative (and the
Representative shall be responsible for relaying such notice to the Holders of
Registrable Securities) and (i) in the case of a determination not to effect a
registration, shall thereupon be relieved of the obligation to register such
Registrable Securities (but, under such circumstances, the Company shall pay any
Registration Expenses reasonably incurred by the Holders of Registrable
Securities who elected to request the incidental registration of Registrable
Securities until such time as such Holders received the Company's written
notice), and (ii) in the case of a determination to delay a registration, shall
thereupon be permitted to delay registering any Registrable Securities for the
same period as the delay in respect of securities being registered for the
Company's own account. No incidental registration effected pursuant to this
Section 1.02 shall be deemed to have been effected or otherwise relieve the
Company of any of its obligations to the Holders of Registrable Securities
pursuant to Section 1.01 hereof.
(b) The Holders of Registrable Securities whose securities are
actually registered in connection with any incidental registration as provided
in Section 1.02(a) hereof shall pay a portion of the Registration Expenses for
the registration in question (other than Registration Expenses (i) specified in
clause (a) of the definition of Registration Expenses and (ii) incurred by or on
behalf of a selling holder (other than a holder of Registrable Securities or
CP/BV Registrable Securities) for its benefit or the benefit of persons other
than holders of Registrable Securities or CP/BV Registrable Securities), pro
rata based on the percentage of the aggregate number of shares registered
pursuant to such registration which are represented by the Registrable
Securities or CP/BV Registrable Securities of such holder; provided, however,
-------- -------
that if the Company should agree to bear the Registration Expenses of any other
stockholder of the Company in any incidental registration for any other
stockholder of the Company on terms more favorable than those applicable to the
Holders of Registrable Securities, the Company will provide the more favorable
terms to the Holders of Registrable Securities.
(c) Priority in Incidental Registrations. If the managing underwriter
------------------------------------
of any underwritten offering shall inform the Company by letter of its belief
that the number of Registrable Securities requested to be included in such
registration would substantially interfere with such offering, then the Company
will include in such registration, to the extent of the number and type which
the Company is so advised can be sold in (or during the time of) such offering
without such
-7-
<PAGE>
substantial interference, first, all securities proposed by the Company to be
sold for its own account, second, subject to the provisions of Section 4.13
hereof, all securities of the Company ranking senior to or on a parity with (as
to rights to dividends and upon liquidation) the Company's Series A
Participating Convertible Preferred Stock ("Senior Securities"), Registrable
Securities and CP/BV Registrable Securities requested to be included in such
registration (such Senior Securities, Registrable Securities and CP/BV
Registrable Securities to be included in such registration pro rata on the basis
of the Expected Proceeds from the sale thereof), and third, any other securities
of the Company requested to be included in such registration.
Section 1.03 Registration Procedures. If and whenever the Company is
-----------------------
required by the provisions of this Agreement to effect or cause the registration
of any Registrable Securities under the Securities Act as provided in this
Agreement, the Company shall, as expeditiously as practicable:
(a) In the case of each Demand Registration, use its best efforts to
prepare and file with the Commission and obtain the effectiveness of a
registration statement on such form as is available for the sale of Registrable
Securities by the holders thereof in accordance with the plan of distribution
set forth in such registration statement; provided, however, if a request for
-------- -------
registration pursuant to Section 1.01 hereof is made within sixty (60) days
before the end of the Company's fiscal year and the Company is not then eligible
to effect a registration under the Securities Act by use of Form S-3 (or other
comparable short-form registration statement), the Company shall be entitled to
delay the filing of such registration statement until the earlier of (i) such
time as the Company receives audited financial statements for such fiscal year
and (ii) the expiration of 90 days after the last day of such fiscal year; and
provided, further, that if the Company shall furnish to the Representative a
- -------- -------
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed on the date filing would be required under this Agreement because
such registration would require premature disclosure of any acquisition,
corporate reorganization or other material transaction involving the Company and
that it is therefore essential to defer taking action with respect to the filing
of such registration statement, then the Company may direct that such request
for registration be delayed for a period not to exceed ninety (90) days, such
right to delay a request to be exercised by the Company not more than once in
any 12-month period. The Representative shall be responsible for relaying any
such certificate to the Holders of Registrable Securities.
(b) Prepare and file with the Commission such amendments, post-
effective amendments and supplements to such registration statement and the
prospectus used in connection
-8-
<PAGE>
therewith as may be necessary to keep such registration statement effective for
such period of time as is necessary to complete the offering and the
distribution of the securities covered thereby, provided, however, that except
-------- -------
with respect to any such registration statement filed pursuant to Rule 415 under
the Securities Act, such period need not exceed one hundred eighty (180) days
(unless the Registrable Securities registered thereunder have been sold or
disposed of prior to the expiration of such 180-day period), in each case
exclusive of any period during which the prospectus used in connection with such
registration statement shall not comply with the requirements of section 10 of
the Securities Act; and to comply with the provisions of the Securities Act
applicable to the Company with respect to the disposition of all securities
covered by such registration statement during such time as such registration
statement is effective.
(c) Furnish to each seller of Registrable Securities and each
underwriter of the Registrable Securities being sold, as such seller and such
underwriter may reasonably request in order to facilitate the disposition of
Registrable Securities in accordance with the plan of distribution set forth in
such registration statement, (i) such number of copies (including manually
executed and conformed copies) of such registration statement and of each such
amendment thereof and supplement thereto (including all annexes, appendices,
schedules and exhibits), (ii) such number of copies of the prospectus used in
connection with such registration statement (including each preliminary
prospectus and the final prospectus filed pursuant to Rule 424(b) under the
Securities Act), and (iii) such other documents incident thereto.
(d) Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions in which an exemption is not available as the
Representative and the managing underwriter shall reasonably request, and do any
and all other reasonable acts and things which may be necessary or advisable to
permit the offering and disposition of Registrable Securities in such
jurisdictions in accordance with the plan of distribution set forth in the
registration statement; provided, however, the Company shall not be required to
-------- -------
qualify generally to do business as a foreign corporation, subject itself to
taxation, or consent to general service of process, in any jurisdiction wherein
it would not, but for the requirements of this Section 1.03, be obligated to do
so.
(e) Use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with, or approved by, such other
public, governmental or regulatory authorities as may be necessary in the
reasonable judgment of counsel for the Selling Holders and the Company to
facilitate the disposition of such Registrable Securities in accordance with the
plan of distribution set forth in such registration statement.
-9-
<PAGE>
(f) Notify each seller of any Registrable Securities covered by such
registration statement and the managing underwriter, if any, promptly and, if
requested by any such Person, confirm such notification in writing, (i) when a
prospectus or any prospectus supplement has been filed with the Commission, and,
with respect to such registration statement or any post-effective amendment
thereto, when the same has been declared effective by the Commission, (ii) of
any request by the Commission for amendments or supplements to such registration
statement or related prospectus, or any written request by the Commission for
additional information, (iii) of the issuance by the Commission of any stop
order or the receipt of notice of the initiation of any proceedings for such or
a similar purpose (and the Company shall make every reasonable effort to obtain
the withdrawal of any such order at the earliest possible moment and the Holders
of Registrable Securities shall cooperate in all reasonable respects in such
efforts), (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the receipt of notice of the initiation or
threatening of any proceeding for such purpose (and the Company shall make every
reasonable effort to obtain the withdrawal of any such suspension at the
earliest possible moment and the Holders of Registrable Securities shall
cooperate in all reasonable respects in such efforts), (v) of the occurrence of
any event during the period when a prospectus with respect to the Registrable
Securities is required to be delivered under the Securities Act which requires
the making of any changes to such registration statement or related prospectus
so that such documents will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (and the Company shall promptly prepare and furnish to such
seller and any managing underwriter a reasonable number of copies of a
supplemented or amended prospectus or preliminary prospectus such that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus or preliminary prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading), and (vi) of the Company's determination
that the filing of a post-effective amendment to such registration statement
shall be necessary or appropriate. Each Holder of Registrable Securities shall
be deemed to have agreed by acquisition of such Registrable Securities that upon
the receipt of any notice from the Company of the occurrence of any event of the
kind described in clause (v) of this Section 1.03(f), such Holder shall
forthwith discontinue such Holder's offer and disposition of Registrable
Securities until such Holder shall have received copies of an appropriately
supplemented or amended prospectus or preliminary prospectus and, if so directed
by the Company, shall deliver to the Company, at its expense, all copies (other
than permanent file copies) of the prospectus or preliminary prospectus covering
-10-
<PAGE>
such Registrable Securities which are then in such Holder's possession. In the
event the Company shall provide any notice of the type referred to in the
preceding sentence, the 180-day period mentioned in Section 1.03(b) hereof shall
be extended by the number of days from and including the date such notice is
provided to and including the date when each seller of any Registrable
Securities covered by such registration statement and the managing underwriter
shall have received copies of the corrected prospectus contemplated by clause
(v) of this Section 1.03(f), plus an additional seven (7) days. The
underwriters or, if there are no underwriters, each seller of Registrable
Securities shall deliver such supplemented or amended prospectus or preliminary
prospectus to all purchasers or offerees of the Registrable Securities sold by
it to which such delivery may be required or advisable under the Securities Act
and any applicable state securities or "blue sky" laws.
(g) Otherwise use its best efforts in connection with each
registration and offering of Registrable Securities hereunder to comply with all
applicable rules and regulations of the Commission, as the same may hereafter be
amended, including section 11(a) of the Securities Act and Rule 158 thereunder.
(h) Use its best efforts to cause all such Registrable Securities
covered by such registration statement to be listed on each securities exchange
on which the same class of securities issued by the Company are then listed, if
the listing of such Registrable Securities is then permitted under the rules and
regulations of such exchange and, if requested by the Holders of Registrable
Securities, cause all such Registrable Securities that are of a different class
or series than those Company securities already listed or traded to be listed on
one (but not more than one) securities exchange reasonably requested by the
Representative.
(i) Engage and provide a transfer agent and registrar (which in each
case may be the Company) for all Registrable Securities covered by such
registration statement not later than the effective date of such registration
statement.
(j) Furnish to each seller of Registrable Securities a signed
counterpart of an opinion from counsel to the Company, and a "cold comfort"
letter from the Company's independent certified public accounting firm covering
such matters of the type customarily covered by such opinions and "cold comfort"
letters as any managing underwriter and the Representative shall reasonably
request.
(k) Subject to confidentiality restrictions reasonably required by the
Company, at reasonable times and upon reasonable notice, and as necessary to
permit a reasonable investigation with respect to the Company and its business
in connection with the preparation and filing of such registration statement,
make available for inspection by any seller of Registrable Securities covered by
such registration statement, by any managing
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<PAGE>
underwriter or other underwriters participating in any disposition of
Registrable Securities, and by any attorney, accountant or other agent,
representative or advisor retained by any such seller or underwriters, all
pertinent financial and other records and corporate documents of the Company;
and cause all of the Company's officers, directors and employees to discuss
pertinent aspects of the Company's business with any such seller, underwriter,
accountant, agent, representative or advisor in connection with such
registration statement; provided, however, that the Company shall not be
-------- -------
obligated pursuant to this Section 1.03(k) to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
(l) Permit any Holder of Registrable Securities, which Holder, in the
judgment of its counsel, might be deemed to be a "control person" of the Company
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act), to participate in the preparation of such registration statement
and include therein material, furnished to the Company in writing which, in the
reasonable judgment of such Holder and its counsel, is required to be included
therein; and
(m) If any registration statement refers to any Holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company,
and if such Holder reasonably believes it is or may be deemed to be a control
person in relation to, or an Affiliate of, the Company, then such Holder shall
have the right to require (i) the insertion in such registration statement of
language, in form and substance reasonably satisfactory to such Holder, to the
effect that the ownership by such Holder of such securities is not to be
construed as and is not intended to be a recommendation by such Holder of the
investment quality of, or the relative merits and risks attendant to the
purchase of, the Company's securities covered thereby, and that such ownership
does not imply that such Holder will assist in meeting any future financial or
operating requirements of the Company, or (ii) in the case where the reference
to such Holder by name or otherwise is not required by the Securities Act or any
similar federal or state statute then in effect, the deletion of the reference
to such Holder.
Section 1.04 Underwritten Offerings. (a) Requested Underwritten
---------------------- ----------------------
Offerings. If requested by the underwriters for any underwritten offering by
- ---------
Holders of Registrable Securities pursuant to a Demand Registration, the Company
and the Selling Holders will use their best efforts to enter into an
underwriting agreement with such underwriters for such offering, such agreement
(i) to be reasonably satisfactory in substance and form to the Company, the
Representative and the underwriters and (ii) to contain such representations and
warranties by the Company and such other terms as are reasonable and customary
in the circumstances on the part of an issuer in agreements of that type,
including, without limitation, indemnities to the effect and to the extent
provided in Article 2 hereof. The
-12-
<PAGE>
Representative and the Holders of the Registrable Securities proposed to be
distributed by such underwriters shall cooperate with the Company in the
negotiation of the underwriting agreement. Such Holders of Registrable
Securities shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such Holders of Registrable Securities. Any
such Holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company other than
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method of distribution as
otherwise required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
---------------------------------
register any of its securities under the Securities Act as contemplated by
Section 1.02 hereof and such securities are distributed by or through one or
more underwriters, the Holders of Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting agreement between the
Company and such underwriters and may, at their option, require that any or all
of the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of such Holders of Registrable Securities and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to the obligations of such
Holders of Registrable Securities. Any such Holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding such Holder, such Holder's Registrable Securities and such
Holder's intended method of distribution or as otherwise required by law.
(c) Limitations on Sale or Distribution of Other Securities. Anything
-------------------------------------------- ----------
herein to the contrary notwithstanding (including Section 1.01(a) hereof), if a
registration of any of the Company's securities shall be effected by the
Company, whether or not for its own account, by means of an underwritten
offering, each Holder of Registrable Securities shall be deemed to have agreed
by acquisition of such Registrable Securities not to effect any public sale or
distribution of any Registrable Securities, including any resale pursuant to
Rule 144 under the Securities Act, and to use such Holder's best efforts not to
effect any such public sale or distribution (other than as part of such
underwritten offering) of any other security which, with notice, lapse of time
and/or payment of monies, are exchangeable or exercisable for or convertible
into any Registrable
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<PAGE>
Securities, during the 15-day period prior to, and during the 120-day period (or
such longer period as shall have been requested by the managing underwriters)
commencing on, the effective date of the registration statement filed with the
Commission in connection with such underwritten offering.
(d) In order to ensure compliance with the provisions of Section
1.04(c) hereof, the Company hereby agrees to notify the Representative as to the
status and proposed effective date of any registration statement of the Company
which is filed with the Commission. The Representative shall be responsible for
relaying such notice to the Holders of Registrable Securities.
(e) The Company hereby agrees not to effect, except pursuant to
employee benefit plans, any public sale or distribution of any securities of the
same class as (or otherwise similar to) the Registrable Securities, or any
securities which, with notice, lapse of time and/or payment of monies, are
exchangeable or exercisable for or convertible into any such securities during
the 15-day period prior to, and during the 90-day period commencing on, the
effective date of a registration statement filed with the Commission in
connection with an underwritten offering effected pursuant to Section 1.01 of
this Agreement, except to the extent otherwise required by the CP Agreement or
the BV Agreement.
(f) Without limiting the generality of the foregoing, the provisions
of Section 1.04(c) hereof shall not apply to any Holder of Registrable
Securities if such Holder is prevented by statute or other applicable regulation
from agreeing to such provisions.
Section 1.05 Certain Agreements of the Company and Holders of
--------------------------------------------- --
Registrable Securities. (a) The Holders of Registrable Securities included in
- ----------------------
any registration shall furnish to the Company such information regarding such
Holder and the plan of distribution proposed by such Holder as the Company may
reasonably request and as shall reasonably be required in connection with any
registration, qualification or compliance referred to in this Agreement. In the
case of a Demand Registration, the Company agrees that any plan of distribution
included in the registration statement (which plan relates to the Holders of
Registrable Securities) shall be as reasonably specified by the Holders of
Registrable Securities.
If requested by the Company, information with respect to any Holder of
Registrable Securities required, in the opinion of counsel for the Company and
the Representative, to be included pursuant to the Securities Act in any
registration statement or prospectus for an offering of Registrable Securities
shall be furnished to the Company promptly by such Holder in writing in a form
specifically and expressly for use in such registration statement or prospectus.
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<PAGE>
(b) If at the time of any transfer of any Registrable Securities, such
Registrable Securities shall not have been theretofore registered under the
Securities Act, the Company may require, as a condition of allowing such
transfer, that the Holder thereof or such Holder's transferee furnish to the
Company (i) such information as is necessary in order to establish that such
transfer may be made without registration under the Securities Act; and (ii) at
the expense of the Holder thereof or such Holder's transferee, an opinion of
legal counsel designated by such Holder or such Holder's transferee to the
effect that such transfer may be made without registration under the Securities
Act, except that nothing contained in this Section 1.05(b) shall relieve the
Company from complying with any request for registration, qualification or
compliance made pursuant to the other provisions of this Agreement.
(c) Each Holder of Registrable Securities agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Holder may obtain from the Company, and which the
Company has marked "Confidential", "Proprietary" or "Secret" or has otherwise
identified as being such, pursuant to financial information, reports and other
materials and discussions with officers, directors, employees or agents made
available by the Company as required hereunder unless such information is or
becomes known to such Holder from a Person other than the Company (other than as
a result of a breach of a duty of confidentiality owed to the Company by such
Person) or is or becomes publicly known other than as a result of a breach of
this provision, or unless the Company gives its written consent to such Holder's
release of such information, except that no such written consent shall be
required (and such Holder shall be free to release such information) if such
information is to be provided to such Holder's counsel or accountant, or to an
officer, director, employee, advisor or partner of such Holder, provided that
--------
such Holder shall inform the recipient of the confidential nature of such
information, and shall require the recipient to treat the information as
confidential to the same extent as such Holder.
(d) In no event shall any sale of Registrable Securities be made
knowingly by any Holder of Registrable Securities, without the prior written
consent of the Company, to any Person (including Affiliates of any such Person)
which, to the knowledge of such Holder (or the knowledge of any underwriter for
such Holder), is (or would be after such sale) a "controlling person" of the
Company within the meaning of section 15 of the Securities Act or section 20 of
the Exchange Act.
(e) Each Holder of Registrable Securities agrees to perform any
further acts and to execute and deliver any further documents that may
reasonably be requested or necessary to confirm, or to carry out, the provisions
of this Agreement (including the provisions of Article 2 of this Agreement).
ARTICLE 2.
-15-
<PAGE>
INDEMNIFICATION
---------------
Section 2.01 Indemnification. (a) With respect to each registration
---------------
of Registrable Securities pursuant to this Agreement, the Company hereby
indemnifies, to the fullest extent permitted by law, each Holder of Registrable
Securities included in such registration, its officers and directors, if any,
and each Person, if any, who controls such Holder within the meaning of section
15 of the Securities Act and section 20 of the Exchange Act, against all losses,
claims, damages, liabilities (or proceedings in respect thereof) and reasonable
expenses (under the Securities Act, common law and otherwise), joint or several,
caused by (i) any untrue statement or alleged untrue statement of a material
fact contained in the applicable registration statement or prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of such registration
statement (unless such statement is corrected in the final prospectus and the
Company has previously furnished copies thereof to any Holder of Registrable
Securities included in such registration which is seeking such indemnification
and to the underwriters of the registration in question), or contained in the
final prospectus (as amended or supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) if used within
the period during which the Company is required to keep the registration
statement to which such prospectus relates current, or the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that such indemnification shall not extend to
-------- -------
any such losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses which are caused (x) by any untrue statement or alleged
untrue statement contained in, or by any omission or alleged omission from,
information furnished in writing to the Company by any Holder of Registrable
Securities or any underwriter thereof specifically and expressly for use in any
such registration statement or prospectus or (y) any failure by such Holder of
Registrable Securities or any underwriter to deliver a prospectus or preliminary
prospectus (or amendment or supplement thereto) as and when required under the
Securities Act after such prospectus has been timely furnished by the Company.
(b) In the case of an underwritten offering in which the registration
statement covers Registrable Securities, the Company agrees to indemnify the
underwriters, their officers and directors, if any, and each Person, if any, who
controls such underwriters within the meaning of section 15 of the Securities
Act and section 20 of the Exchange Act, to the extent customary in the
circumstances for an issuer in an underwritten public offering.
-16-
<PAGE>
(c) In connection with any written information furnished to the
Company or any underwriter of any underwritten offering specifically and
expressly for use in a registration statement with respect to a Holder of
Registrable Securities, each such Holder hereby indemnifies severally (but not
jointly), to the fullest extent permitted by law, the Company, its officers and
directors and each Person, if any, who controls the Company within the meaning
of section 15 of the Securities Act and section 20 of the Exchange Act, against
any losses, claims, damages, liabilities (or proceedings in respect thereof) and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated or necessary to make the statements in the registration statement or
prospectus, or any amendment thereof or supplement thereto, in light of the
circumstances under which they were made, not misleading; provided, however,
-------- -------
that the indemnification set forth in this Section 2.01(c) shall only apply if,
and each such Holder shall be liable hereunder if and only to the extent that,
any such loss, claim, damage or liability arises solely out of or is based
solely upon an untrue statement or alleged untrue statement or omission or
alleged omission, made in reliance upon and in conformity with information
pertaining to such Holder, which is furnished in writing to the Company or any
underwriter of any underwritten offering by such Holder expressly for use in any
such registration statement or prospectus.
(d) In the case of an underwritten offering of Registrable Securities,
each Holder of Registrable Securities shall agree to indemnify such
underwriters, their officers and directors, if any, and each Person, if any, who
controls such underwriters within the meaning of section 15 of the Securities
Act and section 20 of the Exchange Act, to the extent customary in the
circumstances for a selling stockholder in an underwritten public offering.
Section 2.02 Notices of Claims. (a) Any Person seeking
-----------------
indemnification under the provisions of this Article 2 shall, promptly after
receipt by such Person of notice of the existence of such claim or of the
commencement of any action, suit, claim or proceeding, notify each party against
whom indemnification is to be sought in writing of the existence or commencement
thereof; provided, however, the failure so to notify an indemnifying party shall
-------- -------
not relieve the indemnifying party from any liability which it may have under
this Article 2 or from any liability which the indemnifying party may otherwise
have (except if and to the extent that it has been prejudiced in any material
respect by such failure). In case any such action, suit, claim or proceeding is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, except
-17-
<PAGE>
as otherwise provided in Section 2.02(c) hereof. Upon delivery of such notice
by the Company (if it is the indemnifying party) to such indemnified party and
approval of such counsel by such indemnified party, the Company will not be
liable under this Article 2 for any legal or other expenses subsequently
incurred by any Holder of Registrable Securities in connection with the defense
of such action, suit, claim or proceeding, except as otherwise provided in
Section 2.02(b) hereof.
(b) Notwithstanding the foregoing, the indemnified party shall have
the right to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such suit, action, claim or
proceeding, (ii) the indemnifying party shall not have employed counsel
(reasonably satisfactory to the indemnified party) to take charge of the defense
of such action, suit, claim or proceeding within a reasonable time after notice
of commencement of the action, suit, claim or proceeding, or (iii) such
indemnified party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
indemnifying party which, if the indemnifying party and the indemnified party
were to be represented by the same counsel, could result in a conflict of
interest for such counsel or materially prejudice the prosecution of the
defenses available to such indemnified party. If any of the events specified in
clauses (ii) or (iii) of the preceding sentence shall have occurred or such
clauses shall otherwise be applicable, then the fees and expenses of one counsel
or firm of counsel, plus one local or regulatory counsel or firm of counsel,
selected by a majority in interest of the indemnified parties shall be borne by
the indemnifying party.
(c) If, in any case, the indemnified party employs separate counsel,
the indemnifying party shall not have the right to direct the defense of such
action, suit, claim or proceeding on behalf of the indemnified party.
(d) Anything in this Article 2 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement or compromise of, or
consent to entry of any judgment with respect to, any action, suit, claim or
proceeding effected without its prior written consent (which consent in the case
of an action, suit, claim or proceeding exclusively seeking monetary relief
shall not be unreasonably withheld). Such indemnification shall remain in full
force and effect irrespective of any investigation made by or on behalf of an
indemnified party.
Section 2.03 Contribution. (a) If the indemnification from the
------------
indemnifying party as provided in this Article 2 is unavailable or is otherwise
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then the
-18-
<PAGE>
indemnifying party shall, to the fullest extent permitted by law, contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations,
subject to the provisions of Section 2.03(b) hereof. The relative fault of such
indemnifying party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made, or relates to information supplied by such indemnifying party, and
the parties, relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 2.02 hereof, any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Article 2 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 2.03(a).
(b) No Person guilty of fraudulent misrepresentation (within the
meaning of section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(c) If indemnification is available under this Article 2, the
indemnifying parties shall indemnify each indemnified party to the fullest
extent provided in Section 2.01 and Section 2.02 hereof without regard to the
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 2.03.
Section 2.04 Indemnification Payments. The indemnification and
------------------------
contribution required by this Article 2 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
ARTICLE 3.
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms have the following respective meanings:
"Affiliate" shall have the meaning specified for "affiliate" in Rule 12b-2
under the Exchange Act.
-19-
<PAGE>
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Class A Common Stock" shall mean Class A Common Stock, par value $.01 per
share, of the Company.
"CP/BV Registrable Securities" shall mean the securities of the Company
which are defined as "Registrable Securities" under either the CP Agreement or
the BV Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"Expected Proceeds" shall mean, as of any date, the aggregate proceeds
that would be expected to be received by a holder of securities from the sale of
such securities in an offering made on such date (without being reduced by any
pro forma expenses or underwriting discounts). The determination of Expected
Proceeds shall be made (a) if the offering is intended to be made in an
underwritten public offering, then by the intended managing underwriter of such
offering or (b) if the offering is not intended to be made in an underwritten
public offering, then by investment bankers mutually agreeable to the Company
and the Representative, the fees and expenses of which shall be paid by the
Company.
"Person" shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.
"Register", "registered" and "registration" shall mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean, subject to the provisions of Sections
4.04(b) and 4.13 hereof, any and all Merger Securities which are shares of Class
A Common Stock. As to any particular Registrable Securities, such securities
shall cease to constitute Registrable Securities when (i) a registration
statement (other than the registration statement on Form S-4 with respect to the
Registrable Securities heretofore filed by the Company) with respect to the sale
of such securities shall have been declared effective under the Securities Act
and such securities shall have been disposed of in accordance with the methods
contemplated by the registration statement, (ii) such securities shall have been
sold in satisfaction of all applicable conditions to the resale provisions of
Rule 144 under the Securities Act (or any successor provision thereto), (iii)
such securities shall have been otherwise transferred, or (iv) such securities
shall have ceased to be issued and outstanding.
-20-
<PAGE>
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with Article 1, including, without limitation, (a)
any allocation of salaries and expenses of Company personnel or other general
overhead expenses of the Company, or other expenses for the preparation of
historical and pro forma financial statements or other data normally prepared by
the Company in the ordinary course of business; (b) all registration,
application, filing, listing, transfer and registrar fees; (c) all NASD fees and
fees and expenses of registration or qualification of Registrable Securities
under state securities or "blue sky" laws pursuant to Section 1.03(d) hereof;
(d) all word processing, duplicating and printing expenses, messenger and
delivery expenses; (e) the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of customary "cold
comfort" letters required by or incident to such performance and compliance; and
(f) any fees and disbursements of underwriters and broker-dealers customarily
paid by issuers or sellers of securities; provided, however, that in all cases
-------- -------
in which the Company is required to pay Registration Expenses hereunder,
Registration Expenses shall exclude, and the sellers of the Registrable
Securities being registered shall pay, the fees and disbursements of counsel to
such sellers, and underwriting discounts and commissions and transfer taxes in
respect of the Registrable Securities being registered and, to the extent such
laws prohibit the Company from paying such expenses on behalf of the holders of
Registrable Securities, expenses of registering or qualifying Registrable
Securities under state securities or blue sky laws.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same shall
be in effect at the time.
ARTICLE 4.
MISCELLANEOUS
-------------
Section 4.01 Rule 144. If the Company shall have filed with the
--------
Commission and obtained the effectiveness of a registration statement covering
the Company's equity securities pursuant to the requirements of section 12 of
the Exchange Act or pursuant to the requirements of the Securities Act, the
Company agrees that it shall timely file the reports required to be filed by it
under the Securities Act or the Exchange Act (including, without limitation, the
reports under sections 13 and 15(d) of the Exchange Act referred to in paragraph
(c)(1) of Rule 144 under the Securities Act), and shall take such further
actions as the Representative may reasonably request, all to the extent
necessary to enable the holders to sell Registrable Securities, from time to
time, pursuant to the resale limitations of (a) Rule 144 under the Securities
Act, as such rule may be hereafter amended, or (b) any similar rules or
regulations hereafter adopted by the Commission. Upon the written request of
the Representative, the Company shall deliver to the Representative a
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<PAGE>
written statement as to whether it has complied with such requirements.
Section 4.02 Nominees for Beneficial Owners. In the event that
------------------------------
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its option, upon delivery to the Company of
such evidence of beneficial ownership as the Company may reasonably request, be
treated as the holder of such Registrable Securities for the purpose of any
request or other action by any Holder or Holders of Registrable Securities
pursuant to this Agreement (or any determination of any number or percentage of
shares constituting Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement).
Section 4.03 Other Registration Rights. The Company hereby covenants
-------------------------
and agrees not to hereafter enter into any agreement, arrangement or
understanding with respect to its securities which is inconsistent or otherwise
materially interferes with the rights granted to the Holders of Registrable
Securities under Section 1.01 of this Agreement unless Holders of Registrable
Securities holding a majority of the Registrable Securities at the time
outstanding shall have consented thereto in writing. The Representative and the
Holders of Registrable Securities acknowledge and agree that the Company's
entering into any agreement, arrangement or understanding after the date hereof
pursuant to which the Company grants demand registration rights to a third party
or parties shall not be deemed to be inconsistent or to otherwise materially
interfere with the rights granted to the Holders of Registrable Securities under
Section 1.01 of this Agreement so long as the rights so granted to such a third
party or parties shall not conflict with, and shall be subject to, the
provisions of Section 1.04(e) hereof.
Section 4.04 Assignment; Calculation of Percentage Interests in
--------------------------------------------------
Registrable Securities. (a) This Agreement shall be binding upon and inure to
- ----------------------
the benefit of and be enforceable by the Company, the Representative and the
Holders of Registrable Securities and, with respect to the Company, its
respective successors and assigns and, with respect to any Holder of any
Registrable Securities, subject to the provisions respecting the minimum numbers
of percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions, contained herein.
(b) The rights of Holders of Registrable Securities to cause the
Company to register Registrable Securities under Sections 1.01 and 1.02 hereof
may not be assigned or otherwise conveyed to any transferee or assignee of
Registrable Securities.
(c) For purposes of this Agreement, references to a percentage of the
Registrable Securities shall be calculated based upon the aggregate number of
shares of Registrable Securities outstanding at the date hereof, which aggregate
number
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<PAGE>
is _________________ (_________), unless otherwise expressly stated herein.
Section 4.05 Notices. Except as otherwise provided below, whenever
-------
it is provided in this Agreement that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or served
upon the Company, the Representative or any Holder of Registrable Securities, or
whenever the Company, the Representative or any Holder of Registrable Securities
desires to provide to or serve upon any Person any other communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or sent by registered or certified
mail (return receipt requested, postage prepaid), or by overnight mail, courier,
or delivery service or by telecopy and confirmed by telecopy answerback,
addressed as follows:
(a) If to the Company, to:
---------------------
Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, Massachusetts 02110
Telephone: (617) 742-9500
Telecopy: (617) 742-0530
Attention: Vice President and Treasurer
---------
- With a copy to -
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
---------
(b) If to the Representative, to:
------------------------
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7286
Telecopy: (401) 277-7770
Attention: Secretary
---------
- With a copy to -
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
-23-
<PAGE>
Telephone: (401) 277-7031
Telecopy: (401) 277-7857
Attention: John L. Hammond, Esq.
---------
- And a copy to -
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02902
Telephone: (401) 276-6647
Telecopy: (401) 276-6512
Attention: Walter G.D. Reed, Esq.
---------
(c) If to any Holder of Registrable Securities, to such Holder at:
------------------------------------------
c/o The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7286
Telecopy: (401) 277-7770
Attention: Secretary
---------
- With a copy to -
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7031
Telecopy: (401) 277-7857
Attention: John L. Hammond, Esq.
---------
- And a copy to -
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02902
Telephone: (401) 276-6647
Telecopy: (401) 276-6512
Attention: Walter G.D. Reed, Esq.
---------
or, in the case of the Company or the Representative, at such other address as
may be substituted by it by notice delivered as provided herein. The furnishing
of any notice required hereunder may be waived in writing by the party entitled
to receive such notice. Every notice, demand, request, consent, approval,
declaration or other communication hereunder shall be deemed to have been duly
delivered, furnished or served on (i) the date on which personally delivered,
with receipt acknowledged, (ii) the date on which telecopied and confirmed by
telecopy answerback,
-24-
<PAGE>
(iii) the next business day if delivered by overnight or express mail, courier
or delivery service, or (iv) three business days after the same shall have been
deposited in the United States mail, as the case may be. Failure or delay in
delivering copies of any notice, demand, request, consent, approval, declaration
or other communication to the persons designated above to receive copies shall
in no way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication. The Representative shall
be responsible for relaying any notice, demand, request, consent, approval,
declaration or other communication hereunder delivered, furnished or served upon
any Holder of Registrable Securities in care of the Representative pursuant to
Section 4.04(c) hereof to such Holder of Registrable Securities.
Section 4.05 Entire Agreement; Amendment. This Agreement represents the
---------------------------
entire agreement and understanding among the parties hereto with respect to the
subject matter hereof and supersedes any and all prior oral and written
agreements, arrangements and understandings among the parties hereto with
respect to such subject matter; and can be amended, supplemented or changed, and
any provision hereof can be waived, only by a written instrument making specific
reference to this Agreement signed by the Company, the Representative and the
Holders of Registrable Securities holding a majority of the Registrable
Securities at the time outstanding.
Section 4.07 Paragraph Headings, etc. The paragraph headings contained in
-----------------------
this Agreement are for general reference purposes only and shall not affect in
any manner the meaning, interpretation or construction of the terms or other
provisions of this Agreement. The terms "including", "includes" and "included"
shall not be limiting.
Section 4.08 Applicable Law. This Agreement shall be governed by,
--------------
construed and enforced in accordance with the laws of The Commonwealth of
Massachusetts, applicable to contracts to be made, executed, delivered and
performed wholly within such state and, in any case, without regard to the
conflicts of law principles of such state.
Section 4.09 Severability. If at any time subsequent to the date hereof,
------------
any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provision of this Agreement.
Section 4.10 Equitable Remedies. The parties hereto agree that
------------------
irreparable harm would occur in the event that any of the agreements and
provisions of this Agreement were not performed fully by the parties hereto in
accordance with their specific terms or conditions or were otherwise breached,
and that money damages are an inadequate remedy for breach of this Agreement
-25-
<PAGE>
because of the difficulty of ascertaining and quantifying the amount of damage
that will be suffered by the parties hereto in the event that this Agreement is
not performed in accordance with its terms or conditions or is otherwise
breached. It is accordingly hereby agreed that the parties hereto shall be
entitled to an injunction or injunctions to restrain, enjoin and prevent
breaches of this Agreement by the other parties and to enforce specifically the
terms and provisions hereof in any court of the United States or any state
having jurisdiction, such remedy being in addition to and not in lieu of, any
other rights and remedies to which the other parties are entitled to at law or
in equity.
Section 4.11 No Waiver. The failure of any party at any time or times to
---------
require performance of any provision hereof shall not affect the right at a
later time to enforce the same. No waiver by any party of any condition, and no
breach of any provision, term, covenant, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
Section 4.12 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same original instrument.
Section 4.13 Special Limitation and Termination of Registration Rights.
---------------------------------------------------------
Anything in this Agreement to the contrary notwithstanding:
(a) The Company shall only be required to include Registrable
Securities in any registration statement to the extent that, in the Company's
reasonable judgment, such registration would not materially interfere with, or
violate or conflict with, any registration rights which may then be held by any
holders of the Company's capital stock.
(b) The obligations of the Company to each Holder of Registrable
Securities with respect to its rights of registration provided for in Sections
1.01 and 1.02 hereof shall not apply to any proposed sales or other dispositions
or offers therefor of any Registrable Securities with respect to which Messrs.
Sullivan & Worcester or other counsel for the Company knowledgeable in
securities law matters has delivered a written opinion to the Company and the
Representative (and the Representative shall be responsible for relaying such
opinion to the such Holder of Registrable Securities proposing to make such
offer, sale or other disposition) to the effect that such Holder of Registrable
Securities has no obligation to comply with the registration requirements of the
Securities Act or to deliver a prospectus meeting the requirements of section
10(a)(3) of the Securities Act with respect to such proposed sales or other
dispositions or
-26-
<PAGE>
offers therefor or only has such obligation because such Holder of Registrable
Securities is or may be, or is an Affiliate of a Person who is or may be, a
"controlling person" of the Company within the meaning of the Securities Act.
Notwithstanding the provisions of the immediately preceding sentence, the
Company shall be obligated to provide the rights of registration set forth in
Sections 1.01 and 1.02 hereof if, within twenty (20) days of the delivery of any
opinion of counsel pursuant to either such paragraph, the Holder of Registrable
Securities to whom such opinion was delivered shall have delivered to the
Company an opinion of its counsel, which counsel shall be knowledgeable in
securities law matters, to the effect that it cannot concur in the opinion of
counsel for the Company. In any such event, the Company shall have the right to
submit the matter, at its expense, to counsel independent of the Company and
reasonably satisfactory to such Holder of Registrable Securities, whose opinion
shall be determinative and conclusive, or to seek a no-action letter from the
Commission.
(c) The obligations of the Company to each Holder of Registrable
Securities with respect to its rights of registration provided for in Sections
1.01 and 1.02 hereof shall cease and terminate upon the earlier of (i) six (6)
years after the date hereof and (ii) the date on which the aggregate number of
Registrable Securities issued and outstanding shall no longer exceed one third
(1/3) of the aggregate number of shares of Registrable Securities outstanding at
the date hereof.
Section 4.14 Representations of the Representative. The Representative
-------------------------------------
represents and warrants as follows: The Representative is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
All necessary action, corporate or otherwise, required to have been taken by or
on behalf of the Representative by applicable Law, its charter documents or
otherwise, or required to have been taken by Holders of Registrable Securities,
to authorize (i) the approval, execution and delivery by the Representative, as
agent for the Holders of Registrable Securities, of this Agreement and (ii) the
performance by the Representative of its obligations under this Agreement, has
been taken. Each Holder of Registrable Securities has duly appointed the
Representative as his, her or its agent and has duly authorized the
Representative to execute this Agreement and to deliver it to the Company on
his, her or its behalf. This Agreement constitutes a valid and binding
agreement of the Representative and each of the Holders of Registrable
Securities, enforceable against the Representative and each such Holder in
accordance with its terms, except (i) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights, including without limitation, the
effect of statutory or other laws regarding fraudulent conveyances and
-27-
<PAGE>
preferential transfers, and (ii) for the limitations imposed by general
principles of equity.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
CONTINENTAL CABLEVISION, INC.
By:________________________________
Name:
Title:
THE HOLDERS OF REGISTRABLE
SECURITIES NAMED IN SCHEDULE A
----------
HERETO
By: The Providence Journal
Company, as agent
By:________________________________
Name:
Title:
THE PROVIDENCE JOURNAL COMPANY, as
Representative
By:________________________________
Name:
Title:
-28-
<PAGE>
SCHEDULE A
----------
Holders of Registrable Securities
---------------------------------
Number of Shares of
Name and Address Class A Common Stock Held
------------------------- -------------------------
1.
2.
3.
4.
5.
-29-
<PAGE>
FIRST AMENDMENT
---------------
FIRST AMENDMENT (the "Amendment"), dated as of March 24, 1995, to the
Agreement (the "Agreement"), dated as of November 1, 1994, by and among COLUMBIA
ASSOCIATES, L.P., a Delaware limited partnership ("Seller"), COLUMBIA CABLE OF
MICHIGAN, INC., a Delaware corporation (the "Company") and CONTINENTAL
CABLEVISION OF MANCHESTER, INC., a Maryland corporation ("Buyer").
W I T N E S S E T H:
-------------------
WHEREAS, Seller is the owner of certain cable television systems located in
the State of Michigan (collectively the "Systems") and has agreed to sell
control of the Systems to Buyer pursuant to the terms and conditions of the
Agreement;
WHEREAS, the purchase of the Systems by Buyer will be accomplished by
Seller first contributing substantially all of the assets and certain of the
liabilities of the Systems to the Company, a newly organized Delaware
corporation, in exchange for 100 shares of common stock of the Company, par
value $.10 per share (the "Shares"), which shall constitute all of the
outstanding shares of capital stock of the Company, and then by Seller selling
and conveying to Buyer the Shares for the purchase price provided for in the
Agreement, all of which shall occur simultaneously; and
WHEREAS, Seller, the Company and Buyer have agreed to amend the Agreement
pursuant to the terms of this Amendment in order to, among other things, revise
the manner in which the Applicable Subscriber Number (as such term is defined
pursuant to the Agreement) is determined under the Agreement and extend the
earliest date by which the transactions contemplated by the Agreement may be
consummated.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms used herein, unless otherwise
-----------
defined herein, shall have the meanings ascribed to such terms in the Agreement.
2. Amendment to Agreement. The Agreement is hereby amended as follows as
----------------------
of the date hereof:
(a) The first three sentences of Section 3.3(a) of the Agreement are
hereby deleted in their entirety and the following provisions are hereby
inserted in place thereof:
<PAGE>
"(a) If the Basic Number is less than the Applicable Subscriber
Number, then the Purchase Price shall be decreased by an amount equal to
the product of the Applicable Dollar Amount multiplied by the amount by
which the Basic Number is less than the Applicable Subscriber Number. No
later than May 31, 1995 Seller shall deliver to Buyer a certificate (the
"Pre-Closing Basic Number Certificate") of the Managing General Partner
(executed by its president or any vice president) setting forth, at the
option of Seller, Seller's good faith calculation of the Basic Number as of
March 31, 1995 or April 30, 1995. Buyer and its representatives shall be
entitled to review all books, records and other documents used in the
preparation of Seller's Pre-Closing Basic Number Certificate. If the Pre-
Closing Basic Number Certificate indicates that the Basic Number is at
least 75,000 as of March 31, 1995 or April 30, 1995, as the case may be,
and Buyer does not, within 15 days of its receipt of the Pre-Closing Basic
Number Certificate (the "Basic Number Dispute Period"), notify Seller in
writing that it has determined in good faith that the Basic Number
calculation set forth in such Pre-Closing Basic Number Certificate should
be less than 75,000, then, effective as of the expiration of the Basic
Number Dispute Period, the Applicable Subscriber Number shall be 71,000 and
the Applicable Dollar Amount shall be $2,183.10 if the Calculation Date
occurs at any time during the months of July through September. If Buyer
shall notify Seller during the Basic Number Dispute Period that it believes
in good faith that the Basic Number set forth in the Pre-Closing Basic
Number Certificate should be less than 75,000, then Buyer shall provide
Seller with the information and calculations upon which its belief is
based, including an estimate by Buyer of the applicable Basic Number as of
March 31, 1995 or April 30, 1995, as the case may be. If, following
Seller's receipt of such information and calculations, there continues to
be a dispute between Seller and Buyer with respect to whether the Basic
Number calculation set forth in the Pre-Closing Basic Number Certificate
should be less than 75,000, such dispute shall be resolved as expeditiously
as possible in accordance with the dispute resolution process set forth in
Section 3.3(c) hereof. If Seller does not provide Buyer with a Pre-Closing
Basic Number Certificate by May 31, 1995 which indicates that the Basic
Number as of March 31, 1995 or April 30, 1995 is at least 75,000 or a
dispute between Buyer and Seller with respect to the calculation of the
Basic Number set forth in the Pre-Closing Basic Number Certificate leads to
a determination from the Designated Accountant (or such other firm of
certified public accountants designated to resolve the dispute in
accordance with
-2-
<PAGE>
Section 3.3(c) hereof) that the applicable Basic Number is less than
75,000, then the Applicable Subscriber Number shall be 73,000 and the
Applicable Dollar Amount shall be $2,123.29 if the Calculation Date occurs
at any time during the months of July through September, and the Applicable
Subscriber Number shall be 75,000 and the Applicable Dollar Amount shall be
$2,066.67 if the Calculation Date occurs at any time during the months of
October through December. If a dispute between Buyer and Seller with
respect to the calculation of the Basic Number set forth in the Pre-Closing
Basic Number Certificate is resolved because Seller and Buyer have agreed
that the applicable Basic Number equals or exceeds 75,000 or the Designated
Accountant (or such other firm of certified public accountants designated
to resolve the dispute in accordance with Section 3.3(c) hereof) has
determined that the applicable Basic Number equals or exceeds 75,000, then
the Applicable Subscriber Number shall be 71,000 and the Applicable Dollar
Amount shall be $2,183.10 if the Calculation Date occurs at any time during
the months of July through September. Notwithstanding any provision to the
contrary contained herein if the Calculation Date occurs at any time during
the months of October through December, the Applicable Subscriber Number
shall be 75,000 and the Applicable Dollar Amount shall be $2,066.67. If
the Basic Number is less than 95% of the Applicable Subscriber Number (the
"Minimum Subscriber Number"), the Buyer may elect to terminate this
Agreement, in which case this Agreement shall be of no further force and
effect and the Contract Escrow Amount, together with all accrued interest
thereon, shall be returned to Buyer; provided, however, that Buyer shall
-------- -------
not be entitled to terminate this Agreement if the Basic Number is less
than 95% of the Applicable Subscriber Number solely as a result of the
exercise of first refusal rights referred to in Section 6.1(b) hereof
relating to no more than 1,000 Basic Subscribers."
(b) Section 3.3(d) of the Agreement is hereby amended to read in its
entirety as follows:
"(d) In the event that there is a Rate Regulatory Reduction
Order prior to the Closing Date, the Purchase Price shall be
decreased by (a) to the extent not already taken into account
pursuant to the adjustments made to the Purchase Price in
accordance with Section 3.3(b) hereof, an amount equal to the
aggregate rate refunds owed to Basic Subscribers for the period
up to and including the
-3-
<PAGE>
Closing Date as a result thereof and (b) an additional amount
equal to the annualized impact of the Rate Regulatory Reduction
Order on the revenues generated by the Systems as follows:
a) the Annualized Per Subscriber Reduction shall be
multiplied by the lesser of the Basic Number or the
applicable Applicable Subscriber Number determined in
accordance with Section 3.3(a) hereof;
b) the amount determined under clause (a) shall be reduced
only by associated estimated savings in annual amounts for
franchise fees, copyright fees and bad debt allowances;
c) the amount determined under clause (b) shall be
multiplied by 12.4; and
d) the amount determined under clause (c) shall be decreased by
an amount equal to the product of the applicable Applicable
Dollar Amount and the amount by which the total number of
Basic Subscribers as of the Calculation Date exceeds the
following levels at the following possible closing dates:
i) if the Closing occurs after August 30, 1995, but
before October 1, 1995, 74,000 Basic Subscribers; and
ii) if the Closing occurs after September 30, 1995,
but before or on December 31, 1995, 78,000 Basic
Subscribers."
(c) The second sentence of Section 4.1 of the Agreement is hereby
amended to read in its entirety as follows:
"Seller shall promptly deliver to Buyer notice of the satisfaction of
the conditions set forth in Section 7.3, but in no event shall the
Closing Date be earlier than August 31, 1995 or later than October 31,
1995 (except as provided in Section 3.3(a)."
-4-
<PAGE>
(d) Section 8.1(c) of the Agreement is hereby amended to read in its
entirety as follows:
"(c) Any Rate Regulatory Reduction Order which arises from a Rate
Regulatory Reduction Event which occurs prior to, on or within one
year subsequent to the Closing Date and in which case Seller shall
indemnify the Company and the Buyer (a) to the extent not already
taken into account pursuant to the adjustments made to the Purchase
Price in accordance with Sections 3.3(b) and (d) hereof, in an amount
equal to the aggregate rate refunds owed to Basic Subscribers for the
period up to and including the Closing Date as a result thereof and
(b) in an additional amount equal to the annualized impact of the Rate
Regulatory Reduction Order on the revenues generated by the Systems as
follows:
a) the Annualized Per Subscriber Reduction shall be
multiplied by the lesser of the Basic Number or the
applicable Applicable Subscriber Number determined in
accordance with Section 3.3(a) hereof;
b) the amount determined under clause (a) shall be reduced
only by associated estimated savings in annual amounts for
franchise fees, copyright fees and bad debt allowances;
c) the amount determined under clause (b) shall be
multiplied by 12.4; and
d) the amount determined under clause (c) shall be
decreased by an amount equal to the product of the
applicable Applicable Dollar Amount and the amount by which
the total number of Basic Subscribers as of the Calculation
Date exceeds the following levels depending on when the
Closing occurred:
i) if the Closing occurred after August 30, 1995, but
before October 1, 1995, 74,000 Basic Subscribers; and
-5-
<PAGE>
ii) if the Closing occurred after September 30, 1995
but before or on December 31, 1995, 78,000 Basic
Subscribers."
(e) Section 11.2 of the Agreement is hereby amended to read in its
entirety as follows:
"11.2 Assignment. No party hereto may assign or transfer
----------
its rights or obligations arising under this Agreement, without the
consent of the other parties; provided that (a) Buyer shall have the
-------- ----
right in its sole discretion to assign its rights and obligations
under this Agreement and the documents and agreements executed in
connection herewith, including, without limitation, the Closing Escrow
Agreement, to a wholly owned subsidiary of Continental Cablevision,
Inc. if such assignment will not serve to delay the Closing, it being
understood and agreed that no such assignment shall relieve Buyer of
any of its obligations hereunder or under the documents and agreements
executed in connection herewith, including, without limitation, the
Closing Escrow Agreement, and (b) at or after the Closing, the Seller
may assign its remaining rights and obligations hereunder and under
the documents and agreements executed in connection herewith,
including, without limitation, the Closing Escrow Agreement, to or for
the benefit of (a) Columbia Partners, Inc., a newly organized Delaware
corporation (the "Representative"), which is controlled by Robert M.
Rosencrans and Scott N. Ledbetter, the two directors and two of the
principal stockholders of the Managing General Partner, and has been
formed to act as the representative of the stockholders of the
Managing General Partner and the partners of the Seller in the event
of the consummation of certain contemplated mergers involving the
Managing General Partner and the Seller and certain other Persons or
(b) any liquidating trust established in the event of the liquidation
of Seller and the winding up of its affairs; provided, however, that
-------- -------
Seller shall promptly notify Buyer of the name and address of the
trustee thereof. The parties
-6-
<PAGE>
hereto hereby agree that in the event of any assignment from the
Seller to the Representative or a liquidating trust pursuant to the
preceding sentence, the Seller shall be permitted to assign and convey
to the Representative or such liquidating trust (and the
Representative or such liquidating trust shall assume) all of the
rights and obligations of the Seller under this Agreement and any
document or agreement executed in connection herewith, including,
without limitation, the Closing Escrow Agreement, in respect of
actions to be taken or decisions to be made hereunder or thereunder
during the period from and after the Closing Date under this
Agreement, including, without limitation, the full right, power and
authority to effect all post-closing adjustments and claims for
indemnification hereunder (including the adjudication and/or
settlement of all disputes with respect to such adjustments or claims)
and the right to retain and receive any and all amounts paid or
payable by Buyer or the Closing Escrow Agent under the Closing Escrow
Agreement."
(f) The following provisions are hereby added as Section 11.10 of the
Agreement:
"11.10 Maintenance by Buyer of Books and Records. Buyer
-----------------------------------------
hereby agrees that following the Closing Date it shall cooperate with
the Seller and its officers, agents, representatives and employees in
the preparation of the final list of adjustments prepared pursuant to
Section 3.3(b) hereof (the "Final Adjustments List") and the
resolution of any disputes with respect thereto, including, without
limitation, retaining the accounting, banking, tax and similar books
and records of the Seller in the locations where they are located as
of the Closing Date, maintaining in such locations the computers on
which such information is stored or which are used in the preparation
of monthly or other financial or operating reports by the Seller and
making available to Seller and its representatives any accounting
personnel currently employed by the Seller at such location who are
retained by Buyer following the Closing as employees at the System,
for the purpose of providing such
-7-
<PAGE>
information, data and reports to the Seller as the Seller may
reasonably request. In addition, in the case of any such accounting
personnel of the Seller currently working in such locations who are
not retained by Buyer following the Closing as employees at the
System, but instead become employees of or consultants to the Seller,
Buyer shall provide such employees with work space in such locations
and allow them reasonable access to personnel, records and computer
equipment as may be necessary for purposes of the preparation and
completion of the Final Adjustments List and the resolution of any
disputes with respect thereto. The above provisions of this Section
11.10 shall not have any force or effect upon the completion of the
Final Adjustments List pursuant to Section 3.3(b) hereof (including
the resolution of all disputes pursuant thereto) at which time Buyer
shall be permitted to relocate and maintain any of the aforementioned
documents and records as and in the manner permitted pursuant to
Section 2.1(e) above. Any reasonable out-of-pocket expenses incurred
by Buyer as a result of the foregoing provisions of this Section 11.10
shall be paid by Seller upon receipt of written demand therefor from
Buyer, accompanied by reasonably detailed supporting documentation."
3. Amendment to Schedules. The Disclosure Schedule attached to the
----------------------
Agreement is hereby amended as follows as of the date hereof:
(a) Section II, clause F of Schedule 5.1 of the Disclosure Schedule is
hereby amended to read in its entirety as follows:
"F. Eastern Michigan University - City of Ypsilanti -Expiration Date:
3/8/2000
1. Agreement to provide Cable Television Service, dated 3/8/1995
between Columbia Associates, L.P. dba Columbia Cable of Michigan
and Eastern Michigan University."
(b) Section II, clause DQ of Schedule 5.1 of the Disclosure Schedule
is hereby amended to read in its entirety as follows:
-8-
<PAGE>
"DQ. Arbor Woods Apartments, 2167 Medford, Ann Arbor Pine Valley
Apartments, 1521 Pine Valley Blvd., Ann Arbor
- Expiration Date: [None Stated]
1. Easement and Agreement, dated 3/6/73, between Slavik Management,
Inc. and Michigan Cable TV regarding Arbor Woods Apts. and Pine
Valley Apts."
(c) Section II, clauses HJ-HL of Schedule 5.1 of the Disclosure
Schedule are hereby amended to read in their entirety as follows and as a result
thereof the references to clauses HK, HL and HM in such schedule are hereby
changed to clauses HM, HN and HO, respectively:
HJ. Weber's, 3050 Jackson Ave., Ann Arbor - Expiration Date: 11/5/95
1. Cable Television Service Agreement, dated 8/5/94, between
Columbia Associates, L.P. dba Columbia Cable of Michigan and
Weber's Inc.
HK. Whitehills Apartments, 320 N. Alger St., Howell - Expiration
Date :12/10/2000
1. Agreement, dated 12/10/85, between TCI Growth, Inc. and Centrum
Management Corporation
HL. Woodbridge Hills Condominium - Expiration Date: 11/18/97
1. Cable Television Service Agreement, dated 8/5/94, between
Columbia Associates, L.P. dba Columbia Cable of Michigan and
Woodbridge Hills Condominium Association"
(d) Section VII. B. 28 of Schedule 5.1 of the Disclosure Schedule is
hereby deleted in its entirety and as a result thereof the reference to clause
B. 29 in such schedule is hereby changed to clause B. 28.
(e) The reference to "Section VIII. E." in the first sentence of
Section VII. F. of Schedule 5.1 of the Disclosure Schedule is hereby changed to
"Section XVIII. E.".
4. Miscellaneous.
-------------
(a) Except as expressly amended hereby, the Agreement shall remain in
full force and effect following the execution and delivery of this Amendment by
the parties hereto.
(b) This Amendment may be executed in any number of separate
counterparts, all of which taken together shall constitute
-9-
<PAGE>
one and the same instrument, and any of the parties hereto may execute this
Amendment by signing any such counterpart.
(c) Captions and section headings appearing herein are solely for
convenience of reference and are not intended to affect the interpretation of
any provision of this Amendment.
(d) This Amendment shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts executed in and
to be wholly performed therein.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed as of the day and year first above written.
SELLER:
COLUMBIA ASSOCIATES, L.P.
By: COLUMBIA INTERNATIONAL, INC.,
its general partner
By: /s/ Robert M. Rosencrans
---------------------------------
Name: Robert M. Rosencrans
Title: President
COMPANY:
COLUMBIA CABLE OF MICHIGAN, INC.
By: /s/ Robert N. Rosencrans
--------------------------------
Name: Robert M. Rosencrans
Title: President
BUYER:
CONTINENTAL CABLEVISION OF
MANCHESTER, INC.
By: /s/ Jeffrey T. DeLorme
---------------------------------
Name: Jeffrey T. DeLorme
Title: Executive Vice President
-10-
<PAGE>
ASSET PURCHASE AGREEMENT
by and between
CABLEVISION OF CHICAGO
and
CONTINENTAL CABLEVISION, INC.
Dated as of January 6, 1995
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (the "Agreement") is made and entered into as
of January 6, 1995, by and between CABLEVISION OF CHICAGO, an Illinois limited
partnership ("Seller") and CONTINENTAL CABLEVISION, INC., a Delaware corporation
("Buyer");
R E C I T A L S
---------------
Seller owns and operates a cable television system serving a portion of
Cook and DuPage Counties, Illinois (the "CATV Business"). The CATV Business
serves the Cities of Evanston, Oak Park, Homewood, and Downers Grove, and
certain surrounding areas.
Seller desires to sell to Buyer, and Buyer desires to purchase from Seller,
the CATV Business and the assets used or held for the operation thereof in
accordance with the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows, each intending to be legally
bound as and to the extent herein provided.
1. DEFINITIONS.
-----------
1.01 Certain Definitions. For the purposes of this Agreement, the
-------------------
following terms shall have the meanings set forth below:
Acquired Assets: All of the properties, assets, privileges, rights,
---------------
interests, claims and goodwill, real and personal, tangible and intangible, of
every type and description, including Seller's leasehold interests or rights to
possession, whether owned or leased or otherwise possessed, used, or held for
use by Seller in connection with or necessary for the operation of the CATV
Business, now in existence or hereafter acquired by Seller prior to the Closing,
including, without limitation, the CATV Instruments, the Equipment, the Real
Property, the Contracts, and the Intangible Property; provided that Acquired
Assets shall exclude the Excluded Assets and any assets disposed of prior to the
Closing in the usual and ordinary course of business and not in violation of
this Agreement.
Agreement: This Agreement and the Schedules and Exhibits attached hereto.
---------
AML: Amplitude Modulated Link, a relay system used in conjunction with a
---
CATV System.
Asserted Claim: As defined in Section 10.04.
--------------
Assumed Liabilities: All liabilities, obligations and commitments (whether
-------------------
direct or indirect, matured or unmatured,
<PAGE>
known or unknown, absolute, accrued, contingent or otherwise) of Seller with
respect to the CATV Business, including, without limitation, all liabilities,
obligations and commitments arising after the Closing Date under CATV
Instruments and the Contracts or in respect of the operation of the CATV
Business after the Closing Date, other than the Excluded Liabilities.
Audited Financial Statements: As defined in Section 3.03 hereof.
----------------------------
Balance Sheet: The audited balance sheet of Seller as of December 31,
-------------
1993, reported by KPMG Peat Marwick, Certified Public Accountants, delivered to
Buyer pursuant to Section 3.03.
Basic Subscriber: As at any date of determination thereof, the sum of (a)
----------------
the total number of households (exclusive of "second outlets", as such term is
commonly understood in the cable television industry, and exclusive of customers
billed on a bulk-billing or commercial-account basis) subscribing on such date
to the CATV Business and paying the standard monthly service fees and charges
imposed by Seller, and who (i) have been active subscribers of the CATV
Business' basic cable television service for at least one full month, and (ii)
are not, as of the Closing Date, ninety (90) days or more in arrears in payment
for service, as measured from the date of invoice, and (b) the total number of
Equivalent Subscribers on such date.
Benefit Plans: As defined in Section 3.08(c).
-------------
Buyer: As defined in the Preamble to this Agreement.
-----
Buyer's Counsel: Sullivan & Worcester (attention of Lee Dunham, Esq.)
---------------
located at One Post Office Square, Boston, MA 02109, who represents Buyer in
the transactions contemplated hereby.
Cable Act: As defined in Section 3.07(e).
---------
CATV: Cable Television, which term also includes satellite master antenna
----
television not yet converted to cable television service.
CATV Business: The CATV business to be transferred to Buyer, presently
-------------
owned and operated by Seller, which consists of the transmission, distribution
and local origination of audio and video signals over the system used by the
CATV Business located in the System Area.
CATV Instruments: All franchises, ordinances or licenses granted to the
----------------
Seller by any Governmental Authority; permits for wire crossings over or under
highways, railroads, and other property; construction permits and certificates
of occupancy; AML, business radio, Earth Station and other FCC licenses; pole
-2-
<PAGE>
attachment and other Contracts with utilities; federal, state, county and
municipal permits, orders, variances, exemptions, approvals, consents, licenses
and other authorizations; agreements for the purchase, sale, receipt or
distribution of news, data and microwave relay signals, or for satellite
services; and all other approvals, consents and authorizations required for the
lawful ownership, construction, installation, possession, operation and
maintenance of the CATV Business, or used or held for use in the CATV Business.
CATV Licenses: The franchises and licenses issued by any Governmental
-------------
Authority and the licenses issued by the FCC used in the CATV Business as
presently conducted by Seller, all of which are listed in Schedule 1.01(a).
CATV System: A complete CATV reception and distribution system consisting
-----------
of one or more head-ends, trunk cable, subscriber drops and associated
electronic equipment, which is, or is capable of being, operated as an
independent system without interconnections to other systems.
Closing: A meeting for the purpose of concluding the transactions
-------
contemplated by this Agreement held at the place and on the date fixed in
accordance with Section 12.01.
Closing Date; Date of Closing: The date fixed for the Closing in
-----------------------------
accordance with Section 12.01.
Code: As defined in Section 2.02.
----
Communications Act: As defined in Section 3.07(e).
------------------
Contract: Any contract, mortgage, deed of trust, bond, indenture, lease,
--------
license, note, certificate, option, warrant, right, or other instrument,
document or written agreement and any oral obligation, right or agreement, to
which the Seller is a party or by which the Seller or the assets of the Seller
included within the CATV Business is bound, excluding any CATV Instrument.
Copyright Office: As defined in Section 3.07.
----------------
CPA Firm: As defined in Section 2.04(c).
--------
Current Assets: Means cash, marketable securities, one hundred percent
--------------
(100%) of active subscriber accounts receivable that are ninety (90) days or
less past due (measured from the date of invoice), prepaid expenses, each as
determined in accordance with GAAP (unless otherwise specified herein) and
consistent with Seller's practices with respect to reserves and aging of
receivables as reflected on the Latest Financial Statements and with Schedule
1.01(b) hereto, which Schedule sets forth the type and amounts of Current Assets
as of September 30, 1994.
-3-
<PAGE>
Current Liabilities: Means accounts payable, accrued expenses and other
-------------------
current liabilities determined in accordance with GAAP, except that the current
portion of any indebtedness for borrowed money and Excluded Liabilities shall
not be included, and consistent with Schedule 1.01(c) hereto, which Schedule
sets forth the type and amounts of Current Liabilities as of September 30, 1994.
DOJ: The United States Department of Justice.
---
Earnest Money Escrow: As defined in Section 2.06.
--------------------
Earnest Money Escrow Agent: As defined in Section 2.06.
--------------------------
Earnest Money Escrow Agreement: As defined in Section 2.06.
------------------------------
Earth Station: A satellite earth receiving station consisting of one or
-------------
more "dish" antennas, usually operated in conjunction with a building which
houses electronic signal processing and amplification equipment, all of which is
also referred to as a "head end".
Employees: Means all current or former employees of Seller.
---------
Encumbrances: Means liens, charges, encumbrances, security interests,
------------
options, restrictions or any other claims or third party rights.
Equipment: All tangible personalty; electronic devices; towers; trunk and
---------
distribution cable; decoders and spare decoders for scrambled satellite signals;
amplifiers; power supplies; conduit; vaults and pedestals; grounding and pole
hardware; installed subscriber's devices (including, without limitation, drop
lines, converters, encoders, transformers behind television sets and fittings);
"head-ends" and "Hubs" (origination, transmission and distribution system)
hardware; tools; inventory; spare parts; maps and engineering data; vehicles;
supplies, tests and closed circuit devices; AML equipment; furniture and
furnishings; and all other tangible personal property and facilities used or
held for use in the CATV Business.
Equivalent Subscriber: Means, as at any date of determination thereof, the
---------------------
total number of households served by the System on a bulk-billed basis and the
total number of establishments served on a commercial account basis, or on a
basis less than the standard monthly service fees and charges imposed by Seller,
which shall be deemed to be equal to the quotient obtained by dividing (i) the
total fees and charges for basic service billed by Seller during the month
including such date on a bulk-billed or commercial account basis, or on a basis
less than the standard monthly service fees and charges imposed by Seller, by
(ii) the fees and charges for basic service that Basic Subscribers of the type
described in
-4-
<PAGE>
clause (a) of the definition of such term in this Section 1.01 were billed
during such month.
ERISA: As defined in Section 3.08.
-----
Estimated Inventory: As defined in Section 2.03.
-------------------
Estimated Working Capital Amount: Means (i) if Current Liabilities exceed
--------------------------------
Current Assets as reflected on the Estimated Working Capital Statement, such
excess, expressed as a negative number, or (ii) if Current Assets exceed Current
Liabilities as reflected on the Estimated Working Capital Statement, such
excess, expressed as a positive number.
Estimated Working Capital Statement: As defined in Section 2.03 hereof.
-----------------------------------
Excluded Assets: The assets and properties of Seller listed on Schedule
---------------
1.01(d).
Excluded Liabilities: Liabilities, obligations and commitments of Seller
--------------------
to affiliates of its general partners; to partners of Seller in their capacity
as such; under the Third Amended Restated Credit Agreement dated as of February
5, 1993 between Bank of Montreal and Seller; and liabilities for income taxes,
if any, which may be imposed on Seller or the partners of Seller in connection
with the transactions contemplated hereby; all liabilities, obligations and
commitments (whether direct or indirect, mature or unmatured, known or unknown,
absolute, accrued, contingent or otherwise) of Buyer which arose prior to the
close of business on the Closing Date under the CATV Instruments and all other
liabilities, obligations and commitments (whether direct or indirect, matured or
unmatured, known or unknown, absolute, accrued, contingent or otherwise) arising
with respect to the operation of the CATV Business prior to the Closing Date.
Notwithstanding the foregoing, Excluded Liabilities shall not include (a)
Current Liabilities, or (b) Seller's obligations to subscribers of the CATV
Business for (i) subscriber deposits held by Seller as of the Closing Date and
which are refundable, in the amount for which Buyer received credit under this
Agreement as part of Current Liabilities, and (ii) subscriber advance payments
held by Seller as of the Closing Date for services to be rendered by the CATV
Business after the Closing Date, in the amount for which Buyer received credit
under this Agreement as part of the Current Liabilities.
FCC: The Federal Communications Commission.
---
Final Inventory: As defined in Section 2.03.
---------------
Final Working Capital Amount: Means (i) if Current Liabilities exceed
----------------------------
Current Assets as reflected on the Final Working
-5-
<PAGE>
Capital Statement, such excess, expressed as a negative number, or (ii) if
Current Assets exceed Current Liabilities as reflected on the Final Working
Capital Statement, such excess, expressed as a positive number.
Final Working Capital Statement: As defined in Section 2.04(c) hereof.
-------------------------------
FTC: The Federal Trade Commission.
---
GAAP: Means generally accepted accounting principles.
----
Governmental Authority: The Federal Government, any state, county,
----------------------
municipal, local or foreign government and any governmental agency, bureau,
commission, authority or body.
HSR Act and Rules: The Hart-Scott-Rodino Antitrust Improvements Act of
-----------------
1976 and the rules and regulations promulgated thereunder, as from time to time
in effect prior to the Closing.
HSR Report: The Notification and Report Form for certain mergers and
----------
acquisitions mandated by the HSR Act and Rules.
Income Statement: As defined in Section 3.03.
----------------
Indemnitee: As defined in Section 10.04.
----------
Indemnitor: As defined in Section 10.04.
----------
Indemnity Escrow Agent: As defined in Section 2.07.
----------------------
Indemnity Escrow Agreement: As defined in Section 2.07.
--------------------------
Indemnity Escrow Fund: As defined in Section 2.07.
---------------------
Intangible Property: The copyrights, patents, trademarks, service marks
-------------------
and trade names used in the CATV Business excluding the right to use the name
"Cablevision" or "Cablevision Systems" or any derivative thereof, and all
applications for, or licenses or other rights to use any thereof, and the value
associated therewith, which are used or held for use in the CATV Business,
except cash and cash equivalents.
Inventory: Means all inventory as defined under GAAP, plus, without
---------
limitation, all supplies, all converters, all cables and all amplifiers on hand
in the Seller's warehouses on the Closing Date as determined by the Seller's
inventory control system (MCBA).
Judgment: Any judgment, writ, order, injunction, award or decree of or by
--------
any court, judge, justice or magistrate, including any bankruptcy court or
judge, and any order of or by any Governmental Authority.
-6-
<PAGE>
Latest Financial Statements: Means the most recent of the Audited
---------------------------
Financial Statements.
Law: The common law and any statute, ordinance, code or other law, rule,
---
regulation, order, technical or other standard, requirement or procedure
enacted, adopted, promulgated, applied or followed by any Governmental Authority
or court.
Limited Partnership Agreement: As defined in Section 3.01.
-----------------------------
Material Adverse Effect: means a material adverse effect on the assets,
-----------------------
financial condition or results of operations of Seller or the CATV Business
taken as a whole.
Outside Date: As defined in Section 12.01.
------------
Permitted Encumbrances: means those Encumbrances set forth in Schedule
----------------------
1.01(e) hereto and all other Encumbrances, if any, which do not materially
detract from the value of the tangible property subject thereto and which do not
materially interfere with the present and continued use of such property in the
operation of the CATV Business.
Person: Any natural person, corporation, general or limited partner,
------
partnership, joint venture, trust, association, or unincorporated entity of any
kind.
Preliminary Working Capital Statement: As defined in Section 2.04(a).
-------------------------------------
Purchase Price: As defined in Section 2.02.
--------------
Real Property: All realty, fixtures, easements, rights-of-way, leasehold
-------------
and other interests in real property, buildings and improvements used or held
for use in the CATV Business.
Retained Franchises: As defined in Section 9.07.
-------------------
Retained Franchise Price: As defined in Section 9.07(a).
------------------------
Seller: As defined in the Preamble to this Agreement.
------
Seller's Counsel: The law firm of Holleb & Coff (Attention of Robert E.
----------------
Kolek, Esq.), located at 55 E. Monroe St., Suite 4100, Chicago, Illinois 60603,
who represent Seller in the transactions contemplated hereby.
Seller's FCC Counsel: The law firm of Piper & Marbury (Attention of Mark
--------------------
Tauber, Esq.), 1200 Nineteenth Street, N.W., Washington, D.C. 20854.
-7-
<PAGE>
Seller's Objection: As defined in Section 2.04(c).
------------------
Subscription Contracts: All Contracts with Subscribers to the CATV
----------------------
Business and all Contracts for bulk sales of CATV programming.
System Area: The geographical area as described on Exhibit A hereto.
-----------
WARN: As defined in Section 2.05(c).
----
1.02 Other Definitional Provisions. Terms defined in the singular shall
-----------------------------
have a comparable meaning when used in plural, and vice versa.
2. PURCHASE AND SALE.
-----------------
2.01 Transfer of Assets. At the Closing, upon the terms and conditions
------------------
set forth in this Agreement, Seller shall sell, convey, transfer, assign and
deliver to Buyer, and Buyer shall purchase, accept and receive, all of Seller's
right, title and interest in and to the Acquired Assets, such transaction to be
effective as of the opening of business on the Closing Date.
2.02 Purchase Price. In consideration for the transfer of the Acquired
--------------
Assets pursuant to Section 2.01, and the other covenants, agreements,
representations and warranties contained herein, Buyer shall at Closing (i) pay
to Seller a total purchase price of One Hundred Sixty Eight Million Five Hundred
Thousand Dollars ($168,500,000) plus, if a positive number, or minus, if a
negative number, the Estimated Working Capital Amount provided in Section 2.03
(the "Purchase Price"), less (A) the amount of the Indemnity Escrow Fund, as
defined in Section 2.07, (B) the Retained Franchise Price, as defined in Section
9.07(a), if any, and (C) the Earnest Money Escrow (which shall be released to
Seller at Closing) by federal funds wire transfer of immediately available funds
in Chicago, Illinois to such account at a United States bank as shall be
designated by Seller, such sum to be subject to adjustment as provided in the
following sentence and Section 2.04 hereof, and (ii) assume and agree to pay,
discharge and perform the Assumed Liabilities as and when due in accordance with
the Assumption Agreement attached as Exhibit B hereto. The Purchase Price, to
be paid at Closing, shall be subject to adjustment, as of the Closing Date, as
follows:
(a) At least five (5) business days prior to the Closing, the number
of Basic Subscribers to the CATV Business shall be determined and certified
to Buyer by Seller; to the extent that there are fewer than Eighty-Two
Thousand Five Hundred Sixty (82,560) Basic Subscribers on the Closing Date,
the difference between Eighty-Two Thousand Five Hundred Sixty (82,560)
Basic Subscribers and the actual number of Basic Subscribers shall be
multiplied by One Thousand Nine Hundred
-8-
<PAGE>
Fifty Nine Dollars ($1,959) and the product therefrom shall be deducted
from the Purchase Price; to the extent that there are more than Eighty-Nine
Thousand Four Hundred Forty (89,440) Basic Subscribers on the Closing Date,
the difference between Eighty-Nine Thousand Four Hundred Forty (89,440)
Basic Subscribers and the actual number of Basic Subscribers shall be
multiplied by One Thousand Nine Hundred Fifty Nine Dollars ($1,959) and the
product therefrom shall be added to the Purchase Price. The Purchase Price
shall be allocated in accordance with Section 1060 of the Internal Revenue
Code of 1986, as amended (the "Code"), among the Acquired Assets by mutual
agreement of the parties hereto.
(b) If Estimated Inventory (as defined in Section 2.03 below) is less
than Five Hundred Thousand Dollars ($500,000), then the Purchase Price
shall be reduced by the difference between the Estimated Inventory and Five
Hundred Thousand Dollars ($500,000).
2.03 Estimated Working Capital and Inventory Statement. At least three
-------------------------------------------------
(3) business days prior to the Closing Date, Seller shall deliver to Buyer a
working capital and Inventory statement of Seller as of the Closing Date, which
statement shall set forth Seller's good faith estimate of the Current Assets,
Current Liabilities and Inventory of Seller as of the Closing Date as determined
in accordance with GAAP and in a manner consistent with the preparation of the
Audited Financial Statements, except as otherwise required by this Agreement
(the "Estimated Working Capital and Inventory Statement"). The Inventory amount
reflected on the Estimated Working Capital and Inventory Statement shall be
referred to herein as the "Estimated Inventory".
2.04 Post Closing Adjustment.
-----------------------
(a) Within ninety (90) days after the Closing Date, Buyer shall
prepare, or cause to be prepared, and deliver to Seller a working capital
and inventory statement of Seller as of the Closing Date, which statement
shall be prepared in accordance with GAAP and in a manner consistent with
the preparation of the Latest Financial Statements, except as otherwise
required by this Agreement, and shall set forth the Current Assets, Current
Liabilities and Inventory of Seller as of the Closing Date (the
"Preliminary Working Capital and Inventory Statement").
(b) During the succeeding thirty (30) day period, Seller shall have
the right to examine the Preliminary Working Capital and Inventory
Statement and all records used to prepare the Preliminary Working Capital
and Inventory Statement.
-9-
<PAGE>
(c) In the event Seller determines that the Preliminary Working
Capital and Inventory Statement has not been prepared on the basis set
forth in Section 2.04(a) hereof, Seller shall so inform Buyer in writing
(the "Seller's Objection"), setting forth a reasonably specific description
of the basis of the Seller's Objection on or before the last day of the
thirty (30) day period referred to in Section 2.04(b) hereof. In the event
of the Seller's Objection, Seller and Buyer shall attempt to resolve the
differences underlying the Seller's Objection within twenty (20) days of
Buyer's receipt thereof. If Seller and Buyer are unable to resolve all
their differences within such twenty (20) day period, they shall refer
their remaining differences to Arthur Andersen & Co., or such other
nationally recognized firm of independent public accountants as to which
Buyer and Seller may mutually agree (the "CPA Firm"), who shall, acting as
experts and not as arbitrators, determine on the basis of the standard set
forth in Section 2.04(a) hereof and only with respect to the remaining
differences so submitted, whether and to what extent, if any, the
Preliminary Working Capital and Inventory Statement requires adjustment.
The CPA Firm shall deliver its written determination to Buyer and Seller no
later than the tenth (10) business day after the remaining differences
underlying the Seller's Objection are referred to the CPA Firm, or such
longer period of time as the CPA Firm determines is necessary. The CPA
Firm's determination shall be conclusive and binding upon the parties. The
fees and disbursements of the CPA Firm shall be allocated between Buyer and
Seller in the same proportion that the aggregate amount of any disputed
items submitted to the CPA Firm that are unsuccessfully disputed by each
(as finally determined by the CPA Firm) bears to the total amount of any
disputed items so submitted. Buyer and Seller shall make readily available
to the CPA Firm all relevant books and records and any work papers relating
to the Preliminary Working Capital and Inventory Statement and all other
items reasonably requested by the CPA Firm. The "Final Working Capital and
Inventory Statement" shall be (i) the "Preliminary Working Capital and
Inventory Statement" in the event that (x) the Seller's Objection is not
delivered to Buyer in the period set forth in Section 2.04(b) hereof, or
(y) Seller and Buyer so agree; or (ii) the Preliminary Working Capital and
Inventory Statement, as adjusted by either (x) the agreement of Seller and
Buyer or (y) the CPA Firm. The inventory amount reflected on the Final
Working Capital and Inventory Statement shall be referred to herein as the
"Final Inventory".
(d) If the Final Working Capital Amounts exceeds the Estimated
Working Capital Amount, then Buyer shall pay to Seller an amount equal to
such excess, together with simple interest thereon from the Closing Date to
the date of payment at the rate of ten percent (10%) per annum, calculated
over a
-10-
<PAGE>
365-day year. If the Estimated Working Capital Amount exceeds the Final
Working Capital Amount, then Seller shall pay to Buyer an amount equal to
such excess, together with simple interest thereon from the Closing Date to
the date of payment at the rate of ten percent (10%) per annum, calculated
over a 365-day year.
(e) If the Estimated Inventory is below Five Hundred Thousand Dollars
($500,000) and the Final Inventory exceeds the Estimated Inventory, then
Buyer shall pay to Seller an amount equal to the lesser of (i) such excess,
or (ii) the difference between Five Hundred Thousand Dollars ($500,000) and
the Estimated Inventory, together with simple interest thereon from the
Closing Date to the date of payment at the rate of ten percent (10%) per
annum, calculated over a 365-day year. If the Estimated Inventory is below
Five Hundred Thousand Dollars ($500,000) and the Final Inventory is less
than the Estimated Inventory, then Seller shall pay to Buyer an amount
equal to the difference between the Estimated Inventory and the Final
Inventory, together with simple interest thereon from the Closing Date to
the date of payment at the rate of ten percent (10%) per annum, calculated
over a 365-day year. If the Estimated Inventory is above Five Hundred
Thousand Dollars ($500,000) and the Final Inventory is less than Five
Hundred Thousand Dollars ($500,000), then Seller shall pay to Buyer an
amount equal to the difference between the Final Inventory and Five Hundred
Thousand Dollars ($500,000), together with simple interest thereon from the
Closing Date to the date of payment at the rate of ten percent (10%) per
annum, calculated over a 365-day year. If Estimated Inventory and Final
Inventory are both above Five Hundred Thousand Dollars ($500,000) but equal
to or less than One Million Five Hundred Thousand Dollars ($1,500,000), no
adjustments to the Purchase Price or payments pursuant to this Section
2.04(e) shall be required. If Final Inventory is above One Million Five
Hundred Thousand Dollars ($1,500,000), the excess above such amount shall
be paid by Buyer to Seller simultaneously with any settlement of the
working capital adjustment set forth in Section 2.04(d), together with
simple interest thereon from the Closing Date to the date of payment at the
rate of ten percent (10%) per annum, calculated over a 365-day year.
(f) Any amount payable pursuant to Section 2.04(d) and (e) hereof
shall be paid by wire transfer of immediately available funds to a bank
account designated by Buyer or Seller, as the case may be, or, in the case
of a payment to Buyer, at the election of Buyer, from the Indemnity Escrow
Fund, as soon as practicable following the Closing Date and in no event
more than three business days following the delivery of the Final Working
Capital and Inventory Statement.
-11-
<PAGE>
2.05 Assumptions of Liabilities; Employment; Warn Act.
------------------------------------------------
(a) At the Closing Date, Buyer shall assume the Assumed Liabilities
in accordance with the Assumption Agreement attached hereto as Exhibit B,
and all liabilities and obligations for the operations of the CATV Business
after the Closing Date.
(b) At the time of the Closing, Buyer shall become the employer of
each person who is then an active Employee, on substantially the same terms
as such Employees were employed by Seller immediately prior to the Closing,
and Buyer shall continue such employment on such terms or more favorable
terms for at least six (6) months after the Closing Date. The foregoing
requirements will not prohibit Buyer from terminating any of such employees
for "cause".
(c) Each Employee of the Seller shall cease to participate in each of
the Seller's plans for periods on and after the Closing Date (except as set
forth in the last sentence of this Section 2.05(c)). As of the Closing
Date, active Employees of the Seller (and their eligible dependents) shall
be eligible to participate in each of Buyer's health, retirement, vacation
and other benefit plans with credit given to each such Employee for length
of service with Seller, to the extent permitted under Buyer's plans and
policies, and shall receive from Buyer credit for all vacation time accrued
with Seller prior to the Closing. Any Employee that is disabled on the
date of Closing and receiving disability payments pursuant to a disability
plan sponsored by Seller, shall not become an employee of Buyer pursuant to
Section 2.05(b) and shall continue to receive disability benefits under
Seller's disability plan, to the extent available. Upon termination of
such Employee's disabled status, Buyer shall offer employment to such
person equivalent to such person's former employment with Seller and
pursuant to and consistent with the terms and provisions of this Agreement.
(d) To the extent required by Law, Buyer will timely give all notices
required to be given under the Worker Adjustment and Retraining
Notification Act (1988) ("WARN") relating to any plant closing or mass
layoff (within the meaning of WARN) caused by Buyer on or after the Closing
Date with respect to individuals employed by Seller prior to the Closing
Date. For this purpose, Buyer shall be deemed to have caused a mass layoff
if the mass layoff would not have occurred but for Buyer's failure to
employ certain Employees of the Seller in accordance with the terms of this
Agreement. To the extent required by Law, Buyer shall also perform all
obligations required of it pursuant to the Consolidated Omnibus Budget
Reconciliation Act ("COBRA") by virtue of its hiring of all of Seller's
Employees.
-12-
<PAGE>
2.06 Earnest Money Deposit. Concurrently herewith, Buyer has delivered to
---------------------
Chemical Bank as escrow agent ("Earnest Money Escrow Agent"), by federal funds
wire transfer of immediately available funds in Chicago, Illinois, an amount
equal to ten percent (10%) of the Purchase Price, for the Earnest Money Escrow
("Earnest Money Escrow") to be held pursuant to an escrow agreement (the
"Earnest Money Escrow Agreement") substantially in the form of Exhibit C hereto.
Such amount shall be deposited and invested in and under the Earnest Money
Escrow as provided in the Earnest Money Escrow Agreement. The funds shall be
distributed as provided in the Earnest Money Escrow Agreement and Section 2.02
or Article 12 hereof.
2.07 Indemnity Escrow Fund. At the Closing, Buyer will deliver to
---------------------
Chemical Bank as escrow agent (the "Indemnity Escrow Agent"), by federal funds
wire transfer of immediately available funds in Chicago, Illinois an amount
equal to Eight Million Four Hundred Twenty Five Thousand Dollars ($8,425,000)
for a one year indemnity escrow ("Indemnity Escrow Fund"), to be held pursuant
to an escrow agreement (the "Indemnity Escrow Agreement") substantially in the
form of Exhibit D hereto. Such amount shall be deposited and invested in and
under the Indemnity Escrow Fund as provided in the Indemnity Escrow Agreement.
The funds shall be distributed as provided in the Indemnity Escrow Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
To induce Buyer to enter into this Agreement, Seller represents and
warrants as follows:
3.01 Organization and Authority of Seller. Seller is an Illinois Limited
------------------------------------
Partnership duly formed by a certain Limited Partnership Agreement dated as of
January 1, 1979, as amended (the "Limited Partnership Agreement").
3.02 Legal Capacity; Approvals and Consents.
--------------------------------------
(a) Authority and Binding Effect. Subject to Section 9.02 hereof and
----------------------------
the consents and approvals set forth on Schedule 3.02, Seller has all
requisite power and authority under the Limited Partnership Agreement and
the Illinois Limited Partnership Act to execute and deliver this Agreement
and to perform its obligations hereunder. This Agreement has been duly
executed and delivered by Seller and is the valid and binding obligation of
Seller enforceable in accordance with its terms, except as such
enforceability may be affected by the laws of bankruptcy, insolvency,
reorganization and creditors rights generally and by the availability of
equitable remedies.
(b) No Breach. Subject only to obtaining the consents and approvals
---------
set forth on Schedule 3.02, the execution,
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delivery and performance of this Agreement does not, and will not,
contravene the Limited Partnership Agreement of the Seller, and does not,
and will not: (i) conflict with or result in a breach or violation by the
Seller of, or (ii) constitute a default by the Seller under, or (iii)
result in the termination, suspension, modification or impairment of any
CATV Instrument, Law, Judgment, or Contract to which the Seller is a party
or by which the Seller, the CATV Business or any of the Acquired Assets is
subject or bound or may be affected; or (iv) create or impose any
Encumbrance upon any of the Acquired Assets in each case, which conflict,
breach, violation, default or termination, suspension, modification or
impairment would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(c) Required Consents. Except for the parties listed in Schedule
-----------------
3.02, there are no parties whose approval or consent, or with whom the
filing of any certificate, notice, application, report or other document,
is legally or contractually required or otherwise is necessary in
connection with the execution, delivery or performance of this Agreement by
Seller, except where failure to obtain such consent or approval or failure
to make such filing would not reasonably be expected to have a Material
Adverse Effect.
3.03 Financial Statements. Seller has delivered to Buyer true and
--------------------
complete copies of the balance sheet of Seller as at December 31, 1993 (the
"Balance Sheet"), December 31, 1992, and December 31, 1991, reported on by KPMG
Peat Marwick, certified public accountants, and related statements of income and
changes in financial position of Seller for the years ending December 31, 1993
(the "Income Statement"), 1992 and 1991 (the "Audited Financial Statements").
The audit letter accompanying such Balance Sheet and Income Statement for the
year 1993 (the "1993 Financial Statements") and the balance sheet and income
statement for the year 1992 indicate that the same were prepared in accordance
with generally accepted accounting principles consistently applied and present
fairly in all material respects the financial position of the Seller as of those
dates and the results of its operations for the periods then ended. Seller has
also provided to Buyer a balance sheet (the "Interim Balance Sheet") and income
statement as of September 30, 1994, which interim financial statements were
prepared in accordance with the practices customarily followed by Seller in
preparing its interim statements and, subject to normal year-end adjustments and
the procedures followed in interim statements, present fairly in all material
respects the financial position and results of operation of Seller as at the
date and for the period indicated and are generally consistent with the above-
described Audited Financial Statements. If prepared and ready for distribution
prior to Closing, Seller shall deliver to Buyer a copy of its regularly prepared
balance sheet and income statement, and related statement of changes in
financial position
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<PAGE>
for the year ended December 31, 1994, reported on by KPMG Peat Marwick,
certified public accountants.
3.04 Changes in Operation. Since the date of the Interim Balance Sheet,
--------------------
there has not been any event or circumstance which, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect other than those events or circumstances which may affect the cable
television industry generally.
3.05 Tax Returns. Seller has duly filed in proper form all material
-----------
federal, state, local and foreign income, information, franchise, sales, use,
property, excise, payrolls and other tax returns, required to be filed on or
prior to the date hereof. All taxes, fees and assessments of whatsoever nature
due or payable by Seller with respect to the CATV Business on or before the date
of this Agreement pursuant to said returns or reports have been paid. Seller
has received no notice or assessment to the effect that there is any unpaid
interest, penalty or addition to tax due or claimed to be due from the Seller;
Seller has received no notice of the assertion or threatened assertion of any
Encumbrances on account of any unpaid taxes; and no audits of the returns or
reports of the Seller by any Governmental Authority are pending or, so far as
Seller knows, threatened.
3.06 Acquired Assets.
---------------
(a) Title; Encumbrances. Seller has, or will at Closing, have: (i)
-------------------
good and marketable title to all of the Equipment, Real Property (other
than Real Property covered by title insurance policies as herein provided)
owned in fee and accounts receivable, and (ii) the right and authority
(subject to the required consents specified herein) to transfer to and vest
in Buyer all of Seller's right, title and interest in and to the other
property or rights included in Acquired Assets, in each instance free and
clear of any Encumbrances except Permitted Encumbrances.
(b) Real Property. Schedule 3.06(b)(i) sets forth a list of all Real
-------------
Property owned, leased, occupied or used by Seller in connection with the
operation of the CATV Business as presently conducted, which list is
complete and accurate in all material respects. Except as set forth in
Schedule 3.06(b)(ii), Seller believes that it has title in fee simple to
all such Real Property except for leases, easements and other interests not
constituting ownership in fee (provided that no warranty is made by Seller
as to matters covered by title insurance policies as hereinafter provided).
At or before the Closing, Seller will, at Seller's expense, obtain a
current commitment for insurance with respect to the title to all the Real
Property owned by Seller in fee simple as listed on Schedule 3.06(b)(i) in
an aggregate amount equal to
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<PAGE>
appraisals to be obtained by Seller on the Real Property prior to Closing
which appraisals will be reasonably acceptable to Buyer, and will deliver
to Buyer such commitments in accordance with paragraph (a) hereof and
otherwise in form and substance reasonably satisfactory to Buyer. Such
title insurance commitments shall reflect no liens, encumbrances or
restrictions affecting title to the Real Property, except those permitted
by paragraph (a) of this Section.
(c) Acquired Assets. The Acquired Assets are adequate to conduct the
---------------
CATV Business as it is presently being conducted, and the Acquired Assets
conveyed to Buyer on the Closing Date will be adequate to enable Buyer to
continue to conduct the CATV Business as it is presently being conducted.
3.07 The CATV Business. With respect to the CATV Business, Seller makes
-----------------
the following warranties and representations:
(a) As of November 30, 1994, the CATV Business included not less than
Eighty-Four Thousand (84,000) Basic Subscribers.
(b) Since December 31, 1993, the CATV Business has been operated in
the ordinary course in all material respects, and no assets previously used
therein have been disposed of except in the ordinary course of business.
(c) Schedule 3.07(c) contains a complete list of all material
Contracts in effect on September 30, 1994. As used in this Section
3.07(c), the term "material Contracts" means any Contract requiring in any
calendar year payments aggregating Fifty Thousand and No/100 Dollars
($50,000) or more and that cannot be terminated on thirty (30) days notice
without liability.
(d) Seller holds all of the franchises, permits and licenses
reasonably necessary to enable it to operate the CATV Business as presently
conducted. Seller is in compliance with the terms and conditions of all
such CATV Instruments except where such noncompliance would not reasonably
be expected to have a Material Adverse Effect on the CATV Business as
presently conducted. Except as disclosed in Schedule 3.07(d), Seller has
not received any notice of any claimed or purported material default in any
CATV Instruments and there are no proceedings pending, or, to the knowledge
of Seller, threatened, to cancel, modify or change in a material way any
such CATV Instruments.
(e) Except as set forth in Schedule 3.07(e), the CATV Business is
conducted by Seller in compliance with all applicable laws, regulations and
other requirements of Governmental Authorities, CATV Instruments and
Contracts except where the violation of any of the foregoing would not
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<PAGE>
reasonably be expected to have a Material Adverse Effect on the CATV
Business as presently conducted, including, but not limited to, compliance
in all material respects with the Communications Act of 1934, as amended,
and the rules and regulations promulgated thereunder (collectively, the
"Communications Act"), or the Cable Television Consumer Protection and
Competition Act of 1992, as amended, and the rules and regulations
promulgated thereunder (collectively, the "Cable Act"), including the must-
carry and retransmission consent provisions, and have submitted to the FCC
all filings, including, but not limited to, cable television registration
statements, annual reports and aeronautical frequency usage notices, that
are required under the rules and regulations of the FCC; the operation of
the CATV Business has been and is in compliance with the rules and
regulations of the FCC; Seller has been since 1986 with respect to the CATV
Business certified as in compliance with the FCC's equal employment
opportunity rules; the CATV Business is in compliance with all signal
leakage criteria prescribed by the FCC; and for each relevant semi-annual
reporting period, the CATV Business has timely filed with the Unites States
Copyright Office (the "Copyright Office") all required Statements of
Account in true and correct form and has paid when due all required
copyright royalty fee payments in correct amount, relating to the carriage
of television broadcast signals and is otherwise in compliance with all
applicable rules and regulations of the Copyright Office except in any case
for any non-compliance, non-filing or non-payment that would not reasonably
be expected to have a Material Adverse Effect. Seller has made available
to Buyer copies of all reports and filings for the past year, made or filed
pursuant to FCC and Copyright Office rules and regulations and shall make
available to Buyer all other past reports and filings made or filed
pursuant to FCC and Copyright Office rules and regulations. Seller has
made available to Buyer complete and correct copies of all FCC Forms 393
and will deliver as soon as available all FCC Forms 1200, 1205, 1210 and
1215 that are prepared with respect to the CATV Business, including,
without limitation, copies of any complaints filed with the FCC with
respect to any rates charged to subscribers and any other documentation
supporting an exemption from the rate regulation provisions of the Cable
Act claimed by Seller with respect to the CATV Business. A request for
renewal has been timely filed under Section 626(a) of the Cable Act with
the proper Governmental Authority with respect to each franchise expiring
within thirty-six (36) months after the date of this Agreement.
3.08 Certain Employment Matters.
--------------------------
(a) Employees. Schedule 3.08(a) contains the identity and total
---------
compensation of the employees of the CATV Business as of September 30,
1994.
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<PAGE>
(b) Labor Contracts and Actions.
---------------------------
(i) Seller is not a party to any Contract with any labor
organization, nor has the Seller agreed to recognize any union or
other collective bargaining unit, nor has any union or other
collective bargaining unit been certified as representing any of the
employees of the Seller with respect to the operation of the CATV
Business, and
(ii) as of the date of this Agreement, Seller is not
experiencing any strikes, work stoppages, significant grievance
proceedings or claims of unfair labor practices filed with respect to
the operation of the CATV Business.
(c) Benefit Plans. Except as set forth on Schedule 3.08(c), Seller
-------------
does not maintain, operate or sponsor, and is not required to make any
contribution to, any pension, profit-sharing, thrift or other retirement
plan, medical, hospitalization, dental, life, disability or other insurance
or benefit plan, deferred compensation, bonus, fringe benefit, savings or
other incentive plan, severance plan or other similar plan, agreement,
arrangement or understanding (collectively, "Benefit Plans"), whether or
not such plan is or is intended to be subject to the provisions of ERISA or
qualified under Section 401(a) of the Code, including, without limitation,
an "employee benefit plan" within the meaning of Section 3(3) of ERISA, and
"defined benefit plan" within the meaning of Section 3(35) of ERISA or any
"multi-employer plan" within the meaning of Section 3(37) of ERISA, with
respect to the operation of the CATV Business.
3.09 Contracts. Except as set forth in Schedule 3.09, there are no
---------
defaults by Seller under the Contracts (nor has Seller received written notice
of a threatened default or notice of default) which could reasonably be expected
to have a Material Adverse Effect on the CATV Business of Seller as presently
conducted, and Seller knows of no default by any other party to a Contract which
would reasonably be expected to have a Material Adverse Effect.
3.10 Legal and Governmental Proceedings and Judgments. Except as may
------------------------------------------------
affect the cable television industry generally, or as set forth on Schedule
3.10, there is no legal action or proceeding, pending or, so far as is known to
Seller, any investigation pending or threatened against the Seller, the CATV
Business or the Acquired Assets, nor is there any Judgment outstanding against
the Seller or to or by which the Seller, any of the Acquired Assets or the CATV
Business is subject or bound, which (i) results in any modification,
termination, suspension, impairment or reformation of any CATV Instrument or
Contract or any right or privilege thereunder in a manner that could reasonably
be expected to have a
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<PAGE>
Material Adverse Effect or (ii) materially adversely affects the ability of
Seller to consummate any of the transactions contemplated hereby.
3.11 Finders and Brokers. Seller has employed Merrill Lynch & Co. as its
-------------------
broker in the sale provided herein and will pay and discharge the claim thereof
for commission or expense reimbursement in connection therewith. Seller has not
entered into any other contract, arrangement or understanding with any Person or
firm, nor is it aware of any claim or basis for any claim, which may result in
the obligation of Buyer to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
To induce Seller to enter into this Agreement, Buyer represents, warrants,
covenants and agrees to and with Seller as follows:
4.01 Organization and Authority of Buyer. Buyer is a corporation validly
-----------------------------------
organized and existing and in good standing under the laws of the State of
Delaware, with all requisite power and authority to conduct its business and
operations as presently conducted.
4.02 Legal Capacity; Approvals and Consents.
--------------------------------------
(a) Authority; Binding Effect. Buyer has all requisite corporate
-------------------------
power and authority to execute, deliver and perform this Agreement. Buyer
has duly taken all actions necessary to authorize the execution, delivery
and performance of this Agreement. This Agreement has been duly executed
and delivered by Buyer and is the valid and binding obligation of Buyer
enforceable in accordance with its terms, except as such enforceability may
be affected by laws of bankruptcy, insolvency, reorganization and creditors
rights generally and by the availability of equitable remedies.
(b) No Breach or Violation. The execution, delivery and performance
----------------------
of this Agreement does not, and will not, contravene the Certificate of
Incorporation or By-laws of Buyer, and does not and will not: (i) conflict
with or result in a breach or violation by Buyer of, or (ii) constitute a
default by Buyer under, any Law, Judgment, contract, arrangement or
understanding to which Buyer is a party or by which Buyer is subject or
bound or may be affected.
4.03 Legal and Governmental Proceedings and Judgments. There is no legal
------------------------------------------------
action, proceeding, investigation or controversy pending or, to the knowledge of
Buyer, threatened against or
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<PAGE>
otherwise involving Buyer, nor are there any Judgments outstanding against Buyer
or to or by which Buyer is, or may be, subject or bound which adversely affect
the ability of Buyer to consummate any of the transactions contemplated hereby.
4.04 Finders and Brokers. Buyer has not entered into any contract,
-------------------
arrangement or understanding with any Person, nor is aware of any claim or basis
for any claim, which will result in the obligation of Seller to pay any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
4.05 Buyer Consents. Other than approval and filings as required under
--------------
the HSR Act, under the CATV Licenses or as set forth on Schedule 3.02 hereto, no
consent, order, authorization, waiver, approval or any other action by, or
registration, declaration or filing with, any third party or Governmental
Authority is required for Buyer to execute and deliver this Agreement and
consummate the transactions contemplated hereby.
4.06 Acquisition of Rights. Buyer is not aware of, and has no reason to
---------------------
believe there is, any reason relating to Buyer that any Governmental Authority
or other party whose consent is required or contemplated hereunder, would refuse
to consent to the transfer of CATV Instruments or any rights to Buyer hereunder
or would condition granting of any such consent on the performance by Seller or
Buyer of any material obligation not expressly set forth herein.
4.07 Buyer's Financial Capability. Buyer has the financial capability,
----------------------------
including all financing, necessary to consummate the transactions contemplated
in this Agreement and pay the Purchase Price.
5. COVENANTS PENDING CLOSING.
-------------------------
5.01 Business of Seller. From the date hereof to the Closing Date, and
------------------
except as otherwise consented to or approved by Buyer in writing, Seller
covenants and agrees as follows:
(a) Business in Ordinary Course. Except as otherwise expressly
---------------------------
provided herein, Seller shall conduct the CATV Business in the ordinary
course, consistent with past practices and, in that regard, shall make
capital expenditures between the date hereof and the Closing Date which
average not less than Three Hundred Thousand and No/100 Dollars ($300,000)
for each full calendar month between such dates (but the actual capital
expenditures in any single calendar month may be more or less than such
amount), and shall continue its existing marketing practices and not engage
in special marketing practices or promotions designed to obtain short term
subscribers, and will not engage in any material
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<PAGE>
transaction, including, without limitation, entering into or amending in
any material respect any CATV Instrument or Contract, incurring any
liability or obligation, or making any material advance or expenditure,
other than in the ordinary course of business, nor change in any material
respect its business policies or practices; and, without first obtaining
Buyer's consent, which will not be unreasonably withheld or delayed, will
not: (i) grant any powers of attorney; or (ii) sell, assign, transfer or
otherwise dispose of Acquired Assets (except to Buyer hereunder or in the
ordinary course of business), or create or suffer the creation of any
Encumbrances (other than Permitted Encumbrances) upon, all or any part of
the Acquired Assets or any proceeds thereof other than in the ordinary
course of business or except as contemplated hereby. Seller shall use its
reasonable commercial efforts to preserve the CATV Business intact, to
retain the services of its present employees and agents, and to preserve
its business relationships with, and the goodwill of, its customers,
suppliers and others. Seller shall pay before delinquent all taxes and
other charges upon or against Seller or any of its properties or income,
file when due all tax returns and other reports required by Governmental
Authorities and pay when due all liabilities except those which may be
contested in good faith and by appropriate proceedings.
(b) Books and Records. Seller shall maintain its books, accounts and
-----------------
records in the usual, regular and ordinary manner.
(c) Maintenance of Acquired Assets and Insurance. Seller shall
--------------------------------------------
maintain all of the Acquired Assets in customary repair, order and
condition, reasonable wear and tear excepted and shall maintain the
insurance policies currently in effect covering fire and other casualties.
Seller shall use reasonable commercial efforts to maintain in effect all
material CATV Instruments and Contracts used or held for use which are
necessary for the operation of the CATV Business as presently conducted.
(d) Litigation During Interim Period. Seller will advise Buyer in
--------------------------------
writing promptly of the assertion, commencement or threat of any claim,
litigation, labor dispute, proceeding or investigation in which the Seller
is a party or the Acquired Assets or CATV Business may be affected and
which could reasonably be expected to have a Material Adverse Effect or
which relates to the transactions contemplated hereby.
(e) Material Contracts. Seller shall deliver to Buyer copies of all
------------------
material Contracts that are entered into prior to the Closing.
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5.02 Access to Information.
---------------------
(a) Access by Buyer. Between the date of this Agreement and the
---------------
Closing, Buyer shall have reasonable access during normal business hours to
all of the properties, books, reports, records, CATV Instruments and
Contracts of Seller, and Seller shall furnish Buyer with all information it
may reasonably request. All non-public information obtained by Buyer
pursuant to this Agreement and in connection with the negotiation hereof
shall, except as may be required for the performance of this Agreement or
by Law, be kept confidential in accordance with the terms of the
Confidentiality Agreement dated October 3, 1994.
(b) Access by Seller. Subsequent to the Closing, Buyer shall
----------------
preserve and give to Seller reasonable access during normal business hours
to all of the books, reports, records, CATV Instruments and Contracts from
files and records transferred to Buyer at the time of Closing, for the
purposes of the preparation of tax returns and the defense of any claims
asserted or which may be asserted with respect to which the Seller is the
Indemnitor as contemplated by the Agreement.
6. DELIVERIES AT CLOSING.
---------------------
6.01 Deliveries by Seller. At the Closing, Seller will deliver or cause
--------------------
to be delivered to Buyer:
(a) Such special warranty or trustee's deeds, certificates or title
policies, bills of sale, endorsements, and other good and sufficient
instruments of conveyance, transfer and assignment as are necessary to vest
in Buyer the right, title and interest of Seller in accordance herewith in
and to the Acquired Assets in a form reasonably satisfactory to Buyer,
which shall include, without limitation, a form of Bill of Sale and General
Assignment in the form of Exhibit E hereto.
(b) A certificate signed by a principal officer of the Seller, dated
as of the Closing, representing and certifying to Buyer as to the matters
set forth in Sections 7.03 and 7.04.
(c) The Assumption Agreement in the form of Exhibit B hereto.
(d) The Indemnity Escrow Agreement in the form of Exhibit D hereto.
(e) An opinion of Seller's Counsel, substantially in the form of
Exhibit F hereto.
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<PAGE>
(f) An opinion of Seller's FCC Counsel, substantially in the form of
Exhibit G hereto.
(g) Evidence that the waiting period under the HSR Act, if
applicable, has expired.
(h) Copies of the consents and approvals listed on Schedule 3.02 as
required as conditions to the transactions contemplated hereunder.
6.02 Deliveries by Buyer. At the Closing, Buyer will deliver or cause to
-------------------
be delivered to Seller:
(a) The Purchase Price as provided in Section 2.02.
(b) The Assumption Agreement in the form of Exhibit B hereto.
(c) The Indemnity Escrow Agreement in the form of Exhibit D hereto.
(d) A certificate signed by a principal officer of Buyer dated as of
the Closing, representing and certifying to Seller as to matters set forth
in Sections 8.03 and 8.04.
(e) An opinion of Buyer's Counsel, substantially in the form of
Exhibit H hereto.
(f) A copy of the resolutions adopted by the directors of Buyer,
certified as being correct, complete, and then in full force and effect,
authorizing the execution and delivery of this Agreement on behalf of
Buyer, and the consummation of the transactions contemplated by this
Agreement.
(g) Evidence in a form and substance reasonably satisfactory to
Seller that the consents and approvals referred to in Section 4.05 have
been obtained.
(h) Evidence that the waiting period under the HSR Act, if
applicable, has expired.
7. CONDITIONS TO THE OBLIGATIONS OF BUYER.
---------------------------------------
The obligations of Buyer to complete the transactions provided for herein
are subject to the fulfillment, of all of the following conditions any of which
may be waived in writing by Buyer:
7.01 Receipt of Consents. The conditions specified in Section 9.02 shall
-------------------
have been satisfied and such of the approvals and consents described in Schedule
3.02 that are specifically noted therein as being required as conditions to
closing, shall have been obtained. Notwithstanding the foregoing, to the extent
that the
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<PAGE>
approvals and consents of Governmental Authorities have been obtained for
franchises which represent at least ninety percent (90%) of the Basic
Subscribers, this closing condition shall have been fulfilled; provided,
however, that upon completion of the Closing, the provisions of Section 9.07
hereof with regard to Retained Franchises shall apply.
7.02 Seller's Authority. All actions under the documents governing the
------------------
Seller necessary to authorize (i) the execution and delivery of this Agreement
by Seller and the performance by Seller of its obligations under this Agreement
and (ii) the consummation of the transactions contemplated hereby, shall have
been duly and validly taken by Seller and shall be in full force and effect on
the Closing Date.
7.03 Performance by Seller. Seller shall have performed in all material
---------------------
respects its agreements and covenants hereunder (including, without limitation,
its covenants in Articles 5 and 6) to the extent such are required to be
performed at or prior to the Closing and are material to the CATV Business as a
whole.
7.04 Absence of Breach of Warranties and Representations. The
---------------------------------------------------
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as if made on and as of such date, except to the extent
that such representations and warranties describe a condition on a specified
time or date or are affected by the conclusion of the transactions permitted or
contemplated hereby or the conduct of the CATV Business in accordance with
Article 5 hereof between the date hereof and the Closing Date.
7.05 Absence of Proceedings. No Judgment shall have been issued, and no
----------------------
action or proceeding shall have been instituted by any Governmental Authority,
to enjoin or prevent the consummation of the transactions contemplated hereby.
8. CONDITIONS TO THE OBLIGATIONS OF SELLER.
---------------------------------------
The obligations of Seller to complete the transactions provided for herein
are subject to the fulfillment of all of the following conditions, any of which
may be waived in writing by Seller.
8.01 Receipt of Consents. The conditions specified in Section 9.02 shall
-------------------
have been satisfied, all of the approvals and consents described in Schedule
3.02 required as conditions to the Closing shall have been obtained and shall be
in full force and effect and the approvals and consents of Governmental
Authorities shall have been obtained for franchises which represent at least
ninety percent (90%) of the Basic Subscribers.
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<PAGE>
8.02 Corporate Action. All corporate and other actions necessary to
----------------
authorize (i) the execution, delivery and performance by Buyer of this
Agreement, and (ii) the consummation of the transactions contemplated hereby,
shall have been duly and validly taken by Buyer and shall be in full force and
effect on the Closing Date.
8.03 Performance by Buyer. Buyer shall have performed in all material
--------------------
respects all covenants and agreements to be performed by it hereunder to the
extent such are required to be performed at or prior to the Closing.
8.04 Truth of Representations and Warranties. All representations and
---------------------------------------
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same effect as if then
made.
8.05 Absence of Proceedings. No Judgment shall have been issued, and no
----------------------
action or proceeding shall have been instituted by any Governmental Authority,
to enjoin or prevent the consummation of the transactions contemplated hereby.
9. COVENANTS.
---------
9.01 Compliance with Conditions. Each of the parties hereto covenants and
--------------------------
agrees with the other to exercise reasonable commercial efforts to perform,
comply with and otherwise satisfy each and every one of the conditions to be
satisfied by such party hereunder and each party shall use reasonable commercial
efforts to notify promptly the other if it shall learn that any conditions to
performance of either party will not be fulfilled.
9.02 Compliance with HSR Act and Rules.
---------------------------------
(a) The performance of the obligations of all parties under this
Agreement is subject to the condition that, if the HSR Act and Rules are
applicable to the transactions contemplated hereby, the waiting period
specified therein, as the same may be extended, shall have expired without
action taken to prevent the consummation of the transactions contemplated
hereby.
(b) Each of the parties hereto will use its reasonable commercial
efforts to comply promptly with any applicable requirements under the HSR
Act and rules relating to filing and furnishing of information to the FTC
and the Antitrust Division of the DOJ, the parties' actions to include,
without limitation, (i) filing or causing to be filed the HSR Report
required to be filed by them, or by any other Person that is part of the
same "person" (as defined in the HSR Act and Rules) or any of them, and
taking all other action required by the HSR Act or Rules; (ii) coordinating
the filing of such HSR
-25-
<PAGE>
Reports (and exchanging drafts thereof) so as to present both HSR Reports
to the FTC and the DOJ at the time selected by the mutual agreement of
Seller and Buyer, and to avoid substantial errors or inconsistencies
between the two in the description of the transaction; and (iii) using
their reasonable commercial efforts to comply with any additional request
for documents or information made by the FTC or the DOJ or by a court and
assisting the other parties to so comply.
(c) Notwithstanding anything herein to the contrary, in the event
that the consummation of the transactions contemplated hereby is challenged
by the FTC or the DOJ or any agency or instrumentality of the federal
government by an action to stay or enjoin such consummation, then either
Buyer or Seller shall have the right to terminate this Agreement unless the
other of such parties, at its sole cost and expense, elects to contest such
action, in which case the noncontesting party shall cooperate with the
contesting party and assist the contesting party, as reasonably requested,
to contest such action until such time as either party terminates this
Agreement under this Section or Article 12. In the event that such a stay
or injunction is granted (preliminary or otherwise), then either Buyer or
Seller may terminate this Agreement by prompt written notice to the other.
If any other form of equitable relief affecting any party is granted to the
FTC, the DOJ or other such agency or instrumentality, then such party may
terminate this Agreement by prompt written notice to the other party. To
effectuate the intent of the foregoing provisions of this Section 9.02, the
parties agree to exchange requested or required information in making the
filings and in complying as above provided, and the parties agree to take
all necessary steps to preserve the confidentiality of the information set
forth in any filings including, without limitation, limiting disclosure of
exchanged information to counsel for the nondisclosing party.
9.03 Applications for Assignment of Contracts or CATV Instruments. In
------------------------------------------------------------
order to secure requisite consents or approvals of the transfer of control to
Buyer of any Contracts or CATV Instruments, Seller shall proceed as promptly as
practicable and in good faith and using reasonable commercial efforts, to
prepare, file and prosecute such application or applications as may be necessary
to obtain each such consent or approval. Buyer shall use reasonable commercial
efforts to promptly assist Seller and shall take such prompt and affirmative
actions as may be reasonably necessary in obtaining such approvals and shall
cooperate with Seller in the preparation, filing and prosecution of such
applications as may be reasonably necessary, and agrees to furnish all
information in its possession required by the approving entity, and to be
represented at such meetings or hearings as may be scheduled to consider such
applications. Without limiting in any respect the foregoing, each party agrees
to file mutually acceptable applications to all
-26-
<PAGE>
appropriate Governmental Authorities for all consents or approvals required to
consummate the transactions hereunder within forty-five (45) days after the date
of this Agreement. Buyer further agrees that it will not, without the prior
written consent of Seller, take any action to amend or that would amend or
modify any application filed as provided in this Section 9.03 after the date
that such application is accepted as complete. In the event that Buyer amends
or modifies any such application for transfer of control of any Contracts or
CATV Instruments without Seller's prior written consent, and the approval period
for such transfer is extended by any such Governmental Authority or other third
party, then Seller may (if it so elects) (i) extend the Outside Date in Section
12.01 to a date that will give effect to any resulting delay; or (ii) terminate
this Agreement under Section 12.02 hereof.
9.04 Records, Taxes and Related Matters. Seller and Buyer shall each make
----------------------------------
their respective books and records (including work papers in the possession of
their respective accountants) available for inspection by the other party, or by
its duly authorized representatives, for reasonable business purposes at all
reasonable times during normal business hours, for a seven (7) year period after
the Closing Date with respect to all transactions of the CATV Business occurring
prior to or relating to the Closing, and the historical financial condition,
assets, liabilities, results of operation and cash flows of the CATV Business
for any period prior to the Closing. In the case of records owned by Seller,
such records shall be made available at Seller's executive office, and in the
case of records owned by Buyer, such records shall be made available at the
office at which such records are maintained. As used in this Section 9.04, the
right of inspection includes the right to make copies for reasonable business
purposes. In all cases where Buyer, pursuant to the terms hereof, has assumed
Seller's liability for the payment of taxes (including, without limitation,
deposits), Buyer shall (unless and to the extent otherwise requested by Seller)
prepare and file all returns, reports, information statements, forms or other
documents required to be filed with respect to such taxes, all in a timely and
proper fashion and as may be necessary or appropriate to assure that the Seller
shall be in full and prompt compliance with law, and Buyer shall pay or cause to
be paid all such taxes.
9.05 Location of Certain Records. Seller shall advise Buyer as to the
---------------------------
location of (x) all available blueprints, schematics, working drawings, plans,
projections, and engineering records of the CATV Business, (y) all customer
lists, files, and books and records used by Seller in connection with the
operations of the CATV Business and the originals of all CATV Instruments and
Contracts, and Seller shall take all action as shall be necessary to assure that
the same (except for books and records relating to Seller's organization and
partnership and corporate partner records) will be under the control of Buyer
upon the consummation of the Closing and the transfer of the CATV Business.
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<PAGE>
9.06 Non-Assignment. Notwithstanding any provision to the contrary
--------------
contained herein (but not in limitation of Seller's obligations under Section
9.03) or the conditions set forth in Section 7.01), Seller shall not be
obligated to assign to Buyer any Contract or CATV Instrument which provides that
it may not be assigned without the consent of the other party thereto and for
which such consent is not obtained, but in any such event, Seller shall, to the
extent reasonably necessary and at Buyer's cost, cooperate with Buyer in any
commercially reasonable arrangement designed to provide the benefits thereof to
Buyer. Without limiting the generality of any provision elsewhere herein
contained, the non-assignment of any of the foregoing shall not, to the extent
that it is otherwise an Assumed Liability hereunder, alter its status as such or
relieve Buyer of its obligations or liabilities with respect thereto.
9.07 Retained Franchises. After satisfaction or waiver of the conditions
-------------------
precedent to Buyer's obligation to close as set forth in Section 7.01, those
CATV Licenses (and all assets related thereto) with respect to which consent to
transfer has not been obtained by the Closing Date (the "Retained Franchises")
shall be retained by the Seller and subsequently transferred to the Buyer in
accordance with the terms hereof.
(a) Out of the Purchase Price, there shall be deposited into an
escrow an amount for each Retained Franchise determined as follows: the
product of $1,959 and the number of Basic Subscribers in the Retained
Franchises at Closing (the "Retained Franchise Price"). A form of the
escrow agreement with respect to the Retained Franchises is attached as
Exhibit I hereto.
(b) Concurrent with the Closing hereunder, the Seller and the Buyer
shall enter into a management agreement with respect to each of the
Retained Franchises in the form of the management agreement attached as
Exhibit J hereto.
(c) Seller and Buyer shall continue to cooperate in attempting to
secure approval of the transfer of each Retained Franchise in accordance
with the provisions of Section 9.03 hereof and where a renewal application
is pending at Closing, renewals of the Retained Franchise. When such
approval is obtained, there shall be delivered to Seller from the escrow
the Retained Franchise Price and any income thereon and the Seller shall
deliver to the Buyer a bill of sale for the assets related to such Retained
Franchise and such other transfer documents as the Buyer may reasonable
request.
(d) Upon the earlier of (i) the date three (3) years after Closing or
(ii) the date of expiration of the Retained Franchise, there shall be
delivered to the Seller from escrow the Retained Franchise Price and any
income thereon and the
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<PAGE>
Seller shall either cooperate with the Buyer to transfer the Retained
Franchise to a third party (in which case the Buyer shall receive the
proceeds of such sale) or provide the Buyer with a management agreement or
lease with respect to such Retained Franchise containing such terms as the
Buyer reasonably requests.
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER AGREEMENTS;
------------------------------------------------------------------------
INDEMNIFICATION.
---------------
10.01 Survival of Representations, Warranties Covenants and Other
-----------------------------------------------------------
Agreements. All representations, warranties, covenants and other agreements
- ----------
made by Seller in this Agreement shall survive the Closing for a period of one
year, and shall thereafter terminate.
10.02 Indemnification by Seller.
-------------------------
(a) Indemnity. Subject to Sections 10.01 and 10.05, Seller agrees to
---------
indemnify, defend and hold harmless Buyer, its affiliates and their
respective shareholders, directors, officers, partners, employees, agents,
successors and assigns from and against all losses, damages, liabilities,
deficiencies or obligations, including, without limitation, all claims,
actions, suits, proceedings, demands, judgment, assessments, fines,
interest, penalties, costs and expenses (including, without limitation,
settlement costs and reasonable legal fees, costs and expenses) incident or
relating to, resulting from or arising out of (x) the Excluded Liabilities
and (y) any liabilities of Seller arising after the Closing other than out
of the ownership and operation of the Acquired Assets and the CATV Business
and (z) any and all misrepresentations or breaches of warranty or the non-
performance or breach of any covenants or agreements of Seller contained
herein.
(b) Payment. Any obligations of Seller under the provisions of this
-------
Article shall be paid from the Indemnity Escrow Fund (pursuant to the terms
of the Indemnity Escrow Agreement) to Buyer solely as a retrospective
adjustment to Purchase Price to be effected by Seller to Buyer. The amount
of such adjustment shall be equal to the amount of the loss incurred by
Buyer on account of the matter for which indemnification is required
hereunder less the net amount of any tax benefit realized by Buyer or its
successors, on account of any such loss, determined in accordance with the
following:
(i) The amount of the tax benefit so to be deducted shall be
equal to the actual tax benefit realized by the Buyer or its
successors, on account of such loss and, in the case of tax benefits
to be realized over a period of time, shall be treated as being in
the amount of the
-29-
<PAGE>
present value thereof calculated by using the highest long term
applicable federal rate of interest, as determined under Section
1274(d) of the Code, in effect at the time of the loss.
(ii) If the tax benefit related to such loss will be offset by
a subsequent tax detriment to Buyer or its successors, appropriate
adjustment shall be made to such deduction to reflect the then present
value (determined as provided in Paragraph (i)) of such detriment.
(iii) Any dispute as to the application of this provision
shall be determined by an independent firm of certified public
accountants selected by the parties, which shall make its
determination in accordance with the provisions hereof. If such firm
shall make a determination which substantially accepts the position of
one of the parties hereto, the other party shall bear the expenses and
fees of such firm. In all other cases such fees and expenses shall be
divided equally between Buyer on the one hand and the Seller on the
other. Such firm shall make the determination of how its fees and
expenses shall be borne under this paragraph.
Notwithstanding anything contained herein to the contrary, the indemnification
provided above shall only apply to the extent that, and not until, the aggregate
of all amounts subject to indemnification under this Section 10.02 exceeds Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00).
10.03 Indemnification by Buyer. Buyer agrees to indemnify, defend and
------------------------
hold harmless Seller and its partners, directors, officers, employees, agents,
successors and assigns, and the partners, shareholders, directors, officers,
employees, agents, successors and assigns of its partners, from and against all
losses, damages, liabilities, deficiencies or obligations including, without
limitation, all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including, without
limitation, settlement costs and reasonable legal, accounting, experts' and
other fees, costs and expenses) incident or relating to, resulting from or
arising out of: (i) any and all misrepresentations or breaches of warranty or
the nonperformance or breach of any covenant or agreement of Buyer contained
herein; (ii) the Assumed Liabilities; or (iii) the ownership and operation of
the Acquired Assets and the CATV Business after the Closing.
10.04 Third Party Claims. If any claim ("Asserted Claim") covered by the
------------------
foregoing indemnities is asserted against any indemnified party ("Indemnitee"),
it shall be a condition to the obligations under this Article that the
Indemnitee shall promptly give the indemnifying party ("Indemnitor") notice
thereof in
-30-
<PAGE>
accordance with Section 13.05, provided, however, that failure to give or any
delay in giving any such notice shall not affect the indemnification available
under this Article 10 except to the extent that the Indemnitor is actually
prejudiced thereby. The Indemnitee shall give Indemnitor an opportunity to
control negotiations toward resolution of such claim without the necessity of
litigation, and, if litigation ensues, to defend the same with counsel
reasonably acceptable to Indemnitee, at Indemnitor's expense, and Indemnitee
shall extend reasonable cooperation in connection with such defense. Indemnitee
shall be entitled to participate in, but not to control, the defense of any
Asserted Claim resulting in litigation, at its own cost and expense; provided
however, that if the parties to any suit or proceeding shall include the
Indemnitor as well as the Indemnitee and the Indemnitee shall have been advised
by counsel that one or more legal defenses may be available to it that may not
be available to the Indemnitor, then the Indemnitee shall be entitled to
participate in the defense of such suit or proceedings along with the
Indemnitor, and the Indemnitor shall be obligated to bear the fees and expenses
of such counsel for the Indemnitee, which shall be selected by the Indemnitee in
its complete and sole discretion. If the Indemnitor fails to assume control of
the negotiations prior to litigation or to defend such action within a
reasonable time, Indemnitee shall be entitled, but not obligated, to assume
control of such negotiations or defense of such action, and Indemnitor shall be
liable to the Indemnitee for its expenses reasonably incurred in connection
therewith which Indemnitor shall promptly pay. Neither Indemnitor nor
Indemnitee shall settle, compromise, or make any other disposition of any
Asserted Claims, which would or might result in any liability to Indemnitee or
Indemnitor, respectively, under this Article 10 without the written consent of
Indemnitee or Indemnitor, respectively.
10.05 Indemnity Escrow. Buyer acknowledges and agrees that recourse
----------------
against the Indemnity Escrow Fund held pursuant to the Indemnity Escrow
Agreement shall be its sole and exclusive remedy in the event of a claim against
Seller for indemnification pursuant to this Section 10. Moreover, from and
after the Closing, the parties hereto specifically agree that the remedies
provided in this Section 10 shall be exclusive, and shall preclude assertion by
any party of any other rights or the seeking of any other remedies against any
other party hereto in respect of (a) any transaction contemplated in this
Agreement, (b) any breach of this Agreement, or (c) or the CATV Business.
11. Further Assurances. From time to time after the Closing Seller will
------------------
execute and deliver such other instruments of conveyance and transfer, fully
cooperate with Buyer and take such other actions as Buyer reasonably may request
to effect the purposes and intent of this Agreement.
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<PAGE>
12. CLOSING.
-------
12.01 Closing. The Closing shall take place at the offices of Seller's
-------
Counsel at 10:00 A.M., local time, on the fifth (5th) business day after all
consents required as conditions to the sale as provided in Section 7.01 have
been received (the "Closing Date"); provided, however, that if the Closing
shall not have occurred prior to September 30, 1995 or as extended pursuant to
Section 9.03 (the "Outside Date"), this Agreement shall terminate unless
otherwise provided by the mutual written agreement of Buyer and Seller. If, as
of the Outside Date, the Closing cannot be effected, all parties hereto shall be
released from all obligations hereunder other than obligations arising from a
breach or default hereunder, and each party hereto will bear expenses as
provided in Section 13.06 hereof. At the Closing, the parties hereto shall
execute and deliver all instruments and documents as shall be necessary in the
reasonable opinion of counsel for the respective parties to consummate the
transactions contemplated herein.
12.02 Termination. In addition to the termination provided for in Section
-----------
12.01, this Agreement may be terminated and the transactions contemplated hereby
may be abandoned:
(a) At any time, by the mutual written agreement of Buyer and Seller;
(b) By Buyer, upon and effective as of the date of written notice to
Seller, if any of the conditions to the obligations of Buyer set forth in
Article 7 shall not have been waived or materially satisfied at the time of
the Closing;
(c) By Seller, upon and effective as of the date of written notice to
Buyer, if any of the conditions to the obligations of Seller set forth in
Article 8 shall not have been waived or materially satisfied at the time of
the Closing; or
(d) By Seller, upon and effective as of the date of written notice to
Buyer, pursuant to the termination provisions of Section 9.03.
12.03 Remedies Upon Default. Subject to the last sentence of this
---------------------
Section, if (i) Seller terminates this Agreement pursuant to Section 12.02(c) or
(d) hereof, (ii) Buyer breaches, on or prior to the Closing, any material term
or condition of this Agreement and such breach remains uncured by the Buyer at
the time Seller exercises its rights under this Section 12.03, or (iii) Buyer
refuses to proceed or tender performance at the Closing or at any time prior
thereto, then, unless at the Closing there is a nonfulfillment of any of the
conditions precedent specified in Article 7 hereof, Seller shall be entitled to
receive the deposit in the Earnest Money Escrow, plus all interest earned
thereon,
-32-
<PAGE>
pursuant to the Earnest Money Escrow Agreement. The parties agree that such
payment to Seller shall not constitute liquidated damages or a penalty, and
Seller shall be fully entitled to the same and to such damages in excess of such
payment as Seller may otherwise be entitled or prove. Notwithstanding anything
to the contrary contained in this Section, under no circumstances shall Seller
be entitled to receive the deposit in the Earnest Money Escrow solely as a
result of Buyer's nonfulfillment or non-performance of the conditions specified
in Sections 8.01 and 8.05 hereof.
13. MISCELLANEOUS.
-------------
13.01 Amendments; Waivers. This Agreement cannot be changed or terminated
-------------------
orally and no waiver of compliance with any provision or condition hereof and no
consent provided for herein shall be effective unless evidenced by an instrument
in writing duly executed by the party hereto sought to be charged with such
waiver or consent. No waiver of any term or provision hereof shall be construed
as a further or continuing waiver of such term or provision or any other term or
provision. Any condition to the performance of any party hereto which may
legally be waived at or prior to the Closing may be waived in writing at any
time by the party or parties entitled to the benefit thereof.
13.02 Entire Agreement. This Agreement and the Confidentiality Agreement
----------------
dated October 3, 1994, set forth the entire understanding and agreement of, the
parties and supersede any and all prior agreements, memoranda, arrangements and
understandings relating to the subject matter hereof. No representation,
warranty, promise, inducement or statement of intention has been made by any
party which is not contained in this Agreement or the Confidentiality Agreement,
and no party shall be bound by, or be liable for, any alleged representation,
promise, inducement or statement of intention not contained herein or therein.
13.03 Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties and their respective successors and
permitted assigns. Buyer shall have the right to assign all of its rights and
obligations under this Agreement to a partnership of which Buyer is a general
partner, or a corporation all of whose stock is owned by Buyer and in such
event, all references to Buyer hereunder shall refer to said partnership or said
corporation, but Buyer shall continue to be liable for all obligations of Buyer
hereunder. This Agreement may not otherwise be assigned by any party without
the prior written consent of the other parties hereto.
13.04 Construction; Counterparts. The Article and Section headings of
--------------------------
this Agreement are for convenience of reference only and do not form a part
hereof and do not in any way modify, interpret or construe the intentions of the
parties. This Agreement may
-33-
<PAGE>
be executed in one or more counterparts, and all such counterparts shall
constitute one and the same instrument.
13.05 Notices. All notices and communications hereunder shall be in
-------
writing and shall be deemed to have been duly given to a party when delivered in
person, or three business days after such notice is enclosed in a properly
sealed envelope, certified or registered, and deposited (postage and
certification or registration prepaid) in a post office or collection facility
regularly maintained by the United States Postal Service, or one business day
after delivery to a nationally recognized overnight courier service, and
addressed as follows:
If to Seller: Cablevision of Chicago
One Media Crossways
Woodbury, New York 11797
Telephone: (516) 364-8450
Attention: General Counsel
With a copy to: Holleb & Coff
55 E. Monroe Street
Suite 4100
Chicago, Illinois 60603
Attention: Robert E. Kolek, Esq.
If to Buyer: Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, Massachusetts 02110
Attention: Cristina Fernandez-Haegg
With a copy to: Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Lee Dunham, Esq.
Any party may change its address for the purpose of notice by giving notice in
accordance with the provisions of this Section 13.05.
13.06 Expenses of the Parties. Except as otherwise provided herein, all
-----------------------
expenses incurred by or on behalf of the parties hereto in connection with the
authorization, preparation and consummation of this Agreement, including,
without limitation, all fees and expenses of agents, representatives, counsel
and accountants employed by the parties hereto in connection with the
authorization, preparation, execution and consummation of this Agreement shall
be borne solely by the party who shall have incurred the same.
13.07 Non-Recourse. No general partner of Seller shall have any personal
------------
liability in respect of any of Seller's obligations
-34-
<PAGE>
under this Agreement by reason of his or its status as such general partner. In
addition, no partner, officer, director, shareholder or other holder of an
ownership interest of or in either party to this Agreement shall have any
personal liability in respect of any such party's obligations under this
Agreement by reason of his or its status as such partner, officer, director,
shareholder or other holder.
13.08 Third Party Beneficiary. This Agreement is entered into only for
-----------------------
the benefit of the parties and their respective successors and assigns, and
nothing hereunder shall be deemed to constitute any person a third party
beneficiary to this Agreement.
13.09 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
ILLINOIS.
13.10 Press Releases. No press release or other public information
--------------
relating to the purchase and sale contemplated in this Agreement shall be made
or disclosed by either party hereto without the consent of the other party;
provided however, that either party may disclose such information if reasonably
deemed to be required by law by the legal counsel for such party.
13.11 Severability. If any provision of this Agreement is finally
------------
determined to be illegal, void or unenforceable, such determination shall not,
of itself, nullify this Agreement which shall continue in full force and effect
subject to the conditions and provisions hereof.
-35-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SELLER:
CABLEVISION OF CHICAGO,
an Illinois Limited Partnership
By: /s/ Charles F. Dolan
-----------------------------
General Partner
BUYER:
CONTINENTAL CABLEVISION, INC.,
a Delaware Corporation
By: /s/ Amos B. Hostetter, Jr.
--------------------------------
Its: Chairman of the Board
<PAGE>
LIST OF SCHEDULES
-----------------
1.01(a) CATV Licenses
1.01(b) Current Assets
1.01(c) Current Liabilities
3.02 Consents and Approvals
3.06(b)(i) Real Property Owned, Leased, or Used
3.06(b)(ii) Exceptions to Title
3.07(c) Material Contracts
3.07(d) Material Defaults in CATV Instruments
3.07(e) Exceptions to Compliance
3.08(a) Employee Compensation
3.08(b) Labor Agreements and Disputes
3.08(c) Benefit Plans
3.09 Defaults Under Contracts
3.10 Pending Proceedings, Investigations, Judgments re:
Seller
Schedules have not been included in this filing but will be provided to the
Commission upon their request.
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A System Area
Exhibit B Assumption Agreement
Exhibit C Earnest Money Escrow Agreement
Exhibit D Indemnity Escrow Agreement
Exhibit E Bill of Sale and General Assignment
Exhibit F Opinion of Seller's Counsel
Exhibit G Opinion of Seller's FCC Counsel
Exhibit H Opinion of Buyer's Counsel
Exhibit I Retained Franchise Escrow Agreement
Exhibit J Management Agreement
<PAGE>
EXHIBIT A
Portions of DuPage and Cook Counties, Illinois.
<PAGE>
EXHIBIT B
ASSUMPTION AGREEMENT
--------------------
THIS ASSUMPTION AGREEMENT (this "Agreement") is dated January __, 1995, and
made by and between Cablevision of Chicago, an Illinois limited partnership
("Seller") and Continental Cablevision, Inc., a Delaware corporation ("Buyer").
R E C I T A L S:
---------------
A. Seller and Buyer have entered into that certain Asset Purchase
Agreement dated __________ __, 199__ (the "Purchase Agreement"), whereby Buyer
is acquiring substantially all of the assets, and assuming certain of the
obligations and liabilities, of Seller upon the terms and conditions more fully
set forth therein.
B. In connection with the Purchase Agreement and to more fully effectuate
the transactions contemplated thereunder, the parties hereto are entering into
this Agreement for the assumption by Buyer of the "Assumed Liabilities", as
defined in the Purchase Agreement, pursuant to Section 2.05 of the Purchase
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and the Purchase Agreement and for other good and valuable
consideration, the receipt, sufficiency and adequacy of which is hereby
acknowledged, the parties hereto covenant and agree as follows (all capitalized
terms used in this Agreement and not defined herein shall have the same meanings
ascribed to them in the Purchase Agreement):
1. INCORPORATION OF RECITALS. The recitals set forth above constitute an
-------------------------
integral part of this Agreement and are incorporated herein by reference.
2. ASSUMPTION. As partial consideration for Buyer's receipt of the
----------
Acquired Assets, Buyer hereby assumes and covenants to abide by and agrees to
pay, discharge, perform and fulfill, as and when due or required, all of the
Assumed Liabilities.
3. SELLER LIABILITY. Buyer acknowledges and agrees that Seller shall have
----------------
no further obligation with respect to the Assumed Liabilities, whether by
contract or otherwise, and that Buyer shall pay, discharge and perform all of
the Assumed Liabilities as and when the same are or shall become due or
required. Buyer shall indemnify Seller and its partners, officers, employees,
agents, successors and assigns, and, with respect to Seller's partners, their
respective partners, shareholders, directors, officers, employees, agents,
successors
<PAGE>
and assigns in accordance with Sections 10.03 and 10.04 of the Purchase
Agreement from and against, among other things, the Assumed Liabilities.
4. AMENDMENTS; WAIVERS. This Agreement cannot be changed or terminated
-------------------
orally and no waiver of compliance with any provision or condition hereof and no
consent provided for herein shall be effective unless evidenced by an instrument
in writing duly executed by the party hereto sought to be charged with such
waiver or consent. No waiver of any term or provision hereof shall be construed
as a further or continuing waiver of such term or provision or any other term or
provision.
5. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the parties and their respective successors and
permitted assigns. Buyer shall have the right to assign all of its rights and
obligations under this Agreement to a partnership of which Buyer is a general
partner, or a corporation all of whose stock is owned by Buyer and in such
event, all references to Buyer hereunder shall refer to said partnership or said
corporation, but Buyer shall continue to be liable for all obligations of Buyer
hereunder. This Agreement may not otherwise be assigned by any party without
the prior written consent of the other parties hereto.
6. THIRD PARTY BENEFICIARY. This Agreement is entered into only for the
-----------------------
benefit of the parties and their respective successors and assigns, and nothing
hereunder shall be deemed to constitute any person a third party beneficiary to
this Agreement.
7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
ILLINOIS.
8. SEVERABILITY. If any provision of this Agreement is finally determined
------------
to be illegal, void or unenforceable, such determination shall not, of itself,
nullify this Agreement which shall continue in full force and effect subject to
the conditions and provisions hereof.
9. CONSTRUCTION; COUNTERPARTS. The Section headings of this Agreement are
--------------------------
for convenience of reference only and do not form a part hereof and do not in
any way modify, interpret or construe the intentions of the parties. This
Agreement may be executed in one or more counterparts, and all such counterparts
shall constitute one and the same instrument.
10. NOTICES. All notices and communications hereunder shall be in writing
-------
and shall be deemed to have been duly given to a party when delivered in person,
or three business days after such notice is enclosed in a properly sealed
envelope, certified or registered, and deposited (postage and certification or
registration prepaid) in a post office or collection facility
<PAGE>
regularly maintained by the United States Postal Service, or one business day
after delivery to a nationally recognized overnight courier service, and
addressed as follows:
If to Seller: Cablevision of Chicago
One Media Crossways
Woodbury, New York 11797
Telephone: (516) 364-8450
Attention: General Counsel
With a copy to: Holleb & Coff
55 E. Monroe Street
Suite 4100
Chicago, Illinois 60603
Attention: Robert E. Kolek, Esq.
If to Buyer: Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Attention: Cristina Fernandez-Haegg
With a copy to: Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Lee Dunham, Esq.
Any party may change its address for the purpose of notice by giving notice in
accordance with the provisions of this Section 10.
(SIGNATURE PAGE FOLLOWS)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SELLER:
------
CABLEVISION OF CHICAGO, an
Illinois limited partnership
By: __________________________
Its: _____________________
BUYER:
-----
CONTINENTAL CABLEVISION, INC.
a Delaware corporation
By: __________________________
Its: _____________________
<PAGE>
EXHIBIT C
EARNEST MONEY ESCROW AGREEMENT
------------------------------
This Earnest Money Escrow Agreement (the "Escrow Agreement") is made and
entered into this ____ day of January, 1995, by and among CABLEVISION OF
CHICAGO, an Illinois limited partnership ("Seller"), CONTINENTAL CABLEVISION,
INC., a Delaware corporation ("Buyer") and CHEMICAL BANK, as escrow agent (the
"Escrow Agent").
R E C I T A L S:
---------------
A. Seller and Buyer entered into that certain Asset Purchase Agreement
dated as of January __, 1995 (the "Agreement") pursuant to which Seller agreed
to sell, and Buyer agreed to purchase, certain of Seller's properties and assets
used or held for use in connection with the ownership and operation of a CATV
system located in Cook and DuPage Counties, Illinois.
B. In accordance with the terms of the Agreement, Buyer shall
simultaneously deposit, as an earnest money deposit, Sixteen Million Eight
Hundred Fifty Thousand Dollars ($16,850,000), upon the terms set forth in the
Agreement and this Escrow Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the execution and delivery hereof, the
parties hereto do mutually agree as follows (terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Agreement):
1. Agent. Seller and Buyer hereby appoint and designate the Escrow Agent
-----
as escrow agent for the purposes herein set forth. All references to the
"Escrow Agent," as that term is used herein, shall refer to the Escrow Agent
solely in its capacity as such, and not to it in any other capacity whatsoever
whether as individual, agent, fiduciary, trustee or otherwise. The Escrow Agent
shall have no obligation to assure, or participate in the enforcement or
performance of the Agreement whether or not the Escrow Agent shall have
knowledge or notice of the terms thereof, or any acts or omissions relating
thereto.
2. Deposit of Escrow Money. Pursuant to the terms of the Agreement, on
-----------------------
the date hereof, Buyer is delivering to the Escrow Agent Sixteen Million Eight
Hundred Fifty Thousand Dollars ($16,850,000) to be deposited in the Escrow
Account. The term "Escrow Deposit" as used herein refers to such sum plus
earnings
<PAGE>
thereon less disbursements or payments authorized as provided herein.
3. Investment of Money in the Escrow Account. The Escrow Agent shall
-----------------------------------------
invest the money in the Escrow Account in Permitted Investments (as defined
herein) as instructed jointly by Buyer and Seller orally and confirmed in
writing promptly thereafter from time to time during the term of this Escrow
Agreement. The Escrow Agent shall make monthly payments to Buyer of the
investment earnings on money in the Escrow Account received by the Escrow Agent
until such time as Escrow Agent receives notice of a Claim (hereinafter defined)
from Seller other than a Closing Claim (hereinafter defined). Thereafter, any
and all investment earnings on money in the Escrow Account shall be held by the
Escrow Agent and dealt with and paid in the same manner as set forth in Section
5 hereof respecting the Escrow Deposit. Decisions as to purchase or sale of
each such Permitted Investments shall be made jointly by Seller and Buyer.
"Permitted Investments" means: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within three (3) months from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within three (3) months from the date of
acquisition thereof and having, at the time of acquisition, the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper having, at the time of acquisition, the
highest rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc.; (iv) certificates of deposit, other time deposits, and
bankers' acceptances maturing within three (3) months from the date of
acquisition thereof issued by the Escrow Agent or any bank operating under the
laws of the United States of America or any state thereof or the District of
Columbia which has combined capital and surplus of not less than $100,000,000;
or (v) institutional money market funds organized under the laws of the United
States of America or any state thereof that invest solely in any of the
investments permitted under clauses (i), (ii), (iii), and (iv) hereof. To the
extent that any portion of the Escrow Account may not be readily invested in
such investments, the Escrow Agent may invest such portion of the Escrow Account
in a money market trust account or interest bearing deposit account of the
Escrow Agent, as jointly instructed by Seller and Buyer. The Escrow Agent shall
have no authority or duty to invest the Escrow Account in any other obligations
except as provided in this Section 3. The Escrow Agent may use its own bond
department in investing the Escrow Account as aforesaid. Escrow Agent in its
capacity as escrow agent hereunder shall not have any liability for any loss
sustained as a result of any investment made pursuant to the
<PAGE>
instructions of the parties hereto as a result of any liquidation of any
investment prior to its maturity or for the failure of the parties to give the
Escrow Agent instructions to invest or reinvest the Escrow Fund or any earnings
thereon.
4. Presentation and Payment of Claims. Any claim by Buyer or Seller for
----------------------------------
the Escrow Deposit (each, a "Claim") shall be made in accordance with this
Section 4. In the event that a Closing under Section 12.01 of the Agreement
occurs, Buyer and Seller shall jointly notify the Escrow Agent of such Closing
(a "Closing Claim"). In the event (i) Seller terminates the Agreement pursuant
to Section 12.02(c) or (d) of the Agreement; or (ii) Buyer breaches on or prior
to the Closing any material term or condition of the Agreement and such breach
remains uncured by Buyer at the time Seller gives notice of a "Seller Claim" (as
defined below); or (iii) Buyer refuses to proceed or tender performance at the
Closing or at any time prior thereto, then, unless at the Closing there is a
nonfulfillment of any of the conditions precedent in Article 7 of the Agreement,
Seller shall simultaneously notify the Escrow Agent and Buyer in writing of a
Claim, which notice shall state the basis of the Claim (a "Seller Claim");
provided, however, that Seller shall under no circumstances be entitled to
receive the Escrow Deposit solely as a result of Buyer's nonfulfillment or non-
performance of the conditions specified in Sections 8.01 and 8.05 of the
Agreement. In the event the Agreement is terminated by Buyer pursuant to
Section 12.02(b) of the Agreement and Buyer has not breached any material term
or condition of the Agreement or cured any such breach prior to such
termination, Buyer shall simultaneously notify the Escrow Agent and Seller of a
Claim, which notice shall state the basis of the Claim and that Buyer was not in
breach of any material term or condition of such Agreement or has cured any such
breach prior to such termination (a "Buyer Claim"). Buyer or Seller may contest
a Claim by the other party by giving written notice to the Escrow Agent and the
other party (each, an "Objection") within twenty (20) days after receipt of
notice of a Claim ("Objection Period"). Unless otherwise advised by Buyer or
Seller in writing, Escrow Agent shall assume that the receipt of notice was
received by Buyer or Seller on the same day as received by Escrow Agent. The
timely delivery of an Objection to a Claim will give rise to a contested claim
(each, a "Contested Claim"). If the party receiving notice of a Claim does not
deliver an Objection prior to the termination of an Objection Period, such party
shall be deemed to have accepted the Claim as valid. Each Claim and Objection
must be made in good faith upon a reasonable basis. The parties agree that any
payment of the Escrow Deposit to Seller pursuant to Section 4(i), (ii) or (iii)
hereof, shall not constitute liquidated damages or a penalty, and Seller shall
be fully entitled to the same and to such damages in excess of such payment as
Seller may otherwise be entitled or prove.
<PAGE>
5. Payment of the Escrow Deposit. At the earliest of (i) the day the
-----------------------------
Escrow Agent receives a Closing Claim, (ii) two (2) business days following the
expiration of an Objection Period, if there is no Objection to a Seller Claim,
the Escrow Agent shall pay the Escrow Deposit to Seller in immediately available
funds by wire transfer to such account as Seller shall have designated to the
Escrow Agent, and (iii) two (2) business days following the expiration of an
Objection Period, if there is no objection to a Buyer Claim, the Escrow Agent
shall pay the Escrow Deposit to Buyer in immediately available funds by wire
transfer to such account as Buyer shall have designated to the Escrow Agent. If
there is a Contested Claim, the Escrow Agent will distribute the Escrow Deposit
only in accordance with the final judgment, order or decree of the court or
other judicial body that decided the underlying claim or in accordance with a
settlement agreement between Seller and Buyer (any such judgment, order, decree
or agreement being a "Determination of Claim"). If the Determination of Claim
requires payment of the Escrow Deposit to Buyer, the Escrow Agent shall pay such
amount in immediately available funds by wire transfer to such account as Buyer
shall have designated to the Escrow Agent within two (2) business days of
receipt of such Determination of Claim. If the Determination of Claim requires
payment to Seller, the Escrow Agent shall pay such amount in immediately
available funds by wire transfer to such account as Seller shall have designated
to the Escrow Agent within two (2) business days of receipt of such
Determination of Claim.
6. Rights, Obligations and Indemnification of the Escrow Agent.
-----------------------------------------------------------
(a) In performing any of its duties under this Escrow Agreement, or
upon the claimed failure to perform its duties hereunder, the Escrow Agent shall
not be liable to anyone for any damages, losses, or expenses which it may incur
as a result of the Escrow Agent so acting, or failing to act; provided, that the
Escrow Agent shall be liable for damages arising out of its fraud, negligence or
willful misconduct under this Escrow Agreement. Accordingly, the Escrow Agent
shall not incur any such liability with respect to: (i) any action taken or
omitted to be taken in good faith and with exercise of due care, whether or not
acting upon advice of its counsel given with respect to any questions relating
to the duties and responsibilities of the Escrow Agent hereunder; nor (ii) any
action taken or omitted to be taken in reliance upon any document, including any
written notice or instructions provided for in this Escrow Agreement, not only
as to such document's due execution and to the validity and effectiveness of its
provisions, but also as to the truth and accuracy of any information contained
therein, which the Escrow Agent shall in good faith and with exercise of due
care believe to be genuine, to have been signed or presented by a proper person
or persons and to conform with the provisions of this
<PAGE>
Escrow Agreement. The Escrow Agent shall have no liability for loss arising
from any cause beyond its control, including, without limitation, the following:
(x) the act, failure or neglect of any agent or correspondent selected by Seller
or Buyer for the remittance of funds; (y) any delay, error, omission or default
of any mail, telegraph, cable or wireless agency or operator; or (z) the acts or
edicts of any government or governmental agency or other group or entity
exercising governmental powers.
(b) Seller and Buyer hereby agree to indemnify and hold harmless the
Escrow Agent against any and all fees, losses, claims, damages, liabilities, and
expenses, including, without limitation, reasonable costs of investigation and
counsel fees and disbursements which may be imposed by the Escrow Agent or
incurred by it in connection with its acceptance of this appointment as the
Escrow Agent hereunder, or the performance of its duties hereunder, including,
without limitation, any litigation arising from this Escrow Agreement or
involving the subject matter hereof or thereof; except, that if the Escrow Agent
shall be found guilty of fraud, negligence, or willful misconduct under this
Escrow Agreement then, in that event, the Escrow Agent shall bear all such
losses, claims, damages, and expenses. Anything in this Agreement to the
contrary notwithstanding, in no event shall the Escrow Agent be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits (other than investment earnings)),
even if the Escrow Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action.
(c) The Escrow Agent shall be bound only by the terms of this Escrow
Agreement and shall not be bound by, or be deemed to have knowledge of any of
the terms of, or incur any liability with respect to the Agreement or any other
agreement or understanding to which the Escrow Agent is not a party whether or
not the Escrow Agent shall have notice or knowledge thereof. The Escrow Agent
shall not have any duties hereunder except those specifically set forth herein.
(d) If any part of the Escrow Deposit is at any time attached,
garnished or levied upon under any court order, or if the payment or transfer of
any such funds shall be stayed or enjoined by any court order, or any order,
judgment or decree shall be made or entered by any court affecting such funds or
any portion thereof, then in any of such events the Escrow Agent is authorized,
in its sole discretion, to rely upon and comply with any such order, writ,
judgment or decree which it is advised by legal counsel is binding upon it.
Seller and Buyer hereby agree to indemnify the Escrow Agent and hold it harmless
against any loss, liability or expense of any kind which may result, in whole or
in part, from any delay in acting with respect to any such order, writ, judgment
or decree. If the Escrow Agent complies
<PAGE>
with any such order, writ, judgment or decree, it shall not be liable to Buyer,
Seller or any other person, firm or corporation by reason of such compliance,
even though such order, writ, judgment or decree may subsequently be reversed,
modified, annulled, set aside or vacated.
(e) Seller and Buyer agree that until there is a final resolution of
all Claims, the Escrow Agent shall retain the Escrow Deposit under Section 5
hereof. Seller and Buyer agree with each other to use their best commercial
efforts to effect prompt resolution of all disputes in accordance with the
Agreement and hereby confirm that this Escrow Agreement shall not modify the
obligations of the parties under the Agreement.
(f) The Escrow Agent's activities hereunder shall be only those of,
or incidental to, a passive ministerial depository and disbursing payor pursuant
to the terms hereof. In the event of any disagreements or conflicting
instructions resulting in adverse claims or demands being made upon the Escrow
Agent in connection herewith, or in the event that the Escrow Agent in good
faith is in doubt as to what action should be taken hereunder, it may, at its
option, refuse to comply with any claims or demands on it, or terminate this
Escrow Agreement, or refuse to take any other action hereunder, and in any such
event, the Escrow Agent shall not be or become liable in any way or to any party
for its failure or refusal from acting until all differences shall have been
settled and all doubt resolved.
(g) The Escrow Agent: (i) except as otherwise expressly provided
herein, shall have no obligation to make any payment hereunder unless all the
necessary funds and/or documents have been actually received by the Escrow
Agent; (ii) shall be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of the
underlying transactions contemplated herein or in the Agreement; (iii) may rely
on and shall be protected in acting upon any certificate, instrument, notice,
letter, telegram, telecopy or other document delivered to the Escrow Agent and
reasonably believed by the Escrow Agent to be genuine and to have been sent by
the proper party or parties; and (iv) may consult its counsel regarding
questions which may arise and the advice or opinion of such counsel shall be
conclusive evidence of good faith in respect of any action taken, suffered or
omitted by the Escrow Agent hereunder in accordance with the advice or opinion
of such counsel. However, the Escrow Agent shall be under no obligation to
consult with counsel, and failure to do so shall not be evidence of a lack of
good faith on the part of the Escrow Agent.
(h) Except as specifically provided in Section 3 of this Escrow
Agreement, the Escrow Agent shall have no responsibility for the investment of
any funds held hereunder. The
<PAGE>
Escrow Agent shall not be liable to Seller or Buyer and hereby disclaims any
responsibility for any losses or penalties incurred with respect to any such
investments. It is the intention of the parties that except as otherwise
expressly provided herein, the Escrow Agent shall never be required to use or
advance its own funds or otherwise incur financial liability in the performance
of its duties or the exercise of any of its rights and powers hereunder.
(i) The Escrow Agent may resign without obtaining the order of any
court, by giving at least thirty (30) days prior written notice (unless waived)
to Seller and Buyer and upon the taking of all the actions as described in this
Subparagraph (i) by the Escrow Agent, the Escrow Agent shall have no further
responsibilities hereunder to Seller and Buyer or to any other person in
connection with this Escrow Agreement. Such resignation shall be effective upon
the appointment by Seller and Buyer of a successor agent, which shall be a bank
having combined capital and surplus of at least $50,000,000. Any such successor
agent shall be appointed by a written instrument mutually satisfactory to and
executed by Seller, Buyer, the Escrow Agent and the successor agent. Any
successor agent appointed under the provisions of this Escrow Agreement shall
have all of the same rights, powers, privileges, immunities and authority with
respect to the matters contemplated herein as are granted herein to the original
Escrow Agent.
(j) It is not the intention of the parties hereto to create, nor
shall this Escrow Agreement be construed as creating, a partnership or
association, or to render the parties hereto liable as partners.
(k) Notwithstanding any provision herein to the contrary, in the
event of any disagreement or controversy arising under this Escrow Agreement or
conflicting demands or notices are made upon the Escrow Agent growing out of or
relating to this Escrow Agreement or in the event the Escrow Agent in good faith
is in doubt as to what action it should take hereunder, the Escrow Agent shall
have the right, at its election, to withhold and stop all further proceedings
in, and performance of, this Escrow Agreement and all instructions received
hereunder and file a suit in interpleader and obtain an order from a court of
competent jurisdiction requiring all parties involved to interplead and litigate
in such court their claims and rights among themselves and with the Escrow
Agent. The foregoing remedy shall be cumulative of any other remedies available
to the Escrow Agent provided hereunder or in law or at equity. Should any suit
or legal proceeding be instituted growing out of or related to this Escrow
Agreement, whether such suit be initiated by the Escrow Agent or others, the
Escrow Agent shall have the right, at its option, to stop all further
proceedings under and performance of this Escrow Agreement and of all
instructions received
<PAGE>
hereunder until all differences shall have been rectified and all doubts
resolved by agreement or until the rights of all parties shall have been fully
and finally adjudicated.
7. Fees, Expenses, and Charges. Seller and Buyer shall be jointly and
---------------------------
severally liable for the fees, expenses and charges as described in Schedule 1
attached hereto of the Escrow Agent, including reasonable fees, expenses, and
charges of counsel engaged by it in connection with the execution of the Escrow
Agreement and its services hereunder, which fees, expenses, and charges shall be
payable on demand. The Escrow Agent may deduct unpaid fees, expenses and
charges from the Escrow Deposit. Seller and Buyer agree that all such fees,
expenses, and charges shall be borne one-half by Seller and the other one-half
by Buyer.
8. Notices and Instructions. All notices, advice and instructions
------------------------
("Notices") provided for or permitted hereunder shall be in writing and
dispatched by the same means to all of the foregoing on the same day and shall
be deemed given if delivered (a) personally; (b) by mail, via certified or
registered mail, return receipt requested, with postage prepaid; or (c) by a
nationally recognized courier service, all of which addressed to the parties
hereto as follows:
(a) if to Seller:
Cablevision of Chicago
One Media Crossways
-------------------
Woodbury, New York 11797
Attention: General Counsel
Telephone: (516)364-8450
With a copy to:
Holleb & Coff
55 East Monroe Street
Suite 4100
Chicago, Illinois 60603
Attention: Robert E. Kolek
Telephone: (312)807-4600
(b) if to Buyer:
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Attention: Cristina Fernandez-Haegg
Telephone: (617)742-9500
<PAGE>
With a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Lee Dunham, Esq.
Telephone: (617)338-2800
(c) if to the Escrow Agent:
Chemical Bank
450 West 33rd Street
New York, New York 10001
Attention: Escrow Administration, 15th Floor
Telephone: __________________
Any such Notice shall be effective upon delivery when delivered in person or
three (3) business days after mailing. Any party may change its address for
purposes of notice by giving Notice in accordance with the provisions of this
Section 8.
9. Entire Agreement; Governing Law. This Escrow Agreement contains the
-------------------------------
entire agreement of the parties with regard to the matters set forth herein and
it may not be amended or modified except in writing signed by Buyer, Seller and
the Escrow Agent. This Escrow Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws, and not the law of conflicts, of
the State of Illinois and the Escrow Account shall be administered at the
offices of the Escrow Agent.
10. Successors and Assigns. This Escrow Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their successors and
permitted assigns. Except as otherwise provided herein, this Escrow Agreement
shall not be assignable without the prior written consent of the other parties.
11. Not an Amendment. This Escrow Agreement is not intended to amend or
----------------
supersede Section 12 of the Agreement.
12. Tax Identification Numbers. Each party hereto, except the Escrow
--------------------------
Agent, shall provide the Escrow Agent with their Tax Identification Number (TIN)
as assigned by the Internal Revenue Service. All interest or other income
earned under the Escrow Agreement shall be allocated and paid as provided herein
and reported by the recipient to the Internal Revenue Service as having been so
allocated and paid.
13. Confirmation of Transfer Instructions; Certain Account Numbers.
--------------------------------------------------------------
(a) In the event funds transfer instructions are given (other than in
writing at the time of execution of the
<PAGE>
Agreement), whether in writing, by telecopier or otherwise, the Escrow Agent is
authorized to seek confirmation of such instructions by telephone call-back to
the person or persons designated on Schedule 2 hereto, and the Escrow Agent may
rely upon the confirmations of anyone purporting to be the person or persons so
designated. The persons and telephone numbers for call-backs may be changed
only in a writing actually received and acknowledged by the Escrow Agent. The
parties to this Agreement acknowledge that such security procedure is
commercially reasonable.
(b) It is understood that the Escrow Agent, in connection with any
funds transfer may rely solely upon any account numbers or similar identifying
number provided by either of the other parties hereto to identify (i) such
party, (ii) such party's bank, or (iii) an intermediary bank.
14. Counterparts. This Escrow Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which,
taken together, shall constitute but one and the same document.
IN WITNESS WHEREOF, this Escrow Agreement has been duly executed on the
date first above written.
SELLER:
------
CABLEVISION OF CHICAGO
By: ___________________________________
Its Managing General Partner
By: ___________________________________
Its:_______________________________
BUYER:
-----
CONTINENTAL CABLEVISION, INC.
By: ___________________________________
Its President
ESCROW AGENT:
------------
CHEMICAL BANK
<PAGE>
By: ___________________________________
Its _____ President
<PAGE>
SCHEDULE 1
----------
12.5 BASIS POINTS ON THE FIRST $10,000,000 OF COLLATERAL HELD.
6.25 BASIS POINTS THEREAFTER.
FEES ARE QUOTED ON A PER ANNUM OR PART THEREOF BASIS, WITHOUT PRORATION FOR
PARTIAL YEARS.
<PAGE>
SCHEDULE 2
----------
Telephone Number(s) for Call-Backs and
Person(s) Designated to Confirm Funds Transfer Instructions
-----------------------------------------------------------
If to Buyer:
Name Telephone Number
---- ----------------
1. _________________________ _________________________
2. _________________________ _________________________
3. _________________________ _________________________
If to Seller:
Name Telephone Number
---- ----------------
1. _________________________ _________________________
2. _________________________ _________________________
3. _________________________ _________________________
Telephone call-backs shall be made to each of Buyer and Seller if joint
instructions are required pursuant to this Agreement.
<PAGE>
EXHIBIT D
INDEMNITY ESCROW AGREEMENT
--------------------------
This Indemnity Escrow Agreement (the "Escrow Agreement") is made and
entered into this ____ day of January, 1995, by and among CABLEVISION OF
CHICAGO, an Illinois limited partnership ("Seller"), CONTINENTAL CABLEVISION,
INC., a Delaware corporation ("Buyer") and CHEMICAL BANK as escrow agent (the
"Escrow Agent").
R E C I T A L S:
---------------
A. Seller and Buyer entered into that certain Asset Purchase Agreement
dated as of January __, 1995 (the "Agreement") pursuant to which Seller agreed
to sell, and Buyer agreed to purchase, certain of Seller's properties and assets
used or held for use in connection with the ownership and operation of a CATV
system located in Cook and DuPage Counties, Illinois.
B. This Escrow Agreement is intended to provide the assurance to Buyer
contemplated by Section 10.02 of the Agreement in respect of obligations of
Seller to provide indemnification under the Agreement to Buyer thereunder.
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the execution and delivery hereof, the
parties hereto do mutually agree as follows (terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Agreement):
1. Agent. Seller and Buyer hereby appoint and designate the Escrow Agent
-----
as escrow agent for the purposes herein set forth. All references to the
"Escrow Agent," as that term is used herein, shall refer to the Escrow Agent
solely in its capacity as such, and not to it in any other capacity whatsoever
whether as individual, agent, fiduciary, trustee or otherwise. The Escrow Agent
shall have no obligation to assure, or participate in the enforcement or
performance of the Agreement whether or not the Escrow Agent shall have
knowledge or notice of the terms thereof, or any acts or omissions relating
thereto.
2. Deposit of Escrow Money. Pursuant to the terms of the Agreement, on
-----------------------
the date hereof, Buyer is delivering to the Escrow Agent Eight Million Four
Hundred Twenty-Five Thousand Dollars ($8,425,000) to be deposited in the Escrow
Account. The term "Escrow Deposit" as used herein refers to such sum plus
earnings thereon less disbursements or payments authorized as provided herein.
3. Investment of Money in the Escrow Account. The Escrow Agent shall
-----------------------------------------
invest the money in the Escrow Account in Permitted
<PAGE>
Investments (as defined herein) as instructed jointly by Buyer and Seller orally
and confirmed in writing promptly thereafter from time to time during the term
of this Escrow Agreement. The Escrow Agent shall make monthly payments to
Seller on the last day of each calendar month of the investment earnings on
money in the Escrow Account received by the Escrow Agent during that month.
Decisions as to purchase or sale of each such Permitted Investments shall be
made jointly by Buyer and Seller in their absolute discretion. "Permitted
Investments" means: (i) marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case maturing
within three (3) months from the date of acquisition thereof; (ii) marketable
direct obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof
maturing within three (3) months from the date of acquisition thereof and
having, at the time of acquisition, the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc.; (iii)
commercial paper having, at the time of acquisition, the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc. maturing within three (3) months from the date of acquisition
thereof; (iv) certificates of deposit, other time deposits, and bankers'
acceptances maturing within three (3) months from the date of acquisition
thereof issued by the Escrow Agent or any bank operating under the laws of the
United States of America or any state thereof or the District of Columbia which
has combined capital and surplus of not less than $100,000,000; or (v)
institutional money market funds organized under the laws of the United States
of America or any state thereof that invest solely in any of the investments
permitted under clauses (i), (ii), (iii), and (iv) hereof. To the extent that
any portion of the Escrow Account may not be readily invested in such
investments, the Escrow Agent may invest such portion of the Escrow Account in a
money market trust account or interest bearing deposit account of the Escrow
Agent, as instructed jointly by Buyer and Seller. The Escrow Agent shall have
no authority or duty to invest the Escrow Account in any other obligations
except as provided in this Section 3. The Escrow Agent may use its own bond
department in investing the Escrow Account as aforesaid. Escrow Agent in its
capacity as escrow agent hereunder shall not have any liability for any loss
sustained as a result of any investment made pursuant to the instructions of the
parties hereto as a result of any liquidation of any investment prior to its
maturity or for the failure of the parties to give the Escrow Agent instructions
to invest or reinvest the Escrow Fund or any earnings thereon.
4. Presentation and Payment of Claims.
----------------------------------
(a) Buyer may from time to time make demand of the Escrow Agent for
claims of indemnification under the Agreement by serving upon the Escrow Agent
and Seller a written notice
<PAGE>
demanding payment of an indemnification claim arising under Section 10.02 of the
Agreement (including, without limitation, claims for indemnification against
third party claims asserted against Buyer). Such notice shall be deemed given
only upon receipt by Seller and the Escrow Agent and shall not be deemed given
hereunder unless such notice shall set forth the nature of the claim, the amount
of the claim, and a statement of the facts underlying the claim in sufficient
detail so that the nature of the claim and the basis of any liability of Seller
under the Agreement can be reasonably ascertained by a reasonable person within
the time contemplated in Section 4(b) hereof.
(b) Seller may reply to such demand made under Section 4(a) hereof by
written notice given to Buyer with a copy to the Escrow Agent, which notice
shall state whether Seller agrees or disagrees that the claim asserted by Buyer
is a valid claim under the Agreement and agrees or disagrees with respect to the
amount of the claim. If, within thirty (30) days after the later of the receipt
by Seller or Escrow Agent of the demand, Seller does not give to the Escrow
Agent and Buyer a notice which asserts that a dispute exists with respect to
such claim, then the Escrow Agent shall pay to Buyer the amount of the claim and
the Escrow Deposit shall be reduced to the extent thereof. Unless otherwise
notified by Seller in writing, Escrow Agent shall assume that the demand was
received by Seller on the same day as received by Escrow Agent. If such notice
admits that a portion of the claim is a valid claim under Section 10.02 of the
Agreement, the Escrow Agent shall disburse to Buyer the amount so admitted.
(c) If the notice given by Seller as provided in Section 4(b) hereof
disputes the claim asserted by Buyer or the amount thereof, then the amount of
the demand less any amount admitted by Seller as due Buyer by its notice under
Section 4(b) and disbursed to Buyer, shall be treated as a disputed claim
("Disputed Claim") and the amount of such claim shall be held by the Escrow
Agent as an undivided portion of the Escrow Deposit until the earlier to occur
of (i) its receipt of a joint direction executed by Seller and Buyer with
respect to such amount, or (ii) the receipt of a final judgment, order or decree
of the Court or other judicial body that decided the underlying claim with
respect to such amount ("Final Judgment"). The aggregate of all such Disputed
Claims in respect of the Escrow Deposit is sometimes herein referred to as the
"Reserve".
Unless otherwise advised by Buyer or Seller in writing, Escrow Agent shall
assume that the receipt of notice was received by Buyer or Seller on the same
day as received by Escrow Agent.
<PAGE>
5. Distributions.
-------------
(a) On or after ___________________, 1996, the Escrow Agent shall
disburse to Seller, on its request, the amount of the Escrow Deposit then held
by the Escrow Agent less the aggregate amount of the Reserve.
(b) On the mutual consent of Buyer and Seller, the Escrow Agent shall
make such distributions to Buyer or Seller as shall be specified in a joint
written direction to the Escrow Agent executed by such parties and delivered to
the Escrow Agent.
(c) On and in accordance with a Final Judgment, the Escrow Agent
shall make such distributions to Buyer, Seller or both, as shall be specified in
a Final Judgment.
Any distribution required to be made by the Escrow Agent under this Agreement
shall be made by the Escrow Agent promptly upon liquidation or transfer of an
investment required for such distribution.
6. Rights, Obligations and Indemnification of the Escrow Agent.
-----------------------------------------------------------
(a) In performing any of its duties under this Escrow Agreement, or
upon the claimed failure to perform its duties hereunder, the Escrow Agent shall
not be liable to anyone for any damages, losses, or expenses which it may incur
as a result of the Escrow Agent so acting, or failing to act; provided, that the
Escrow Agent shall be liable for damages arising out of its fraud, negligence or
willful misconduct under this Escrow Agreement. Accordingly, the Escrow Agent
shall not incur any such liability with respect to: (i) any action taken or
omitted to be taken in good faith and with exercise of due care, whether or not
acting upon advice of its counsel given with respect to any questions relating
to the duties and responsibilities of the Escrow Agent hereunder; nor (ii) any
action taken or omitted to be taken in reliance upon any document, including any
written notice or instructions provided for in this Escrow Agreement, not only
as to such document's due execution and to the validity and effectiveness of its
provisions, but also as to the truth and accuracy of any information contained
therein, which the Escrow Agent shall in good faith and with exercise of due
care believe to be genuine, to have been signed or presented by a proper person
or persons and to conform with the provisions of this Escrow Agreement. The
Escrow Agent shall have no liability for loss arising from any cause beyond its
control, including, without limitation, the following: (x) the act, failure or
neglect of any agent or correspondent selected by Seller or Buyer for the
remittance of funds; (y) any delay, error, omission or default of any mail,
telegraph, cable or wireless agency or operator; or (z) the acts or edicts of
any government or governmental agency or other group or entity exercising
governmental powers.
<PAGE>
(b) Seller and Buyer hereby agree to indemnify and hold harmless the
Escrow Agent against any and all fees, losses, claims, damages, liabilities, and
expenses, including, without limitation, reasonable costs of investigation and
counsel fees and disbursements which may be imposed by the Escrow Agent or
incurred by it in connection with its acceptance of this appointment as the
Escrow Agent hereunder, or the performance of its duties hereunder, including,
without limitation, any litigation arising from this Escrow Agreement or
involving the subject matter hereof or thereof; except, that if the Escrow Agent
shall be found guilty of fraud, negligence or willful misconduct under this
Escrow Agreement then, in that event, the Escrow Agent shall bear all such
losses, claims, damages, and expenses. Anything in this Agreement to the
contrary notwithstanding, in no event shall the Escrow Agent be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits (other than investment earnings)),
even if the Escrow Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action.
(c) The Escrow Agent shall be bound only by the terms of this Escrow
Agreement and shall not be bound by, or be deemed to have knowledge of any of
the terms of, or incur any liability with respect to the Agreement or any other
agreement or understanding to which the Escrow Agent is not a party whether or
not the Escrow Agent shall have notice or knowledge thereof. The Escrow Agent
shall not have any duties hereunder except those specifically set forth herein.
(d) If any part of the Escrow Deposit is at any time attached,
garnished or levied upon under any court order, or if the payment or transfer of
any such funds shall be stayed or enjoined by any court order, or any order,
judgment or decree shall be made or entered by any court affecting such funds or
any portion thereof, then in any of such events the Escrow Agent is authorized,
in its sole discretion, to rely upon and comply with any such order, writ,
judgment or decree which it is advised by legal counsel is binding upon it.
Seller and Buyer hereby agree to indemnify the Escrow Agent and hold it harmless
against any loss, liability or expense of any kind which may result, in whole or
in part, from any delay in acting with respect to any such order, writ, judgment
or decree. If the Escrow Agent complies with any such order, writ, judgment or
decree, it shall not be liable to Buyer, Seller or any other person, firm or
corporation by reason of such compliance, even though such order, writ, judgment
or decree may subsequently be reversed, modified, annulled, set aside or
vacated.
(e) Seller and Buyer agree that until there is a final resolution of
all Disputed Claims, the Escrow Agent shall retain the Reserve under Section 5
hereof. Seller and Buyer agree with each other to use their reasonable
commercial efforts to effect prompt resolution of all disputes in accordance
with the
<PAGE>
Agreement and hereby confirm that this Escrow Agreement shall not modify the
obligations of the parties under the Agreement.
(f) The Escrow Agent's activities hereunder shall be only those of,
or incidental to, a passive ministerial depository and disbursing payor pursuant
to the terms hereof. In the event of any disagreements or conflicting
instructions resulting in adverse claims or demands being made upon the Escrow
Agent in connection herewith, or in the event that the Escrow Agent in good
faith is in doubt as to what action should be taken hereunder, it may, at its
option, refuse to comply with any claims or demands on it, or terminate this
Escrow Agreement, or refuse to take any other action hereunder, and in any such
event, the Escrow Agent shall not be or become liable in any way or to any party
for its failure or refusal from acting until all differences shall have been
settled and all doubt resolved.
(g) The Escrow Agent: (i) except as otherwise expressly provided
herein, shall have no obligation to make any payment hereunder unless all the
necessary funds and/or documents have been actually received by the Escrow
Agent; (ii) shall be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of the
underlying transactions contemplated herein or in the Agreement; (iii) may rely
on and shall be protected in acting upon any certificate, instrument, notice,
letter, telegram, telecopy or other document delivered to the Escrow Agent and
reasonably believed by the Escrow Agent to be genuine and to have been sent by
the proper party or parties; and (iv) may consult its counsel regarding
questions which may arise and the advice or opinion of such counsel shall be
conclusive evidence of good faith in respect of any action taken, suffered or
omitted by the Escrow Agent hereunder in accordance with the advice or opinion
of such counsel. However, the Escrow Agent shall be under no obligation to
consult with counsel, and failure to do so shall not be evidence of a lack of
good faith on the part of the Escrow Agent.
(h) Except as specifically provided in Section 3 of this Escrow
Agreement, the Escrow Agent shall have no responsibility for the investment of
any funds held hereunder. The Escrow Agent shall not be liable to Seller or
Buyer and hereby disclaims any responsibility for any losses or penalties
incurred with respect to any such investments. It is the intention of the
parties that except as otherwise expressly provided herein, the Escrow Agent
shall never be required to use or advance its own funds or otherwise incur
financial liability in the performance of its duties or the exercise of any of
its rights and powers hereunder.
(i) The Escrow Agent may resign without obtaining the order of any
court, by giving at least thirty (30) days prior written notice (unless waived)
to Seller and Buyer and upon the taking of all the actions as described in this
Subparagraph (i)
<PAGE>
by the Escrow Agent, the Escrow Agent shall have no further responsibilities
hereunder to Seller and Buyer or to any other person in connection with this
Escrow Agreement. Such resignation shall be effective upon the appointment by
Seller and Buyer of a successor agent, which shall be a bank having combined
capital and surplus of at least $50,000,000. Any such successor agent shall be
appointed by a written instrument mutually satisfactory to and executed by
Seller, Buyer, the Escrow Agent and the successor agent. Any successor agent
appointed under the provisions of this Escrow Agreement shall have all of the
same rights, powers, privileges, immunities and authority with respect to the
matters contemplated herein as are granted herein to the original Escrow Agent.
(j) It is not the intention of the parties hereto to create, nor
shall this Escrow Agreement be construed as creating, a partnership or
association, or to render the parties hereto liable as partners.
(k) Notwithstanding any provision herein to the contrary, in the
event of any disagreement or controversy arising under this Escrow Agreement or
conflicting demands or notices are made upon the Escrow Agent growing out of or
relating to this Escrow Agreement or in the event the Escrow Agent in good faith
is in doubt as to what action it should take hereunder, the Escrow Agent shall
have the right, at its election, to withhold and stop all further proceedings
in, and performance of, this Escrow Agreement and all instructions received
hereunder and file a suit in interpleader and obtain an order from a court of
competent jurisdiction requiring all parties involved to interplead and litigate
in such court their claims and rights among themselves and with the Escrow
Agent. The foregoing remedy shall be cumulative of any other remedies available
to the Escrow Agent provided hereunder or in law or at equity. Should any suit
or legal proceeding be instituted growing out of or related to this Escrow
Agreement, whether such suit be initiated by the Escrow Agent or others, the
Escrow Agent shall have the right, at its option, to stop all further
proceedings under and performance of this Escrow Agreement and of all
instructions received hereunder until all differences shall have been rectified
and all doubts resolved by agreement or until the rights of all parties shall
have been fully and finally adjudicated.
7. Fees, Expenses, and Charges. Seller and Buyer shall be jointly and
---------------------------
severally liable for the fees, expenses and charges as described in Schedule 1
attached hereto of the Escrow Agent, including reasonable fees, expenses, and
charges of counsel engaged by it in connection with the execution of the Escrow
Agreement and its services hereunder, which fees, expenses, and charges shall be
payable on demand. The Escrow Agent may deduct unpaid fees, expenses and
charges from the Escrow Deposit. Seller and Buyer agree that all such fees,
expenses, and charges shall be borne one-half by Seller and the other one-half
by Buyer.
<PAGE>
8. Notices and Instructions. All notices, advice and instructions
------------------------
("Notices") provided for or permitted hereunder shall be in writing and
dispatched by the same means to all of the foregoing on the same day and shall
be deemed given if delivered (a) personally; (b) by mail, via certified or
registered mail, return receipt requested, with postage prepaid; or (c) by a
nationally recognized courier service, all of which addressed to the parties
hereto as follows:
(a) if to Seller:
Cablevision of Chicago
One Media Crossways
Woodbury, New York 11797
Attention: General Counsel
Telephone: (516)364-8450
With a copy to:
Holleb & Coff
55 East Monroe Street
Suite 4100
Chicago, Illinois 60603
Attention: Robert E. Kolek
Telephone: (312)807-4600
(b) if to Buyer:
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Attention: Cristina Fernandez-Haegg
Telephone: (617)742-9500
With a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Lee Dunham, Esq.
Telephone: (617)338-2800
(c) if to the Escrow Agent:
Chemical Bank
450 West 33rd Street
New York, New York 10001
Attention: Escrow Administration, 15th Floor
Telephone: __________________
Any such Notice shall be effective upon delivery when delivered in person or
three (3) business days after mailing. Any party may change its address for
purposes of notice by giving Notice in accordance with the provisions of this
Section 8.
<PAGE>
9. Entire Agreement; Governing Law. This Escrow Agreement contains the
-------------------------------
entire agreement of the parties with regard to the matters set forth herein and
it may not be amended or modified except in writing signed by Buyer, Seller and
the Escrow Agent. This Escrow Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws, and not the law of conflicts, of
the State of Illinois and the Escrow Account shall be administered at the
offices of the Escrow Agent.
10. Successors and Assigns. This Escrow Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their successors and
permitted assigns. Except as otherwise provided herein, this Escrow Agreement
shall not be assignable without the prior written consent of the other parties.
11. Not an Amendment. This Escrow Agreement is not intended to amend or
----------------
supersede Section 10 of the Agreement.
12. Tax Identification Numbers. Each party hereto, except the Escrow
--------------------------
Agent, shall provide the Escrow Agent with their Tax Identification Number (TIN)
as assigned by the Internal Revenue Service. All interest or other income
earned under the Escrow Agreement shall be allocated and paid as provided herein
and reported by the recipient to the Internal Revenue Service as having been so
allocated and paid.
13. Confirmation of Transfer Instructions; Certain Account Numbers.
--------------------------------------------------------------
(a) In the event funds transfer instructions are given (other than in
writing at the time of execution of the Agreement), whether in writing, by
telecopier or otherwise, the Escrow Agent is authorized to seek confirmation of
such instructions by telephone call-back to the person or persons designated on
Schedule 2 hereto, and the Escrow Agent may rely upon the confirmations of
anyone purporting to be the person or persons so designated. The persons and
telephone numbers for call-backs may be changed only in a writing actually
received and acknowledged by the Escrow Agent. The parties to this Agreement
acknowledge that such security procedure is commercially reasonable.
(b) It is understood that the Escrow Agent, in connection with any
funds transfer may rely solely upon any account numbers or similar identifying
number provided by either of the other parties hereto to identify (i) such
party, (ii) such party's bank, or (iii) an intermediary bank.
14. Counterparts. This Escrow Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which,
taken together, shall constitute but one and the same documents.
<PAGE>
IN WITNESS WHEREOF, this Escrow Agreement has been duly executed on the
date first above written.
SELLER:
------
CABLEVISION OF CHICAGO
By: ___________________________________
its Managing General Partner
By: ___________________________________
Its:_________________________
BUYER:
-----
CONTINENTAL CABLEVISION, INC.
By: ___________________________________
Its President
ESCROW AGENT:
------------
CHEMICAL BANK
By: ___________________________________
Its _____ President
<PAGE>
SCHEDULE 1
----------
12.5 BASIS POINTS ON THE FIRST $10,000,000 OF COLLATERAL HELD.
6.25 BASIS POINTS THEREAFTER.
FEES ARE QUOTED ON A PER ANNUM OR PART THEREOF BASIS, WITHOUT PRORATION FOR
PARTIAL YEARS.
<PAGE>
SCHEDULE 2
----------
Telephone Number(s) for Call-Backs and
Person(s) Designated to Confirm Funds Transfer Instructions
-----------------------------------------------------------
If to Buyer:
Name Telephone Number
---- ----------------
1. _________________________ _________________________
2. _________________________ _________________________
3. _________________________ _________________________
If to Seller:
Name Telephone Number
---- ----------------
1. _________________________ _________________________
2. _________________________ _________________________
3. _________________________ _________________________
Telephone call-backs shall be made to each of Buyer and Seller ifjoint
instructions are required pursuant to this Agreement.
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT
KNOW ALL PERSONS BY THESE PRESENTS, that Cablevision of Chicago, an
Illinois limited partnership ("Seller"), for and in consideration of the
Purchase Price (as hereinafter defined), and other good and valuable
consideration to it paid by Continental Cablevision, Inc. a Delaware corporation
("Buyer"), the receipt, sufficiency and adequacy of which are hereby
acknowledged, do hereby bargain, sell, assign, transfer, convey and deliver unto
Buyer, the "Acquired Assets" as defined in that certain Asset Purchase Agreement
made by and between Seller and Buyer, dated as of ____________, 199_ (the
"Purchase Agreement"), other than real property held in fee by Seller which is
conveyed to Buyer as of the date hereof pursuant to special warranty or
trustee's deeds. Any capitalized terms used herein and not defined herein shall
have the meanings ascribed to them in the Purchase Agreement.
Except as expressly provided in the Purchase Agreement, Seller hereby
expressly disclaims any and all warranties or representations made to Buyer,
whether relating to the condition, the operation, the adequacy or otherwise of
the personal property which is part of the Acquired Assets. IN THAT CONNECTION,
EXCEPT AS EXPRESSLY PROVIDED IN THE PURCHASE AGREEMENT, BUYER HEREBY AGREES THAT
IT WILL ACCEPT THE PERSONAL PROPERTY WHICH IS PART OF THE ACQUIRED ASSETS "AS
IS" AND "WHERE IS". EXCEPT AS AFORESAID, SELLER MAKES NO WARRANTY OR
REPRESENTATION WHATSOEVER, EITHER ORAL OR WRITTEN, OR EXPRESS OR IMPLIED, AS TO
MERCHANTABILITY OR THE CONDITION OF THE PERSONAL PROPERTY WHICH IS PART OF THE
ACQUIRED ASSETS OR THE FITNESS OR SUITABILITY THEREOF FOR ANY PARTICULAR OR
GENERAL USE OR PURPOSE EXCEPT AS EXPRESSLY PROVIDED IN THE PURCHASE AGREEMENT.
Seller covenants that it will execute and deliver such documents as may be
necessary to evidence and effect the sale, transfer, conveyance and assignment
of the personal property which is part of the Acquired Assets to Buyer.
This Bill of Sale and General Assignment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which, taken
together, shall constitute one and the same instrument.
This Bill of Sale and General Assignment shall be binding upon and inure to
the benefit of Buyer and Seller and their respective successors and permitted
assigns. Buyer shall have the right to assign all of its rights and obligations
under this Bill of Sale and General Assignment to a partnership of which Buyer
is a general partner or a corporation all of whose stock is owned by Buyer and
in such event, all references to Buyer hereunder shall refer to said partnership
or said corporation, but Buyer shall continue to be liable for all obligations
of
<PAGE>
Buyer under the Purchase Agreement. This Bill of Sale and General Assignment
may not otherwise be assigned by any party without the prior written consent of
the other party hereto. Further, nothing set forth herein shall be deemed to
constitute any person or entity as a third party beneficiary of this Bill of
Sale and General Assignment.
THIS BILL OF SALE AND GENERAL ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE
OF ILLINOIS.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale and General
Assignment to be executed and delivered on this ____ day of __________, 1995.
SELLER:
------
CABLEVISION OF CHICAGO, an
Illinois limite partnership
By: __________________________
General Partner
DULY ACKNOWLEDGED AND AGREED TO AS
OF THE DATE FIRST SET FORTH ABOVE:
BUYER:
- -----
CONTINENTAL CABLEVISION, INC.
a Delaware corporation
By: __________________________
Its: _____________________
<PAGE>
EXHIBIT F
---------
[ON LETTERHEAD OF HOLLEB & COFF]
______________, 1995
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Re: Sale of CATV System by Cablevision of Chicago
Ladies and Gentlemen:
We have acted as counsel for Cablevision of Chicago, an Illinois limited
partnership ("Seller"), in connection with the sale by Seller and the purchase
by you ("Buyer") of substantially all of the assets of Seller, pursuant to that
certain Asset Purchase Agreement (the "Agreement"), dated as of January __,
1995, by and between Seller and Buyer. This opinion is being furnished pursuant
to Section 6.01(c) of the Agreement. Capitalized terms used herein and not
otherwise defined herein are used as defined in the Agreement.
As a basis for providing the opinions set forth herein, we have made such
investigations of law as we have deemed necessary and relevant. As to matters
of fact, we have relied solely upon: (1) information obtained from public
officials and public records; (2) the representations and warranties of Seller
contained in the Agreement; and (3) representations and statements of
responsible officers of Seller made to us. We have not independently verified
factual information provided to us. However, we have no knowledge that would
lead us to believe that any such information is inaccurate.
In this connection, we have examined the following documents:
(i) A fully executed original of the Agreement, including all
schedules and exhibits attached hereto;
(ii) Certificates executed on behalf of Seller included in the closing
documents;
<PAGE>
(iii) The Limited Partnership Agreement;
(iv) A copy of the Articles of Limited Partnership of Seller certified
as true and correct by the Secretary of State of Illinois; and
(vi) A certificate dated ______, 1995, from the Secretary of State of
Illinois attesting to the continued existence of Seller.
In addition, we have examined such partnership records of Seller and such
other agreements, instruments and documents, as we have deemed necessary as a
basis for the opinions hereinafter expressed.
Whenever our opinion with respect to the existence or absence of facts is
indicated to be based on our knowledge, we are referring solely to the conscious
awareness of the particular Holleb & Coff attorneys who have devoted substantive
attention to the matters contemplated by the Agreement. No inference as to our
actual or imputed knowledge concerning such facts should be drawn from the fact
of our past or current representation of Seller or any affiliate of Seller.
For the purpose of providing our opinion, we have assumed: (i) the
genuineness of all signatures (other than signatures on behalf of Seller) on all
documents; (ii) the authenticity of all documents submitted to us as originals;
(iii) the conformity to the originals of all documents submitted to us as
copies; (iv) the correctness and accuracy of all facts set forth in all
certificates and reports examined by us as a basis for this opinion; (v)
concerning individuals, the legal capacity and competency to enter into and
perform any contracts; (vi) the due execution and delivery, pursuant to due
authorization, of the Agreement and all other Documents (hereinafter defined) by
all parties to the Agreement other than Seller; and (vii) that the Agreement and
the other Documents constitute the legal, valid and binding obligations of all
parties thereto other than Seller, enforceable against such parties in
accordance with their respective terms.
Based upon the foregoing, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. Seller is a limited partnership duly formed and in good standing under
Illinois law with all requisite power and authority under the Limited
Partnership Agreement to conduct its business and operations as presently
conducted.
2. Seller has all requisite power and authority under the Limited
Partnership Agreement to execute, deliver and perform the Agreement and all
documents contemplated therein to be executed and delivered by Seller
(collectively, the "Documents"). The
<PAGE>
execution, delivery and performance of the Agreement and the other Documents
have been duly authorized by all necessary action by Seller. The Agreement and
the other Documents have each been duly executed and delivered by Seller and
each is the valid and binding obligation of Seller enforceable against Seller in
accordance with their respective terms.
3. After the inquiry described herein, we have no knowledge of any
material consents which are required in connection with the performance of the
Agreement other than those referred to in the Agreement, including, without
limitation, Schedule 3.02 of the Agreement. Except as disclosed in the
Agreement, we have no knowledge of any (x) material proceedings at law or in
equity pending against Seller, the CATV Business or the Acquired Assets (based
solely on a review of our firm's internal docket and pending suit search reports
received from Lexis Document Services for Illinois State Courts and the Counties
of Cook and DuPage dated ________________), or (y) material proceedings at law
or in equity threatened against Seller, the CATV Business or the Acquired Assets
(based solely on a certificate of an officer of Seller), or, (z) judgment which
is outstanding against Seller, or, to or by which, Seller, or any of the
Acquired Assets or the CATV Business, is subject or bound (based solely on
judgment search reports from _________________ for Illinois State Courts and the
Counties of Cook and DuPage dated __________________).
4. The execution, delivery and performance by Seller of the Agreement and
the other Documents do not contravene the Limited Partnership Agreement, nor
will the execution of the Agreement or consummation of the transactions provided
therein create or impose any Encumbrance (except for Permitted Encumbrances)
upon any of the Acquired Assets (except that no opinion is given as to Real
Property covered by title insurance policies).
5. The instruments of transfer and conveyance delivered by Seller to Buyer
at Closing are in form sufficient under Illinois law to effect the transfer of
title to the Acquired Assets in accordance with the Agreement (except that no
opinion is given as to Real Property covered by title insurance policies). Based
solely on search reports received from Lexis Document Services for UCC liens
filed with the Illinois Secretary of State and the Recorder of Deeds of Cook and
DuPage Counties, there are no Encumbrances other than Permitted Encumbrances on
the personal property which is a part of the Acquired Assets.
In addition to any assumptions, qualifications and other matters set forth
elsewhere herein, the opinions set forth above are subject to the following;
(i) Our opinion with respect to the legality, validity, binding effect and
enforceability of the Agreement and the other Documents is subject to the effect
of any applicable bankruptcy,
<PAGE>
insolvency, fraudulent conveyance, equitable subordination, reorganization,
moratorium or similar law and to the effect of general principles of equity,
including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing (regardless of whether considered in a proceeding in
equity, at law or otherwise).
(ii) We do not hereby express an opinion as to the strict enforceability
of each and every right, remedy and power contained in the Agreement and the
other Documents (including, without limitation, provisions concerning self-help,
summary remedies, or the appointment or designation of a receiver), in
accordance with their terms under all facts and circumstances. However, it is
our opinion that the remedies and provisions contained in the Agreement that
would be enforceable are sufficient as a whole, subject to the qualifications
elsewhere herein stated, for the practical realization of the essential benefits
intended thereby.
(iii) We call your attention to the following matters as to which we
express no opinion:
(a) Any agreements in the Agreement and the other Documents for
payment or reimbursement of costs, fees and expenses or
indemnification for claims, losses or liabilities to the extent
any such provision may be determined by a court or other tribunal
to be in an unreasonable amount, to constitute a penalty or to be
contrary to public policy;
(b) Any agreements in the Agreement and the other Documents to the
jurisdiction or venue of a particular court or to the waiver of
the right to jury trial; and
(c) Certain other provisions contained in the Agreement and the other
Documents may be limited or rendered ineffective by a court or
other tribunal, applicable laws or judicial decisions governing
such provisions or holding their enforcement to be unreasonable
under the then existing circumstances or contrary to public
policy, but such laws and judicial or other tribunal's decisions
do not, in our opinion, render the Agreement invalid as a whole.
(iv) For purposes of providing the opinions set forth herein, we are
relying on the assumption that your counsel has not given advice to you that is
contrary to any opinion rendered herein, and on the further assumption that
neither you nor your counsel has any knowledge that is either inconsistent with
the opinions set forth herein or that causes you to believe that the opinions
expressed herein are incorrect. If, to your knowledge,
<PAGE>
circumstances are such that our reliance on the foregoing assumptions is
inappropriate, and you have not informed us thereof in writing prior to our
issuance of this opinion letter, then any of our opinions set forth herein that
relate to or are affected by such circumstances shall be deemed not to have been
given.
Our opinions are limited to the matters expressly set forth herein, and no
opinion is implied, nor is any to be inferred, beyond the matters expressly so
stated.
We are attorneys admitted to practice in the State of Illinois, and we
express no opinion with respect to any matter insofar as it is governed by laws
other than the laws of the State of Illinois and the Federal laws of the United
States. Furthermore, Piper & Marbury (Seller's FCC Counsel), is concurrently
issuing an opinion to you which pertains to FCC matters and therefor, no opinion
should be implied, nor is any to be inferred, respecting FCC matters,
whatsoever.
This opinion is rendered solely for your information and assistance in
connection with the transactions described in the Documents, and may not be
relied upon by any other person or entity or for any other purpose without our
prior written consent. Further, the opinions herein are expressed as of the date
hereof, and we assume no obligation to revise, supplement or update this opinion
after the date hereof.
Very truly yours,
HOLLEB & COFF
<PAGE>
EXHIBIT G
---------
FORM OF OPINION OF SELLER'S FCC COUNSEL
---------------------------------------
Gentlemen:
This firm serves as special communications counsel to Cablevision of
Chicago, L.P. ("Cablevision"). In connection with the sale of the cable
television systems identified in Attachment A herein (the "Systems") to
________________, pursuant to an Asset Purchase Agreement dated __________,
Cablevision has asked us to deliver this opinion concerning the regulation of
the Systems by the Federal Communications Commission (the "FCC") and the United
States Copyright Office (the "Copyright Office").
This opinion is limited to matters arising under the Communciations Act of
1934, as amended (the "Communications Act"), and the rules and regulations of
the FCC promulgated thereunder, and the Copyright Act of 1976, as amended (the
"Copyright Act"), and the rules and regulations of the Copyright Officer
promulgated thereunder. We have not reviewed, and are not rendering an opinion
with respect to, matters of compliance with the requirements of local franchises
and regulations applicable to the Systems.
In connection with this opinion, we have relied upon an examination of our
own files and available files of the FCC and the Copyright Office. We have also
relied upon written statements and representations of officers and employees of
Cablevision and upon the factual representations of Cablevision contained in the
Agreement. With respect to the technical operation of the Systems, we have made
no on-site inspections, have no experience in that area, and make no
representations in relation therewith.
In stating our opinion, we have assumed the genuineness of all signatures
of, and the incumbency, authority and power of, the officers and other persons
and entities executing the filings and applications submitted to the FCC and the
Copyright Office, the authenticity of all documents contained in the files of
the FCC and the Copyright Office, and the accuracy of the FCC and the Copyright
Office records. We have also assumed the conformity to the original documents of
copies provided to us by Cablevision of filings made with the FCC and the
Copyright Office.
Based on the foregoing, we are of the opinion that:
<PAGE>
(1) Cablevision's sale of the Systems does not, and at the closing will
not, require any prior authorization, consent or approval of the FCC, except for
assignment of the FCC licenses associated with the Systems listed in Attachment
B herein.
(2) To the best of our knowledge, the Systems are in material compliance
with the provisions of the Communications Act and the rules and regulations of
the FCC applicable to the Systems.
(3) Cablevision has filed all necessary Statements of Account with the
Copyright Office in connection with the Systems commencing with the 1979-2
accounting period, and all copyright royalty fees required to be paid under the
Copyright Act in connection with the Systems have been paid. To our knowledge,
after due inquiry, there have been no communications received from the Copyright
Office or any other party which question the Statements of Account or any
copyright payments made by Cablevision with respect to the Systems, nor are we
aware of any claim, action, or demand for copyright infringement or for non-
payment of royalties pending or threatened against Cablevision with respect to
the Systems.
(4) There is no FCC action or proceeding pending, or to our knowledge,
any FCC investigation or proceeding threatened in writing against Cablevision in
connection with the Systems which, if adversely determined, would result in any
material adverse change in the operation of the systems, or would materially
adversely affect the right, title or interest of Cablevision in the Systems.
This opinion has been prepared solely for your use in connection with the
closing of the transaction under the Agreement, and should not be quoted in full
or in part or otherwise referred to, or be filed with or furnished to, any
government agency or other person or entity not involved in said transaction
without the prior consent of this firm.
Sincerely,
<PAGE>
EXHIBIT H
---------
[ON LETTERHEAD OF BUYER'S COUNSEL]
______________, 1995
Cablevision of Chicago
One Media Crossways
Woodbury, New York 11797
Re: Purchase of CATV System by Cablevision of
Chicago
Ladies and Gentlemen:
We have acted as counsel for Continental
Cablevision, Inc., a Delaware corporation ("Buyer") in connection with the sale
by you ("Seller") and the purchase by Buyer of substantially all of the assets
of Seller, pursuant to that certain Asset Purchase Agreement (the "Agreement"),
dated as of January __, 1995, by and between Seller and Buyer. This opinion is
being furnished pursuant to Section 6.02(d) of the Agreement. Capitalized terms
used herein and not defined herein are used as defined in the Agreement.
As a basis for providing the opinions set forth
herein, we have made such investigations of law as we have deemed necessary and
relevant. As to matters of fact, we have relied solely upon: (1) information
obtained from public officials and public records; (2) the representations and
warranties of Buyer contained in the Agreement; and (3) representations and
statements of responsible officers of Buyer made to us. We have not
independently verified factual information provided to us. However, we have no
knowledge that would lead us to believe that any such information is inaccurate.
In this connection, we have examined the following
documents:
(i) A fully executed original of the Agreement,
including all schedules and exhibits attached
hereto;
<PAGE>
(ii) Certificates executed on behalf of Buyer
included in the closing documents;
(iii)
A copy of proceedings of the Board of Directors of
Buyer, certified by the Secretary or Assistant
Secretary of Buyer, authorizing the execution and
delivery of the Agreement and the other Documents;
(iv)
A copy of the Articles of Incorporation of
Buyer as in effect on the date hereof
("Articles");
(v) The By-Laws of Buyer as in effect on the date
hereof ("By-Laws"); and
(vi)
A certificate dated ______________, 199_ from
the Secretary of State of ___________
attesting to the continued corporate existence
and good standing of Buyer in ___________.
In addition, we have examined such corporate
records of Buyer and such other agreements, instruments and documents, as we
have deemed necessary as a basis for the opinions hereinafter expressed.
Whenever our opinion with respect to the existence
or absence of facts is indicated to be based on our knowledge, we are referring
solely to the conscious awareness of the particular Sullivan & Worcester
attorneys who have devoted substantive attention to the matters contemplated by
the Agreement. No inference as to our actual or imputed knowledge concerning
such facts should be drawn from the fact of our past or current representation
of Buyer.
For the purpose of providing our opinion, we have
assumed: (i) the genuineness of all signatures (other than signatures on behalf
of Buyer) on all documents; (ii) the authenticity of all documents submitted to
us as originals; (iii) the conformity to the originals of all documents
submitted
<PAGE>
to us as copies; (iv) the correctness and accuracy of all facts set forth in all
certificates and reports examined by us as a basis for this opinion; (v)
concerning individuals, the legal capacity and competency to enter into and
perform any contracts; (vi) the due execution and delivery, pursuant to due
authorization, of the Agreement and all other Documents (hereinafter defined) by
all parties to the Agreement other than Buyer; and (vii) that the Agreement and
the other Documents constitute the legal, valid and binding obligations of all
parties thereto other than Buyer, enforceable against such parties in accordance
with its terms.
Based upon the foregoing, and subject to the
assumptions, qualifications, limitations and exceptions set forth herein, we are
of the opinion that:
1. Buyer is a corporation duly organized,
existing and in good standing under Delaware law with all requisite corporate
power and authority to conduct its business and operations as presently
conducted.
2. Buyer has all requisite corporate power and
authority to execute, deliver and perform the Agreement and all documents
contemplated therein to be executed and delivered by Buyer (collectively, the
"Documents"). The execution, delivery and performance of the Agreement and the
other Documents have been duly authorized by all necessary action by Buyer.
Assuming the laws of the State of Illinois are identical to the laws of the
State of Massachusetts, the Agreement and the other Documents have each been
duly executed and delivered by Buyer and each is the valid and binding
obligation of Buyer enforceable against Buyer in accordance with their
respective terms.
3. After the inquiry described herein, we have
no knowledge of any consents which are required in connection with the Buyer's
performance of the Agreement other than those referred to in Section 4.05 of the
Agreement. Except as disclosed in the Agreement, we have no knowledge of any (x)
pending material proceedings at law or in equity pertaining to or affecting the
consummation or performance of the transactions contemplated by the Documents
(based solely on a review of our firm's internal docket and pending suit search
reports received from _______________________), or (y) material proceedings at
law or in equity threatened against Buyer or any of its assets or business
pertaining to or affecting the consummation or performance of the transactions
contemplated by the Documents (based solely on a certificate of an officer of
Buyer), or (z) judgment which is outstanding against Buyer pertaining to or
affecting the consummation or performance of the transactions contemplated by
the Documents, or, to or by which, Buyer, or any of its assets or business, is
subject or bound (based solely on judgment search reports from ____________).
<PAGE>
4. The execution, delivery and performance by
Buyer of the Agreement and the other Documents does not contravene Buyer's
Articles and By-Laws.
In addition to any assumptions, qualifications and
other matters set forth elsewhere herein, the opinions set forth above are
subject to the following:
(i) Our opinion with respect to the legality, validity, binding effect and
enforceability of the Agreement and other Documents is subject to the effect of
any applicable bankruptcy, insolvency, fraudulent conveyance, equitable
subordination, reorganization, moratorium or similar law and to the effect of
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing (regardless of whether
considered in a proceeding in equity, at law or otherwise).
(ii) We do not hereby express an opinion as to the strict enforceability
of each and every right, remedy and power contained in the Agreement and the
other Documents (including, without limitation, provisions concerning self-help,
summary remedies, or the appointment or designation of a receiver), in
accordance with their terms under all facts and circumstances. However, it is
our opinion that the remedies and provisions contained in the Agreement that
would be enforceable are sufficient as a whole, subject to the qualifications
elsewhere herein stated, for the practical realization of the essential benefits
intended thereby.
(iii) We call your attention to the following matters as to which we
express no opinion:
(a) Any agreements in the Agreement and the other Documents for
payment or reimbursement of costs, fees and expenses or
indemnification for claims, losses or liabilities to the extent
any such provision may be determined by a court or other tribunal
to be in an unreasonable amount, to constitute a penalty or to be
contrary to public policy;
(b) Any agreements in the Agreement and the other Documents to the
jurisdiction or venue of a particular court or to the waiver of
the right to jury trial; and
(c) Certain other provisions contained in the Agreement and the other
Documents may be limited or rendered ineffective by a court or
other tribunal, applicable laws or judicial decisions governing
such provisions or holding their enforcement to be unreasonable
under the then
<PAGE>
existing circumstances or contrary to public policy, but such
laws and judicial or other tribunal's decisions do not, in our
opinion, render the Agreement invalid as a whole.
(iv) For purposes of providing the opinions set forth herein, we are
relying on the assumption that your counsel has not given advice to you that is
contrary to any opinion rendered herein, and on the further assumption that
neither you nor your counsel has any knowledge that is either inconsistent with
the opinions set forth herein or that causes you to believe that the opinions
expressed herein are incorrect. If, to your knowledge, circumstances are such
that our reliance on the foregoing assumptions is inappropriate, and you have
not informed us thereof in writing prior to our issuance of this opinion letter,
then any of our opinions set forth herein that relate to or are affected by such
circumstances shall be deemed not to have been given.
Our opinions are limited to the matters expressly set forth herein, and no
opinion is implied, nor is any to be inferred, beyond the matters expressly so
stated.
We are attorneys admitted to practice in the State of Massachusetts, and we
express no opinion with respect to any matter insofar as it is governed by laws
other than the laws of the State of Massachusetts, the General Corporation Law
of the State of Delaware and the Federal laws of the United States.
This opinion is rendered solely for your information and assistance in
connection with the transactions described in the Documents, and may not be
relied upon by any other person or entity or for any other purpose without our
prior written consent. Further, the opinions herein are expressed as of the date
hereof, and we assume no obligation to revise, supplement or update this opinion
after the date hereof.
[IF RIGHTS UNDER AGREEMENT ASSIGNED TO ILLINOIS AFFILIATE THAT IS ACCEPTABLE TO
SELLER, LOCAL COUNSEL WILL GIVE SELLER ENFORCEABILITY, EXECUTION, DELIVERY AND
PERFORMANCE OPINION.]
Very truly yours,
Sullivan & Worcester
<PAGE>
EXHIBIT I
FORM OF RETAINED SYSTEM ESCROW AGREEMENT
----------------------------------------
THIS AGREEMENT, dated as of the ____ day of January, 1995, (this
"Agreement"), by and among Cablevision of Chicago, an Illinois limited
partnership ("Seller"), Continental Cablevision, Inc., a Delaware corporation
("Buyer"), and [CHEMICAL BANK] (the "Escrow Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Seller and Buyer have entered into an Asset Purchase Agreement,
dated as of January __, 1995 (the "Purchase Agreement"), pursuant to which Buyer
has agreed to purchase from Seller certain of Seller's assets used in connection
with the ownership and operation of cable television systems located in Cook and
DuPage Counties, Illinois, pursuant to the terms and conditions set forth in the
Purchase Agreement; and
WHEREAS, Seller has informed Buyer that (i) Seller has not obtained the
-
consent (the "Required Consent") required to transfer to Buyer the franchise(s)
(the "Franchise(s)") relating to the cable television systems listed on Annex A
hereto (the "Retained Systems"), and (ii) Seller and Buyer intend to obtain the
--
Required Consents necessary to transfer the Franchise(s) to Buyer as soon as
possible after the Closing Date; and
WHEREAS, in order to guarantee the payment to Seller of the portion of the
Purchase Price (as defined in the Purchase Agreement) relating to each of the
Retained Systems, Seller and Buyer desire to enter into this Agreement to set
forth the terms and conditions of the escrow deposit of a portion of the
Purchase Price and the subsequent disbursement of such amounts to Seller in
accordance with the terms provided for herein.
NOW, THEREFORE, in consideration of the foregoing and of the promises
contained herein, the parties hereto agree as follows:
ARTICLE 1.
FUNDS
-----
1.1. Delivery. Simultaneously with the execution of this Agreement,
--------
Buyer will deliver to the Escrow Agent cash in the aggregate amount of
$______________ representing that amount of the Purchase Price attributable to
the Retained Systems, to be held in escrow pursuant to the terms of this
Agreement. The allocation of the Purchase Price for each Franchise/Retained
System is set forth on Annex A hereto and such amount for each
Franchise/Retained System is herein referred to as the "Principal Amount" for
such Franchise/Retained System, and together with any
<PAGE>
and all interest earned thereon, the "Fund" for such Franchise/Retained System.
The Funds shall be held by the Escrow Agent pursuant to the terms of this
Agreement.
1.2. Receipt. The Escrow Agent agrees to hold and disburse the Funds
-------
solely in accordance with the terms and conditions of this Agreement and for the
uses and purposes stated herein. The Escrow Agent shall, upon receipt of the
Principal Amounts, issue written acknowledgement to Seller and Buyer of receipt
thereof.
1.3. Investment and Income. Upon receipt of the Principal Amounts, the
---------------------
Escrow Agent shall, pending the disbursement thereof pursuant to this Agreement,
invest the same and reinvest any interest thereon or proceeds therefrom in
accordance with the written instructions of Seller in (i) marketable direct
-
obligations issued or unconditionally guaranteed by the United States Government
or issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
--
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and having, at the time of acquisition, the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper having, at the time of acquisition, the
---
highest rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc. maturing within one year from the date of acquisition
thereof; (iv) certificates of deposit, other time deposits, and bankers'
--
acceptances maturing within one year from the date of acquisition thereof issued
by the Escrow Agent or any bank operating under the laws of the United Stated of
America or any state thereof or the District of Columbia which has combined
capital and surplus of not less than $100,000,000; or (v) institutional money
-
market funds organized under the laws of the United States of America or any
state thereof that invest solely in any of the investments permitted under
clauses (i), (ii), (iii) and (iv) hereof. Absent such written instructions from
Seller, the Escrow Agent may, in its sole discretion, invest the Funds in any of
the instruments or accounts listed in the preceding sentence and in the order so
listed. The Escrow Agent shall make monthly payments to Seller on the last day
of each calendar month of the investment earnings on money in the Escrow Account
received by the Escrow Agent during that month. Escrow Agent in its capacity as
escrow agent hereunder shall not have any liability for any loss sustained as a
result of any investment made pursuant to the instructions of Seller as a result
of any liquidation of any investment prior to its maturity or for the failure of
Seller to give the Escrow Agent instructions to invest or reinvest the Escrow
Fund or any earnings thereon.
<PAGE>
ARTICLE 2.
PROCEDURES FOR DISBURSEMENT OF FUNDS
------------------------------------
The Escrow Agent shall hold and disburse the Funds on the terms and
conditions set forth below and as set forth under Section 1.1.
Notwithstanding anything to the contrary in this Agreement:
(1) As to each Retained System covered by each Franchise, upon the
earliest to occur of (a) the securing of the Required Consent with
-
respect to such Retained System, (b) _______________, 1998 and (c)
- -
the date of expiration or other termination of the Franchises for such
Franchise/Retained System, the Fund shall be delivered to Seller in
accordance with the provisions of the following two sentences. Seller
shall notify the Escrow Agent in writing with written notice to Buyer
of the occurrence of the events described in clause (a), (b) or (c)
above. The Escrow Agent shall send a copy of such notice to Buyer and
shall deliver the Fund to Seller on the fifth business day after the
receipt by Buyer of such notice, unless prior to such date Buyer has
given written notice to the Escrow Agent and Seller that Seller is not
entitled to delivery of the Fund, in which case the Escrow Agent shall
continue to hold the Fund until such time as it receives joint written
instructions from Seller and Buyer with respect to the delivery of the
Fund to Seller or as ordered by a final and nonappealable order of a
court of competent jurisdiction. The only condition precedent
hereunder to the delivery of the Fund to Seller shall be the
occurrence of one of the above described dates.
(2) Seller shall be entitled to receive the interest earned on the
Funds.
(3) The Escrow Agent may deposit the Funds with the clerk of any court of
competent jurisdiction in __________, __________ upon commencement of
an action in the nature of interpleader or in the course of any court
proceedings relating to or arising out of this Agreement.
(4) If at any time the Escrow Agent receives a final, non-appealable order of
a court of competent jurisdiction, or written instructions signed by
each of Seller and Buyer directing delivery of the Funds, then the
Escrow Agent shall comply with such order or instructions. Upon any
delivery or deposit of all of the Funds as provided in this Article 2,
the Escrow Agent shall thereupon be released and discharged from any
and all further obligations arising in connection with this Agreement.
<PAGE>
ARTICLE 3.
ESCROW AGENT
------------
3.1. Appointment. Buyer and Seller hereby appoint Escrow Agent to serve
-----------
hereunder and Escrow Agent hereby accepts such appointment and agrees to perform
all duties which are expressly set forth in this Agreement.
3.2. Compensation. The Escrow Agent shall be entitled to compensation
------------
for its services hereunder in the amount of $________________. Compensation of
the Escrow Agent and all reasonable expenses of the Escrow Agent (including all
reasonable attorneys' fees of those attorneys not regularly in its employ) in
connection with the performance of its services hereunder shall be borne equally
by Buyer and Seller.
3.3. Indemnification. Notwithstanding anything to the contrary in the
---------------
foregoing, both Buyer and Seller will at their expense hold the Escrow Agent
harmless and indemnify the Escrow Agent in connection with any and all third
party claims, losses, judgments or costs, regardless of their nature, arising
out of or because of this Agreement, except such as may arise because of the
Escrow Agent's negligence or willful misconduct. Any such expense in the
preceding sentence as between Buyer and Seller shall be borne one half by Buyer
and one half by Seller. Buyer and Seller also exonerate said Escrow Agent from
any liability in connection with this Agreement except such as may arise because
of the Escrow Agent's negligence or willful misconduct in performing its
specified duties hereunder. Nothing in this Section 3.3 shall constitute a
waiver of any claim which Buyer and Seller may have against the other for
contribution arising from their joint obligations to hold the Escrow Agent
harmless hereunder. Anything in this Agreement to the contrary notwithstanding,
in no event shall the Escrow Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits (other than investment earnings)), even if the Escrow Agent has
been advised of the likelihood of such loss or damage and regardless of the form
of action.
3.4. Resignation. The Escrow Agent may resign at any time upon giving
-----------
the parties hereto 30 days' prior written notice. In such event, the successor
Escrow Agent shall be such person, firm or corporation as shall be mutually
selected by Buyer and Seller. It is understood and agreed that such resignation
shall not be effective until a successor agrees to act hereunder by signing a
copy hereof; provided, however, if no successor is appointed and acting
hereunder within 30 days after such notice is given, the Escrow Agent may pay
and deliver the Funds into a court of competent jurisdiction.
<PAGE>
ARTICLE 4.
LIABILITIES OF ESCROW AGENT
---------------------------
4.1. Limitations.
-----------
(a) The Escrow Agent shall be liable only to accept, hold and deliver the Funds
in accordance with the provisions of this Agreement and any amendments
hereto, provided, however, that the Escrow Agent shall not incur any
liability with respect to (a) any action taken or omitted in good
-
faith and with due care upon the advice of its counsel given with
respect to any questions relating to the duties and responsibilities
of the Escrow Agent under this Agreement, or (b) any action taken or
-
omitted in reliance upon any instrument which the Escrow Agent shall
in good faith and with due care believe to be genuine (including the
execution of such instrument, the identity or authority of any person
executing such instrument, its validity and effectiveness, and the
truth and accuracy of any information contained therein), to have been
signed by a proper person or persons and to conform to the provisions
of this Agreement.
(b) The Escrow Agent does not have any interest in the Funds deposited
hereunder but is serving as escrow holder only and having only
possession thereof. Buyer and Seller jointly and severally covenant
and agree to pay or reimburse the Escrow Agent upon request for any
transfer taxes relating to the Funds incurred in connection herewith
and shall indemnify and hold harmless the Escrow Agent from any
amounts that it is obligated to pay in the way of transfer taxes. Any
payments of income from the escrow account shall be subject to
withholding regulations then in force with respect to United States
taxes. Seller shall provide the Escrow Agent with an appropriate W-9
form for tax identification number certification or non-resident alien
certification. This Section 4.1(b) and Section 3.3 hereof shall
survive notwithstanding any termination of this Agreement or the
resignation of the Escrow Agent.
4.2. Collateral Agreements. Other than this Agreement, which
---------------------
shall be controlling, the Escrow Agent shall not be bound in any way by any
contract or agreement between other parties hereto, whether or not it has
knowledge of any such contract or agreement or of its terms or conditions.
ARTICLE 5.
TERMINATION
-----------
This Agreement shall be terminated upon the earliest to occur of (a)
-
disbursement or release of all of the Funds by the Escrow Agent as provided in
Article 2, (b) the written mutual consent signed by each of the parties hereto
-
or (c) delivery of the Funds into a court of competent jurisdiction in
-
accordance
<PAGE>
with this Agreement. This Agreement shall not be otherwise terminated.
ARTICLE 6.
OTHER PROVISIONS
----------------
6.1. Notices. Any notice, demand or request required or permitted to be
-------
given under the provisions of this Agreement shall be in writing and
dispatched by the same means to all of the foregoing on the same day and shall
be deemed to have been duly given and received (i) when delivered if delivered
-
by hand or by facsimile transmission or telex and (ii) three business days
--
after mailing if mailed by reputable courier service or registered or
certified mail, postage prepaid and return receipt requested, to the parties
at the following addresses (or to such other address as any party may request
in a notice delivered in accordance with this Section 6.1 to the other parties
hereto, provided that notices of a change of address shall be effective only
upon receipt thereof):
To Seller:
- ----------
Cablevision of Chicago
One Media Crossways
Woodbury, New York 11797
Telephone: (516) 364-8450
Attention: General Counsel
Copies to:
- ----------
Holleb & Coff
55 E. Monroe Street
Suite 4100
Chicago, Illinois 60603
Attention: Robert E. Kolek, Esq.
To Buyer:
- ---------
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Attention: Cristina Fernandez-Haegg
Telephone: ______________
Telecopier: _____________
<PAGE>
Copies to:
----------
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Lee Dunham, Esq.
Telephone: ______________
Telecopier: _____________
To Escrow Agent:
------------------
[CHEMICAL BANK
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
ATTENTION: ESCROW ADMINISTRATION, 15TH FLOOR]
Telephone: ______________
Telecopier: _____________
Unless otherwise refused by Buyer or Seller in writing, Escrow Agent shall
assume that the receipt of notice was received by Buyer or Seller on the same
day as received by Escrow Agent.
6.2. Benefit and Assignment. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
6.3. Entire Agreement; Amendment. This Agreement contains all the terms
---------------------------
agreed upon by the parties with respect to the subject matter hereof and
supersedes any prior agreements with respect to the subject matter hereof,
except Section 9.07 of the Purchase Agreement and except that capitalized terms
not otherwise used herein shall have the meanings set forth in the Purchase
Agreement. This Agreement may be amended only by a written instrument signed by
the parties against which enforcement of any waiver, change, modification,
extension or discharge is sought.
6.4. Tax Identification Numbers. Each party hereto, except the Escrow
--------------------------
Agent, shall provide the Escrow Agent with their Tax Identification Number (TIN)
as assigned by the Internal Revenue Service. All interest or other income earned
under the Escrow Agreement shall be allocated and paid as provided herein and
reported by the recipient to the Internal Revenue Service as having been so
allocated and paid.
6.5. Confirmation of Transfer Instructions; Certain Account Numbers.
--------------------------------------------------------------
(a) In the event funds transfer instructions are given (other than in
writing at the time of execution of this Agreement), whether in writing, by
telecopier or otherwise, the Escrow Agent is authorized to seek confirmation of
such instructions by telephone call-back to the person or persons
<PAGE>
designated from time to time in writing by the respective parties hereto, and
the Escrow Agent may rely upon the confirmations of anyone purporting to be the
person or persons so designated. The persons and telephone numbers for call-
backs may be changed only in a writing actually received and acknowledged by the
Escrow Agent. The parties to this Agreement acknowledge that such security
procedure is commercially reasonable.
(b) It is understood that the Escrow Agent, in connection with any Funds
transfer may rely solely upon any account numbers or similar identifying number
provided by either of the parties hereto to identify (i) such party, (ii) such
party's bank, or (iii) an intermediary bank.
6.6. Headings. The headings of the sections and subsections of this
--------
Agreement are for ease of reference only and do not evidence the intentions of
the parties.
6.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS (BUT NOT
-------------
THE LAWS OF CHOICE OF LAW) OF THE STATE OF ILLINOIS AS TO ALL MATTERS,
INCLUDING, BUT NOT LIMITED TO, MATTERS OF VALIDITY, CONSTRUCTION, EFFECT,
PERFORMANCE AND REMEDIES.
6.8. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized partners or officers as of the day and
year first written above.
SELLER:
CABLEVISION OF CHICAGO
By: _______________________
Name:
Title:
BUYER:
CONTINENTAL CABLEVISION, INC.
By: ________________________
Name:
Title:
ESCROW AGENT:
[CHEMICAL BANK]
By: ________________________
Name:
Title:
<PAGE>
ANNEX A
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[Franchises/Retained Systems and Allocation of Purchase Price Attributable
Thereto]
<PAGE>
EXHIBIT J
FORM OF MANAGEMENT AGREEMENT
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THIS AGREEMENT made as of the _______ day of ___________ 1995, by and
between Cablevision of Chicago, an Illinois limited partnership (the
"Seller"), and __________, a _________ __________ ("Manager").
WHEREAS, pursuant to that certain Asset Purchase Agreement, dated as
of January __, 1995 (the "Purchase Agreement"), among the Seller and the
Manager, the Manager has agreed to purchase from the Seller certain of
Seller's assets used in connection with the ownership and operation of
cable television systems located in Cook and DuPage Counties, Illinois;
WHEREAS, the Seller has informed the Manager that the consents (the
"Consents") required to transfer to the Manager the franchise(s) relating
to the ________ System (the "______ System") will not be obtained prior to
the Closing Date (all capitalized terms used herein and not defined herein
shall have the same meanings as set forth in the Purchase Agreement); and
WHEREAS, Seller and the Manager desire to enter into this Agreement
and set forth their agreements whereby the Manager will operate and manage
the _________ System.
NOW, THEREFORE, for the consideration herein stipulated, the parties
hereby agree as follows:
7. Management of the ________ System.
---------------------------------
7.1. From and after the Closing Date, the parties shall cooperate with each
other and shall continue to use their commercially reasonable efforts
consistent with Section 9.03 of the Purchase Agreement in seeking the
consent of the City of ___________ to the transfer of the _________
franchise(s) to the Manager from Seller.
7.2. From the Closing Date,
(a) The Manager shall operate and manage the _________ System until the earlier
of (A) the closing of the sale of the _________ System to the Manager
-
(the "__________ Closing") or (B) _________________, 1998; provided
- --------
that, if the ______ Closing shall not have occurred, the Manager shall
continue to operate and manage the ______ System after such date
pursuant to the terms of this Agreement for a period not in excess of
one year pending the sale of the ______ System as provided below. From
and after __________, 1998, or on such earlier expiration date of the
franchise with respect to the
<PAGE>
________ System or such earlier date as the City of ________ shall
have irrevocably denied consent to the transfer of the _____ franchise
to the Manager from the Seller, Seller shall cooperate with the
Manager to sell, and the Manager shall use all its commercially
reasonable efforts to sell, at the Manager's expense, the _______
System (in which case the Manager shall receive the proceeds of such
sale) or, at the election of the Manager, provide the Manager with a
management agreement or a lease with respect to the _______ System
containing such terms as the Manager reasonably requests.
(b) Seller shall continue to own the ________ System and exercise ultimate
control over the operation thereof. The Manager shall not, during the
continuance of this Agreement, take any action that would constitute
(or fail to take any action the effect of which failure would be to
cause) (A) an impermissible change in control under the _____
-
franchise or (B) an impermissible transfer of a Federal
-
Communications Commission ("FCC") license.
(c) Seller shall have the right to monitor the activities of the Manager in
operating the _____________ System, provided, however, that Seller's
monitoring of operations shall not in any way interfere with the
Manager's day-to-day operation thereof in accordance with this
Agreement.
8. Duties of the Manager. During the term of this Agreement, except
---------------------
as set forth in Section 1, this Section 2 or Section 3, the Manager shall
have all requisite authority to manage the day-to-day operations of the
_______ System on behalf of the Seller. During the term of this Agreement,
the Manager agrees:
8.1. to be responsible for the negotiation and consummation of any and all
agreements, leases, contracts, documents and other instruments
necessary or convenient for the management and operation of the
______________ System;
8.2. to supervise the collection of income and other amounts due to Seller and
the payment of expenses (including but not limited to franchise fees)
relating to the ______________ System;
8.3. to implement and maintain such accounting and administrative records,
procedures and reports as shall be necessary to operate the ________
System;
8.4. to purchase liability and other insurance reasonably necessary to protect
the assets comprising the ______ System and usual and customary for
businesses similar to that of the _______ System; to name the Seller
as an additional insured with respect to each such insurance policy;
and the Manager shall assume all risks in connection with the adequacy
of any insurance;
<PAGE>
8.5. to be responsible for all personnel matters, and to provide, manage and
adequately train all employees and other personnel necessary to
operate the _________ Systems;
8.6. to prepare status reports, financial reports and cash disbursements
reports relating to the operation of the _______ System and to
promptly provide such reports and other information to the Seller on a
quarterly basis;
8.7. to keep, in the name and for the account of Seller, full and adequate
books of account and other records reflecting the results of operation
of the ______ System on an accrual basis, in accordance with generally
accepted accounting principles;
8.8. to prepare annual tax reports necessary for the operation of
the______________ System (other than Federal, state and local income
tax returns of Seller), to prepare, as necessary, any reports and
other documents required to be filed with governmental and regulatory
agencies (other than with respect to income tax matters), and act as
liaison with Federal, state and local governmental and regulatory
officials with respect thereto, and to provide Seller on a timely
basis all information necessary to prepare its Federal, state and
local income tax returns;
8.9. to pay all expenditures incurred by the Manager in the ordinary course of
operating the _______ System;
8.10. to pay all expenses of the _________ System, including, but not limited
to, payroll and all other taxes;
8.11. to make all capital expenditures reasonably appropriate or necessary in
connection with the operation of the Systems;
8.12. to manage and operate the ______ System in full compliance with
applicable law, including, but not limited to, the Communications Act
of 1934, as amended, and all rules and regulations promulgated by the
FCC thereunder, and the terms and provisions of the _______ franchise
and all other agreements relating to the ______ System;
8.13. to not cause or permit the ______ System to take any action that would
create, or permit to be created, any obligation or liability that
would have recourse to Seller or any of its partners or to any amounts
held in any escrow fund contemplated by the Purchase Agreement; and
8.14. to operate and manage the _______ System with the same level of care as
it operates cable television systems owned by the Manager.
Upon the request of Seller, the Manager shall give information and
notices regarding the activities described in this Section 2.
<PAGE>
9. Obligations of Seller. Notwithstanding anything in Section 1 or 2
---------------------
hereof to the contrary (a) during the term of this Agreement, Seller shall
-
be responsible for all decisions affecting the operations of the _______
System, including the matters referred to in Sections 1 and 2 (and
including particularly all financial and personnel matters), to the extent
the Seller must continue to be responsible for any such decisions under any
agreement, including the franchise agreement relating to the ______ System,
or applicable law, and (b) Seller shall be entitled to control any tax
-
investigation or audit relating in any way to the ______ System to the
extent it could affect any taxes payable by Seller or any of its partners
for periods prior to the _____ Closing.
10. Compensation of the Manager.
---------------------------
10.1.For its services pursuant to this Agreement, the Manager shall be entitled
beginning on ____________, 1995, to the Excess Cash Flow (as herein
defined) for the _______ System for the period commencing on the date
hereof through the date that the Manager ceases its operation and
management of the _______ System in accordance with Section 1(b)(i) hereof
(or such later date as the parties may agree).
10.2.For purposes hereof, the term "Excess Cash Flow" shall mean, for any fiscal
period of the ______ System, the Operating Cash Flow for such fiscal period
over the aggregate capital expenditures made in respect of the _____ System
during such fiscal period. "Operating Cash Flow" shall mean, for any fiscal
period, (i) the gross operating revenue of
-
the ______ System (excluding the amortization of deferred installation
income) for such period minus (ii) all operating expenses for such
----- --
period, including, without limitation, technical, programming, sales,
selling and general administration expenses and salaries, franchise
fees and taxes based on income and revenue, but excluding management
fees payable pursuant to Section 4(a), depreciation, amortization and
other non-cash charges, in each case determined in accordance with
generally accepted accounting principles consistently applied. All
amounts payable to the Manager pursuant to Section 4(a) above shall be
paid solely out of the cash flow and assets of the _______ System,
shall be due on the last day of each calendar month and shall be paid
within 30 days of the end of each calendar month.
11. No Contributions by Seller. During the term of this
--------------------------
Agreement, neither Seller nor any of its partners shall be obligated to
contribute any capital to or make any funds available for the operation of
or the obligations or liabilities relating to the _______ System and the
Manager shall be solely responsible for all expenses and expenditures
thereof. Without limiting the generality of the foregoing, neither the
Seller nor any of its partners will be responsible for any compensation
payable to the Manager; such compensation to be payable solely
<PAGE>
out of the Excess Cash Flow of the ______ System as provided in
Section 4 above.
12. Term of Agreement; Effect of Termination. This Agreement
----------------------------------------
shall continue in full force and effect until the date that the
Manager ceases its operation and management of the ______ System in
accordance with Section 1(b)(i) hereof. Seller shall pay to the
Manager within 10 days of termination of this Agreement all amounts
due under Section 4 for months ended prior to the date of termination
and a prorated portion, based on days elapsed prior to termination in
the month of termination, of all amounts due under Section 4 for the
month including the date of termination. To the extent that any amount
relating to the period prior to termination which would thereafter
have become due under Section 4 had this Agreement not been
terminated, such amount shall be paid to the Manager on the date it
would have been paid had this Agreement not been terminated.
13. Indemnification of Seller.
-------------------------
13.1. The Manager shall indemnify and hold harmless Seller and its affiliates
and their respective directors, officers, partners and employees
(collectively, the "Seller Indemnitees") from and against any and all
losses, claims, costs, damages, liabilities, expenses (including
reasonable attorneys' fees and the costs incurred by the Seller in
enforcing its rights hereunder), whether or not arising out of third
party claims (collectively, " Seller Losses"), resulting from or
arising out of (i) the Manager's bad faith, negligence or willful
-
misconduct in connection with the performance by the Manager of this
Agreement, (ii) any violation by the Manager of this Agreement or
--
(iii) the operation of the ______ System after the date hereof.
---
13.2. Expenses incurred by the Seller Indemnitees in defending any legal action
subject to this Section 7 shall, from time to time, be advanced by the
Manager prior to the final disposition of such legal action.
13.3. The indemnification provided in this Section 7 shall inure to the benefit
of the successors, administrators and permitted assigns of the Seller
Indemnitees.
13.4. The provisions of this Section 7 are for the benefit of the Seller
Indemnitees and their respective successors, administrators and
permitted assigns and shall not be deemed to create any rights for the
benefit of any other persons.
13.5. If the indemnification provided for in this Section 7 is determined by a
court of competent jurisdiction to be unenforceable or unavailable to
any Seller Indemnitee for any reason, in lieu of such indemnification,
the Manager will contribute to the amount of the Seller Losses of such
Seller Indemnitee to the maximum extent legally permissible.
<PAGE>
8. Indemnification of Manager.
--------------------------
(a) Seller shall indemnify and hold harmless the Manager and its
affiliates and their respective directors, officers, partners and employees
(collectively, the "Manager Indemnitees") from and against any and all losses,
claims, costs, damages, liabilities, expenses (including reasonable attorneys'
fees and the costs incurred by Manager in enforcing its rights hereunder),
whether or not arising out of third party claims (collectively, "Manager
Losses"), resulting from or arising out of any violation by Seller of this
Agreement.
(b) Expenses incurred by the Manager Indemnitees in defending any legal
action subject to this Section 8 shall, from time to time, be advanced by Seller
prior to the final disposition of such legal action.
(c) The indemnification provided in this Section 8 shall inure to the
benefit of the successors, administrators and permitted assigns of the Manager
Indemnitees.
(d) The provisions of this Section 8 are for the benefit of the Manager
Indemnitees and their respective successors, administrators and permitted
assigns and shall not be deemed to create any rights for the benefit of any
other persons.
(e) If the indemnification provided for in this Section 8 is determined by
a court of competent jurisdiction to be unenforceable or unavailable to any
Manager Indemnitee for any reason, in lieu of such indemnification, Seller will
contribute to the amount of the Manager Losses of such Manager Indemnitee to the
maximum extent legally permissible.
(f) Notwithstanding anything to the contrary contained in this Agreement,
no general partner of Seller shall have any personal liability in respect of any
of Seller's obligations under this Agreement by reason of his or its status as
such general partner. In addition, no partner, officer, director, shareholder or
other holder of an ownership interest of or in Seller shall have any personal
liability in respect of any such party's obligations under this Agreement by
reason of his or its status as such partner, officer, director, shareholder or
other holder.
9. Independent Contractor. The Manager and Seller are not partners
----------------------
or joint venturers with each other and nothing herein shall be construed so as
to make them such partners or joint venturers.
10. Non-Assignability of Agreement. Seller shall not have the right
------------------------------
to assign this Agreement, other than to a successor of Seller. No assignment of
this Agreement shall be made by the Manager, unless it is assigned to a
subsidiary of the Manager.
<PAGE>
11. Waiver. No waiver of any term, provision, or condition of this
------
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed or construed as a further and continuing waiver of any such term,
provision or condition, but either party hereto may waive its rights in any
particular instance by a written instrument of waiver.
12. Entire Agreement. This Agreement represents the entire understanding
----------------
of the parties hereto with respect to the subject matter hereof, and may not be
modified or amended, except by a written instrument executed by each of the
parties hereto designating specifically the terms and provisions so modified and
amended.
13. Choice of Law. The internal laws of the State of Illinois shall
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govern this Agreement and the construction of any of its terms.
14. Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first set forth above.
CABLEVISION OF CHICAGO
By:_________________________
Name:
Title:
CONTINENTAL CABLEVISION, INC.
By:_________________________
Name:
Title:
<PAGE>
AGREEMENT TO PURCHASE PARTNERSHIP INTERESTS
-------------------------------------------
This Agreement is entered into as of the 29th day of March, 1995, by and
among Continental Cablevision Investments, Inc., a Delaware corporation ("CCI"
or the "Buyer"), and Alta IV Limited Partnership, a Delaware limited
partnership, C.V. Sofinnova Partners Five, a Netherlands Antilles limited
partnership, Vintage Limited Partnership, a Massachusetts limited partnership,
N-COM II, Inc., a Michigan corporation, and N-Com Inc., a Michigan corporation
(each individually, a "Seller" and collectively, the "Sellers").
W I T N E S S E T H
WHEREAS, on January 24, 1992, CCI and the Sellers entered into that certain
Limited Partnership Agreement (the "Partnership Agreement") of N-COM Limited
Partnership II (the "Partnership") pursuant to which the Partnership has,
through the various entities described in Schedule I hereto (together with the
Partnership, the "Enterprise"), engaged in the ownership of interests in
entities engaged in the operation of cable television systems (the "Systems")
serving the towns, communities and areas described in Schedule II attached
hereto; and
WHEREAS, the Sellers collectively own 66.23% of the partnership interests
in the Partnership and CCI owns 33.77% of the partnership interests in the
Partnership, and Buyer will, pursuant to this Agreement and upon the
consummation of the transactions contemplated hereby, own 100% of the
partnership interests of the Partnership; and
WHEREAS, a Sale Event as described in Section 5.03 of the Partnership
Agreement occurred on September 30, 1994;
WHEREAS, pursuant to their rights under Section 5.03 of the Partnership
Agreement, upon the happening of such Sale Event, at least forty percent (40%)
in interest
<PAGE>
of the partners in the Partnership may elect to exercise their right to sell
their partnership interests in the Partnership (collectively, the "Partnership
Interests" and each partner's individually, a "Partnership Interest") by
delivering written consent to the General Partner of the Partnership, and such
partners would thereby be granted the exclusive power and authority to sell all
of the interests in, or the assets and business of, the Enterprise (such power
and authority is defined in the Partnership Agreement, and hereinafter referred
to, as the "Authority to Sell"); and
WHEREAS, in lieu of delivering such written consents and thereby creating
an Authority to Sell, the Sellers have decided instead to sell their Partnership
Interests in the Partnership, including the Related Interests (as hereinafter
defined), to the Buyer without exercising such right for the consideration
hereinafter set forth, all upon the terms and conditions herein set forth;
provided, however, that if the transactions set forth herein are not
consummated, the Sellers reserve their right to be granted such Authority to
Sell; and
WHEREAS, Buyer desires to purchase the Partnership Interests and Related
Interests pursuant to, and in accordance with, these terms and conditions and
upon such purchase will own all of the partnership interests in the Partnership.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, each of the Sellers,
severally, and Buyer do hereby covenant and agree as follows:
2
<PAGE>
1. Sale of Partnership Interests.
-----------------------------
1.1 Agreement to Purchase and Sell. Subject to the terms, provisions and
------------------------------
conditions contained in this Agreement, and on the basis of the representations
and warranties herein set forth:
(A) Each of the Sellers severally agrees to sell, assign, transfer, convey
and deliver its Partnership Interests to Buyer on the Closing Date (as
hereinafter defined), and Buyer agrees on the Closing Date to purchase, pay for,
acquire and accept the assignment, transfer and delivery from each such Seller
of its Partnership Interest, free and clear of any liens, encumbrances or
adverse claims, other than (a) those claims arising under the terms of the
Partnership Agreement, (b) restrictions as to transfer under United States
federal or state securities laws and (c) claims resulting from Buyer's own
actions; and
(B) As contemplated by Section 7.06(b) of the Partnership Agreement, N-COM
II, Inc. hereby agrees, for no additional consideration, to assign, transfer,
convey and deliver its general partnership interests in Irish Hills Cablevision
Limited Partnership, a Michigan limited partnership ("Irish Hills"), and Omnicom
CATV Limited Partnership, a Michigan limited partnership ("Omnicom CATV"), of
one percent (1%) and one-tenth of one percent (0.1%), respectively (the "Related
Interests"), and Buyer agrees on the Closing Date to acquire and accept the
assignment, transfer and delivery from N-COM II, Inc. of such Related Interests,
free of any liens, encumbrances or adverse claims, other than (a) those claims
arising under the partnership agreements of Irish Hills and Omnicom CATV, (b)
restrictions as to transfer under United States federal or state securities
laws, and (c) claims resulting from the Buyer's own actions.
3
<PAGE>
2. Closing.
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2.1 Purchase Price. The aggregate purchase price payable for the
--------------
Partnership Interests (the "Interests Purchase Price") shall be calculated and
paid as follows:
(a) the Interests Purchase Price shall be equal to the product of
(i) the aggregate Percentage Interests (as defined in the Partnership Agreement
) of all of the Sellers multiplied by (ii) the "Net Equity Value" of the
Enterprise, which shall be equal to:
(i) the product of (A) 37 multiplied by (B) the sum of (1) the "net cash
flow," "capital spending" and "administrative overhead" of N-Com Holding
Corporation ("Holding") (the "System Cash Flow") for the quarter ending June 30,
1995 (the last day of such quarter being hereinafter referred to as the
"Calculation Date"), all as shown on the consolidated unaudited summary of
operations of Holding for such quarter and computed in accordance with the same
accounting practices and procedures as were applied with respect to the Holding
consolidated unaudited summary of operations for the two months ended November
30, 1991 (the agreement of the parties being that the items of expense
(including categories of personnel) which were used in computing "net cash flow"
and those which were allocated to "capital spending" and "administrative
overhead" for the purposes of such summary shall remain the same for the
purposes of the calculation of System Cash Flow), plus (2) an amount equal to
----
the Aggregate Discount Savings (as defined below) that the Enterprise would have
realized during such quarter if they had been wholly-owned by the Buyer; plus
----
(ii) an amount equal to the excess, if any, of the current assets minus
current liabilities (other than any current portions of the Senior Debt or
Subordinated Debt included in clause (iv) below) on Holding's consolidated
balance sheet as of the Closing Date, each as
4
<PAGE>
determined in accordance with generally accepted accounting principles applied
on a consistent basis; plus
----
(iii) an amount equal to the Extraordinary Capital Expenditures, as
defined in Section 7.1 hereof, incurred by the Enterprise prior to the Closing
Date, including any interest on amounts borrowed under the Senior Debt (as
defined below) to fund such Extraordinary Capital Expenditures; minus
-----
(iv) an amount, determined as of the Closing Date, equal to the sum of:
(A) the outstanding principal amount of and accrued interest on the Enterprise's
obligations under that certain Revolving Credit and Term Loan Agreement, dated
as of December 31, 1992 (as amended from time to time, the "Senior Loan
Agreement"), by and among Omnicom of Michigan, Inc., Clear Cablevision, Inc.,
Irish Hills and Omnicom CATV (collectively, the "Operators"), Holding, the
Signatory Banks thereto and National Westminster Bank, USA, as Agent
(collectively with the Signatory Banks, the "Senior Lender") (the "Senior
Debt"), such amount not to include the unused portion of the aggregate Revolving
Credit Commitment (as defined in the Senior Loan Agreement); (B) the outstanding
principal amount of the subordinated notes (the "Subordinated Notes"), together
with deferred and accrued interest thereon (the "Subordinated Debt"), issued
under that certain Note and Partnership Interest Purchase Agreement, by and
among the Partnership, N-COM Group, Inc., Holding, the Operators, Harcharan S.
Suri, N-Com Inc., N-COM II, Inc., each of the other Sellers and CCI, dated as of
January 24, 1992 (as amended from time to time, the "Note Purchase Agreement");
(C) deferred management fees due to N-Com Inc. from Holding (the "Deferred
Fees") in the amount of $373,194.30, together with interest thereon at the rate
of 25% per annum from December 31, 1991, pursuant to Section 2 of the 1992
Amended and Restated
5
<PAGE>
Management Agreement between N-Com Inc. and Holding (the "Management
Agreement"); (D) deferred compensation for management services due to N-Com Inc.
from Holding (the "Deferred Compensation") pursuant to and calculated in
accordance with Section 3D of the Management Agreement; (E) accrued amounts due
to the stockholders of N-COM II, Inc., pursuant to and calculated in accordance
with Section 5 of the Management Agreement (the "Make-Whole Payments"); (F)
special compensation payments not to exceed $600,000 in total to those employees
listed in Schedule 6.8 who are eligible to receive payments under the
------------
Enterprises' incentive compensation plans (the "Incentive Compensation Plans"),
as amended or to be amended prior to Closing pursuant to Section 3.12 hereof
(the "Amended Incentive Compensation Plans"), in consideration of those
employees signing Incentive Compensation Payment Agreements; (G) any other
consolidated indebtedness of the Enterprise for borrowed money or capitalized
leases; and (H) an amount equal to the excess, if any, of the current
liabilities (other than any current portions of the Senior Debt or Subordinated
Debt included above) minus current assets on Holding's consolidated balance
sheet as of the Closing Date, each as determined in accordance with generally
accepted accounting principles applied on a consistent basis.
For the purposes of this Section 2.1(a), "Aggregate Discount Savings" shall
have the meaning set forth in the Programming Agreement dated as of January 24,
1992 by and among the Enterprise, the Buyer and certain other parties (the
"Programming Agreement"), subject to adjustment to reflect the increase in the
Buyer's interest in the Enterprise from 33.77% to 100%.
For the purposes of this Section 2.1(a), if requested by CCI, the
computation of the Interests Purchase Price shall be made in accordance with
generally acceptable accounting
6
<PAGE>
principles by the Partnership's Independent Public Accountants (as defined in
the Partnership Agreement) whose decision shall be final and binding.
(b) Each Seller shall receive its proportionate share of the Interests
Purchase Price, determined on the basis of the Sellers' respective Percentage
Interests (as defined in the Partnership Agreement); provided, however, that if
-------- -------
the Net Equity Value of the Enterprise exceeds the aggregate of $13,222,268 plus
a thirty percent (30%) annual compounded return thereon from January 24, 1992
through the Closing Date, (i) the Interests Purchase Price shall be increased by
an amount equal to the product of (A) CCI's Percentage Interest and (B) the
lesser of such excess or the General Partner Preferred Return (as defined in the
Partnership Agreement) and (ii) such excess shall first be paid to the General
Partner (in an amount up to General Partner Preferred Return) and the remainder
shall be paid to all of the Sellers in proportion to their Percentage Interests.
Each Seller's proportionate share of the Interests Purchase Price as determined
above is hereinafter referred to as its "Pro Rata Share."
(c) Attached hereto as Schedule 2.1 is an example of the calculation
------------
and payment of the Interests Purchase Price based upon the financial statements
of the Enterprise for the quarter ended December 31, 1994. The calculation and
payment of the actual Interests Purchase Price shall be made on a basis
consistent with Schedule 2.1.
------------
2.2 Manner and Time of Payment. The closing for the sale and
--------------------------
purchase of the Partnership Interests (the "Closing"), shall take place at the
offices of Sullivan & Worcester, One Post Office Square, Boston, Massachusetts,
on such date after the date of this Agreement as all the Required Consents,
Required Renewals and Required Extensions (as defined in Sections 3.4 and
3.10(c)) shall have been obtained by Sellers (the date of any
7
<PAGE>
such Closing being hereinafter referred to as the "Closing Date"), but in no
event earlier than July 15, 1995 or later than a date that is seven months from
the date hereof; provided, however, that if at that time all of the Required
-------- -------
Consents for the franchises have not been obtained in accordance with Section
5.4 hereof and the Sellers are using their best efforts to obtain such Required
Consents, the Closing Date may be extended by Buyer or Sellers for two more
months but in no event later than a date that is nine months from the date
hereof. After all Required Consents and Required Renewals have been obtained,
Sellers shall give written notice to Buyer at least 10 business days preceding
the date on which the Closing is to occur. Buyer agrees that at the Closing it
will (a) deliver One Million, Seven Hundred Fifty Thousand dollars ($1,750,000)
(the "Escrow Amount") of the Interests Purchase Price by wire transfer of
immediately available funds to an escrow agent, reasonably satisfactory to Buyer
and the Sellers (the "Escrow Agent"), to be held by the Escrow Agent for a
period of one year from the Closing Date pursuant to and in accordance with the
terms of the Escrow Agreement to be executed substantially in the form attached
hereto as Exhibit 2.2A, (b) deliver the Subject Franchise Price for each Subject
Franchise determined in accordance with the terms of Section 7.4(a) hereof by
wire transfer of immediately available funds to an escrow agent reasonably
satisfactory to Buyer and the Sellers, to be held by such escrow agent in
accordance with the terms of Section 7.4 hereof, and the escrow agreement with
respect to the Subject Franchises to be executed substantially in the form
attached hereto as Exhibit 2.2B and (c) deliver the remainder of the Interests
Purchase Price and an amount equal to the product of (i) the aggregate
Percentage Interests (as defined in the Partnership Agreement) of all of the
Sellers multiplied by (ii) the Extraordinary Capital Expenditures that
8
<PAGE>
were funded by the Enterprise and not financed by Senior Debt to the Sellers in
accordance with their Pro Rata Shares by wire transfer of immediately available
funds.
3. Representations and Warranties of Sellers. Each of the Sellers
-----------------------------------------
severally, in proportion to their Pro Rata Share, and not jointly, represents,
warrants, covenants and agrees that the following statements, except as set
forth in disclosure schedules attached hereto (the "Disclosure Schedule"), are
true and correct as of the date hereof and, except as otherwise disclosed on a
disclosure schedule updated to reflect the discovery of any fact or condition
contrary to or inconsistent with any such representation or warranty between the
time of signing the Agreement and the Closing (the "Updated Disclosure
Schedule") or to the extent such representations and warranties expressly relate
to an earlier date, will be true and correct on the Closing Date:
3.1 Organization and Power of Sellers. Such Seller is duly
---------------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, with full organizational power and authority to
execute and deliver this Agreement and all documents and instruments (including,
without limitation, all exhibits hereto) required to be executed and delivered
by it pursuant hereto (the "Other Seller Documents"), and to carry out the
transactions contemplated hereby and thereby. Such Seller has good and
marketable title to the Partnership Interests (and, in the case of N-COM II,
Inc., the Related Interests), that is (or are) to be transferred to the Buyer by
such Seller pursuant hereto, free and clear of any and all liens, encumbrances
and adverse claims whatsoever (except those (a) arising under the Partnership
Agreement, the Limited Partnership Agreement of Irish Hills or the Limited
Partnership Agreement of Omnicom CATV, (b) pursuant to restrictions on transfer
under United States federal or state securities laws, (c) claims resulting from
the Buyer's
9
<PAGE>
own actions or (d) securing the Senior Debt), and, upon payment of the Interests
Purchase Price and the purchase contemplated hereby, the Buyer will acquire from
such Seller all of such Seller's right, title and interest to such Partnership
Interests and, in the case of N-COM II, Inc., the Related Interests, free and
clear of any liens, encumbrances or adverse claims, other than as set forth
above. Schedule 3.1 attached hereto sets forth a true and correct description
------------
of all Partnership Interests and Related Interests owned by such Seller.
3.2 Due Authorization; No Conflicts. All requisite organizational
-------------------------------
action for the execution, delivery, performance and satisfaction by such Seller
of this Agreement and each of the Other Seller Documents has been taken, other
than the approvals referred to in Section 3.4. This Agreement has been duly
executed and delivered by such Seller and is, and each of the Other Seller
Documents, upon execution and delivery, will be, a legal, valid and binding
obligation of such Seller, enforceable in accordance with its respective terms,
except to the extent that such enforcement may be subject to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws of general
application affecting the rights and remedies of creditors or secured parties,
and the availability of equitable remedies including specific performance and
injunctive relief or may be subject to equitable defenses and the discretion of
the court before which any proceeding therefor may be brought. The execution
and delivery of this Agreement and the Other Seller Documents and the
consummation of the transactions contemplated hereby and thereby (provided that
all the Required Consents listed on Schedule 3.4 are obtained) will not conflict
------------
with, or result in any breach of, or default under, the terms, conditions or
provisions of, any order, writ, injunction, decree, judgment, law or regulation,
relating to the ownership or operation of the Systems, or of any of such
Sellers' governing documents or any material agreement or
10
<PAGE>
instrument to which such Seller is a party or by which it or the Partnership,
Holding or any of the Operators (each an "Enterprise Entity" and collectively,
the "Enterprise Entities"), or the Systems are bound, or result in the creation
or imposition of any material lien, encumbrance or adverse claim of any nature
whatsoever on the Systems, or result in the acceleration of the due date of any
material obligation of such Seller or any of the Enterprise Entities (except as
set forth in Schedule 3.2 hereof).
------------
3.3 Organization of the Enterprise. Each of the Enterprise Entities
------------------------------
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, with full partnership or corporate power and
authority, as applicable, to conduct its business as presently conducted.
Except as set forth in Schedule 3.3, none of the Enterprise Entities owns any
------------
investment, directly or indirectly, in any other entity or any shares in any
corporation or is a partner or joint venturer with any other person. The
authorized and issued capital stock of each of the Enterprise Entities that are
corporations are set out in Schedule 3.3. The capital stock of such entities
------------
that are corporations are owned beneficially and of record in the manner and
percentages indicated on Schedule 3.3 and the equity interests in such entities
------------
that are not corporations are owned of record and beneficially in the manner and
percentages indicated in Schedule 3.3. All such shares of stock and equity
------------
interests are free and clear of any and all liens, encumbrances or adverse
claims whatsoever (other than those claims (a) arising under the terms of the
respective partnership agreements or charter documents of any of the Enterprise
Entities, (b) relating to the Senior Debt or (c) pursuant to restrictions on
transfer under United States federal or state securities laws).
3.4 Required Consents. Schedule 3.4 sets forth a list of all
----------------- ------------
authorizations, consents and approvals of, or filings with, any governmental
agency, authority or other body
11
<PAGE>
or any other third persons that will be required by or with respect to any of
the Enterprise Entities or the Sellers in connection with the execution and
delivery of this Agreement or the Other Seller Documents or the consummation of
the transactions contemplated hereby and thereby, except for such consent or
approvals not relating to the Franchises or Subject Agreements (each as defined
in Section 3.10(a)), the failure of which to obtain would not have a material
adverse effect on the business or financial condition of the Enterprise (the
"Required Consents").
3.5 Financial Statements. The Sellers have delivered to the Buyer an
--------------------
audited balance sheet of the Systems as at the close of September 30, 1994,
together with related audited statements of operations, changes in cash flows
and changes in partners' capital for the 12 month period ended September 30,
1994, including in each case related schedules (if any) and notes, all certified
by Ernst & Young, independent public accountants, (collectively the "Audited
Financial Statements"). The Sellers have also delivered to the Buyer the
Partnership's unaudited balance sheet as of the close of December 31, 1994,
together with related unaudited statements of operations, changes in cash flows
and changes in partners' capital for the twelve month period ended December 31,
1994 (collectively, the "Unaudited Financial Statements"). The Sellers will
deliver to the Buyer the Partnership's unaudited balance sheet and related
statements of operations, changes in cash flows and changes in partners' capital
for any additional quarterly periods ending at least 30 days prior to the
Closing Date (the "Current Financial Statements") as soon as they are available.
(The Audited Financial Statements, the Unaudited Financial Statements and the
Current Financial Statements are collectively referred to herein as the
"Financial Statements").
12
<PAGE>
All of the Financial Statements have been and will be prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods (except as set forth in such notes or statements and
subject, in the case of the Unaudited Financial Statements and the Current
Financial Statements, to the absence of footnote disclosure and year end audit
adjustments, which will not be material) and fairly present (or will, in the
case of the Current Financial Statements, fairly present) the financial
condition of the Partnership and the results of its operations as of the dates
thereof and throughout the periods covered thereby. Except as otherwise set
forth on Schedule 3.5, the Financial Statements reflect or provide for all
------------
material claims against, and all debts and liabilities relating to, the
Partnership, fixed or contingent, as of the dates thereof; and there has not
been any change since the date of the most recent Financial Statements which has
affected materially and adversely the Systems (or any material portion thereof)
or the condition, financial or other, or results of operations of the
Partnership other than (i) matters disclosed on the Disclosure Schedule or the
Updated Disclosure Schedule and (ii) the matters referred to in the last
sentence of Section 3.12.
3.6 Real Property. Schedule 3.6 contains a description of all real
------------- ------------
property which is owned, leased or used by any of the Enterprise Entities,
including all buildings, plants, improvements or important structures located
thereon. The Enterprise Entities have good and marketable title (of record in
the case of real property held in fee simple) to the real property and
improvements listed in Schedule 3.6 as being owned by the Enterprise Entities,
------------
free and clear of any material mortgages, liens, encumbrances, charges,
equities, claims and obligations to other persons of every kind and character,
other than those securing the Senior Debt and as set forth on Schedule 3.6.
------------
13
<PAGE>
3.7 Leases. The leases listed and described on Schedule 3.7
------ ------------
constitute all material leases of real or personal property under which any
Enterprise Entity is bound or to which any Enterprise Entity is a party. Each
lease listed on Schedule 3.7 is, except as disclosed on Schedule 3.7, valid,
------------ ------------
binding and enforceable in accordance with its terms on the Enterprise Entity
that is a party thereto and, to the best of the Sellers' knowledge, neither the
other parties thereto, nor the Enterprise Entity that is a party thereto is in
default or in arrears in the performance or satisfaction of any material
agreement or condition on its part to be performed or satisfied thereunder, and
no waiver or indulgence of any material agreement or condition has been granted
by any of the lessors under said leases.
3.8 Personal Properties. The Enterprise Entities own and have good
-------------------
and marketable title to all of the material tangible and intangible personal
properties, other than the leaseholds referred to in Section 3.7 and other than
dispositions in the ordinary course of business, reflected on the most recent
balance sheet referred to in Section 3.5 or used by any Enterprise Entity if not
so reflected, free and clear of all mortgages, liens, encumbrances, charges,
equities, claims and obligations to other persons, of whatever kinds and
character, except those securing the Senior Debt and as set forth on Schedule
--------
3.8. The fixed assets and machinery and equipment of the Enterprise are in good
- ---
operating condition, normal wear and tear excepted.
3.9 Employment Arrangements. With respect to employees of the
-----------------------
Enterprise Entities engaged in the operation of the Systems, the Enterprise does
not have any material obligation, contingent or otherwise, under any employment
agreement, any vacation, sick pay, severance or termination pay or deferred
compensation arrangement, retainer or consulting arrangements, pension,
retirement, bonus or profit-sharing plan, stock option or
14
<PAGE>
purchase plan or other employee contract or non-terminable (whether with or
without penalty) arrangement, group life, health, medical or hospitalization
insurance, plan or program or other employee or fringe benefit plan, other than
those listed or described on Schedule 3.9. Except as disclosed on Schedule 3.9,
------------ ------------
the Enterprise Entities have performed in all material respects all obligations
required to be performed under all such agreements, plans and arrangements and
are not in any material respect in breach of or in default or arrears under the
terms thereof.
3.10 Cable Television Business.
-------------------------
(a) Listed and identified on Schedule 3.10(a) are all of the cable
----------------
television franchises to construct, own and operate a cable television system
(the "Franchises") presently held by any of the Enterprise Entities, and the
political entities which have granted the Franchises. True, complete and
correct copies of the ordinances and agreements evidencing the Franchises (the
"Subject Agreements") are described in Schedule 3.10(a) and have been delivered
----------------
by the Sellers to the Buyer. To the best of the Sellers' knowledge, each of the
Franchises was duly and validly granted.
(b) All governmental authorizations necessary for the lawful
construction and operation of the Systems and all franchises required for the
provision of "cable service" as defined in the Communications Act throughout all
portions of the cities, communities and other areas identified on Schedule II
(the "Franchise Areas") have been obtained by the Enterprise, except as
otherwise described in Schedule 3.10(b) or where, except in the case of
----------------
Franchises or Subject Agreements, the lack of such authorization would not have
a material adverse effect on the business or financial condition of the
Enterprise. Except as set forth on Schedule 3.10(b), no other person or entity
----------------
has been granted the right to construct or
15
<PAGE>
operate, or has taken any action to construct or operate, a cable television
system in any portion of any of the Franchise Areas or, to the best of the
Sellers' knowledge, has made any application therefor which is pending (other
than the satellite master antenna television systems and multichannel-multipoint
distribution systems referred to below). To the best of the Sellers' knowledge,
listed on Schedule 3.10(b) are all multiple-dwelling units in the Franchise
----------------
Areas which are being served as of the date hereof by a satellite master antenna
television system or multichannel-multipoint distribution system.
(c) Each Franchise and Subject Agreement is the validly existing,
legally enforceable obligation of the Enterprise Entity that is a party thereto
and, to the best of the Sellers' knowledge, the other parties thereto. The
applicable Enterprise Entity has duly complied in all material respects with all
of the terms and conditions of each Franchise and each Subject Agreement, the
failure with which to comply would result in revocation or nonrenewal of any
Franchise or any Subject Agreement or any material monetary penalty thereunder.
To the best of the Sellers' knowledge and except as disclosed on Schedule
--------
3.10(c), there is no pending written claim (i) alleging that any Franchise was
- -------
improperly or invalidly granted or that there exists any material breach of any
Subject Agreement, (ii) expressing an intention to revoke or deny renewal of an
existing Franchise or Subject Agreement or other material right of any of the
Enterprise Entities or (iii) materially increasing the costs of the Enterprise
under any Franchise or any Subject Agreement. On the Closing Date and except as
disclosed on Schedule 3.10(c), the Enterprise will possess all material rights
----------------
granted under the Franchises and the Subject Agreements. Except as set forth in
Schedule 3.10(c), the Enterprise has timely renewed or timely filed notices of
- ----------------
renewal (the "Required Renewals") or obtained valid extensions (the "Required
Extensions") of the
16
<PAGE>
Franchises, in accordance with the Communications Act, with all governmental
authorities with respect to each Franchise expiring within 36 months after the
date of this Agreement. Except as set forth in Schedule 3.10(c), such notices
----------------
of renewal have been filed pursuant to the formal renewal procedures established
by Section 626(a) of the Communications Act. Schedule 3.10(c) sets forth a list
----------------
of all rate regulation complaints filed pursuant to the Communications Act,
received by the Enterprise and designated as "valid." Schedule 3.10(c) further
----------------
sets forth those Franchises that have been certified or filed for certification
under the Communications Act with respect to (i) rate regulation and (ii)
enforcement of FCC customer service standards.
(d) The Enterprise has paid all required franchise fees and pole
attachment fees being charged in respect to the Systems and such current
franchise fees and pole attachment fees are set forth in Schedule 3.10(d).
----------------
Except as set forth in Schedule 3.10(d), the Enterprise has received no written
----------------
notice of, and the Enterprise has no knowledge of, any proposed material
increase in the franchise or pole attachment fees and charges payable by the
Enterprise with respect to the System.
(e) Except as set forth on Schedule 3.10(e), the Enterprise has not
----------------
made any material written commitments to any state, municipal, local or other
governmental commission, agency or body with respect to the operation and
construction of the Systems that are not fully reflected in the Franchises or
the Subject Agreements. The Sellers have not entered into any material written
agreements with community groups or similar third parties (other than
programming agreements in the ordinary course of business) restricting or
limiting the types of programming that may be shown on the Systems. The Sellers
have made available to the Buyer true, complete and correct copies of all
material correspondence
17
<PAGE>
with any local franchising authority regarding customer service with respect to
the Systems. Except as set forth in summary form in Schedule 3.10(e), the
----------------
Enterprise has not committed or agreed to provide cable television services to
any person or entity free of charge or at a discounted or reduced rate.
(f) As of December 31, 1994, the Systems had 52,644 Subscribers. For
purposes of this Agreement, the number of "Subscribers" at any date shall be the
sum of (i) all paying subscribers (less bulk rate subscribers) who are then
connected and who have been receiving the basic broadcast service for at least
30 days, counting only primary connections, and (ii) all paying bulk or discount
rate subscribers, treating each unit receiving basic broadcast service on a bulk
or discount rate as one subscriber; provided, however, that each such bulk or
-------- -------
discount rate subscriber has been receiving basic broadcast service for at least
30 days pursuant to a written bulk service agreement with the Enterprise that
has been disclosed and a copy of which has been provided, to the Buyer; and
provided, further, that for the purpose of (i) and (ii) hereof, only a
- -------- -------
subscriber whose payment for cable services is less than 60 days past due shall
be deemed to be a Subscriber.
(g) As of December 31, 1994, the Systems had 35,188 Pay Units. For
purposes of this Agreement, the number of "Pay Units" shall be the sum of all
subscriptions for Home Box Office, Showtime, The Movie Channel, The Disney
Channel, Cinemax Playboy Channel, Music Choice or Pass ("pay services") by
Subscribers who pay full price for such pay services (including bulk
subscribers).
(h) Except as set forth on Schedule 3.10(h) and except for any
----------------
noncompliance that would not have a material adverse effect on the business or
financial condition of the Enterprise, the construction, maintenance and
operation of the Systems have
18
<PAGE>
been and are being conducted, and all drops have been or are being made, in
compliance in all material respects with all provisions of federal, state and
municipal and other laws, and administrative rules and regulations applicable
thereto, including, without limitation, the Communications Act and the rules and
regulations of the Federal Aviation Administration and in all material respects
with all applicable rules and regulations of the state, municipal, local or
other governmental commission, agency or body, if any, charged with the
regulation of cable television systems in the jurisdiction in which the Systems
are located (collectively, the "Local Authorities") and all applicable
provisions of the National Electric Code and the National Electric Safety Code.
Without limiting the generality of the foregoing, and except as set forth on
Schedule 3.10(h) and, except for any noncompliance that would not have a
- ----------------
material adverse effect on the business or financial condition of the
Enterprise, the aerial plant of the Systems, including trunk and distribution
cables, in all material respects is connected in accordance with the terms of
the Franchises and is at the approved height therefor; and all underground cable
has been buried in accordance with the terms of the Franchises.
(i) Except as set forth on Schedule 3.10(i), each person, firm,
----------------
corporation or other entity upon, over or under whose property are located,
maintained, installed or operated any of the properties or assets of the Systems
(other than drop lines running from cables to subscriber dwellings, which do not
cross any property other than the property of such subscribers) has granted to
the Enterprise valid, binding and enforceable right of entry agreements,
easements, licenses, rights of way or access agreements (other than where such a
grant of an easement, license or right of way is not necessary because the
Enterprise has access to such property through public utility easements), all of
which are in full force and
19
<PAGE>
effect in all material respects on the date hereof, with respect to the
maintenance, installation or operation of such properties or assets upon, over
or under such property. All MDU Agreements right of entry agreements,
easements, licenses, rights of way and access agreements, except as set forth in
Schedule 3.10(i), are valid, binding and enforceable by the Enterprise in all
- ----------------
material respects in accordance with their terms (except to the extent that such
enforcement may be subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws of general application affecting the rights and
remedies of creditors or secured parties, and the availability of equitable
remedies including specific performance and injunctive relief, or may be subject
to equitable defenses and the discretion of the court before which any
proceeding therefor may be brought). Except as set forth on Schedule 3.10(i),
----------------
to the best of the Sellers' knowledge, the Enterprise has not received any
written notice that the Enterprise is violating any rights of any person or
entity regarding any easements.
(j) Schedule 3.10(j) sets forth all of the signals carried by the
----------------
Systems. Except as set forth on Schedule 3.10(j), the Enterprise is in
----------------
compliance in all material respects with the provisions of the Communications
Act and the rules and regulations of, and has necessary authorizations from, the
FCC relating to carriage of signals, syndicated exclusivity, network non-
duplication, and retransmission consent, except for any noncompliance that would
not have a material adverse effect on the business or financial condition of the
Enterprise. With respect to the must carry and retransmission consent
provisions of the Communications Act and the rules and regulations of the FCC,
the Enterprise has obtained retransmission consents for all broadcast signals
carried on the Systems after October 5, 1993, except for the signals carried
pursuant to a must-carry
20
<PAGE>
election, and the systems are carrying all broadcast signals that elect and
qualify for must carry status except as set forth on Schedule 3.10(j). Except
----------------
as set forth on Schedule 3.10(j) and to the best of the Sellers' knowledge, as
----------------
of the date hereof, no written notices or demands have been received from the
FCC, from any television station, or from any other person, company, station,
governmental agency or unit claiming to have a right or objection challenging
the right of the Systems to carry any signal or deliver the same, or challenging
the channel position on which any television station is carried.
(k) The Enterprise has filed all material reports, notifications and
other documents required to be filed with respect to the Systems with the FCC.
Without limiting the generality of the foregoing and except as set forth on
Schedule 3.10(k), (i) the Enterprise has submitted to the FCC all material
- ----------------
filings, including, without limitation, cable television registration
statements, annual reports (including, without limitation, Form 325 Annual
Reports of Cable Television Systems, Form 395A Annual Employment Reports, and
Form 320 signal leakage reports), and aeronautical frequency usage notices that
are required under the rules and regulations of the FCC; (ii) the operation of
the Systems has been and is in compliance in all material respects with the
provisions of the Communications Act and the rules and regulations of the FCC,
and the Enterprise has not received any notice from the FCC of any violation of
said Act, rules, or regulations; (iii) the Enterprise has timely provided all
subscriber notices required by the rules and regulations of the FCC; (iv) the
Enterprise is in compliance in all material respects with the FCC's equal
employment opportunity rules; (v) the Systems are in compliance in all material
respects with the FCC's technical standards; (vi) the Enterprise and the Systems
are in compliance in all material respects with the FCC's consumer electronics
equipment compatibility rules including all
21
<PAGE>
subscriber notice requirements thereunder; (vii) to the extent required by the
rules and regulations of the FCC, the Enterprise has conducted all system and
microwave tests and all Cumulative Leakage Index ("CLI") related tests
applicable to the Systems, has corrected any radiation leakage of the Systems
required to be corrected in connection with monitoring obligations under such
rules and regulations, and has otherwise complied in all material respects with
all applicable CLI rules and regulations in connection with the operation of the
Systems; and (viii) the Enterprise has maintained appropriate log books and
other recordkeeping that accurately and completely reflect in all material
respects all results required to be shown thereon. The Enterprise has made
available to Buyer true, correct and complete copies of all reports and filings
with respect to the Systems made or filed by the Enterprise pursuant to FCC
rules and regulations.
(l) Except as set forth on Schedule 3.10(l), the Enterprise's
----------------
operation of the Systems is in compliance in all material respects with the
Copyright Act of 1976, as amended, and with all applicable rules and regulations
of the United States Copyright Office. Except as set forth on Schedule 3.10(l),
----------------
the Enterprise has filed all material reports, notices and statements of account
and has made all other requisite filings and payments with the United States
Copyright Office. Except as set forth on Schedule 3.10(l), the Enterprise has
----------------
deposited with the Register of Copyrights all amounts required to be deposited
therewith. All the reports, notices and statements of account which have been
filed are accurate and complete in all material respects. The Enterprise has
obtained, and operated in material compliance with, all necessary affiliation
agreements, copyright licenses and authorizations for all material (including
all cable networks and all local programming and commercial insertions) carried
on the Systems. The Enterprise has furnished or made available to the
22
<PAGE>
Buyer true, correct and complete copies of all filings with the United States
Copyright Office with respect to the Systems that have been made in the three
year period preceding the date of this Agreement. Except as set forth on
Schedule 3.10(l), there are no currently outstanding claims against the Systems
- ----------------
with respect to any secondary or other transmission by or through the Systems or
any other act that is a material infringement under the Copyright Act of 1976,
as amended.
(m) Except for any noncompliance that would not have a material
adverse effect on the business or financial condition of the Enterprise, the
Systems have been constructed and equipped to deliver down stream, and are and
will as of the Closing Date be capable of delivering, the Mhz to customers as
specified with respect to each System in Schedule 3.10(m), in accordance in all
----------------
material respects, with the specifications established by the FCC.
(n) Except as set forth on Schedule 3.10(n), all regulated rates for
----------------
the Systems are in compliance in all material respects with the rate rules and
regulations of the FCC presently in effect and, no written complaints or demands
have been received from any franchising authority, subscriber or other
interested party challenging said rates. Sellers have made available to Buyer
true, correct, and complete copies of (i) all FCC Forms 393 filed with local
franchising authorities and/or the FCC and, as soon as possible, all FCC Forms
1200, 1205, 1210, and 1215 that are prepared with respect to the Systems, (ii)
any complaints filed with the FCC with respect to any rates charged to
subscribers of the Systems, and (iii) any documentation supporting an exemption
from the rate regulations provisions of the Communications Act claimed by the
Enterprise with respect to the Systems.
23
<PAGE>
(o) Except as set forth on Schedule 3.10(o), the Enterprise has
----------------
received no requests for carriage of commercial leased access programming on the
Systems. Except as set forth on Schedule 3.10(o), the Enterprise has provided
----------------
subscribers with respect to the Systems timely notice as required by the rules
and regulations of the FCC of their right to "block" promotional cablecasts of
premium channels that include programming rated X, NC-17, or R, if applicable,
and the Enterprise has honored all such requests for "blocking."
(p) Schedule 3.10(p) indicates which television signals carried by the
----------------
Systems are carried pursuant to must-carry elections and which signals are
carried pursuant to retransmission consent agreements. Sellers have made
available to Buyer full and complete copies of all retransmission consent
agreements and each such agreement's expiration date is indicated on Schedule
--------
3.10(p). For each commercial television signal in each System's ADI that has
- -------
elected must-carry status, but that is not being carried because of signal
quality problems or potential copyright liability, Schedule 3.10(p) lists the
----------------
signal and the reason for non-carriage.
(q) As of the Closing Date, the Enterprise Entities will have
maintained a controlling ownership in each System in its entirety for at least
36 consecutive months following the initial construction or acquisition of each
such System by the applicable Enterprise Entity.
3.11 Litigation and Compliance with Laws. Except as set forth on
-----------------------------------
Schedule 3.11, there is no litigation or legal or other actions, suits,
- -------------
proceedings or investigations pending, at law or in equity, or before any
federal, state, municipal or other governmental department, commission, board,
agency or instrumentality, domestic or foreign, or, to the best of the Sellers'
knowledge, threatened, in connection with the
24
<PAGE>
ownership or operation of the Systems, including those relating to environmental
protection and hazardous substances. Except as set forth on Schedule 3.11, the
-------------
Systems are, and at all times during the past three years have been, in all
material respects maintained and operated in accordance with all laws and
governmental rules and regulations applicable to the Systems (other than such
laws, rules and regulations which are more specifically addressed in Section
3.10 hereof but, including any other applicable federal, state, or local law,
statute, standard, ordinance, rule, regulation, code, license, permit,
authorization, approval, and any consent order, administrative or judicial
order, judgment, decree, injunction, or settlement agreement between the
Enterprise and a governmental entity relating to the protection, preservation or
restoration of the environment (including, without limitation, air, water, land,
plant and animal life or any other natural resource)). Except as set forth on
Schedule 3.11, the Enterprise is not in default with respect to any material
- -------------
judgment, order, writ, injunction or decree issued by any court or of any
federal, state, municipal or other governmental agency, board, commission,
bureau, instrumentality or department relating to any aspect of the Systems.
The Enterprise is, and at all times prior to the Closing Date will be, in
compliance in all material respects with all requirements of insurance carriers
applicable to the Systems.
3.12 Ordinary Course of Business. The Enterprise operates, and,
---------------------------
except as contemplated by this Agreement, at all times prior to the Closing Date
will continue to operate, the Systems in the normal, usual and customary manner
in the ordinary and regular course of business, including, without limitation,
the maintenance of inventory (of all categories) at normal operating levels
consistent with prior practice, maintenance of the Systems, continuance of all
material contractual relationships and of all material Franchises and Subject
Agreements, and will not enter into any transactions or take any actions which
25
<PAGE>
individually or in the aggregate would have a material adverse effect on the
Systems or the financial condition of the Enterprise, taken as a whole, without
the prior written approval of Buyer. For purposes of this Section 3.12, (a) the
failure of the Enterprise to obtain the Required Consents of a Franchise or
group of Franchises serving less than 2,000 Subscribers in the aggregate, (b)
the amendment of the Incentive Compensation Plan (as set forth in Exhibit 3.12)
-------
to provide for the full vesting of amounts calculated thereunder to the
participants subject to the terms of each Incentive Compensation Payment
Agreement and the consummation of the transactions contemplated by this
Agreement, (c) a decrease of less than 5% in the System's total number of
Subscribers, and (d) obtaining any Required Renewals the terms of which are
consistent with the terms of this Agreement, shall not be deemed to have a
material adverse effect on the Systems or the financial condition of the
Enterprise.
3.13 Tax Returns. All material foreign, federal, state, county, local
-----------
and other tax returns and reports of every nature required to be filed by any of
the Enterprise Entities have been filed, and true, complete and correct copies
of all such returns and reports for the last three fiscal years of the
Enterprise have been made available to the Buyer. Except as set forth on
Schedule 3.13, no extensions of time in which to file any such returns or
- -------------
reports with respect to which any payments may be due are in effect, and the
Enterprise Entities have paid all taxes which have become due from the
Enterprise Entities pursuant to such returns and reports and have paid all
installments of estimated taxes due. To the extent any such taxes have accrued
but have not become payable, they have been adequately reflected on the books of
the Enterprise in accordance with generally accepted accounting principles.
Except as set forth on Schedule 3.13 and to the best of the Sellers' knowledge,
-------------
no examinations of any such returns and reports with respect to which any
payments may be
26
<PAGE>
due are now in progress, there are no proposed assessments of additional
material taxes or potential material deficiencies affecting or which could have
a material adverse effect on the business or financial condition of the
Enterprise, and no material tax liabilities have been assessed or proposed which
remain unpaid. Except as set forth on Schedule 3.13, (i) none of the Enterprise
-------------
Entities has executed any waiver of the statute of limitations or agreement for
extension of time for assessment or collection of any tax which might be imposed
upon such Enterprise Entity; (ii) there are no tax liens, federal, state or
local, upon the Systems; and (iii) all taxes, fees, duties, assessments, levies
and other charges that the Enterprise Entities are required by law to withhold
or to collect have been duly withheld and collected, and have been paid over to
the proper governmental authorities to the extent due and payable.
3.14 Adverse Restrictions. Except as described on Schedule 3.14 or as
-------------------- -------------
set forth in the Subject Agreements, the Systems are not subject to any
mortgage, lien, lease, agreement, instrument, order, judgment or decree of any
kind or character that does not apply to the cable television industry
generally, which should reasonably be anticipated to materially or adversely
affect the business or financial condition of the Systems or the Enterprise.
3.15 Compliance with ERISA. Except as set forth on Schedule 3.15, the
--------------------- -------------
Enterprise does not maintain and has never maintained any employee welfare
benefit plan, employee pension benefit plan or any plan or program providing
health care benefits to retired employees. The Enterprise has not been a party
to nor are any of its employees covered by a multi-employer plan. As used in
this section the terms "employee welfare benefit plan," "employee pension
benefit plan" and "multi-employer plan" shall have the
27
<PAGE>
respective meanings assigned to them in Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
3.16 Banking Facilities. Schedule 3.16 sets forth a true, correct and
------------------ -------------
complete list of: (a) each bank, savings and loan or similar financial
institution in which the Enterprise has an account or safety deposit box and the
numbers of the accounts and of the safety deposit boxes maintained by the
Enterprise; and (b) the names of all persons authorized to draw on each such
account or to have access to any such safety deposit box facility, together with
a description of the authority (and conditions thereof, if any) of each such
person with respect thereto.
3.17 Powers of Attorney and Suretyships. Except as set forth on
----------------------------------
Schedule 3.17, none of the Enterprise Entities has any general or special powers
- -------------
of attorney outstanding (whether as grantor or grantee thereof) nor any material
obligation or liability (whether actual, accrued, accruing, contingent or
otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor or
otherwise, in respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity, except as endorser or
maker of checks or letters of credit, respectively, endorsed or made in the
ordinary course of business or with respect to the obligations or liabilities of
one of the other Enterprise Entities.
3.18 Insurance and Surety Bonds. Set forth on Schedule 3.18 is a copy
-------------------------- -------------
of all insurance certificates and surety bonds of the Enterprise Entities now in
effect, including the names of the insureds and the coverage thereof. The
premiums on such insurance policies and bonds have been currently paid, and such
policies and bonds are valid, outstanding and enforceable, in full force and
effect and insure against risks and liabilities
28
<PAGE>
and provide for coverage to the extent and in a manner required of or
historically deemed appropriate and sufficient by the Enterprise. The
Enterprise will maintain coverage of similar kinds and amounts and pay the
premium for such coverage through the Closing Date.
3.19 Material Information. To the best of Sellers' knowledge, the
--------------------
Financial Statements, this Agreement (including the Disclosure Schedule and the
Updated Disclosure Schedule) and the Other Seller Documents, when taken as a
whole, do not contain an untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary to make the
statements herein or therein not misleading.
4. Representations and Warranties of the Buyer. The Buyer represents,
-------------------------------------------
warrants, covenants and agrees that the following statements are true and
correct as of the date hereof and will be true and correct on the Closing Date:
4.1 Organization and Corporate Power. CCI is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full power and authority to execute and deliver this Agreement
and all other documents and instruments (including, without limitation, all
exhibits hereto) required to be executed and delivered by it pursuant hereto
(the "Other Buyer Documents") and to carry out the transactions contemplated
hereby and thereby. CCI has all necessary corporate power and authority to own,
lease and operate the Systems, to hold the Franchises and to carry on the
business of the Systems as proposed to be conducted by the Buyer after the
Closing Date and the Buyer has sufficient financial resources to pay the
Interests Purchase Price and any other obligations of the Enterprise to be
satisfied by the Buyer on or before the Closing Date. There are no facts which,
under the Communications Act, the existing rules and regulations of the FCC, or
any of the Franchises or Subject Agreements would disqualify or prevent the
29
<PAGE>
Buyer from becoming the controlling entity of the Enterprise or an assignee of
the Franchises or from otherwise consummating the transactions contemplated
herein within the times contemplated herein. The structure of the ownership and
control of the Buyer is set forth on Schedule 4.1.
------------
4.2 Due Authorization; No Conflicts. All requisite corporate actions
-------------------------------
for the execution, delivery, performance and satisfaction by the Buyer of this
Agreement and each of the Other Buyer Documents have been duly obtained. This
Agreement has been duly executed and delivered by the Buyer and is, and each of
the Other Buyer Documents, upon execution and delivery, will be, a legal, valid
and binding obligation of the Buyer, enforceable in accordance with its
respective terms, except to the extent that such enforcement may be subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws of
general application affecting the rights and remedies of creditors or secured
parties, and the availability of equitable remedies including specific
performance and injunctive relief, may be subject to equitable defenses and the
discretion of the court before which any proceeding therefor may be brought.
The execution and delivery of this Agreement and the Other Buyer Documents and
the consummation of the transactions contemplated hereby and thereby will not
conflict with, or result in any breach of, or default under, the terms,
conditions or provisions of, any order, writ, injunction, decree, judgment, law
or regulation, or of the Buyer's certificate of incorporation or by-laws or any
agreement or instrument to which the Buyer is a party or by which it is bound,
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever on the assets of the Buyer or result in the acceleration
of the due date of any obligation of the Buyer.
30
<PAGE>
4.3 Consents. The Buyer will use its best efforts to obtain all
--------
necessary authorizations, consents or approvals of, and make all filings with,
any governmental agency, authority or other body or any other third persons
required by the Buyer in connection with the execution and delivery of this
Agreement or the Other Buyer Documents or the consummation of the transactions
contemplated hereby and thereby.
4.4 Litigation. Except as set forth in Schedule 4.4 and to the best
---------- ------------
of the Buyer's knowledge, there is no claim, litigation, proceeding or
investigation pending or threatened against Buyer which seeks to or may enjoin
or prohibit, or otherwise question the validity of, any action taken or to be
taken in connection with this Agreement or any of the Other Buyer Documents.
4.5 Buyer's Information About Systems. Buyer has had full and
---------------------------------
adequate opportunity to conduct due diligence concerning the Systems, it has had
continuous access to information regarding the affairs, operations and prospects
of the Systems since its purchase of its partnership interest in the Partnership
in January 1992, and, to the best knowledge of the Buyer's representatives as
listed in Schedule 8.3, the representations and warranties of Sellers set forth
------------
in Section 3 of this Agreement relating to the Systems, and in the Schedules
related to that Section are true, complete and correct in all material respects
and are not misleading.
5. Conditions Precedent to the Buyer's Obligations. The obligations of
-----------------------------------------------
the Buyer to the Sellers to purchase and accept assignment, transfer and
delivery of the Partnership Interests and Related Interests to be sold,
assigned, transferred and delivered to the Buyer hereunder are subject to the
satisfaction, on the Closing Date, of the following conditions:
31
<PAGE>
5.1 Opinion of Sellers' Counsel. Sellers shall have furnished Buyer
---------------------------
with an opinion letter of each of Goodwin, Procter & Hoar; and Dickinson,
Wright, Moon, Van Dusen & Freeman, counsel for Sellers, dated the Closing Date,
containing the respective opinions set forth in Exhibits 5.1A and 5.1B hereto.
5.2 Opinion of Sellers' FCC Counsel. Sellers shall have furnished
-------------------------------
Buyer with an opinion letter of Wilmer, Cutler & Pickering, FCC counsel for
Sellers, dated the Closing Date, containing opinions regarding the Franchises,
copyrights and other FCC matters, as set forth in Exhibit 5.2 hereto.
5.3 Instruments of Transfer, etc. Each Seller shall have delivered
----------------------------
to the Buyer an instrument of transfer in the form attached hereto as Exhibit
5.3A and such other instruments of transfer and assignment as the Buyer may
reasonably request, transferring to the Buyer all of Seller's right, title and
interest in and to the Partnership Interests transferred, sold, assigned and
conveyed by the Sellers to the Buyer pursuant to the terms of this Agreement.
N-COM II, Inc. shall have delivered to the Buyer instruments of transfer in the
form attached hereto as Exhibit 5.3B and such other instruments of transfer and
assignment as Buyer may reasonably request, transferring to Buyer all of N-COM
II, Inc.'s right, title and interest in and to the Related Interests.
5.4 Consents and Renewals.
---------------------
(a) The Sellers shall have obtained and delivered to Buyer copies of
the Required Consents, the Required Extensions and the Required Renewals and no
such Required Consent, Required Extension, or Required Renewal shall impose any
material adverse change in the terms or conditions of the Franchises or the
Subject Agreements other than any change or condition that Buyer expressly
agrees to in writing or as contemplated in
32
<PAGE>
Section 5.4(b) below; provided, however, that the Sellers shall be permitted to
deliver less than 100 percent of the Required Consents at the Closing Date under
and subject to the following conditions: (a) the Buyer shall have the right to
terminate this Agreement without any penalty if the Sellers fail to obtain
Required Consents of a Franchise or group of Franchises serving 2,000 or more
Subscribers (i) by a date that is seven months from the date hereof or (ii) in
the event that all of the Required Consents of the franchises have not been
obtained in accordance herewith at that time and the Sellers are using their
best efforts to obtain such Required Consents, then either at Buyer's or
Seller's election by a date that is nine months from the date hereof and (b)
those Franchises with respect to which Required Consents have not been obtained
by the Closing Date (the "Subject Franchises") shall be treated in accordance
with Section 7.4.
(b) The weighted average based upon Subscribers of all the Franchises
held by the Enterprise Entities as of the Closing Date shall be of at least five
years duration and no such Franchise shall have a remaining term of less than
three years; provided, however, that the franchises of the Village of Brooklyn,
the City of Belleville, Columbia Township and Norvell Township shall not be
subject to this minimum remaining term requirement.
5.5 Representations and Conditions. The representations and
------------------------------
warranties of the Sellers contained in this Agreement and as disclosed on the
Disclosure Schedule and the Updated Disclosure Schedule shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as though made on and as of such date, except those which speak
as of a date certain which shall continue to be true and correct in all material
respects as of such date on the Closing Date; each and all of the conditions to
be performed or satisfied by the Sellers hereunder at or prior to the Closing
Date shall have
33
<PAGE>
been duly performed or satisfied; and the Sellers shall have furnished the Buyer
with a certificate to that effect.
5.6 Delivery of Certificates and Documents. The Sellers shall have
--------------------------------------
furnished the Buyer with certificates, each of which shall be in form and
substance reasonably satisfactory to the Buyer as to the governing instruments,
resolutions, incumbency of officers and legal existence and good standing of the
entities constituting the Enterprise, and the resignations of all officers and
directors of such entities.
5.7 Termination of Certain Agreements. At the Closing, the Sellers
---------------------------------
shall have furnished the Buyer with evidence that the following agreements have
been terminated or are terminable by the Buyer as of the Closing Date without
penalty or other liability to the Enterprise and are null and void and of no
further effect after the Closing Date:
(a) Agreements with suppliers of programming services to the Systems
specified in Schedule 5.7;
------------
(b) The Management Agreement; and
(c) All insurance policies and contracts of the Partnership listed in
Schedule 3.18.
- -------------
5.8 Retirement of Debt; Discharge of Liens. Any material
--------------------------------------
indebtedness, except short term indebtedness for which there is an adjustment to
the Interests Purchase Price under Section 2.1(a), mortgages, liens, security
interests, encumbrances, or adverse claims set forth in the Financial Statements
and on Schedules 3.6 and 3.8 shall have been satisfied, discharged or released,
------------- ---
as the case may be, in their entirety.
5.9 Covenants Not to Compete. The Buyer shall have entered into
------------------------
Covenant Not to Compete Agreements in the form of Exhibit 5.9 attached hereto
-----------
with
34
<PAGE>
N-Com Inc., N-COM II, Inc. and Harcharan S. Suri, individually, and on behalf of
all entities owned or controlled by him.
5.10 Indemnity Escrow Agreement. The Sellers shall have entered into
--------------------------
an Indemnity Escrow Agreement in the form of Exhibit 2.2A attached hereto.
------------
5.11 Hart-Scott-Rodino Act. All necessary pre-merger notification
---------------------
filings required by the Sellers and the Partnership under the Hart-Scott-Rodino
Act will have been made with the Federal Trade Commission and the United States
Department of Justice and the prescribed waiting periods (and any extensions
thereof) will have expired or been terminated.
5.12 No Opposition. No suit, action or proceeding shall be pending or
-------------
threatened on the Closing Date before or by any court or governmental body
seeking to restrain or prohibit, or damages or other relief in connection with,
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or which would reasonably be expected to
materially adversely affect the business or financial condition of the Systems
or the Enterprise.
5.13 Delivery of Design Maps. The Partnership will deliver to the
-----------------------
Buyer all existing design maps on or prior to the Closing.
The Buyer may waive, in writing, any of the conditions contained in this
Section 5 prior to the Closing.
6. Conditions Precedent to the Sellers' Obligations. The obligations of
------------------------------------------------
Sellers to sell, assign, transfer and deliver the Partnership Interests and the
Related Interests to the Buyer hereunder are subject to the satisfaction at or
prior to the Closing Date of the following conditions:
35
<PAGE>
6.1 Opinion of Buyer's Counsel. The Buyer shall have furnished the
--------------------------
Sellers with an opinion letter, dated the Closing Date, of Sullivan & Worcester,
counsel for the Buyer, containing the opinions set forth in Exhibit 6.1.
-----------
6.2 Payment for Interests. The Buyer shall have paid the entire
---------------------
Interests Purchase Price as provided in Section 2.2.
6.3 Representations and Conditions. The representations and
------------------------------
warranties of the Buyer contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date with the same force and
effect as though made on and as of such date; each and all of the conditions to
be performed or satisfied by the Buyer hereunder at or prior to the Closing Date
shall have been duly performed or satisfied; and the Buyer shall have furnished
the Sellers with an officer's certificate to that effect.
6.4 Delivery of Certificates and Documents. The Buyer shall have
--------------------------------------
furnished the Sellers with the following:
(a) a certificate of the Secretary or Assistant Secretary of the
Buyer as to (i) the Certificate of Incorporation of the Buyer, (ii) the By-laws
of Buyer, (iii) resolutions of the Board of Directors of the Buyer; and (iv)
incumbency of officers signing documents on behalf of the Buyer; and
(b) a certificate of legal existence and good standing of the Buyer
from the Secretary of State of the State of Delaware.
6.5 No Opposition. No suit, action or proceeding shall be pending or
-------------
threatened on the Closing Date before or by any court or governmental body
seeking to restrain or prohibit the execution and delivery of this Agreement or
the consummation of the
36
<PAGE>
transactions contemplated hereby unless, in each case, the Buyer shall have
provided the Sellers reasonable indemnification with respect thereto.
6.6 Payment of Outstanding Subordinated Indebtedness. The Buyer shall
------------------------------------------------
have paid, or caused to be paid, in full all of the Subordinated Notes (other
than the CCI Term Notes (as defined in the Note Purchase Agreement)) issued
pursuant to the Note Purchase Agreement, including the payment of all interest,
contingent interest and deferred interest thereon; provided, however, that the
-------- -------
interest accruing on all such Subordinated Notes shall be paid at the rate of
25% per annum, compounded quarterly, notwithstanding anything in any such
Subordinated Notes or the Note Purchase Agreement to the contrary.
6.7 Retirement of Debt; Discharge of Liens . The Buyer shall (i)
---------------------------------------
pay, or cause to be paid, in full all of the Subordinated Notes contemplated to
be paid off in accordance with the terms of Section 6.6; (ii) pay off the Senior
Debt in full; and (iii) pay, or cause to be paid, in full the Deferred Fees, the
Deferred Compensation and the Make-Whole Payments.
6.8 Incentive Compensation Payment Agreements. Buyer will cause the
-----------------------------------------
Enterprise to offer to enter into contracts substantially in the form of
Exhibits 6.8A, 6.8B, 6.8C or 6.8D (the "Incentive Compensation Payment
- --------
Agreements") with each of the employees listed in Schedule 6.8 to provide,
------------
subject to the terms set forth in each Incentive Compensation Payment Agreement,
for the payment of incentive compensation to each such employee in an amount
equal to the amount the employee is due to receive under the Amended Incentive
Compensation Plan; provided, however, that (i) the payment obligations of the
-------- -------
Buyer shall become effective only if the transactions contemplated by this
Agreement are consummated, and the other conditions precedent in each Incentive
Compensation
37
<PAGE>
Payment Agreement are satisfied; and (ii) such payments shall not exceed
$600,000 in the aggregate.
6.9 Indemnity Escrow Agreement. The Buyer shall have entered into an
--------------------------
Indemnity Escrow Agreement in the form of Exhibit 2.2A attached hereto.
-------
6.10 Hart-Scott-Rodino Act. All necessary pre-merger notification
---------------------
filings required by the Buyer under the Hart-Scott-Rodino Act will have been
made with the Federal Trade Commission and the United States Department of
Justice and the prescribed waiting periods (and any extensions thereof) will
have expired or been terminated.
The Sellers may waive, in a writing signed by each of the Sellers, any of
the conditions precedent contained in this Section 6 prior to the Closing.
7. Cooperation; Inspection; Confidentiality.
----------------------------------------
7.1 Cooperation. Prior to the Closing Date, each party will
-----------
cooperate, and will use its reasonable and diligent efforts to have its
officers, directors, partners and other employees cooperate with the other party
in obtaining the Required Consents, the Required Renewals and the Required
Extensions, which shall be in a form and manner that have been previously
approved by Buyer, including the filing of FCC Forms 394, and Sellers will cause
the Partnership to use its commercially reasonable efforts to obtain a 10 year
term for all renewals or extensions.
On and after the Closing Date, each party will cooperate, and will use its
reasonable efforts to have its partners, officers, directors and other employees
cooperate, with the other party at its request, in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes involving any party or
38
<PAGE>
based upon any of the Partnership's contracts, agreements, acts or omissions
which were in effect or occurred on or prior to the Closing Date.
The Sellers covenant that subsequent to Closing, upon request by the Buyer,
the Sellers will provide or will have provided or make available or will have
made available to the Buyer true, correct and complete copies of all rate
filings and forms filed by the Sellers with local franchising authorities and/or
the FCC with respect to the Systems, together with all supporting and back-up
documentation for such filings and forms existing prior to the Closing Date,
that the Buyer deems necessary or useful in defending challenges to regulated
rates for the Systems.
The Sellers shall take all such other action as the Buyer may reasonably
request, more effectively to transfer, convey and assign to the Buyer, and to
confirm the Buyer's title to, all of the Partnership Interests and to put the
Buyer in actual possession and control of the assets, properties and business of
the Enterprise, so as to enable the Buyer to operate the Enterprise in the same
manner as the Enterprise was historically operated.
Sellers shall operate the Systems only in the ordinary course of business
as previously conducted, in all material respects. It is expressly agreed that
operation of the Systems in the ordinary course shall include continuation of
the marketing programs described on Schedule 7.1 attached hereto and that the
------------
Enterprise will not engage in any marketing practices prior to the Closing Date
with respect to the Systems materially inconsistent with its prior marketing
practices without the prior written consent of Buyer. In addition,
notwithstanding anything contained in this Agreement to the contrary, the
Sellers shall make through the Closing Date those capital expenditures specified
in Schedule 7.1 that are necessary for (a) the maintenance of the Systems in the
------------
normal and ordinary course of
39
<PAGE>
business and (b) FCC compliance (together, the "Ordinary Capital Expenditures").
Any capital expenditure in any amount for purposes other than ordinary
maintenance of the Systems or FCC compliance and any franchise renewal costs as
set forth in Schedule 7.1 shall constitute extraordinary capital expenditures
------------
("Extraordinary Capital Expenditures"), which shall not be undertaken by the
Sellers without the Buyers' written approval. Extraordinary Capital
Expenditures that are approved by the Buyer in writing shall be for the account
of the Buyer and shall be reflected in the Interests Purchase Price in
accordance with Section 2.1(a)(iii) of this Agreement; provided, however, that
both Extraordinary Capital Expenditures and Ordinary Capital Expenditures shall
be paid through the Closing Date by the Enterprise. The Sellers and Buyer
hereby agree that the capital expenditures and franchise renewal costs set forth
in Schedule 7.1 shall constitute Extraordinary Capital Expenditures which are
------------
hereby approved by the Buyer.
Between the date hereof and the Closing Date, neither Buyer nor any of its
affiliates shall directly or indirectly control, supervise, or direct, or
attempt to control, supervise or direct, the operations of the Systems;
provided, however that representatives of Buyer and the Enterprise shall meet
periodically to discuss the long-term competitive positioning of the Systems in
their industry and the actions being taken by the Buyer's affiliates in the
State of Michigan with respect to competitive conditions. Sellers shall
consider taking, in their reasonable discretion, all reasonable steps suggested
by Buyer to bring their operation of the Systems into line with those of Buyer's
affiliates in the State of Michigan with regard to such long-term competitive
position, which may involve the expenditure of funds in ways different from
those budgeted by the Enterprise, provided that the Enterprise shall not be
required to make additional expenditures as a result of such requests except
Ordinary Capital
40
<PAGE>
Expenditures required to be made pursuant to this Section 7.1. In the event
that the Enterprise decides to make additional Extraordinary Capital
Expenditures as a result of Buyer's requests, such expenditures shall only be
made with the written approval of the Buyer and shall be made for the account of
the Buyer. In order to facilitate the transition, Sellers agree that Buyer may,
but is not obligated to, assign its personnel at its cost to work in the
Systems, subject to N-Com Inc.'s control, authority and supervision.
Each Seller severally agrees to use its reasonable efforts prior to the
Closing Date to preserve the Enterprise's business organization intact, to
preserve for the Buyer the present relations relating to the Systems between the
Enterprise and its subscribers and other persons having business relations with
them, it being understood that, except as otherwise provided in this Agreement
the Buyer will have no obligation to continue any such relations, including
hiring employees of the Enterprise. The Sellers shall cooperate with the
Buyer's efforts to enter into Incentive Compensation Payment Agreements as
provided for in Section 6.8. In the event that one of the employees who is
party to an Incentive Compensation Payment Agreement forfeits payment, as
defined in each individual Incentive Compensation Payment Agreement, Buyer shall
promptly allocate and distribute such forfeited compensation among itself and
the Sellers in proportion to their respective Partnership Interests.
7.2 Inspection. Following execution hereof and prior to the Closing
----------
Date, the Sellers shall give the Buyer and its representatives, including,
without limitation, advisors, accountants and attorneys designated by the Buyer,
full access during ordinary business hours, upon reasonable notice, to the
premises, assets, properties, books of account, agreements and commitments, of
the Enterprise pertaining to the Systems, provided that the Buyer's
investigation and use of the same shall not unreasonably interfere with the
normal
41
<PAGE>
operations of the Systems. The Sellers shall furnish the Buyer all information
with respect to the business and affairs of the Systems as the Buyer may, from
time to time, reasonably request, including without limitation, any monthly
financial statements, tax return information, or subscriber reports of the
Enterprise.
Without limiting in any way the foregoing, the Sellers also agree to give
the Buyer a specific thirty (30) day due diligence period commencing from the
date of execution of this Agreement in which to conduct due diligence regarding
the Seller's Representations and Warranties set forth in Section 3 of this
Agreement.
Following the Closing Date, the Buyer shall provide the Sellers with, or
access to, all information with respect to the Enterprise as any of the Sellers
may, from time to time, reasonably request in connection with the filing of
required tax, securities and other state and federal administrative and
regulatory filings and as necessary for any of the Sellers to comply with the
terms and provisions of the Partnership Agreement, the Limited Partnership
Agreement of Irish Hills and the Limited Partnership Agreement of Omnicom CATV.
Each Seller and the Buyer hereby agrees that it shall pay its Pro Rata
Share of any fees or expenses incurred by any of the Sellers in connection with
furnishing Buyer with information pursuant to this Agreement or the transactions
contemplated hereby or relating to the winding up of the affairs of the
Partnership or Holding.
7.3 Confidentiality of Information. Except as may be required by law
------------------------------
or contemplated by this Agreement, the parties agree not to disclose to any
third person or to the public any confidential information relating to their
respective businesses. In the event that the transactions contemplated by this
Agreement are not consummated, each party
42
<PAGE>
further agrees to return any such confidential materials to the other party
promptly upon request.
7.4 Subject Franchises. After satisfaction or waiver of the
------------------
conditions precedent to Buyer's obligation to close as set forth in Section 5,
control of each of the Subject Franchises (and all assets related thereto),
shall subsequently be transferred to the Buyer in accordance with the terms
hereof.
(a) Out of the Interests Purchase Price, there shall be deposited into
an escrow an amount for each Subject Franchise (the "Subject Franchise Price")
determined by multiplying the number of the Subscribers in the Subject Franchise
at the Closing Date by the following quotient (the "Per Subscriber Quotient"):
the full valuation amount of the Enterprise as calculated in clauses (i) and
(ii) of Section 2.1(a) of this Agreement divided by the total number of
Subscribers of the Systems at the Closing Date. Attached hereto as Schedule
--------
7.4(a) is an example of the calculation of the Per Subscriber Quotient based
- ------
upon the financial statements of the Enterprise for the quarter ended December
31, 1994 and the total number of the Subscribers of the Systems as of December
31, 1994. The calculation of the actual Per Subscriber Quotient shall be made
on a basis consistent with Schedule 7.4(a). A form of the escrow agreement with
---------------
respect to the Subject Franchises is attached as Exhibit 2.2B hereto.
(b) Sellers and Buyer shall continue to cooperate in attempting to
secure approval of the transfer of each Subject Franchise and where a renewal
application is pending at the Closing Date, renewals of the Subject Franchise.
When such approval is obtained, there shall be delivered to Sellers from the
escrow the Subject Franchise Price and any
43
<PAGE>
income thereon and the Sellers shall deliver to the Buyer a receipt therefor and
such other transfer documents as the Buyer may reasonably request.
(c) Upon the earlier of (i) the date three (3) years after the Closing
Date or (ii) the date of expiration of the Subject Franchise, there shall be
delivered to the Sellers from escrow the Subject Franchise Price for each
Subject Franchise not previously transferred pursuant to Section 7.4(b), and any
income thereon and the Sellers shall, if requested by Buyer, cooperate with the
Buyer to transfer control of the Subject Franchise to a third party (in which
case the Buyer shall receive the proceeds of such sale).
(d) The parties will, in the event there are any Subject Franchises,
enter into suitable mutually acceptable agreements for the management of those
systems in accordance with the requirements of any relevant franchising
authority.
7.5 Pre-Closing Communications With Enterprise Employees. The Buyer
----------------------------------------------------
shall not engage in any communications related to future employment with any
employee of the Enterprise prior to the Closing, without the prior written
consent of Harcharan S. Suri, but rather, shall direct all communications solely
to Holding.
7.6 Discontinuance of Use of Name. Buyer shall discontinue any use
-----------------------------
of the term "N-COM" in the name of the Partnership and Holding on or prior to
the six month anniversary of the Closing Date.
8. Survival of Representations and Warranties: Indemnification.
-----------------------------------------------------------
8.1 Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of the Sellers provided for in this Agreement shall survive the
Closing for a period of one year and shall thereafter be null, void and of no
effect; provided, however, that the representations and warranties of the
-------- -------
Sellers set forth in Sections 3.13 (tax returns)
44
<PAGE>
and 3.10(l) (copyright) shall survive the Closing Date for three years, after
which they too shall be null, void and of no effect.
8.2 Indemnification.
---------------
(a) The Buyer agrees to indemnify and hold harmless the Sellers
against any and all claims to the extent such claims are based upon, arise out
of or relate to (i) any untruthful or inaccurate representation or any breach of
any warranty or any failure to perform or comply with any of the covenants,
conditions or agreements of the Buyer set forth in this Agreement or in any
Other Buyer Document and (ii) the assertion against the Sellers by any person,
corporation or other entity, including any governmental agency, bureau,
department or service based upon, arising out of or relating to the ownership or
operation of the Systems or any act or omission or obligation of the Buyer or
its employees, contractors or agents and occurring, arising or accruing after
the Closing Date.
(b) The Sellers agree, severally in proportion to their Pro Rata Share
and not jointly, to indemnify and hold harmless the Buyer against any and all
claims to the extent such claims are based upon, arise out of or relate to (i)
any untruthful or inaccurate representation or any breach of any warranty or any
failure to perform or comply with any of the covenants or agreements of Sellers
set forth in this Agreement or in any Other Seller Document and (ii) the
assertion against the Buyer by any person, corporation or other entity,
including any governmental agency, bureau, department or service based upon,
arising out of or relating to the ownership or operation of the Systems or any
act or omission or obligation or liability of the Sellers or its partners,
employees, contractors or agents occurring, arising or accruing on or prior to,
or existing on, the Closing Date.
45
<PAGE>
8.3 Limitation on Indemnification. Notwithstanding the foregoing,
-----------------------------
the right of the Buyer and the Sellers to indemnification under Section 8.2
shall be subject to the following provisions:
(a) No indemnification pursuant to Section 8.2 shall be payable to
Buyer unless the total of all claims for indemnification by the Buyer pursuant
to Section 8.2 shall exceed Two Hundred Fifty Thousand dollars ($250,000) in the
aggregate, whereupon only the excess amount of such claims above Two Hundred
Fifty Thousand dollars ($250,000) shall be recoverable in accordance with the
terms hereof;
(b) The maximum cumulative amount of indemnification for which the
Sellers shall be liable pursuant to Section 8.2 shall be One Million, Seven
Hundred Fifty Thousand dollars ($1,750,000) (the "Indemnification Cap");
(c) The amount for which the Buyer may seek indemnification with
respect to any claim shall be limited to the product of (i) the amount of the
relevant losses or expenses multiplied by (ii) the Sellers' aggregate Percentage
Interests;
(d) The Buyer may not seek indemnification with respect to any
liability to subscribers for a rate refund resulting from the rate regulation
provisions of the Communications Act of 1934, as amended by the Cable
Communications Policy Act of 1984 and the Cable Television Consumer Protection
Act of 1992, and the rules and regulations promulgated thereunder;
(e) Buyer hereby agrees that it shall have no right to indemnification
pursuant to Article 8 hereof, to termination pursuant to Article 9 hereof, or to
any other remedy at law or equity, for any breach of Sellers' representations
and warranties set forth in Section 3, or for any breach of Sellers' certificate
delivered to Buyer pursuant to Section 5.5
46
<PAGE>
hereof, if any of the persons set forth on Schedule 8.3 had actual knowledge as
------------
of the date of this Agreement or as of the Closing Date that any of the Sellers'
representations or warranties were untrue in any material respect; provided,
however, that such actual knowledge must relate to that person's field of
expertise as specified on Schedule 8.3;
------------
(f) The Buyer may not seek indemnification with respect to matters
that are truthfully and accurately set forth by the Sellers in either the
Disclosure Schedules or the Updated Disclosure Schedule;
(g) The Buyer may not seek indemnification for matters it discovers
during the thirty (30) day due diligence period set forth in Section 7.2 of this
Agreement;
(h) Indemnification claims by the Buyer shall be made first against
the Escrow Amount until the amount of such claims is equal to or in excess of
the Escrow Amount plus any interest thereon;
(i) Each Seller's liability for any indemnification claim by the Buyer
shall be limited to its Pro Rata Share of the Escrow Amount plus the interest
thereon; and
(j) No indemnification shall be payable to the Buyer with respect to
claims asserted after the expiration of the relevant representation or warranty
(with respect to claims made pursuant to Section 8.2(b)(i)) and otherwise after
the first anniversary of the Closing Date.
As used in this Section 8 (and in Sections 9 and 10) the word "claim" shall
mean any and all actual liabilities, obligations, losses, damages, deficiencies,
penalties, assessments and judgments of whatever kind and nature and all costs
and expenses relating thereto (including, without limitation, reasonable
attorneys' fees); provided, however, that such a claim is
47
<PAGE>
quantifiable as lost profits or an out-of-pocket expense. A claim under this
Section 8 does not include any other diminution in value in the Partnership or
the Systems.
Neither this Section 8, nor any other provision of this Agreement, is
intended to confer any third party beneficiary rights, in particular, any
extension of any statutes of limitations pertaining to suits, actions or
proceedings brought by third parties.
8.4 Notice and Right to Defend Third Party Claims. Promptly, upon
---------------------------------------------
receipt of notice of any claim to which the indemnification obligations
hereunder would apply, the party seeking indemnity (the "Indemnitee") shall give
notice in writing to the party from whom indemnification is sought (the
"Indemnitor"). Except to the extent that the Indemnitor is prejudiced as a
result of the failure or delay in giving such notice, the omission of such
Indemnitee so to notify the Indemnitor of any such claim shall not relieve such
Indemnitor from any liability which it may have to such Indemnitee in connection
therewith. Such notice shall state the information then available regarding the
amount and nature of such claim, liability or expense and shall specify the
provision or provisions of the Agreement under which the liability or obligation
is asserted.
In case any claim shall be asserted or suit, action or proceeding commenced
against an Indemnitee, the Indemnitor will be entitled to participate therein,
and, to the extent that it may wish, to assume the defense, conduct or
settlement thereof, with counsel reasonably satisfactory to the Indemnitee.
After notice from the Indemnitor to the Indemnitee of its election so to assume
the defense, conduct or settlement thereof, the Indemnitor will not be liable to
the Indemnitee for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense, conduct or settlement thereof. The
Indemnitee will cooperate with the Indemnitor in connection with any such claim
assumed by the
48
<PAGE>
Indemnitor to make available to the Indemnitor all pertinent information under
the Indemnitee's control.
8.5 Exclusivity of Remedy. Notwithstanding anything contained herein
---------------------
to the contrary, the provisions of this Section 8 shall be the sole recourse of
Buyer for any matters relating to or arising in connection with this Agreement
or the Other Buyer Documents and any of the transactions contemplated hereby and
thereby, and such recourse is explicitly limited to the amounts and time limits
set forth in Section 8.3 hereof.
9. Termination.
-----------
(a) This Agreement may be terminated prior to the Closing:
(i) at any time by mutual written consent of all of the
Sellers and Buyer;
(ii) by either all of the Sellers or the Buyer, if the
Closing hereunder has not taken place (i) on or before a date that is seven
months from the date hereof or (ii) in the event that all of the Required
Consents of the franchises have not been obtained in accordance herewith at that
time and the Sellers are using their best efforts to obtain such Required
Consents, then either at Buyer's or Seller's election on or before a date that
is nine months from the date hereof;
(iii) by all of the Sellers if all the conditions set
forth in Section 6 hereof have not been satisfied or waived by the Closing Date;
(iv) by Buyer if all of the conditions set forth in
Section 5 hereof have not been satisfied or waived by the Closing Date;
provided, however, that Buyer has the option to close the transactions
- -------- -------
contemplated by this Agreement even if all of the conditions set forth in
Section 5 hereof have not been satisfied by the Closing Date, in which
49
<PAGE>
case it may seek indemnification against the Escrow Amount for damages caused by
the unsatisfied condition(s), subject to the limitations set forth in Section
8.3 of this Agreement;
(v) by Buyer if the Updated Disclosure Schedule
discloses materially adverse information regarding the Partnership or the
Systems; provided, however, that if the Sellers disclose on the Updated
Disclosure Schedule a matter or matters previously unknown to the Sellers that
is both material and adverse, the Sellers shall give the Buyer a period of ten
(10) days (which ten (10) day period may be extended by an additional twenty
(20) day period if after using reasonable diligence the Buyer determines at its
sole discretion that such additional time is necessary for the Buyer's proper
evaluation), to decide whether (i) to close the transactions contemplated herein
despite the newly disclosed matter and not seek indemnification hereunder as to
those matters, or (ii) to terminate the Agreement; or
(vi) by Buyer pursuant to the terms of the thirty (30)
day due diligence period set forth in Section 7.2 of this Agreement.
(b) If (i) by a date that is seven months from the date hereof or (ii)
in the event that all of the Required Consents of the franchises have not been
obtained in accordance herewith at that time and the Sellers are using their
best efforts to obtain such Required Consents, then either at Buyer's or
Seller's election by a date that is nine months from the date hereof all of the
Required Consents of the franchises have been obtained in accordance with
Section 5.4(a) of this Agreement and all of the other conditions of closing
specified in Section 7.08(c) of the Partnership Agreement have been satisfied,
but one or more of the other conditions of closing specified in Section 5 of
this Agreement have not been satisfied and Buyer terminates this Agreement
pursuant to Section 9(a) or Sellers terminate this Agreement pursuant to Section
9(a)(iii) because the Buyer has not satisfied the
50
<PAGE>
conditions set forth in Section 6 (except Section 6.5), then Buyer shall be
deemed to waive its call options under Section 7.06 of the Partnership Agreement
and such call options shall be null and void forever.
(c) In the event of termination of this Agreement by either Buyer or
Sellers pursuant to this Section 9, prompt written notice thereof shall be given
to the other party or parties and this Agreement shall terminate, without
further action by any of the parties hereto.
10. Broker or Finder. Sellers and Buyer represent to each other that no
----------------
other person or persons assisted in or brought about the negotiation of this
Agreement in the capacity of broker or agent or finder. Sellers agree to
indemnify and hold harmless Buyer against any claims asserted against Buyer for
brokerage or agent's or finder's commissions or compensation in respect of the
transactions contemplated by this Agreement by any persons purporting to act on
behalf of Sellers. Buyer agrees to indemnify and hold harmless Sellers against
any claims asserted against Sellers for brokerage or agent's or finder's
commissions or compensation in respect of the transactions contemplated by this
Agreement by any person purporting to act on behalf of Buyer.
11. Expenses. With regard to services and expenses relating to the
--------
Purchase Agreement, Schedules, Exhibits, any Hart-Scott-Rodino Act filings,
franchise transfers and Closing, the Partnership shall bear up to (a) $300,000
for the aggregate legal fees and expenses of Goodwin, Procter & Hoar; Dickinson,
Wright, Moon, Van Dusen & Freeman; and Wilmer, Cutler & Pickering, and (b)
$100,000 for the aggregate legal fees and expenses of Sullivan & Worcester and
Cole, Raywid & Braverman.
51
<PAGE>
12. Entire Agreement. Buyer and Sellers agree that this Agreement,
----------------
including all schedules and exhibits hereto, constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior understandings and agreements with respect thereto, including, without
limitation, except as otherwise expressly provided herein, the Partnership
Agreement, the Note Purchase Agreement (including any provisions therein which
purport to require the consent of the partners to the transactions contemplated
by this Agreement) and the Management Agreement, but only if the transactions
contemplated by this Agreement are consummated.
13. Assignment of Agreement. This Agreement is personal to the parties
-----------------------
hereto, and neither this Agreement, nor any right hereunder, may be assigned by
any of the parties hereto, except that Buyer shall have the right, unless
prohibited by the terms of any Required Consent, Required Renewal or Required
Extensions, to designate a wholly-owned subsidiary of CCI or its parent
Continental Cablevision, Inc. to receive the Partnership Interests and the
Related Interests and to assume Buyer's rights and obligations hereunder,
provided that Buyer shall remain fully responsible for all of its obligations
under this Agreement and shall not limit its liability hereunder in any way
whatsoever.
14. Notices. All notices, requests, consents, and other communications
-------
under this Agreement shall be in writing and shall be delivered in person with
receipt acknowledged or mailed by first class certified or registered mail,
return receipt requested, postage prepaid, by reputable overnight mail or
courier, with receipt confirmed, or by telecopy and confirmed by telecopy
answerback, addressed as follows:
52
<PAGE>
If to the Buyer: CONTINENTAL CABLEVISION INVESTMENTS, INC.
The Pilot House
Lewis Wharf
Boston, MA 02110
Telephone: (617) 742-9500
Telecopy: (617) 742-0530
Attention: Jeffrey T. DeLorme,
Executive Vice President
With copy to: Sullivan & Worcester
One Post Office Square
Boston, MA 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: W. Lee H. Dunham, Esq.
and
If to the Sellers: ALTA IV LIMITED PARTNERSHIP
c/o Burr, Egan, Deleage & Co.
One Post Office Square
Suite 3800
Boston, MA 02109
Attention: Craig Burr
C.V. SOFINNOVA FIVE
c/o Burr, Egan, Deleage & Co.
One Post Office Square
Suite 3800
Boston, MA 02109
Attention: Craig Burr
VINTAGE LIMITED PARTNERSHIP
(a Massachusetts limited partnership)
111 Pond Street
Cohasset, MA 02025
Attention: John E. Moravec
53
<PAGE>
If to Harcharan
S. Suri: Pre-Closing:
N-COM INC.
11401 Joseph Campau
Hamtramck, MI 48212
Attention: Harcharan S. Suri
N-COM II, INC.
11401 Joseph Campau
Hamtramck, MI 48212
Attention: Harcharan S. Suri
Post-Closing:
c/o Dickinson, Wright, Moon,
Van Dusen & Freeman
500 Woodward Avenue
Suite 4000
Detroit, MI 48226-3425
Attention: Steven H. Hilfinger, Esq.
With a copies to: Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Telephone: (617) 570-1000
Telecopy: (617) 523-1231
Attention: John J. Egan III, Esq.
Dickinson, Wright, Moon, Van Dusen & Freeman
500 Woodward Avenue
Suite 4000
Detroit, MI 48226-3425
Telephone: (313) 223-3500
Telecopy: (313) 223-3598
Attention: Steven H. Hilfinger, Esq.
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037-1420
Telephone: (202) 663-6000
Telecopy: (202) 429-4930
Attention: William R. Richardson, Jr.
54
<PAGE>
or at such other address or addresses as may have been furnished in writing by
any party to the others in accordance with the provisions of this Section 14.
Notices and other communications provided in accordance with this
Section 14 shall be deemed delivered upon receipt. The furnishing of any notice
or communication required hereunder may be waived in writing by the party
entitled to receive such notice. Failure or delay in delivering copies of any
notice to persons designated above to receive copies shall in no way adversely
affect the effectiveness of such notice or communication.
15. Construction. When the context so requires in this Agreement,
------------
the singular number includes the plural and vice versa.
16. Amendments and Waivers. Except as otherwise expressly set forth
----------------------
in this Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of each of the Sellers and Buyer. Any amendment or waiver effected in
accordance with this Section 16 shall be binding upon each party. No waivers of
or exceptions to any term, condition or provision of this Agreement, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
17. Severability. If any provision of this Agreement shall be held
------------
or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
because of the conflict of such provision with any constitution or statute or
rule of public policy or for any other reason, such circumstance shall not have
the effect of rendering any other provision or provisions herein contained
invalid, inoperative or unenforceable, but this Agreement shall be reformed and
construed as if such invalid, inoperative or unenforceable provision had never
been
55
<PAGE>
contained herein and such provision reformed so that it would be valid,
operative and enforceable to the maximum extent permitted.
18. Section Headings. The section headings in this Agreement are for
----------------
convenience and reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
19. Multiple Counterparts. This Agreement may be executed in two or
---------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and shall become
effective when counterparts which together contain the signatures of each party
hereto shall have been delivered to Sellers and Buyer. In proving this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
20. Binding Effect. This Agreement shall be binding upon and shall
--------------
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
21. Gender. Whenever used herein, the use of any gender shall
------
include all genders.
22. Arbitration. In the event of any dispute between the parties
-----------
with respect to any matter covered by this Agreement, the parties shall first
use their best efforts to resolve such dispute among themselves. If the parties
are unable to resolve the dispute within thirty (30) calendar days after the
commencement of efforts to resolve the dispute, the dispute will be submitted to
arbitration in accordance with the following procedures:
(a) Either the Buyer or the Sellers or Seller may submit any matter
covered by this Agreement to arbitration by notifying the other parties hereto,
in writing, of such dispute. Within ten (10) days after receipt of such notice,
the Buyer and Sellers or Seller
56
<PAGE>
shall designate in writing one arbitrator to resolve the dispute; provided, that
if the parties hereto cannot agree on an arbitrator within such 10-day period,
the arbitrator shall be selected by the American Arbitration Association. The
arbitrator so designated (i) shall not be an employee, consultant, officer,
director or stockholder of any party hereto or any affiliate of any party to
this Agreement; (ii) shall not be subject to any conflict of interest; and (iii)
shall have at least ten years of experience in the cable television industry.
(b) Within fifteen (15) days after the designation of the arbitrator,
the arbitrator, the Buyer and the Sellers or Seller shall meet, at which time
the Buyer and the Sellers or Seller shall be required to set forth in writing
all disputed issues and a proposed ruling on each such issue.
(c) The arbitrator shall set a date for a hearing, which shall be no
later than thirty (30) days after the submission of written proposals pursuant
to paragraph (b) above, to discuss each of the issues identified by the Buyer
and the Sellers or Seller. Each such party shall have the right to be
represented by counsel. The arbitration shall be governed by the rules of the
American Arbitration Association; provided, that the arbitrator shall have sole
discretion with regard to the admissibility of evidence.
(d) The arbitrator shall use his best efforts to rule on each disputed
issue within thirty (30) days after the completion of the hearings described in
paragraph (c) above. The determination of the arbitrator as to the resolution
of any dispute shall be binding and conclusive upon all parties hereto. All
rulings of the arbitrator shall be in writing and shall be delivered to the
parties hereto.
(e) The prevailing party in any arbitration shall be entitled to an
award of reasonable attorneys' fees incurred in connection with the arbitration.
The non-prevailing
57
<PAGE>
party shall pay such fees, together with the fees of the arbitrator and the
costs and expenses of the arbitration. If at least two of the Sellers submit a
matter to arbitration or all of the Sellers are notified of a dispute submitted
by the Buyer, then the Sellers shall share all expenses and any award pro rata
in accordance with their Percentage Interests.
(f) The parties acknowledge and agree that an award of damages will
constitute an adequate remedy for any breach by any party of its obligations
under this Agreement. Accordingly, each party hereby acknowledges and agrees
that it will not at any time seek specific performance, injunctive relief or any
equitable remedies against the other parties, the Partnership or the Enterprise
in connection with any such alleged breach or dispute. IN ACCORDANCE WITH THE
MANDATORY ARBITRATION PROVISIONS OF THIS SECTION 22, EACH PARTY HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION RELATING TO THIS AGREEMENT.
(g) Any arbitration shall be conducted in Boston, Massachusetts. Any
arbitration award may be entered in and enforced by any court having
jurisdiction thereover and the parties hereby consent and commit themselves to
the jurisdiction of the courts of the Commonwealth of Massachusetts and the
United States District Court for the District of Massachusetts for purposes of
the enforcement of any arbitration award.
23. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the law (other than the law governing conflict
of law questions) of the Commonwealth of Massachusetts, except with respect to
the method and manner of
58
<PAGE>
Arbitration which shall be governed by and construed and enforced in accordance
with the Federal Arbitration Act, 9 U.S.C. (S)1 et seq.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date and year first above written.
ALTA IV LIMITED PARTNERSHIP
By: Alta IV Management Partners, L.P.
By: /s/ Craig Burr
--------------------------------------------
C.V. SOFINNOVA PARTNERS FIVE
By: Sofinnova (International) Five N.V., General
Partner
By: /s/ Craig Burr
--------------------------------------------
CONTINENTAL CABLEVISION INVESTMENTS, INC.
By: /s/ Jeffrey T. DeLorme
--------------------------------------------
Jeffrey T. DeLorme
Executive Vice President
VINTAGE LIMITED PARTNERSHIP
(a Massachusetts limited partnership)
By: Cohasset Capital Corporation, General Partner
By: /s/ Grant Wilson
--------------------------------------------
59
<PAGE>
N-COM INC.
By: /s/ Harcharan S. Suri
----------------------------
Harcharan S. Suri, President
N-COM II, INC.
By: /s/ Harcharan S. Suri
----------------------------
Harcharan S. Suri, President
60
<PAGE>
Schedules have not been included in this filing but will be made available to
the Commission upon request.
61
<PAGE>
EXHIBIT 11.1
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1990 1991 1992(1) 1993(1) 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Loss Before
Extraordinary Item and
Cumulative Effect of
Change in Accounting
for Income Taxes....... $(195,451) $(161,642) $(102,960) $ (25,774) $ (68,576)
Extraordinary Item, Net
of Income Taxes........ -- -- -- (184,996) --
Cumulative Effect of
Change in Accounting
for Income Taxes....... -- -- -- -- (18,265)
--------- --------- --------- --------- ---------
Net Loss................ (195,451) (161,642) (102,960) (210,770) (86,841)
Preferred Stock
Preferences............ (61,102) (5,771) (16,861) (34,115) (36,800)
--------- --------- --------- --------- ---------
Loss Applicable to
Common Shareholders.... $(256,553) $(167,413) $(119,821) $(244,885) $(123,641)
========= ========= ========= ========= =========
Loss Per Common Share
Before Extraordinary
Item and Cumulative
Effect of Change in
Accounting for Income
Taxes.................. $ (54.80) $ (35.61) $ (25.06) $ (13.13) $ (23.04)
Extraordinary Item Per
Common Share........... -- -- -- -- (3.99)
Loss Per Common Share
from Cumulative Effect
of Change in Accounting
for Income Taxes....... -- -- -- (40.55) --
--------- --------- --------- --------- ---------
Loss Per Common Share... $ (54.80) $ (35.61) $ (25.06) $ (53.68) $ (27.03)
========= ========= ========= ========= =========
Weighted Average Number
of Shares Outstanding
During the Period...... 4,682 4,701 4,782 4,562 4,573
========= ========= ========= ========= =========
</TABLE>
- --------
(1) For purposes of calculating loss per common share for the year ended
December 31, 1992, 1993 and 1994 shares of the Series A Convertible
Preferred Stock were not assumed to be converted into shares of Common
Stock since the result would be anti-dilutive.
<PAGE>
EXHIBIT 11.2
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
PRO FORMA SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Pro Forma:
Net Loss.................................................... $ (83,600)
Preferred Stock Preferences................................. (36,800)
Preferred Dividends......................................... (10,952)
---------
Loss Applicable to Common Shareholders...................... $(131,352)
=========
Loss Per Common Share....................................... $ (.92)
=========
Weighted Average Number of Shares Outstanding
During the Year............................................ 142,594
=========
</TABLE>
- --------
(1) For purposes of calculating pro-forma loss per common share for the year
ended December 31, 1994 shares of the Series A Convertible Preferred Stock
were not assumed to be converted into shares of Common Stock since the
result would be anti-dilutive.
<PAGE>
EXHIBIT 12.1
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DIVIDENDS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
The following table reflects the computation of the ratio of earnings to
fixed charges for the years and period indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1990 1991 1992 1993 1994
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Computation of Earnings:
Loss from Continuing
Operations
Before Income Taxes,
Extraordinary Item and
Cumulative Effect of
Change in Accounting
for Income Taxes...... $(193,969) $(159,781) $(101,306) $(33,695) $(108,995)
Add:
Interest Expense(1).... 313,858 324,976 296,031 282,252 315,541
Interest Portion of
Rent Expense.......... 5,235 5,445 5,899 6,065 6,840
Amortization of
Capitalized Interest.. 2,030 2,067 2,106 2,162 2,271
Equity in Net Loss of
Affiliates............ 24 3,380 9,402 12,827 25,002
--------- --------- --------- -------- ---------
Earnings as Adjusted... $ 127,178 $ 176,087 $ 212,132 $269,611 $ 240,659
========= ========= ========= ======== =========
Computation of Fixed
Charges:
Interest Expense(1)..... $ 313,858 $ 324,976 $ 296,031 $282,252 $ 315,541
Interest Portion of Rent
Expense................ 5,235 5,445 5,899 6,065 6,840
Capitalized Interest.... 718 396 766 908 2,377
Preferred Dividends..... 61,102 5,771 16,861 34,115 36,800
--------- --------- --------- -------- ---------
Fixed Charges........... $ 380,913 $ 336,588 $ 319,557 $323,340 $ 361,558
========= ========= ========= ======== =========
Ratio of Earnings to
Combined Fixed Charges
and Preferred
Dividends.............. .33 .52 .66 .83 .67
========= ========= ========= ======== =========
Deficiency in Earnings
Required to Cover
Combined Fixed Charges. $ 253,735 $ 160,501 $ 107,425 $ 53,729 $ 120,899
========= ========= ========= ======== =========
</TABLE>
- --------
(1)Interest Expense includes Amortization of Deferred Financing Costs.
<PAGE>
EXHIBIT 12.2
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TOCOMBINED FIXED CHARGES AND
PREFERRED DIVIDENDS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
The following table reflects the proforma computation of the ratio of
earnings to combined fixed charges and preferred dividends for the year and
period indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Pro Forma:
Computation of Earnings:
Loss from Continuing Operations
Before Income Taxes, Extraordinary Item and Cumulative Effect
of Change in Accounting for Income Taxes..................... $(130,666)
Add:
Interest Expense(1)........................................... 389,006
Interest Portion of Rent Expense.............................. 8,541
Amortization of Capitalized Interest.......................... 2,333
Equity in Net Loss of Affiliates............................ 25,002
---------
$ 294,216
=========
Computation of Fixed Charges:
Interest Expense(1)........................................... $ 389,006
Interest Portion of Rent Expense.............................. 8,541
Capitalized Interest.......................................... 2,677
Preferred Stock Preferences................................... 36,800
Preferred Dividends........................................... 10,952
---------
$ 447,976
=========
Ratio of Earnings to Combined Fixed Charges..................... .66
=========
Deficiency in Earnings Required to Cover Combined Fixed Charges
and Preferred Dividends........................................ $ 153,760
=========
</TABLE>
- --------
(1) Interest expense includes amortization of deferred financing costs.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
33-57471 of Continental Cablevision, Inc. and its subsidiaries on Form S-4 of
our report dated February 10, 1995, (which contains an explanatory paragraph
regarding a change in accounting for income taxes and investments in 1993 and
1994, respectively), appearing in the Joint Proxy Statement-Prospectus, which
is part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Joint Proxy Statement-Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
Continental Cablevision, Inc. and its subsidiaries listed in Item 21. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Boston, Massachusetts
April 4, 1995
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement File No. 33-57471.
Arthur Andersen LLP
Stamford, Connecticut
March 31, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Continental Cablevision, Inc. of our
report dated March 31, 1995 relating to the financial statements of Clay
Cablevision (a Division of Rifkin Cable Income Partners, L.P.), which appears
in such Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus.
Price Waterhouse LLP
Denver, Colorado
March 31, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 23, 1994, with respect to the financial
statements of N-Com Limited Partnership II included in Amendment No. 1
Registration Statement (Form S-4 No. 33-57471) and related Prospectus of
Continental Cablevision, Inc.
Ernst & Young LLP
Detroit, Michigan
April 3, 1995
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
The Partners
Cablevision of Chicago:
We consent to the inclusion of our report dated March 3, 1995, with respect
to the balance sheets of Cablevision of Chicago as of December 31, 1993 and
1994 and the related statements of operations and partners' deficiency and cash
flows for the years then ended, which report appears in the Form S-4 of
Continental Cablevision dated April 5, 1995 and to the reference to our firm
under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Jericho, New York
April 4, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 11,564
<SECURITIES> 122,510
<RECEIVABLES> 58,212
<ALLOWANCES> 9,771
<INVENTORY> 62,517
<CURRENT-ASSETS> 0
<PP&E> 1,353,789
<DEPRECIATION> 1,114,095
<TOTAL-ASSETS> 2,483,639
<CURRENT-LIABILITIES> 0
<BONDS> 3,449,907
<COMMON> 39
0
11
<OTHER-SE> (1,724,283)
<TOTAL-LIABILITY-AND-EQUITY> 2,483,639
<SALES> 0
<TOTAL-REVENUES> 1,197,977
<CGS> 0
<TOTAL-COSTS> 405,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315,541
<INCOME-PRETAX> (108,995)
<INCOME-TAX> (40,419)
<INCOME-CONTINUING> (68,576)
<DISCONTINUED> 0
<EXTRAORDINARY> (18,265)
<CHANGES> 0
<NET-INCOME> (86,841)
<EPS-PRIMARY> (27.03)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
SCHEDULE VIII
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END
DESCRIPTIONS OF PERIOD EXPENSES DEDUCTIONS (A) OTHER (B) OF PERIOD
- ------------ ---------- ---------- -------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Year Ended December 31,
1992................... $8,825 $11,947 $(11,700) $-- $9,072
====== ======= ======== ==== ======
Year Ended December 31,
1993................... $9,072 $12,793 $(12,430) $-- $9,435
====== ======= ======== ==== ======
Year Ended December 31,
1994................... $9,435 $12,791 $(12,798) $343 $9,771
====== ======= ======== ==== ======
</TABLE>
- --------
(A) Amounts written off, net of recoveries.
(B) Other represents acquisitions in 1994.
See Notes to Consolidated Financial Statements.
